UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549



Form 10-Q



|[X]  | QUARTERLY REPORT PURSUANT TO
          SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly
          period ended June 30, 2003            
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | OR                                                                                                                                                                  
|[  ] | TRANSITION REPORT PURSUANT TO
          SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition
          period from _________ to ___________





| | Commission FileNumber | Registrant; State of Incorporation;
          Address and Telephone Number                                                                                                                                                | IRS EmployerIdentification 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                    | 23-2758192                    
| |                       |                                                                                                                                                                                                                           |                               
| | 333-74794             | PPL Energy Supply, LLC
          (Exact name of Registrant as specified in its charter)
          (Delaware)
          Two North Ninth Street
          Allentown, PA 18101-1179
          (610) 774-5151                 | 23-3074920                    
| |                       |                                                                                                                                                                                                                           |                               
| | 1-905                 | 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                    
| |                       |                                                                                                                                                                                                                           |                               
| | 333-50350             | PPL Montana, LLC
          (Exact name of Registrant as specified in its charter)
          (Delaware)
          303 North Broadway - Suite 400
          Billings, MT 59101
          (406) 237-6900                     | 54-1928759                    



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



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





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



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



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, 176,704,662
          shares outstanding at July 31, 2003, 
          excluding 31,017,674 shares held as treasury 
          stock                                       
| | ---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                    |                                                                                                                                                                                                         
| | PPL Energy Supply, LLC             | PPL Corporation indirectly holds all of
          the 
          member interests in PPL Energy Supply, LLC.                                                                                            
| |                                    |                                                                                                                                                                                                         
| | PPL Electric Utilities Corporation | Common stock, no par value, 78,029,863
          
          shares outstanding and all held by PPL 
          Corporation at July 31, 2003, excluding
          79,270,519 shares held as treasury stock
| |                                    |                                                                                                                                                                                                         
| | PPL Montana, LLC                   | PPL Corporation indirectly holds all of
          the 
          member interests in PPL Montana, LLC.                                                                                                  



PPL Montana, LLC meets the conditions set forth in General Instruction (H)(1)(a)
  and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure
  format.

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



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

FORM 10-Q
  FOR THE QUARTER ENDED JUNE 30, 2003Table of Contents



|                                            | Page                        
|------------------------------------------- | ----------------------------
|GLOSSARY OF TERMS AND
        ABBREVIATIONS |                             
|                                            |                             
|FORWARD-LOOKING INFORMATION                 | 1                           
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|PART I. FINANCIAL INFORMATION               |                             
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|                                            | Item 1. Financial Statements
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|                                                                                                                                                      | Item 2. Management's
        Discussion and Analysis of Financial Condition and Results of Operations |   
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | --
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|                                                                                                                                                      | Item
        3. Quantitative and Qualitative Disclosures About Market Risk                            | 76
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|                                                                                                                                                      | Item
        4. Controls and Procedures                                                               | 76
|                                                                                                                                                      |                                                                                                      
|PART II. OTHER INFORMATION                                                                                                                            |                                                                                                      
|                                                                                                                                                      |                                                                                                       |   
|                                                                                                                                                      | Item
        1. Legal Proceedings                                                                     | 76
|                                                                                                                                                      | Item
        4. Submission of Matters to a Vote of Security Holders                                   | 77
|                                                                                                                                                      | Item
        6. Exhibits and Reports on Form 8-K                                                      | 78
|                                                                                                                                                      |                                                                                                       |   
|SIGNATURES                                                                                                                                            | 80                                                                                                   
|                                                                                                                                                      |                                                                                                       |   
|COMPUTATION OF RATIO
        OF EARNINGS TO FIXED CHARGES                                                                                             |                                                                                                      
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|                                                                                                                                                      |                                                                                                      
|CERTIFICATES OF PRINCIPAL
        EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
        PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |                                                                                                      
|                                                                                                                                                      |                                                                                                       |   
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|                                                                                                                                                      |                                                                                                      
|CERTIFICATES OF PRINCIPAL
        EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
        PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 |                                                                                                      
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GLOSSARY OF TERMS AND ABBREVIATIONS

£ - British pounds sterling.

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

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

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

APA - Asset Purchase Agreement.

APB- Accounting Principles Board.

ARB- Accounting Research Bulletin.

ARO - asset retirement obligation.

Bcf - billion cubic feet.

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

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

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

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

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

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

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

DIG- Derivatives Implementation Group.

DRIP - Dividend Reinvestment Plan.

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

EMF - electric and magnetic fields.

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

EPS - earnings (loss) per share.

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

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

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

GAAP - generally accepted accounting principles.

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

Hyder - Hyder Limited, which was acquired by WPDL and 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).

ICP - Incentive Compensation Plan.

ICPKE - Incentive Compensation Plan for Key Employees.

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

ISO - Independent System Operator.

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

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

LIBOR- London Interbank Offered Rate.

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

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

MW - megawatt, one thousand kilowatts.

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

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

NPDES - National Pollutant Discharge Elimination System.

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.

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

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

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

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

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

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

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

PPL 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, which markets wholesale and retail electricity, and supplies energy
  and energy services in newly deregulated markets.

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

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

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

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

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

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

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

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

PPL Telcom - PPL Telcom, LLC, an indirect subsidiary of PPL Energy
  Funding, which delivers high band-width telecommunication services in the Northeast
  corridor from Washington, D.C. to New York City and to six metropolitan areas
  in Central and Eastern Pennsylvania.

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

Preferred Securities - company-obligated mandatorily redeemable
  preferred securities issued by PPL Capital Funding Trust I, holding solely debentures
  of PPL Capital Funding, and by SIUK Capital Trust I, holding solely debentures
  of WPD LLP.

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

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

PURTA - the Pennsylvania Public Utility Realty Tax Act.

SCR - selective catalytic reduction, a pollution control process.

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

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

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

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.

WPD - refers collectively to WPDH Limited and WPDL. PPL Global
  purchased Mirant's 49% ownership interest in these entities on September 6,
  2002, thereby achieving 100% ownership and operational control.

WPD LLP - Western Power Distribution LLP, a wholly-owned subsidiary
  of WPDH Limited.

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,
  which owns WPD (South West) and WPD (South Wales).

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

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Forward-looking Information

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

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

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

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

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|Part
        I. FINANCIAL INFORMATION                                                                                                  
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|Item 1. Financial Statements                                                                                                           
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|CONDENSED CONSOLIDATED STATEMENT OF
        INCOME                                                                                     
|PPL Corporation and Subsidiaries                                                                                                       
|(Unaudited)                                                                                                                            
|(Millions of Dollars, except per share
        data)                                                                                   
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|Operating Revenues                                                                                                                     
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|Operating Expenses                                                                                                                     
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|Operating Income                                                                                                                       
|Other Income - net                                                                                                                     
|Interest Expense                                                                                                                       
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|Income Before Income Taxes
        and Minority Interest                                                                               
|Income Taxes                                                                                                                           
|Minority Interest                                                                                                                      
|                                                                                                                                       
|Income (Loss) Before Cumulative
        Effect of a 
          Change in Accounting Principle                                          
|Cumulative Effect of a Change
        in Accounting 
          Principle (net of income taxes)                                         
|                                                                                                                                       
|Income (Loss) Before Dividends
        and Distributions 
          on Preferred Securities                                            
|Dividends and Distributions
        - Preferred Securities                                                                             
|                                                                                                                                       
|Net Income (Loss)                                                                                                                      
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|Earnings (Loss) Per Share
        of Common Stock                                                                                      
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|Dividends Declared per Share
        of Common Stock                                                                                   
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|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

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|CONDENSED CONSOLIDATED
        STATEMENT OF CASH FLOWS                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                                       
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
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|Net Cash Provided by Operating
        Activities                                                                                      
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|Cash Flows From Investing Activities                                                                                                   
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|Cash Flows From Financing Activities                                                                                                   
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|Net Increase (Decrease) In Cash
        and Cash Equivalents                                                                           
|Cash and Cash Equivalents at
        Beginning of Period                                                                               
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|Cash and Cash Equivalents at
        End of Period                                                                                     
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|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

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|CONDENSED
        CONSOLIDATED BALANCE SHEET                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                                       
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|Assets                                                                                                                                 
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|Current Assets                                                                                                                         
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|Investments                                                                                                                            
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|Property, Plant and Equipment
        - net                                                                                            
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|Regulatory and Other Noncurrent
        Assets                                                                                         
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|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

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|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                                                   
|(Unaudited)                                                                                                                                        
|(Millions of Dollars)                                                                                                                              
|                                                                                                                                                   
|Liabilities and Equity                                                                                                                             
|                                                                                                                                                   
|Current Liabilities                                                                                                                                
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|Long-term Debt                                                                                                                                     
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|Deferred Credits and Other
        Noncurrent Liabilities                                                                                          
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|Commitments and Contingent
        Liabilities                                                                                                     
|                                                                                                                                                   
|                                                                                                                                                   
|Minority Interest                                                                                                                                  
|                                                                                                                                                   
|                                                                                                                                                   
|Company-obligated Mandatorily
        Redeemable Preferred 
          Securities of Subsidiary Trusts Holding Solely Company 
           Debentures
|                                                                                                                                                   
|                                                                                                                                                   
|Preferred Stock                                                                                                                                    
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Shareowners' Common Equity                                                                                                                         
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.            

---

|CONDENSED
        CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY 
        AND COMPREHENSIVE INCOME                               
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                                       
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Common stock at beginning of period                                                                                                    
|                                                                                                                                       
|Common stock at end of period                                                                                                          
|                                                                                                                                       
|Capital in excess of par value at beginning
        of period                                                                          
|                                                                                                                                       
|                                                                                                                                       
|Capital in excess of par value at end of
        period                                                                                
|                                                                                                                                       
|Treasury stock at beginning of period                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Treasury stock at end of period                                                                                                        
|                                                                                                                                       
|Earnings reinvested at beginning of period                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Earnings reinvested at end of period                                                                                                   
|                                                                                                                                       
|Accumulated other comprehensive loss at
        beginning of period                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Accumulated other comprehensive loss at
        end of period                                                                          
|                                                                                                                                       
|                                                                                                                                       
|Capital stock expense and other at beginning
        of period                                                                         
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Capital stock expense and other at end of
        period                                                                               
|                                                                                                                                       
|Total Shareowners' Common Equity                                                                                                       
|                                                                                                                                       
|Common stock shares at beginning of period
        (a)                                                                                 
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Common stock shares at end of period                                                                                                   
|                                                                                                                                       
|(a)                                                                                                                                    
|(b)                                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|(c)                                                                                                                                    
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

(THIS PAGE LEFT BLANK INTENTIONALLY.)

---

|CONDENSED CONSOLIDATED STATEMENT OF
        INCOME                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Operating Revenues                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Expenses                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Income                                                                                                                       
|                                                                                                                                       
|Other Income - net                                                                                                                     
|                                                                                                                                       
|Interest Expense                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Income Before Income Taxes
        and Minority Interest                                                                               
|                                                                                                                                       
|Income Taxes                                                                                                                           
|                                                                                                                                       
|Minority Interest                                                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|Income Before Cumulative
        Effect of a Change in 
          Accounting Principle                                                 
|                                                                                                                                       
|Cumulative Effect of a Change
        in Accounting Principle 
          (net of income taxes)                                         
|                                                                                                                                       
|                                                                                                                                       
|Income Before Distributions
        on Preferred Securities                                                                            
|                                                                                                                                       
|Distributions - Preferred Securities                                                                                                   
|                                                                                                                                       
|                                                                                                                                       
|Net Income                                                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED CONSOLIDATED
        STATEMENT OF CASH FLOWS                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by (Used
        in) Operating Activities                                                                            
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Investing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Financing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Increase (Decrease) In
        Cash and Cash Equivalents                                                                           
|Cash and Cash Equivalents at
        Beginning of Period                                                                               
|                                                                                                                                       
|Cash and Cash Equivalents at
        End of Period                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED
        CONSOLIDATED BALANCE SHEET                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|Assets                                                                                                                                 
|                                                                                                                                       
|Current Assets                                                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Investments                                                                                                                            
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Property, Plant and Equipment
        - net                                                                                            
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Other Noncurrent Assets                                                                                                                
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|Liabilities and Equity                                                                                                                 
|                                                                                                                                       
|Current Liabilities                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Long-term Debt                                                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Deferred Credits and Other
        Noncurrent Liabilities                                                                              
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Commitments and Contingent
        Liabilities                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Minority Interest                                                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|Company-obligated Mandatorily
        Redeemable Preferred Securities 
          of Subsidiary Trusts Holding Solely Company Debentures
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity                                                                                                                        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED CONSOLIDATED
        STATEMENT OF MEMBER'S EQUITY                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity at beginning
        of period                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity at end of period                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|(a)                                                                                                                                    
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.



---



(THIS PAGE LEFT BLANK INTENTIONALLY.)



---

|CONDENSED
        CONSOLIDATED STATEMENT OF INCOME                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
        Subsidiaries                                                                            
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Operating Revenues                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Expenses                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Income                                                                                                                       
|                                                                                                                                       
|Other Income - net                                                                                                                     
|                                                                                                                                       
|Interest Expense                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Income (Loss) Before Income
        Taxes                                                                                              
|                                                                                                                                       
|Income Taxes (Benefit)                                                                                                                 
|                                                                                                                                       
|                                                                                                                                       
|Income (Loss) Before Dividends
        and Distributions 
          on Preferred Securities                                            
|                                                                                                                                       
|Dividends and Distributions
        - Preferred Securities                                                                             
|                                                                                                                                       
|                                                                                                                                       
|Net Income (Loss)                                                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The
        accompanying Notes to Condensed Consolidated Financial Statements are
        an integral part of the financial statements.

---

|CONDENSED
        CONSOLIDATED STATEMENT OF CASH FLOWS                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
        Subsidiaries                                                                            
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by Operating
        Activities                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Investing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Financing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Increase (Decrease) in
        Cash and Cash Equivalents                                                                           
|Cash and Cash Equivalents at
        Beginning of Period                                                                               
|                                                                                                                                       
|Cash and Cash Equivalents at
        End of Period                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED
        CONSOLIDATED BALANCE SHEET                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
        Subsidiaries                                                                            
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|Assets                                                                                                                                 
|                                                                                                                                       
|Current Assets                                                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Property, Plant and Equipment
        - net                                                                                            
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Regulatory and Other Noncurrent
        Assets                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
        Subsidiaries                                                                            
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|Liabilities and Equity                                                                                                                 
|                                                                                                                                       
|Current Liabilities                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Long-term Debt                                                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Deferred Credits and Other
        Noncurrent Liabilities                                                                              
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Commitments and Contingent
        Liabilities                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Preferred Stock                                                                                                                        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Shareowner's Common Equity                                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED
        CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
        Subsidiaries                                                                            
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Common stock at beginning of
        period                                                                                            
|                                                                                                                                       
|Common stock at end of period                                                                                                          
|                                                                                                                                       
|                                                                                                                                       
|Additional paid-in capital at
        beginning of period                                                                              
|                                                                                                                                       
|                                                                                                                                       
|Additional paid-in capital at
        end of period                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|Treasury stock at beginning
        of period                                                                                          
|                                                                                                                                       
|Treasury stock at end of period                                                                                                        
|                                                                                                                                       
|                                                                                                                                       
|Earnings reinvested at beginning
        of period                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Earnings reinvested at end of
        period                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|Capital stock expense and other
        at beginning of period                                                                         
|                                                                                                                                       
|Capital stock expense and other
        at end of period                                                                               
|                                                                                                                                       
|                                                                                                                                       
|Total Shareowner's Common Equity                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Common stock shares at beginning
        of period (b)                                                                                 
|                                                                                                                                       
|Common stock shares at end of
        period                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|(a)                                                                                                                                    
|(b)                                                                                                                                    
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED
        CONSOLIDATED STATEMENT OF INCOME                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                                      
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Operating Revenues                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Expenses                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Income                                                                                                                       
|                                                                                                                                       
|Other Income - net                                                                                                                     
|                                                                                                                                       
|Interest Expense                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Income Before Income Taxes                                                                                                             
|                                                                                                                                       
|Income Taxes                                                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|Net Income                                                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED
        CONSOLIDATED STATEMENT OF CASH FLOWS                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                                      
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by Operating
        Activities                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Investing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Financing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Increase in Cash and
        Cash Equivalents                                                                                      
|Cash and Cash Equivalents at
        Beginning of Period                                                                               
|                                                                                                                                       
|Cash and Cash Equivalents at
        End of Period                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

|CONDENSED
        CONSOLIDATED BALANCE SHEET                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                                      
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|Assets                                                                                                                                 
|                                                                                                                                       
|Current Assets                                                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Noncurrent Assets                                                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Liabilities and Equity                                                                                                                 
|                                                                                                                                       
|Current Liabilities                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Noncurrent Liabilities                                                                                                                 
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Commitments and Contingent
        Liabilities                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity                                                                                                                        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

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|CONDENSED
        CONSOLIDATED STATEMENT OF MEMBER'S EQUITY                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                                      
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
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|Member's Equity at beginning
        of period                                                                                         
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|Member's Equity at end of period                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.



---



Combined Notes to Condensed Consolidated
  Financial Statements

Terms and abbreviations appearing in Combined Notes to Condensed Consolidated
  Financial Statements are explained in the glossary. Dollars are in millions,
  except per share data, unless otherwise noted.

1. Interim Financial Statements
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    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 (including normal, recurring accruals) 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. The Balance Sheet as of December 31, 2002 is derived
      from each Registrant's 2002 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 Annual Report to the SEC on Form
      10-K for the year ended December 31, 2002. The results of operations for
      the three and six months ended June 30, 2003 are not necessarily indicative
      of the results to be expected for the full year ending December 31, 2003
      or other future periods, because results for interim periods can be disproportionately
      influenced by various factors and developments and seasonal variations.
    Certain amounts in the June 30, 2002 and December 31, 2002 financial statements
      have been reclassified to conform to the presentation in the June 30, 2003
      financial statements. The required reclassification of energy trading activity
      to a net basis, as described in Note 10, and the retroactive consolidation
      of WPD, as described in Note 6, are the most significant reclassifications
      of the June 30, 2002 financial statements.
2. Summary of Significant Accounting Policies
    The following accounting policy disclosures represent updates to the "Summary
      of Significant Accounting Policies" Note in each Registrant's Annual Report
      to the SEC on Form 10-K for the year ended December 31, 2002.
    
    Stock-Based Compensation
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL grants stock options, restricted stock, restricted stock units and
      stock units to employees and directors under several stock-based compensation
      plans. SFAS 123, "Accounting for Stock-Based Compensation," encourages entities
      to record compensation expense for stock-based compensation plans at fair
      value but provides the option of measuring compensation expense using the
      intrinsic value method prescribed by APB Opinion No. 25, "Accounting for
      Stock Issued to Employees." The fair value method under SFAS 123 is indicated
      therein as the preferable method of accounting for stock-based compensation,
      as it provides a consistent basis of accounting for all stock-based awards,
      thereby facilitating a better measure of compensation cost and improved
      financial reporting.
    Prior to 2003, PPL accounted for stock-based compensation in accordance
      with APB Opinion No. 25, as permitted by SFAS 123. Effective January 1,
      2003, PPL and its subsidiaries adopted the fair value method of accounting
      for stock-based compensation, as prescribed by SFAS 123, using the prospective
      method of transition permitted by SFAS 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure, an Amendment of FASB Statement
      No. 123." See Note 14 for further discussion of SFAS 148. The prospective
      method of transition requires PPL and its subsidiaries to use the fair value
      method under SFAS 123 for all stock-based compensation awards granted, modified
      or settled on or after January 1, 2003. Thus, all awards granted prior to
      January 1, 2003 continue to be accounted for under the intrinsic value method
      of APB Opinion No. 25, to the extent such awards are not modified or settled.
      Stock-based compensation is included in other operation expense on the Statement
      of Income.
    Use of the fair value method prescribed by SFAS 123 requires PPL and its
      subsidiaries to recognize compensation expense for stock options issued.
      Fair value for the stock options is determined using the Black-Scholes options
      pricing model. Stock option expense was approximately $1 million for the
      three and six months ended June 30, 2003.
    PPL and its subsidiaries were not required to recognize compensation expense
      for stock options issued under the intrinsic value method of APB Opinion
      No. 25, since PPL grants stock options with an exercise price that is not
      less than the fair market value of PPL's common stock on the date of grant.
      As currently structured, awards of restricted stock, restricted stock units
      and stock units result in the same amount of compensation expense under
      the fair value method of SFAS 123 as they would under the intrinsic value
      method of APB Opinion No. 25.
    The following table illustrates the pro forma effect on net income and
      EPS if the fair value method had been used to account for all outstanding
      stock-based compensation awards in the periods shown:
    (PPL)
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002IncomeNet Income (Loss) - as reported
        
        $
        116
        
        
        $
        (27
        )
        
        $
        355
        
        
        $
        (30
        )Add: Stock-based employee compensation
            expense included in reported net income, net of tax
        
        
        2
        
        
        
        1
        
        
        
        2
        
        
        
        2Deduct: Total stock-based compensation
            expense determined under the fair value method for all awards, net
            of tax
        
        
        3
        
        
        
        2
        
        
        
        4
        
        
        
        4Pro forma Net Income (Loss)
        
        $
        115
        
        
        $
        (28
        )
        
        $
        353
        
        
        $
        (32
        )EPSBasic - as reported
        
        $
        0.68
        
        
        $
        (0.18
        )
        
        $
        2.10
        
        
        $
        (0.20
        )Basic - pro forma
        
        $
        0.67
        
        
        $
        (0.19
        )
        
        $
        2.09
        
        
        $
        (0.22
        )Diluted - as reported
        
        $
        0.67
        
        
        $
        (0.18
        )
        
        $
        2.09
        
        
        $
        (0.20
        )Diluted - pro forma
        
        $
        0.67
        
        
        $
        (0.19
        )
        
        $
        2.08
        
        
        $
        (0.22
        )(PPL Energy Supply, PPL Electric and PPL Montana)
    Stock-based compensation expense for PPL Energy Supply, PPL Electric and
      PPL Montana, including awards granted to their employees and an allocation
      of the costs of awards granted to employees of PPL Services, was insignificant
      under both the intrinsic value and fair value methods for the three and
      six months ended June 30, 2003 and 2002.
    Asset Retirement Obligations
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 12 for a discussion of the accounting for asset retirement obligations.
    New Accounting Standards
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 14 for a discussion of new accounting standards.
3. Segment and Related Information
    (PPL and PPL Energy Supply)
    PPL's reportable segments are Supply, Delivery and International. The Supply
      segment primarily consists of the domestic energy marketing, domestic generation
      and domestic development operations of PPL Energy Supply. The Delivery segment
      includes the regulated electric and gas delivery operations of PPL Electric
      and PPL Gas Utilities. The International segment includes PPL Global's responsibility
      for the acquisition and holding of international energy projects. The majority
      of PPL Global's international investments are located in the U.K., Chile,
      El Salvador and Bolivia.
    PPL Energy Supply's reportable segments are Supply and International. The
      International segment at the PPL Energy Supply level is consistent with
      the International segment at the PPL level. The Supply segment information
      reported at the PPL Energy Supply level will not agree with the Supply segment
      information reported at the PPL level. Additional Supply segment functions,
      including telecommunications, exist at PPL that are outside of PPL Energy
      Supply. Furthermore, certain income items, including PLR revenue and intercompany
      interest income, exist at the PPL Energy Supply level, but are eliminated
      in consolidation at the PPL level. Finally, certain expense items are fully
      allocated to the segments at the PPL level only.
    Segments include direct charges, as well as an allocation of indirect corporate
      costs, for services provided by PPL Services. These service costs include
      functions such as financial, legal, human resources and information services.
    See Note 8 for a discussion of the PLR contracts between PPL Electric and
      PPL EnergyPlus. PPL EnergyPlus' sales to PPL Electric, to meet PPL Electric's
      PLR load, are included in the Supply segment of PPL Energy Supply. PPL Electric's
      sales of this electricity to its PLR customers are included in the Delivery
      segment of PPL. There are no intersegment revenues for PPL or PPL Energy
      Supply.
    Financial data for the segments are as follows:
    (PPL)
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Income Statement DataRevenues from external customersSupply
        
        $
        451
        
        
        $
        384
        
        
        $
        898
        
        
        $
        753International
        
        
        260
        
        
        
        281
        
        
        
        522
        
        
        
        561Delivery
        
        
        627
        
        
        
        634
        
        
        
        1,405
        
        
        
        1,3391,338
        
        
        
        1,299
        
        
        
        2,825
        
        
        
        2,653Net Income (Loss)Supply (a)
        
        
        90
        
        
        
        58
        
        
        
        241
        
        
        
        174International (b)
        
        
        26
        
        
        
        (77
        )
        
        
        77
        
        
        
        (222
        )Delivery
        
        
        
        
        
        
        (8
        )
        
        
        37
        
        
        
        18$
        116
        
        
        $
        (27
        )
        
        $
        355
        
        
        $
        (30
        )(a)
        
        The six months ended June 30, 2003 includes
            the "Cumulative Effect of a Change in Accounting Principle" recorded
            in January 2003. See Note 12 for additional information.(b)
        
        The six months ended June 30, 2002 includes
            the "Cumulative Effect of a Change in Accounting Principle" recorded
            in March 2002. See Note 11 for additional information. The International
            segment also includes the write-downs of the CEMAR investment described
            in Note 6.June 30,
            2003
        
        
        December
            31,
            2002Balance Sheet DataTotal assetsSupply
        
        $
        5,254
        
        
        $
        4,907International
        
        
        4,964
        
        
        
        4,773Delivery
        
        
        5,794
        
        
        
        5,867$
        16,012
        
        
        $
        15,547(PPL Energy Supply)
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Income Statement DataRevenues from external customersSupply
        
        $
        777
        
        
        $
        723
        
        
        $
        1,610
        
        
        $
        1,462International
        
        
        260
        
        
        
        281
        
        
        
        522
        
        
        
        5611,037
        
        
        
        1,004
        
        
        
        2,132
        
        
        
        2,023Net IncomeSupply (a)
        
        
        106
        
        
        
        86
        
        
        
        271
        
        
        
        226International (b)
        
        
        26
        
        
        
        (77
        )
        
        
        77
        
        
        
        (222
        )$
        132
        
        
        $
        9
        
        
        $
        348
        
        
        $
        4(a)
        
        The six months ended June 30, 2003 includes
            the "Cumulative Effect of a Change in Accounting Principle" recorded
            in January 2003. See Note 12 for additional information.(b)
        
        The six months ended June 30, 2002 includes
            the "Cumulative Effect of a Change in Accounting Principle" recorded
            in March 2002. See Note 11 for additional information. The International
            segment also includes the write-downs of the CEMAR investment described
            in Note 6.June 30,2003
        
        
        December
            31,2002Balance Sheet DataTotal assetsSupply
        
        $
        5,392
        
        
        $
        5,563International
        
        
        4,964
        
        
        
        4,773$
        10,356
        
        
        $
        10,336
4. Earnings Per Share
    (PPL)
    Basic EPS is calculated by dividing "Net Income (Loss)" on the Statement
      of Income by the weighted-average number of common shares outstanding during
      the period. Diluted EPS is calculated similarly, except that weighted average
      shares outstanding are increased for additional shares that would be outstanding
      if potentially dilutive securities were converted to common stock. Potentially
      dilutive securities consist of:

stock options, restricted stock and restricted stock units granted under the incentive compensation plans,
stock units representing common stock granted under the directors compensation programs,
common stock purchase contracts that are a component of the PEPS units, and
convertible senior notes.The basic and diluted EPS calculations, and the reconciliation of the shares
      (in thousands) used in the calculations, are shown below:
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Income (Numerator)Net Income (Loss) - before
            cumulative effect of a change in accounting principle (a)
        
        $
        116
        
        
        $
        (27
        )
        
        $
        292
        
        
        $
        120Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        63
        
        
        
        (150
        )Net Income (Loss)
        
        $
        116
        
        
        $
        (27
        )
        
        $
        355
        
        
        $
        (30
        )Shares (Denominator)Shares for Basic EPS
        
        
        171,892
        
        
        
        147,149
        
        
        
        169,482
        
        
        
        146,927Add: Incremental shares:Stock options and other share-based
            awards
        
        
        649
        
        
        
        
        
        
        
        579
        
        
        
        348Shares for Diluted EPS
        
        
        172,541
        
        
        
        147,149
        
        
        
        170,061
        
        
        
        147,275Basic EPSNet Income (Loss) - before
            cumulative effect of a change in accounting principle
        
        $
        0.68
        
        
        $
        (0.18
        )
        
        $
        1.73
        
        
        $
        0.82Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.37
        
        
        
        (1.02
        )Net Income (Loss)
        
        $
        0.68
        
        
        $
        (0.18
        )
        
        $
        2.10
        
        
        $
        (0.20
        )Diluted EPSNet Income (Loss) - before
            cumulative effect of a change in accounting principle
        
        $
        0.67
        
        
        $
        (0.18
        )
        
        $
        1.72
        
        
        $
        0.82Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.37
        
        
        
        (1.02
        )Net Income (Loss)
        
        $
        0.67
        
        
        $
        (0.18
        )
        
        $
        2.09
        
        
        $
        (0.20
        )(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.In May 2001, PPL issued 23 million PEPS Units that contain a purchase contract
      component for PPL's common stock. The purchase contracts will only be dilutive
      if the average price of PPL's common stock exceeds $65.03 for any period.
      Since the average price has not exceeded $65.03 since issuance, they were
      excluded from the diluted EPS calculations.
    In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible
      Senior Notes due 2023. The notes can be converted into shares of PPL common
      stock, at an initial conversion rate of 20.1106 shares per $1,000 principal
      amount of notes, subject to adjustment if:
    
        during any fiscal quarter starting after
            June 30, 2003, the market price of PPL's common stock trades at or
            above $59.67 per share over a certain period during the preceding
            fiscal quarter;
        PPL calls the debt for redemption;
        the holder exercises their right to put
            the debt on each five-year anniversary of the offering;
        the long-term credit rating assigned
            to the notes by Moody's and Standard & Poor's falls below Ba2
            and BB or the notes are not rated; or
        certain specified corporate transactions
            occur, e.g., change in control and certain distributions to the holders
            of PPL common stock.As none of these events has occurred, the convertible senior notes were
      excluded from the diluted EPS calculations.
    Stock options to purchase 1,673,000 PPL common shares for the three months
      ended June 30, 2003 were not included in that period's computation of diluted
      EPS because the exercise price of the options was greater than the average
      market price of the common shares. Therefore, the effect would have been
      antidilutive.
    Stock options to purchase 3,058,000 PPL common shares, as well as 67,000
      directors stock units, were not included in the computation of diluted EPS
      for the three months ended June 30, 2002. Since PPL had a loss before
      the cumulative effect of a change in accounting principle, the effect would
      have been antidilutive.
    Stock options to purchase 1,694,000 and 879,000 PPL common shares for the
      six months ended June 30, 2003 and 2002 were not included in those periods'
      computation of diluted EPS because the exercise price of the options was
      greater than the average market price of the common shares. Therefore, the
      effect would have been antidilutive.
5. Credit Arrangements and Financing Activities
    Credit Arrangements
    (PPL, PPL Energy Supply and PPL Electric)
    In June 2003, PPL Energy Supply's $300 million, 364-day credit facility
      and PPL Electric's $400 million, 364-day credit facility both expired. PPL
      Energy Supply replaced its expiring facility with a new $300 million, three-year
      credit facility maturing in June 2006. PPL Electric replaced its expiring
      facility with a new $200 million, 364-day facility maturing in June 2004
      and a new $100 million three-year credit facility maturing in June 2006.
      At June 30, 2003, no borrowings were outstanding under any credit facilities
      of PPL Electric or PPL Energy Supply. Both PPL Electric and PPL Energy Supply
      have the ability to cause the lenders to issue letters of credit under their
      respective facilities. At June 30, 2003, PPL Electric had $40 million of
      letters of credit outstanding under its $100 million, three-year facility,
      and PPL Energy Supply had $77 million of letters of credit outstanding under
      its existing $500 million facility.
    (PPL and PPL Energy Supply)
    At June 30, 2003, WPD (South West) had no outstanding borrowings under
      either its £100 million credit facility maturing in October 2003 or
      its £150 million credit facility maturing October 2007. At June 30,
      2003, WPD (South West) also had uncommitted credit line borrowings of £23
      million ($38 million based on current exchange rates) in separate agreements
      with lender banks.
    WPD (South West) maintained a bridge facility to meet short-term liquidity
      that expired in April 2003. This bridge facility was paid down with the
      proceeds from the issuance of long-term bonds and borrowings under another
      credit facility. The long-term bond issuance is discussed in more detail
      under "Financing Activities."
    (PPL Montana)
    At June 30, 2003, PPL Montana had outstanding borrowings of $19 million
      under its credit facility with another PPL Energy Supply subsidiary.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    The subsidiaries of PPL are separate legal entities. PPL's subsidiaries
      are not liable for the debts of PPL. Accordingly, creditors of PPL may not
      satisfy their debts from the assets of the subsidiaries absent a specific
      contractual undertaking by a subsidiary to pay PPL's creditors or as required
      by applicable law or regulation. Similarly, absent a specific contractual
      undertaking or as required by applicable law or regulation, PPL is not liable
      for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries
      may not satisfy their debts from the assets of PPL absent a specific contractual
      undertaking by PPL to pay the creditors of its subsidiaries or as required
      by applicable law or regulation.
    Similarly, the subsidiaries of PPL Energy Supply, PPL Electric and PPL
      Montana are separate legal entities. These subsidiaries are not liable for
      the debts of PPL Energy Supply, PPL Electric and PPL Montana. Accordingly,
      creditors of PPL Energy Supply, PPL Electric and PPL Montana may not satisfy
      their debts from the assets of their subsidiaries absent a specific contractual
      undertaking by a subsidiary to pay the creditors or as required by applicable
      law or regulation. In addition, absent a specific contractual undertaking
      or as required by applicable law or regulation, PPL Energy Supply, PPL Electric
      and PPL Montana are not liable for the debts of their subsidiaries. Accordingly,
      creditors of these subsidiaries may not satisfy their debts from the assets
      of PPL Energy Supply, PPL Electric or PPL Montana absent a specific contractual
      undertaking by that parent to pay the creditors of its subsidiaries or as
      required by applicable law or regulation.
    Financing Activities
    (PPL)
    In March 2003, PPL Capital Funding retired all $60 million of its medium-term
      notes, 6.375% Series due March 2003, at par value.
    PPL issued $411 million of common stock during the first six months of
      2003, including $109 million under its Structured Equity Shelf Program and
      $270 million under a public offering in May 2003. Under this public offering,
      PPL issued 7.1 million shares of common stock for $38.25 per share. PPL
      received net proceeds of approximately $261 million, which were used to
      repay short-term debt and for general corporate purposes.
    (PPL and PPL Energy Supply)
    In March 2003, WPD (South West) issued £200 million of 5.875% bonds
      due 2027. The proceeds from this issuance were used to repay £200
      million of borrowings under its bridge facility. Additionally, in May 2003,
      WPD (South West) issued an additional £50 million of 5.875% bonds
      due 2027. WPD used the proceeds from this issuance to pay down short-term
      borrowings. The issuance of this long-term debt resulted in an $11 million
      write-off of unamortized swap restructuring costs in the second quarter
      of 2003.
    In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible
      Senior Notes due 2023, which are guaranteed by PPL and convertible into
      PPL common stock. The convertible notes were sold in a Rule 144A private
      offering to qualified institutional buyers, and PPL Energy Supply and PPL
      subsequently filed a registration statement with the SEC to register the
      resale of the notes for the benefit of the holders. See Note 4 for additional
      information on the convertibility features of the notes. PPL Energy Supply
      used the proceeds from the private offering of the convertible notes to
      repurchase commercial paper and for general corporate purposes.
    In the first six months of 2003, WPD retired $50 million of 7.375% unsecured
      bonds due 2028.
    At June 30, 2003, PPL Energy Supply had no commercial paper outstanding.
    During the six months ended June 2003, PPL Energy Supply distributed $650
      million to its parent company, PPL Energy Funding, and received capital
      contributions of $262 million.
    (PPL and PPL Electric)
    In February 2003, the Lehigh County Industrial Development Authority (LCIDA)
      issued $90 million of 3.125% Pollution Control Revenue Refunding Bonds due
      November 2008 on behalf of PPL Electric. The proceeds of the bonds were
      used to refund the LCIDA's $90 million, 6.40% Pollution Control Revenue
      Refunding Bonds due 2021. In order to secure its obligations to repay LCIDA,
      PPL Electric issued $90 million aggregate principal amount of its Senior
      Secured Bonds under its 2001 Senior Secured Bond Indenture, having terms
      corresponding to the terms of the LCIDA bonds.
    In February 2003, PPL Electric retired $19 million of its outstanding First
      Mortgage Bonds, 6-7/8% Series due February 2003, at par value.
    In April 2003, as permitted by the 1945 First Mortgage Bond Indenture,
      PPL Electric retired approximately $46 million aggregate principal amount
      of its First Mortgage Bonds, 7-7/8% Series due 2023, at par value, plus
      accrued interest, through the application of cash deposited with the Trustee
      to release certain transmission lines and other equipment from the lien
      of the 1945 First Mortgage Bond Indenture.
    In April 2003, PPL Electric redeemed all outstanding shares of its 6.15%
      Series Preferred Stock. This redemption, which totaled $10 million, was
      made at par value of $100 per share plus accumulated and unpaid dividends,
      in accordance with the mandatory sinking fund requirements of this series.
    In May 2003, PPL Electric issued $100 million of 4.30% Senior Secured Bonds
      due 2013. The proceeds were used for general corporate purposes including
      the refunding of higher-cost securities.
    In July 2003, PPL Electric redeemed all outstanding shares of the 6.33%
      Series Preferred Stock. This redemption, which totaled $5 million, was made
      at par value of $100 per share plus accumulated and unpaid dividends, in
      accordance with the mandatory sinking fund requirements of this series.
    During the first six months of 2003, PPL Transition Bond Company made principal
      payments on transition bonds totaling $136 million.
    During the first six months of 2003, PPL Electric received a capital contribution
      of $75 million from PPL.
    At June 30, 2003, PPL Electric had no commercial paper outstanding.
    
    (PPL Montana)
    
    During the first six months of 2003, PPL Montana distributed $5 million
      to PPL Montana Holdings, LLC, which holds the member interests in PPL Montana.
    
    Dividends and Dividend Restrictions(PPL)
    In February 2003, PPL announced an increase to its quarterly common stock
      dividend, payable April 1, 2003, from 36 cents per share to 38.5 cents per
      share (equivalent to $1.54 per annum). Future dividends, declared at the
      discretion of the Board of Directors, will be dependent upon future earnings,
      financial requirements and other factors.
6. Acquisitions, Development and Divestitures
    Domestic Generation Projects(PPL and PPL Energy Supply)
    In January 2003, PPL announced that it had decided not to proceed with
      development of the 300 MW Kings Park project. In March, PPL Global sold
      its interest in Kings Park Energy, LLC. PPL is exploring the sale of the
      generation equipment that was associated with Kings Park.
    In April 2003, PPL Susquehanna completed the replacement of the Unit 2
      steam turbine at the Susquehanna station. This project provides a nominal
      power increase of 50 MW of generation capacity, of which PPL Susquehanna
      has a 90% undivided interest.An additional turbine upgrade is in
      progress for Unit 1 and is expected to be completed in 2004. Through June
      30, 2003, approximately $74 million in total has been incurred on these
      projects.
    See Note 7 for a discussion of the Lower Mt. Bethel facility.
    International Energy Projects(PPL and PPL Energy Supply)
    Acquisition of Controlling Interest in WPD
    On September 6, 2002, PPL Global acquired the remaining 49% equity interest
      in WPDH Limited and WPDL from Mirant for approximately $236 million, including
      acquisition costs. The acquisition of Mirant's 49% interest provides PPL
      Global with complete control of WPD.
    Prior to the acquisition, PPL Global held 51% of the equity interest in
      WPD but shared control with Mirant pursuant to a shareholders' agreement.
      The shareholders' agreement was terminated in connection with the closing
      of the acquisition. No regulatory approvals were required for this transaction.
    The purchase of Mirant's interest in WPD was accounted for as a step-acquisition
      and resulted in the consolidation of WPD's accounts by PPL and PPL Energy
      Supply.
    The assets acquired and liabilities assumed were recorded at estimated
      fair value as determined by management based on information currently available,
      including an independent appraisal of the fair value of acquired property,
      plant and equipment and intangible assets. Management is also completing
      its review and determination of fair value of other assets acquired and
      liabilities assumed, including pre-acquisition contingencies. Accordingly,
      the allocation of purchase price is preliminary and may be revised as additional
      information becomes available. The following table summarizes the preliminary
      allocation of purchase price based on estimated fair values of the assets
      acquired and liabilities assumed at the date of acquisition, plus the book
      value of assets and liabilities underlying PPL Global's previous 51% equity
      ownership:
    Current assets
        
        $
        228Investments (a)
        
        
        (447
        )Property, plant and equipment
        
        
        3,437Goodwill
        
        
        198Other
        
        
        244Total assets acquired
        
        
        3,660Current liabilities
        
        
        787Long-term debt
        
        
        1,581Other
        
        
        1,056Total liabilities assumed
        
        
        3,424Net assets acquired
        
        $
        236(a)
        
        Includes the reversal of
            PPL Global's equity investment.The goodwill reflected above includes the remaining value of PPL Global's
      51% share of the goodwill recognized by WPD on its acquisition of Hyder.
    
    The PPL income statements for the six months ended June 30, 2003 and 2002
      include consolidated WPD results for the six-month periods ended May 31,
      2003 and 2002. This reflects PPL Global's policy of recording the results
      of foreign controlled subsidiaries on a one-month lag. The portion of earnings
      attributable to Mirant, $28 million and $53 million for the three and six
      months ended June 30, 2002, is reported on the Statement of Income in "Minority
      Interest."
    Write-down of International Energy Projects - CEMAR
    At December 31, 2001, PPL Global estimated that the long-term viability
      of its CEMAR investment was jeopardized and that there was minimal probability
      of positive future cash flows. At that time, PPL Global recorded an impairment
      loss in the carrying value of its net assets in CEMAR. At March 31, 2002,
      PPL Global recorded a further impairment loss of $6 million, which was charged
      to "Write-down of international energy projects" on the Statement of Income.
      In June 2002, PPL made a decision to exit the investment. PPL Global's remaining
      portion of its CEMAR investment, $94 million, was written-off as of June
      30, 2002.
    On August 21, 2002, ANEEL authorized an administrative intervention in
      CEMAR and fully assumed operational and financial control of the company.
      In its public announcement relating to the intervention, ANEEL said that
      its intervention and control of CEMAR would last for an initial term of
      180 days and that it could be extended.
    The intervenor appointed by ANEEL issued a public statement and schedule
      for the transfer of the ownership interest in CEMAR to a new owner. Although
      the schedule announced by the intervenor reflected a closing for the transfer
      of control of CEMAR to a third party on December 20, 2002, the closing did
      not occur. The deadline for the sale process was extended to February 17,
      2003, the same day the initial term of the intervention was scheduled to
      end. No conforming bids were submitted to ANEEL by the February 17 deadline
      due to three outstanding injunctions preventing the sale process from continuing.
      ANEEL publicly announced a 180-day extension of the initial intervention
      on February 14, citing the continuing unresolved financial crisis of CEMAR
      as the primary reason for the extension. As of February 11, 2003, due to
      the inability to discharge their obligations under the continuing intervention,
      PPL-related officers and directors of CEMAR resigned from their respective
      positions.
    In April 2003, PPL learned that the Brazilian Federal Appellate Court hearing
      the appeal of one of the above-mentioned injunctions accepted ANEEL's arguments
      and cancelled the injunction. In June, ANEEL's officials indicated to PPL
      that the other two injunctions outstanding against the sale process had
      been lifted as well. The intervenor appointed by ANEEL issued a public statement
      and revised schedule for the transfer of the ownership interest in CEMAR
      to a new owner. In July, ANEEL pre-qualified a Brazilian private equity
      fund, GP Investimentos (GP), as the sole qualified bidder. ANEEL is expected
      to announce a decision on GP's proposal on August 12. Although the current
      schedule reflects a closing for the transfer of control of CEMAR to a third
      party on August 15, 2003, which is also the end of the second 180-day intervention
      period, there is significant risk that this timetable will not be met. PPL
      has reiterated to ANEEL its desire to transfer its ownership interest in
      CEMAR.
    Based on these and other events described more fully in each Registrant's
      Annual Report to the SEC on Form 10-K for the year ended December 31, 2002,
      PPL Global no longer controls or manages CEMAR and PPL Global has deconsolidated
      the financial assets and liabilities of CEMAR from its financial statements.
      Consistent with the cost method of accounting, PPL Global is no longer recording
      CEMAR's operating results. PPL Global does not believe that it would be
      appropriate to reconsolidate CEMAR post-intervention because it is not the
      primary beneficiary, as defined under FIN 46. See Note 14 for additional
      information on FIN 46.
    At June 30, 2003, the negative investment in CEMAR of $19 million was included
      in "Deferred Credits and Other Noncurrent Liabilities - Other." Any negative
      carrying value will be reversed upon the final sale or other disposition
      of the company.
    Sales
    In the second quarter of 2003, a subsidiary of WPD sold certain Hyder properties.
      PPL Global received approximately $17 million from the sales, and recorded
      a pre-tax gain of about $2 million. This gain is included in "Other Income
      - net" on the Statement of Income.
    Other(PPL)
    In April 2003, a subsidiary of PPL Telcom acquired the fiber optic network
      of a Fairfax, Virginia-based company for approximately $21 million, consisting
      of $9 million in cash and a $12 million capital lease obligation for the
      right to use portions of a fiber optic network. The 1,330-route-mile metropolitan
      area fiber network connects New York, northern New Jersey, Philadelphia,
      Baltimore and Washington, D.C. The acquisition required certain regulatory
      approvals and authorizations in the area served by the network.
7. Commitments and Contingent Liabilities
    Energy Purchases and Sales Commitments
    Liability for Above Market NUG Contracts(PPL, PPL Energy
      Supply and PPL Electric)
    In 1998, PPL Electric recorded a loss accrual for above market contracts
      with NUGs of $854 million, due to its generation business being deregulated.
      Effective January 1999, PPL Electric began reducing this liability as an
      offset to "Energy purchases" on the Statement of Income. This reduction
      is based on the estimated timing of the purchases from the NUGs and projected
      market prices for this generation. The final existing NUG contract expires
      in 2014. In connection with the corporate realignment, effective July 1,
      2000, the remaining balance of this liability was transferred to PPL EnergyPlus.
      At June 30, 2003, the remaining liability associated with the above market
      NUG contracts was $390 million.
    Wholesale Energy Commitments
    (PPL, PPL Energy Supply and PPL Montana)
    As part of the purchase of generation assets from Montana Power, PPL Montana
      assumed a power purchase agreement and another power sales agreement. In
      accordance with purchase accounting guidelines, PPL Montana recorded liabilities
      of $118 million as the estimated fair value of these agreements at the acquisition
      date. These liabilities are being reduced over the terms of the agreements,
      through 2010, as adjustments to "Wholesale energy marketing" revenues and
      "Energy purchases" on the Statement of Income. The unamortized balance of
      these liabilities at June 30, 2003 was $62 million.
    On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate
      of 450 MW of energy to be supplied by PPL Montana. Under two five-year agreements,
      PPL EnergyPlus is supplying 300 MW of around-the-clock electricity and 150
      MW of unit-contingent on-peak electricity.
    (PPL and PPL Energy Supply)
    In April 2003, PPL EnergyPlus entered into an agreement with Arizona Public
      Service Company to provide 112 MW of electricity from July through September
      of 2003 and 150 MW from June through September of 2004 and 2005.
    In May 2003, PPL EnergyPlus entered into agreements with Tucson Electric
      Power Company to provide 37 MW of electricity from June through December
      of 2003 and 75 MW from January 2004 through December 2006.
    In May 2003, PPL EnergyPlus entered into a 20-year agreement with Community
      Energy, Inc. to purchase energy from its Bear Creek wind power project in
      northeastern Pennsylvania. The project is expected to produce up to 20 MW
      and is not expected to be completed earlier than December 2003.
    Legal Matters
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL and its subsidiaries are involved in numerous legal proceedings, claims
      and litigation in the ordinary course of business. PPL and its subsidiaries
      cannot predict the ultimate outcome of such matters, or whether such matters
      may result in material liabilities.
    Tax Assessment Appeals
    (PPL and PPL Energy Supply)
    Pursuant to changes in PURTA enacted in 1999, PPL subsidiaries have filed
      a number of tax assessment appeals in various Pennsylvania counties where
      PPL facilities are located. These appeals challenge existing local tax assessments,
      which now comprise the basis for payment of the PURTA tax on PPL's properties.
      Also, as of January 1, 2000, generation facilities are no longer taxed
      under PURTA, and these local assessments will be used directly to determine
      local real estate tax liability for PPL's power plants. In July 1999, PPL
      filed retroactive appeals for tax years 1998 and 1999, as permitted by the
      new law. In addition, PPL has filed appeals for 2000 and beyond, as permitted
      under normal assessment procedures. It is anticipated that assessment appeals
      may now be an annual occurrence.
    Hearings on the pending appeals were held by the boards of assessment appeals
      in each county, and decisions have now been rendered by all counties. To
      the extent the appeals were denied or PPL was not otherwise satisfied with
      the results, PPL filed further appeals from the board decisions with the
      appropriate county Courts of Common Pleas.
    Of the three pending proceedings in Pennsylvania, only the appeal concerning
      the assessed value of the Susquehanna nuclear station will result in annual
      local taxes exceeding $1 million. PPL's appeal of the Susquehanna station
      assessment was decided in its favor by the Luzerne County Court of Common
      Pleas, and PPL subsequently settled with the local taxing authorities, resulting
      in annual local tax liability of approximately $3 million for tax years
      2000 and beyond and no additional PURTA tax liability for tax years 1998
      and 1999. However, the settlement of the tax liability for tax years 1998
      and 1999 is subject to the outcome of claims asserted by certain intervenors
      which are described below.
    In August 2000, over PPL's objections, the Luzerne County Court of Common
      Pleas permitted Philadelphia City and County, the Philadelphia School District
      and the Southeastern Pennsylvania Transportation Authority (SEPTA) (collectively,
      the "Philadelphia parties") to intervene in the case because a change in
      the assessment of the plant affected the amount they collected under PURTA
      for the tax years 1998 and 1999. Following the court's decision in PPL's
      favor, the Philadelphia parties appealed the matter to the Commonwealth
      Court, and PPL cross-appealed on the issue of the right of the Philadelphia
      parties to intervene. Based on the appraisal obtained by the Philadelphia
      parties, PPL would be required to pay up to an extra $213 million in PURTA
      taxes for tax years 1998 and 1999. As a result of these proceedings and
      appeals, it is possible that a final determination of market value and the
      associated tax liability for 1998 and 1999 may not occur for several years.
    (PPL, PPL Energy Supply and PPL Montana)
    PPL Montana is currently protesting certain property tax assessments by
      the Montana Department of Revenue (MDOR) on its generation facilities. The
      tax liabilities in dispute are approximately $2 million for 2000 and 2001
      and $9 million for 2002. PPL Montana's dispute with respect to most of the
      2002 tax liability is based on the assessed value used by the MDOR for PPL
      Montana's hydroelectric facilities versus the assessed value used for the
      facilities of another hydroelectric generator in the state. The state tax
      appeals board is scheduled to hear the 2000 and 2001 disputes in January
      2004, while the hearing for the 2002 dispute is scheduled for April 2004.
    
    Montana Power Shareholders' Litigation(PPL, PPL Energy
      Supply and PPL Montana)
    In August 2001, a purported class-action lawsuit was filed by a group of
      shareholders of Montana Power against Montana Power, the directors of Montana
      Power, certain advisors and consultants of Montana Power and PPL Montana.
      The plaintiffs allege, among other things, that Montana Power was required
      to, and did not, obtain shareholder approval of the sale of Montana Power's
      generation assets to PPL Montana in 1999. Although most of the claims in
      the complaint are against Montana Power, its board of directors, and its
      consultants and advisors, two claims are asserted against PPL Montana. In
      the first claim, plaintiffs seek a declaration that because Montana Power
      shareholders did not vote on the 1999 sale of generating assets to PPL Montana,
      that sale "was null and void ab initio." The second claim alleges that PPL
      Montana was privy to and participated in a strategy whereby Montana Power
      would sell its generation assets to PPL Montana without first obtaining
      Montana Power shareholder approval, and that PPL Montana has made net profits
      in excess of $100 million as the result of this alleged illegal sale. In
      the second claim, plaintiffs request that the court impose a "resulting
      and/or constructive trust" on both the generation assets themselves and
      all profits, plus interest on the amounts subject to the trust. This lawsuit
      is currently pending in federal court in Montana. PPL, PPL Energy Supply
      and PPL Montana cannot predict the outcome of this matter.
    Energy West Litigation (PPL, PPL Energy Supply and PPL Montana)
    In July 2001, PPL Montana filed an action in state court and a responsive
      pleading in federal court, both related to a breach of contract by Energy
      West Resources, Inc. (Energy West), a Great Falls, Montana-based energy
      aggregator. PPL Montana was seeking a judgment that Energy West violated
      the terms of the contract under which it supplied energy to Energy West
      during the period July 1, 2000 through June 30, 2002. All litigation in
      this matter was consolidated in the U.S. District Court for the District
      of Montana, Great Falls Division. In June 2003, PPL Montana and Energy West
      agreed to settle the litigation. Under the terms of the settlement, Energy
      West agreed to pay PPL Montana $3 million, of which $1 million was paid
      in June and the remaining $2 million is to be paid in September 2003.
    NorthWestern Corporation Litigation(PPL, PPL Energy Supply
      and PPL Montana)
    In connection with the acquisition of the Montana generation assets, the
      Montana Power APA, which was previously assigned to PPL Montana by PPL Global,
      includes a provision concerning the proposed purchase by PPL Montana of
      a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission
      System (CTS) for $97 million. During 2002, PPL Montana had been in discussions
      with NorthWestern regarding the proposed purchase of the CTS and the claims
      that PPL Montana believes it has against NorthWestern arising from the Montana
      Power APA and related agreements. Notwithstanding such discussions, in September
      2002, NorthWestern filed a lawsuit against PPL Montana in Montana state
      court seeking specific performance of PPL Montana's purchase of the CTS
      or, alternatively, damages for breach of contract. Pursuant to PPL Montana's
      application, the matter was removed to the U.S. District Court for the District
      of Montana, Butte Division. Following removal, NorthWestern asserted additional
      claims for damages against PPL Montana, and PPL Montana filed defenses denying
      liability for NorthWestern's claims as well as counterclaims against NorthWestern
      seeking damages PPL Montana believes it has suffered under the Montana Power
      APA and related agreements. This matter is currently scheduled for trial
      in mid-2005. PPL, PPL Energy Supply and PPL Montana cannot predict the outcome
      of this litigation.
    Regulatory Issues
    California ISO and Pacific Northwest (PPL, PPL Energy Supply
      and PPL Montana)
    Through its subsidiaries, PPL has made approximately $18 million of sales
      to the California ISO, of which $17 million has not been paid to PPL subsidiaries.
      Given the myriad of electricity supply problems presently faced by the California
      electric utilities and the California ISO, PPL cannot predict whether or
      when it will receive payment. As of June 30, 2003, PPL has fully reserved
      for possible 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 and initiated
      an evidentiary hearing concerning refund amounts. In April 2003, the FERC
      changed the manner in which this refund liability is to be computed and
      ordered further proceedings to determine the exact amounts that the sellers,
      including PPL Montana, would be required to refund.
    In June 2003, the FERC took several actions as a result of a number of
      related investigations. The FERC terminated proceedings pursuant to which
      it had been considering whether to order refunds for spot market bilateral
      sales made in the Pacific Northwest, including sales made by PPL Montana,
      during the period December 2000 through June 2001. The FERC explained that
      the totality of the circumstances made refunds unfeasible and inequitable,
      and that it had provided adequate relief by adopting a price cap throughout
      the western U.S. The FERC also denied pending complaints against long-term
      contracts in the western U.S. In these complaints, various power buyers
      challenged selected long-term contracts that they entered into during 2000
      and 2001, complaining that the power prices were too high and reflected
      manipulation of those energy markets. The FERC found that the complainants
      had not met their burden of showing that changing or canceling the contracts
      was "in the public interest" and that the dysfunction in the California
      markets did not justify changing these long-term contracts. In two separate
      orders, the FERC also ordered 65 different companies, agencies or municipalities
      to show cause why they should not be ordered to disgorge profits for gaming
      or anomalous market behavior during 2000 and 2001. These orders to show
      cause address both unilateral and joint conduct identified as the "Enron
      trading strategies." Neither PPL EnergyPlus nor PPL Montana were included
      in these orders to show cause, and they previously have explained in responses
      to data requests from the FERC that they have not, and did not, engage in
      such trading strategies. Finally, the FERC issued a new investigation order
      directing its staff to investigate any bids made into the California markets
      in excess of $250/MWh during the period from May 2000 to October 2000, a
      period of time prior to the period examined in connection with most of the
      proceedings described above. To their knowledge, neither PPL EnergyPlus
      nor PPL Montana are being investigated by the FERC under this new order.
    Litigation arising out of the California electricity supply situation has
      been filed in California courts against sellers of energy to the California
      ISO. The plaintiffs and intervenors in these legal proceedings allege, among
      other things, abuse of market power, manipulation of market prices, unfair
      trade practices and violations of state antitrust laws, and seek other relief,
      including treble damages and attorneys' fees. While PPL's subsidiaries have
      not been named by the plaintiffs in these legal proceedings alleging abuses
      of market power, manipulation of market prices, unfair trade practices and
      violations of state antitrust laws, PPL Montana was named by a defendant
      in its cross-complaint in a consolidated court proceeding, which combined
      into one master proceeding several of the lawsuits alleging antitrust violations
      and unfair trade practices. This generator denies that any unlawful, unfair
      or fraudulent conduct occurred but asserts that, if it is found liable,
      the other generators and power marketers, including PPL Montana, caused,
      contributed to and/or participated in the plaintiffs' alleged losses.
    Also, in May 2003, the Port of Seattle filed a lawsuit in federal district
      court in Seattle against eighteen defendants, including PPL Montana. The
      lawsuit asserts claims against all defendants under the federal and state
      antitrust laws, the federal Racketeer Influenced and Corrupt Organizations
      Act and for common law fraud. The complaint centers on many of the same
      alleged activities that are the basis for the litigation arising out of
      the California electricity supply situation described above. The Port of
      Seattle is seeking actual, trebled and punitive damages, as well as attorneys'
      fees.
    While PPL and its subsidiaries believe that they have not engaged in any
      improper trading practices, they cannot predict whether, or the extent to
      which, any PPL subsidiaries will be the target of any additional governmental
      investigations or named in other lawsuits or refund proceedings, the outcome
      of any such lawsuits or proceedings or whether the ultimate impact on them
      of the electricity supply situation in California and other western states
      will be material.
    PJM Capacity Transactions(PPL, PPL Energy Supply and
      PPL Electric)
    In November 2001, the PJM Market Monitor publicly released a report prepared
      for the PUC entitled "Capacity Market Questions" relating to the pricing
      of installed capacity in the PJM daily market during the first quarter of
      2001. The report concluded that PPL EnergyPlus (identified in the report
      as "Entity 1") was able to exercise market power to raise the market-clearing
      price above the competitive level during that period. PPL EnergyPlus does
      not agree with the Market Monitor's conclusions that it exercised market
      power, and the Market Monitor acknowledged in his report that PJM's standards
      and rules did not prohibit PPL EnergyPlus' conduct. In November 2001, the
      PUC issued an Investigation Order directing its Law Bureau to conduct an
      investigation into the PJM capacity market and the allegations in the Market
      Monitor's report. In June 2002, the PUC issued an investigation report alleging,
      among other things, that PPL had unfairly manipulated electricity markets
      in early 2001. The PUC stated that it was not authorized to, and was not
      attempting to, adjudicate the merits of PPL's defenses to its allegations,
      but referred the matter to the U.S. Department of Justice - Antitrust Division,
      or DOJ, the FERC and the Pennsylvania Attorney General.
    In June 2003, the DOJ notified PPL that it had closed its investigation
      in this matter. Also in June, the Pennsylvania Attorney General's office
      completed its investigation and notified the PUC that PPL did not violate
      antitrust or other laws in its capacity market activities. The FERC already
      has completed two investigations related to these capacity market questions
      and has found no reason to take action against PPL. PPL continues to believe
      that the PUC's report is inaccurate, that its conclusions are groundless,
      and that PPL acted ethically and legally, in compliance with all applicable
      laws and regulations.
    In September 2002, PPL was served with a complaint filed by Utilimax.com,
      Inc., which was a member of PJM, in the U.S. District Court for the Eastern
      District of Pennsylvania against PPL and PPL EnergyPlus alleging, among
      other things, violations of the federal antitrust laws in connection with
      the capacity transactions described in the Market Monitor's report. The
      court dismissed the complaint with prejudice in July 2003.
    In addition, in December 2002, PPL was served with a complaint against
      PPL, PPL EnergyPlus and PPL Electric filed in the same court by a group
      of 14 Pennsylvania boroughs that apparently alleges, in broad terms, similar
      violations of the federal antitrust laws. These boroughs are wholesale customers
      of PPL Electric. Although PPL, PPL EnergyPlus and PPL Electric believe the
      claims in this complaint are without merit and intend to defend the action
      vigorously, they cannot predict the outcome of this matter.
    FERC Market-Based Rate Authority (PPL and PPL Energy Supply)
    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to
      make wholesale sales of electric power and related products at market-based
      rates. In that order, the FERC directed PPL EnergyPlus to file an updated
      market analysis within three years of the date of the order, and every three
      years thereafter. PPL EnergyPlus filed its initial updated market analysis
      in December 2001. Several parties thereafter filed interventions and protests
      requesting that, in light of the PJM Market Monitor's report described above,
      PPL EnergyPlus be required to provide additional information demonstrating
      that it has met the FERC's market power tests necessary for PPL EnergyPlus
      to continue its market-based rate authority. PPL EnergyPlus has responded
      that the FERC does not require the economic test suggested by the intervenors
      and that, in any event, it would meet such economic test if required by
      the FERC. PPL EnergyPlus cannot predict the outcome of this matter.
    FERC Proposed Rules (PPL, PPL Energy Supply, PPL Electric and
      PPL Montana)
    In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled
      "Remedying Undue Discrimination through Open Access Transmission Service
      and Standard Electricity Market Design." The proposed rule is currently
      available for public comment and contains a proposed implementation date
      of July 31, 2003. However, since the issuance of the proposed rule, the
      FERC has delayed the implementation date. This far-reaching proposed rule,
      in its current form, purports to establish uniform transmission rules and
      establish a standard market design by, among other things:
    ·
        enacting standard transmission tariffs
            and uniform market mechanisms,·
        monitoring and mitigating "market power,"·
        managing transmission congestion through
            pricing and tradable financial rights,·
        requiring independent operational control
            over transmission facilities,·
        forming state advisory committees on
            regional transmission organizations and resource adequacy, and·
        exercising FERC jurisdiction over all
            transmission service.In April 2003, the FERC issued a white paper describing certain modifications
      to the proposed rule. The FERC has requested comments and is holding numerous
      public comment sessions concerning the white paper.
    In an order issued in June 2003, the FERC requested comments on a proposal
      to condition all new and existing electric market-based tariffs and authorizations
      to include provisions prohibiting the seller from engaging in anticompetitive
      behavior or the exercise of market power. The FERC order proposes a list
      of market behavior rules that, if adopted, would apply to all electric market-based
      rate tariffs and authorizations, including PPL EnergyPlus and any other
      PPL subsidiaries that hold market-based rate authority.
    If adopted, these proposed rules may have a significant impact on PPL and
      its subsidiaries, which cannot be predicted at this time.
    Montana Hydroelectric License Contingencies(PPL Montana)
    PPL Montana has 11 hydroelectric facilities and one storage reservoir licensed
      by the FERC pursuant to the Federal Power Act under long-term licenses which
      expire on varying dates from 2009 through 2040. Pursuant to Section 8(e)
      of the Federal Power Act, the FERC approved the transfer from Montana Power
      to PPL Montana of all pertinent licenses and any amendments in connection
      with the Montana APA.
    The Kerr Dam Project license was jointly issued by the FERC to Montana
      Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation
      in 1985, and required Montana Power to hold and operate the project for
      30 years. The license required Montana Power, and subsequently PPL Montana
      as a result of the purchase of the Kerr Dam from Montana Power, to continue
      to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife
      and the habitat. Such implementation will require remaining payments totaling
      approximately $6 million between 2003 and 2020.
    PPL Montana entered into a Memorandum of Understanding (MOU) with state,
      federal and private entities related to the issuance in 2000 of the FERC
      renewal license for the nine dams for the Missouri-Madison project. The
      MOU requires PPL Montana to implement plans to mitigate the impact of its
      projects on fish, wildlife, habitat and to increase recreational opportunities.
      The MOU was created to maximize collaboration between the parties and possibilities
      for matching funds. Such implementation will require remaining payments
      by PPL Montana totaling $19 million between 2003 and 2010.
    Wallingford Deactivation (PPL and PPL Energy Supply)
    In January 2003, PPL negotiated an agreement with the ISO - New England
      that would declare that four of the five units at PPL's Wallingford, Connecticut
      facility are "reliability must run" units and put those units under cost-based
      rates. This agreement and the cost-based rates are subject to the FERC's
      approval, and PPL filed a request with the FERC for such approval. PPL requested
      authority for cost-based rates because the current and anticipated wholesale
      prices in New England are insufficient to cover the costs of keeping these
      units available for operation. In March 2003, PPL filed an application with
      the New England Power Pool to temporarily deactivate these four units. In
      May 2003, FERC denied PPL's request for cost-based rates in light of FERC's
      changes to the market and bid mitigation rules of the ISO - New England
      made in a similar case involving generating units owned by NRG Energy, Inc.
      PPL subsequently has explained to the FERC that its changes to the market
      and bid mitigation rules of ISO - New England will not provide sufficient
      revenues to PPL, and PPL continues to seek approval of its cost-based rates.
      However, PPL has informed the New England Power Pool that it will not pursue
      its request to temporarily deactivate certain Wallingford units. PPL cannot
      predict whether the FERC will eventually approve its request for cost-based
      rates.
    IRS Synthetic Fuels Tax Credits (PPL and PPL Energy Supply)
    
    Through its subsidiaries, PPL operates a synfuel facility in Somerset,
      Pennsylvania and receives tax credits pursuant to Section 29 of the Internal
      Revenue Code based on its sale of synfuel to unaffiliatedthird-party
      purchasers. Section 29 of the Internal Revenue Code provides tax credits
      for the production and sale of solid synthetic fuels produced from coal.
      To qualify for the Section 29 tax credits, the synthetic fuel must meet
      three primary conditions: (i) there must be a significant chemical change
      in the coal feedstock, (ii) the product must be sold to an unaffiliated
      entity, and (iii) the production facility must have been placed in service
      before July 1, 1998. Section 29 tax credits are currently scheduled to expire
      at the end of 2007.
    PPL received a private letter ruling from the IRS in November 2001 pursuant
      to which, among other things, the IRS concluded that the synthetic fuel
      produced at the Somerset facility qualifies for Section 29 tax credits.
      PPL uses the Covol technology to produce synfuel at the Somerset facility,
      and the IRS issued the private letter ruling after its review and approval
      of that technology. In reliance on this private letter ruling, PPL
      has sold synfuel produced at the Somerset facility resulting in an aggregate
      of approximately $120 million of tax credits as of June 30, 2003. PPL has projected
      that the Somerset facility will contribute approximately $0.15 to its EPS
      in each year from 2003 through 2007. PPL also purchases synfuel from unaffiliated
      third parties, at prices below the market price of coal, for use at its
      coal-fired power plants.
    On June 27, 2003, the IRS announced that it has reason to question the
      scientific validity of certain test procedures and results that have been
      presented to it by taxpayers with interests in synfuel operations as evidence
      that the required significant chemical change has occurred, and that it
      is currently reviewing information regarding these test procedures and practices.
      Accordingly, the IRS has suspended the issuance of private letter rulings
      concerning whether a significant chemical change has occurred for requests
      relying on the procedures and results being reviewed. In addition, the IRS
      indicated that it may revoke existing private letter rulings that relied
      on the procedures and results under review if it determines that those test
      procedures and results do not demonstrate that a significant chemical change
      has occurred.
    PPL does not know the specific nature of the synfuel production procedures
      and results that are being reviewed by the IRS. At this time, PPL cannot
      predict the outcome of the IRS' review, when the review will be completed
      or the ultimate impact, if any, of the review on PPL. PPL believes that
      it is justified in its reliance on the private letter ruling for the Somerset
      facility, that the test results that it presented to the IRS in connection
      with its private letter ruling are scientifically valid and that it has
      operated the Somerset facility in compliance with the private letter ruling
      and Section 29 of the Internal Revenue Code.
    U.K. Electricity Regulation(PPL and PPL Energy Supply)
    The principal legislation governing the structure of the electricity industry
      in Great Britain is the Electricity Act 1989 (the "Electricity Act"), as
      amended by the Utilities Act 2000 (the "Utilities Act").
    The provisions in the Utilities Act include the replacement of individual
      gas and electricity regulators with the Gas and Electricity Markets Authority
      (the "Regulator"). The principal objective of the Regulator is to protect
      the interests of consumers, wherever appropriate, by promoting effective
      competition in electricity generation and supply. There currently is no
      competition in electricity distribution.
    Each distribution business constitutes a natural regional monopoly and
      is subject to control on the prices it can charge and the quality of supply
      it must provide. The operations of WPD are regulated under its distribution
      licenses, pursuant to which income generated is subject to an allowed revenue
      regulatory framework that provides economic incentives to minimize operating,
      capital and financing costs. Under the Electricity Act, WPD is under a statutory
      duty to connect any customer requiring electricity within their area and
      to maintain that connection. The allowed revenue that is recovered from
      electricity supply businesses through charges by the Distribution Network
      Operator (DNO) made for the use of the distribution network is regulated
      on the basis of the Retail Price Index (RPI) minus X formula. The allowed
      revenue is increased by RPI minus X during the tenure of each price control
      period. (RPI is a measure of inflation and equals the percentage change
      in the U.K. RPI between the six-month period of July to December in the
      previous year. The X factor is established by the Regulator following review
      and represents an annual efficiency factor.) The Regulator currently sets
      the Distribution Price Control Formula for five-year periods.
    The current Distribution Price Control Formula permits DNOs, within a review
      period, to partially retain additional revenues due to increased distribution
      of units and to retain all increases in operating profit due to efficient
      operations and the reduction of expenses (including financing costs). The
      Regulator may reduce this increase in operating profit through a one-off
      price reduction in the first year of the new pricing regime, if the Regulator
      determines that it is not a function of efficiency savings, or, if genuine
      efficiency savings have been made, and the Regulator determines that customers
      should benefit through lower prices.
    In December 1999, the Regulator published final price proposals for distribution
      price control for the 12 DNOs in England and Wales. These proposals represented
      a reduction to distribution prices of 20% for WPD (South West) and 26% for
      WPD (South Wales) effective April 2000, followed by a reduction in real
      terms (i.e., before inflation is taken into account) of 3% each year from
      April 2001. This price control is scheduled to operate until March 2005.

    Improvements in quality of supply form an important part of the final proposals.
      Revised targets for system performance, in terms of the security and availability
      of supply, were proposed with new targets for reductions in minutes lost
      and interruptions.
    The Regulator has introduced a quality of service incentive plan for the
      period from April 2002 to March 2005. Companies will be penalized annually
      up to 2% of revenue for failing to meet their quality of supply targets
      for the incentive plan. The plan includes a mechanism for rewarding companies
      which exceed their targets based on their rate of improvement of performance
      during the period and a process for rewarding exceptional performance by
      specifying how the targets will be reset.
    Distribution businesses must also meet the Guaranteed and Overall Standards
      of Performance, which are set by the Regulator to ensure an appropriate
      level of quality of supply. If a company fails to provide the level of service
      specified, it must make a fixed payment to the retail customer affected.
    In June 2003, the Regulator published a report on the quality of supply
      from April 2001 through March 2002. The report confirms that WPD (South
      West) and WPD (South Wales) met or exceeded such standards and that no payments
      were made by either company.
    Environmental Matters - Domestic
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Due to the environmental issues discussed below or other environmental
      matters, PPL subsidiaries may be required to modify, replace or cease operating
      certain facilities to comply with statutes, regulations and actions by regulatory
      bodies or courts. In this regard, PPL subsidiaries also may incur capital
      expenditures or operating expenses in amounts which are not now determinable,
      but which could be significant.
    Air(PPL, PPL Energy Supply and PPL Montana)
    The Clean Air Act deals, in part, with acid rain, attainment of federal
      ambient ozone standards and toxic air emissions in the U.S. PPL's subsidiaries
      are in substantial compliance with the Clean Air Act. The Bush administration
      and certain members of Congress have made proposals regarding possible amendments
      to the Clean Air Act. These amendments could require significant further
      reductions in nitrogen oxide, sulfur dioxide and mercury and could possibly
      require measures to limit carbon dioxide. In addition, several states have
      taken their own actions requiring mandatory carbon dioxide emission reductions.
      Pennsylvania and Montana have not at this time established any formal programs
      to address carbon dioxide and other greenhouse gases.
    The Pennsylvania DEP has finalized regulations requiring further seasonal
      (May-June) nitrogen oxide reductions to 80% from 1990 levels starting in
      2003. These regulations are pursuant to EPA's 1998 State Implementation
      Plan (SIP) call to 22 eastern states, including Pennsylvania, to revise
      their state implementation plans. PPL expects to achieve the 2003 nitrogen
      oxide reductions with the recent installation of SCR technology on the Montour
      units, and may install SCR technology on one or more Brunner Island units
      at a later date.
    The EPA has also developed new standards for ambient levels of ozone and
      fine particulates in the U.S. These standards have been upheld following
      court challenges. The new particulates standard may require further reductions
      in sulfur dioxide and year-round nitrogen oxide reductions commencing in
      2010-2012 at SIP-call levels in Pennsylvania for certain PPL subsidiaries,
      and at slightly less stringent levels in Montana. The revised ozone standard
      is not expected to have a material effect on facilities of PPL subsidiaries.
    Under the Clean Air Act, the EPA has been studying the health effects of
      hazardous air emissions from power plants and other sources in order to
      determine what emissions should be regulated, and has determined that mercury
      and nickel emissions must be regulated. The EPA may determine that other
      hazardous air emissions from power plants should be regulated. In this regard,
      the EPA is expected to develop mercury and nickel regulations by 2004.
    In 1999, the EPA initiated enforcement actions against several utilities,
      asserting that older, coal-fired power plants operated by those utilities
      have, over the years, been modified in ways that subject them to more stringent
      "New Source" requirements under the Clean Air Act. The EPA has since issued
      notices of violation and commenced enforcement activities against other
      utilities. Although the EPA has threatened to continue expanding its enforcement
      actions, the future direction of the "New Source" requirements is presently
      unclear. Therefore, at this time, PPL is unable to predict whether such
      EPA enforcement actions will be brought with respect to any of its affiliates'
      plants. However, the EPA regional offices that regulate plants in Pennsylvania
      (Region III) and Montana (Region VIII) have indicated an intention to issue
      information requests to all utilities in their jurisdiction. The Region
      VIII office issued such a request to PPL Montana's Corette plant in 2000,
      and the Region III office issued such a request to PPL Generation's Martins
      Creek plant in 2002. PPL and its subsidiaries have responded to both of
      these information requests. PPL cannot presently predict what, if any, action
      the EPA might take in this regard. Should the EPA or any state initiate
      one or more enforcement actions against PPL or its subsidiaries, compliance
      with any such enforcement actions could result in additional capital and
      operating expenses in amounts which are not now determinable, but which
      could be significant.
    The EPA has finalized some changes to its "New Source" regulations, which do not significantly affect PPL's plants.  The EPA is also
proposing to further revise its regulations regarding the exemption from the requirement for power plants to either meet "New Source"
performance standards or undergo "New Source" review in the case of certain maintenance and repair activities.  The outcome and cost
of addressing these proposals, if finalized, are not now determinable, but could be significant.
    
    The New Jersey DEP and some New Jersey residents raised environmental concerns
      with respect to the Martins Creek plant, particularly with respect to sulfur
      dioxide emissions and the opacity of the plant's plume. These issues were
      raised in the context of an appeal by the New Jersey DEP of the Air Quality
      Plan Approval issued by the Pennsylvania DEP to the adjacent Lower Mt. Bethel
      facility, which is currently under construction. PPL Martins Creek had been
      discussing these concerns with the New Jersey DEP and the Pennsylvania DEP.
      In May 2003, PPL Generation, the parent company of Lower Mt. Bethel and
      PPL Martins Creek, entered into an agreement in principle with the New Jersey
      DEP pursuant to which it will reduce sulfur dioxide emissions from its Martins
      Creek power plant. Under the preliminary agreement, PPL will shut down or
      repower the plant's two coal-fired generating units by September 2007 and
      reduce the fuel sulfur content for those units as well as the plant's two
      oil-fired units beginning in 2004. In addition, PPL will donate to a non-profit
      organization 70% of the excess emission allowances and emission reduction
      credits that result from shutting down or repowering the coal units. The
      Pennsylvania DEP concurs with the agreement. As a result of the agreement,
      the New Jersey DEP will withdraw its challenge to the Air Quality Plan Approval
      for the Lower Mt. Bethel facility. If the agreement is finalized, the costs
      to PPL will not be material. The agreement does not address the opacity
      issues. If it is determined that opacity must be addressed, the cost is
      not now determinable, but could be significant.
    Water/Waste(PPL, PPL Energy Supply and PPL Montana)
    A final NPDES permit has been issued to the Brunner Island generating plant.
      The permit contains a provision requiring further studies on the thermal
      impact of the cooling water discharge from the plant. Depending on the outcome
      of these studies, the plant could be subject to capital and operating costs
      that are not now determinable, but which could be significant.
    The EPA has significantly tightened the water quality standard for arsenic.
      The revised standard may require several PPL subsidiaries to either further
      treat wastewater or take abatement action at their power plants, or both.
      The cost of complying with the revised standard is not now determinable,
      but could be significant.
    The EPA recently finalized requirements for new or modified water intake
      structures. These requirements will affect where generating facilities are
      built, will establish intake design standards, and could lead to requirements
      for cooling towers at new and modified power plants. If the source of water
      for the plants is surface water, these rules could impose significant capital
      and operating costs on PPL subsidiaries. Another new rule, expected to be
      finalized in 2004, will address existing structures. Each of these rules
      could impose additional costs on PPL subsidiaries, which are not now determinable,
      but which could be significant.
    Superfund and Other Remediation
    (PPL and PPL Electric)
    In 1995, PPL Electric entered into a consent order with the Pennsylvania
      DEP to address a number of sites where it may be liable for remediation.
      This may include potential PCB contamination at certain PPL Electric substations
      and pole sites; potential contamination at a number of coal gas manufacturing
      facilities formerly owned or operated by PPL Electric; and oil or other
      contamination which may exist at some of PPL Electric's former generating
      facilities. Remedial actions are now under way at a site in Sunbury, Pennsylvania.
      As of June 30, 2003, work has been completed on over 90% of the sites
      included in the consent order. Additional sites formerly owned or operated
      by PPL Electric are added to the consent order on a case-by-case basis.
    In 1996, PPL Gas Utilities entered into a similar consent order with the
      Pennsylvania DEP to address a number of sites where subsidiaries of PPL
      Gas Utilities may be liable for remediation. The sites primarily include
      former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities
      are also investigating the potential for any mercury contamination from
      gas meters and regulators. Accordingly, PPL Gas Utilities and the Pennsylvania
      DEP have agreed to add 72 meter/regulation sites to the consent order. As
      of June 30, 2003, PPL Gas Utilities had addressed 15% of the sites under
      its consent order.
    At June 30, 2003, PPL Electric and PPL Gas Utilities had accrued approximately
      $6 million and $9 million, representing the estimated amounts they will
      have to spend for site remediation, including those sites covered by each
      company's consent orders mentioned above. Depending on the outcome of investigations
      at sites where investigations have not begun or have not been completed,
      the costs of remediation and other liabilities could be substantial.
    (PPL, PPL Energy Supply and PPL Montana)
    In conjunction with its 1999 sale of generating assets to PPL Montana,
      Montana Power prepared a Phase I and Phase II Environmental Site Assessment.
      The assessment identified various groundwater remediation issues. Based
      upon subsequent assessments and actions taken by PPL Montana, the costs
      to PPL Montana of the groundwater remediation measures identified in those
      assessments are expected to be approximately $3 million. However, additional
      expenditures could be required in amounts which are not now determinable,
      but which could be significant.
    In May 2003, approximately 40 plaintiffs brought an action in Montana state
      court against PPL Montana and the other owners of the Colstrip plant alleging
      property damage from freshwater pond seepage and contamination from wastewater
      ponds at the plant. This action could result in PPL Montana and the other
      Colstrip owners being required to take additional remedial measures, the
      costs of which are not now determinable, but which could be significant.
    In 1999, the Montana Supreme Court held in favor of several citizens' groups
      that the right to a clean and healthful environment is a fundamental right
      guaranteed by the Montana Constitution. The court's ruling could result
      in significantly more stringent environmental laws and regulations, as well
      as an increase in citizens' suits under Montana's environmental laws. The
      effect on PPL Montana of any such changes in laws or regulations or any
      such increase in legal actions is not currently determinable, but it could
      be significant.
    Future cleanup or remediation work at sites currently under review, or
      at sites not currently identified, may result in material additional operating
      costs for PPL subsidiaries that cannot be estimated at this time.
    Asbestos (PPL and PPL Energy Supply)
    
    There have been increasing litigation claims throughout the U.S. based
      on exposure to asbestos against companies that manufacture or distribute
      asbestos products or that have these products on their premises. Certain
      of PPL's generation subsidiaries and certain of its energy services subsidiaries,
      such as those that have supplied, may have supplied or installed asbestos
      material in connection with the repair or installation of process piping
      and heating, ventilating and air conditioning systems, have been named as
      defendants in asbestos-related lawsuits. PPL cannot predict the outcome
      of these lawsuits or whether additional claims may be asserted against its
      subsidiaries in the future. PPL does not expect that the ultimate resolution
      of the current lawsuits will have a material adverse effect on its financial
      condition.
    Electric and Magnetic Fields (PPL, PPL Energy Supply and PPL
      Electric)
    Concerns have been expressed by some members of the public regarding the
      potential health effects of EMFs. These fields are emitted by all devices
      carrying electricity, including electric transmission and distribution lines
      and substation equipment. Government officials in the U.S. and the U.K.
      have focused attention on this issue. PPL and its subsidiaries support the
      current efforts to determine whether EMFs cause any human health problems
      and are taking steps to reduce EMFs, where practical, in the design of new
      transmission and distribution facilities. PPL is unable to predict what
      effect, if any, the EMF issue might have on its operations and facilities
      either in the U.S. or abroad, and the associated cost, or what, if any,
      liabilities it might incur related to the EMF issue.
    Lower Mt. Bethel (PPL and PPL Energy Supply)
    The Air Quality Plan Approval issued by the Pennsylvania DEP for construction
      of the Lower Mt. Bethel facility was appealed by the New Jersey DEP to the
      Pennsylvania DEP Environmental Hearing Board. In May 2003, PPL Generation
      entered into an agreement in principle with the New Jersey DEP pursuant
      to which PPL will, among other things, reduce the sulfur dioxide emissions
      from its Martins Creek power plant and the New Jersey DEP will withdraw
      its challenge to the Air Quality Plan Approval for the Lower Mt. Bethel
      facility. If the agreement is finalized, PPL's costs to comply will not
      be material.
    In addition, in August 2002, the Northampton County Court of Common Pleas
      issued a decision concerning the permissible noise levels from the Lower
      Mt. Bethel facility when it becomes operational. Specifically, the court's
      decision addressed the noise measurement criteria and the point at which
      the noise levels are to be measured. PPL appealed the court's decision to
      the Commonwealth Court, and an intervenor in the lawsuit cross-appealed
      the court's decision. In May 2003, the Commonwealth Court remanded the case
      to the Court of Common Pleas for further findings of fact concerning the
      zoning application relating to the construction of the facility. The Lower
      Mt. Bethel facility is expected to be operational in early 2004. PPL and
      PPL Energy Supply cannot predict the outcome of this matter or its ultimate
      impact on the Lower Mt. Bethel facility, but such impact may be material.
    Environmental Matters - International(PPL and PPL Energy Supply)
    U.K.
    WPD's distribution businesses are subject to numerous regulatory and statutory
      requirements with respect to environmental matters. WPD believes it has
      taken and continues to take measures to comply with the applicable laws
      and governmental regulations for the protection of the environment. There
      are no material legal or administrative proceedings pending against WPD
      with respect to environmental matters. See "Environmental Matters-Domestic-Electric
      and Magnetic Fields" for a discussion of EMFs.
    Latin America
    Certain of PPL's affiliates have electric distribution operations in Latin
      America. PPL believes that these operations are in compliance in all material
      respects with all applicable laws and government regulations to protect
      the environment. There are no material legal or administrative proceedings
      pending against PPL's affiliates in Latin America with respect to environmental
      matters.
    Other
    Commitments - Acquisitions, Development and Lease Activities(PPL and PPL Energy Supply)
    At June 30, 2003, a lessor had $25 million of purchase commitments for
      domestic construction projects for which a PPL subsidiary is the construction
      agent. PPL's exposure is limited to the guarantees under the operating lease.
      See Note 14 for additional information on guarantees under operating lease
      arrangements.
    Nuclear Insurance(PPL and PPL Energy Supply)
    PPL Susquehanna is a member of certain insurance programs which provide
      coverage for property damage to members' nuclear generating stations. Facilities
      at the Susquehanna station are insured against property damage losses up
      to $2.75 billion under these programs. PPL Susquehanna is also a member
      of an insurance program which provides insurance coverage for the cost of
      replacement power during prolonged outages of nuclear units caused by certain
      specified conditions. Under the property and replacement power insurance
      programs, PPL Susquehanna could be assessed retroactive premiums in the
      event of the insurers' adverse loss experience. At June 30, 2003, this maximum
      assessment was about $40 million.
    PPL Susquehanna's public liability for claims resulting from a nuclear
      incident at the Susquehanna station is limited to about $9.55 billion under
      provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna
      is protected against this liability by a combination of commercial insurance
      and an industry assessment program. In the event of a nuclear incident at
      any of the reactors covered by The Price Anderson Amendments Act of 1988,
      PPL Susquehanna could be assessed up to $176 million per incident, payable
      at $20 million per year.
    Guarantees and Other Assurances
    (PPL, PPL Energy Supply and PPL Electric)
    In the normal course of business, PPL, PPL Energy Supply and PPL Electric
      enter into agreements that provide financial performance assurance to third
      parties on behalf of certain subsidiaries. Such agreements include, for
      example, guarantees, stand-by letters of credit issued by financial institutions
      and surety bonds issued by insurance companies. These agreements are entered
      into primarily to support or enhance the creditworthiness attributed to
      a subsidiary on a stand-alone basis, thereby facilitating the extension
      of credit to accomplish the subsidiaries' intended commercial purposes.
    (PPL)
    PPL fully and unconditionally guarantees the medium-term notes of PPL Capital
      Funding, a wholly-owned financing subsidiary of PPL. PPL also fully and
      unconditionally guarantees all of the obligations of PPL Capital Funding
      Trust I, a wholly-owned financing subsidiary of PPL, under the trust preferred
      securities that are a component of the PEPS Units.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL, PPL Energy Supply, PPL Electric and PPL Montana provide certain guarantees
      that are required to be disclosed in accordance with 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." See Note
      14 for a discussion of FIN 45. The guarantees provided as of June 30, 2003
      are discussed below. In accordance with the provisions of FIN 45, the fair
      values of guarantees related to arrangements entered into prior to January
      1, 2003, as well as guarantees excluded from the initial recognition and
      measurement provisions of FIN 45, are not recorded in the financial statements.
    (PPL)
    PPL or its subsidiaries provide guarantees in the aggregate amount of approximately
      $20 million, as of June 30, 2003, related to debt of unconsolidated entities.
      The guarantees are reduced as the related debt balances decline, and they
      expire from June 2006 through April 2009.
    (PPL Energy Supply)
    PPL Energy Supply has entered into several standby letter of credit arrangements
      under its $500 million credit facility for the purposes of protecting various
      third parties against nonperformance by PPL and PPL Gas Utilities. As of
      June 30, 2003, the aggregate maximum exposure related to these standby letters
      of credit was $11 million. These letters of credit expire in 2004.
    PPL Energy Supply provides a guarantee in the amount of approximately $10
      million, as of June 30, 2003, related to debt of an unconsolidated entity.
      This guarantee is reduced as the debt balance declines, and it expires in
      April 2009.
    (PPL and PPL Energy Supply)
    PPL Generation has entered into certain partnership arrangements for the
      sale of coal to third parties. PPL Generation has also executed support
      agreements, which expire in 2007, for the benefit of these third party purchasers
      pursuant to which it guarantees the partnerships' obligations in an amount
      up to its pro rata ownership interest in the partnerships. PPL Generation's
      maximum aggregate exposure under these support arrangements was approximately
      $9 million as of June 30, 2003.
    Certain PPL Generation subsidiaries provide residual value guarantees under
      the operating leases for the Sundance, University Park and Lower Mt. Bethel
      generation facilities. See Note 14 for further discussion of these residual
      value guarantees.
    PPL Susquehanna is contingently obligated to pay $40 million related to
      potential retroactive premiums that could be assessed under its nuclear
      insurance programs. Additionally, under the Price Anderson Amendments Act
      of 1988, PPL Susquehanna could be assessed up to $176 million for each incident
      at any of the nuclear reactors covered by this Act. See "Nuclear Insurance"
      for additional information.
    PPL EnergyPlus is party to a wide range of energy trading or purchase and
      sale agreements pursuant to which the parties indemnify each other for any
      damages arising from events that occur while the indemnifying party has
      title to the electricity or natural gas. For example, in the case of the
      party that is delivering the product, such party would be responsible for
      damages arising from events occurring prior to delivery. The overall maximum
      amount of the obligation under such indemnifications cannot be reasonably
      estimated. Historically, PPL EnergyPlus has not made any significant payments
      with respect to this type of indemnification. As of June 30, 2003, the aggregate
      fair value of these indemnifications related to arrangements entered into
      subsequent to December 31, 2002 was insignificant.
    PPL EnergyPlus enters into written put option contracts under which, in
      exchange for a premium received, it agrees to purchase a specified quantity
      of a commodity for a specified price if the counterparty exercises the option.
      The aggregate carrying value of such contracts that were outstanding as
      of June 30, 2003 was a net liability of $3 million, which is included in
      price risk management assets and liabilities on the Balance Sheet. These
      option contracts expire from July 2003 through August 2004. The aggregate
      maximum amount of payments that PPL EnergyPlus could be required to make
      if the options are exercised by the counterparties under these contracts
      is $33 million.
    In connection with their sales of various businesses, WPD and its affiliates
      have provided the purchasers with indemnifications that are standard for
      such transactions, including indemnifications for certain pre-existing liabilities
      and environmental and tax matters. In addition, in connection with certain
      of these sales, WPD and its affiliates have agreed to continue their obligations
      under existing third party guarantees, either for a set period of time following
      the transactions or upon the condition that the purchasers make reasonable
      efforts to terminate the guarantees. They have also guaranteed the payment
      of up to £19 million, or $32 million at current exchange rates, under
      a contract, which expires in 2005, assigned as part of one of these sales.
      Finally, WPD and its affiliates remain secondarily responsible for lease
      payments under certain leases that they have assigned to third parties.
      These various guarantees vary in duration and in the maximum potential payment,
      which, except as otherwise noted above, cannot be estimated but which in
      the aggregate could be material. To date, neither WPD nor any of its affiliates
      have made any significant payments with respect to these guarantees.
    Certain acquisition agreements relating to the acquisition of mechanical
      contractors contain provisions that require a PPL Energy Supply subsidiary
      to make contingent payments to the former owners based upon the profitability
      of the business unit. The maximum amount of potential payments is not explicitly
      stated in the acquisition agreements. Such arrangements expire in 2005.
      PPL Energy Supply estimates that an aggregate of approximately $7 million
      could be paid under these arrangements.
    Certain agreements relating to the purchase of ownership interests in synfuel
      projects contain provisions that require certain PPL Energy Supply subsidiaries
      to make contingent purchase price payments to the former owners. These payments
      are non-recourse to PPL, PPL Energy Supply and their other subsidiaries and are
      based primarily upon production levels of the synfuel projects. The maximum
      amounts of potential payments are not explicitly stated in the agreements.
      Such arrangements expire in 2007. Based on current expectations, PPL Energy
      Supply estimates that the subsidiaries could pay up to an aggregate of approximately
      $66 million under these arrangements.
    (PPL Electric)
    PPL Electric provides a guarantee in the amount of approximately $7 million,
      as of June 30, 2003, related to debt of an unconsolidated entity. The guarantee
      expires in June 2008.
    (PPL and PPL Electric)
    PPL Electric leases vehicles and other equipment under four master operating
      lease agreements. The term for each piece of equipment leased under three
      of the master agreements is one year, after which time the lease term is
      extended from month to month until terminated. Under the fourth master agreement,
      the term for each piece of equipment ranges from one year to three years,
      after which time the lease term may be extended for certain equipment for
      up to two additional years. Under these lease arrangements, PPL Electric
      provides residual value guarantees to the lessors. PPL Electric generally
      could be required to pay a residual value guarantee if the proceeds received
      from the sale of a piece of equipment, upon termination of the lease, are
      less than the expected residual value of the equipment. As of June 30, 2003,
      the maximum aggregate amount of future payments that PPL Electric could
      be required to make as a result of these residual value guarantees was approximately
      $91 million. The aggregate carrying value of PPL Electric's residual value
      guarantees issued subsequent to December 31, 2002 was $14 million at June
      30, 2003 and is included in "Current Liabilities - Other" on the Balance
      Sheet. These guarantees generally expire within one year, unless the lease
      terms are extended.
    (PPL, PPL Energy Supply and PPL Montana)
    PPL Montana leases certain equipment under a master operating lease agreement.
      The term for each piece of equipment leased under the master agreement is
      one year, after which time the lease term is extended from month to month
      until terminated. Under this lease arrangement, PPL Montana provides residual
      value guarantees to the lessor. PPL Montana generally would be required
      to pay a residual value guarantee if the proceeds received from the sale
      of a piece of equipment, upon termination of the lease, are less than the
      expected residual value of the equipment. As of June 30, 2003, the maximum
      aggregate amount of future payments that PPL Montana could be required to
      make as a result of these residual value guarantees was approximately $5
      million. The aggregate carrying value of PPL Montana's residual value guarantees
      issued subsequent to December 31, 2002 was insignificant at June 30, 2003.
      These guarantees generally expire within one year, unless the lease terms
      are extended.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    The operating lease arrangements described above and the companies' or
      their subsidiaries' other lease arrangements include certain indemnifications
      in favor of the lessors (e.g., tax and environmental matters) with terms
      that range in duration and scope and that are not explicitly defined. Because
      the obligated amounts of these types of indemnifications often are not explicitly
      stated, the overall maximum amount of the obligation under such indemnifications
      cannot be reasonably estimated. Historically, no significant payments have
      been made with respect to these indemnifications. As of June 30, 2003, the
      aggregate fair value of these indemnifications related to arrangements entered
      into subsequent to December 31, 2002 was insignificant.
    In connection with their issuances of securities, PPL, PPL Energy Supply,
      PPL Electric and PPL Montana and their subsidiaries engage underwriters,
      purchasers and purchasing agents to whom they provide indemnification for
      damages incurred by such parties arising from the companies' material misstatements
      or omissions in the related offering documents. In addition, in connection
      with these securities offerings and other financing transactions, the companies
      also engage trustees or custodial, escrow or other agents to act for the
      benefit of the investors or to provide other agency services. PPL, PPL Energy
      Supply, PPL Electric and PPL Montana and their subsidiaries typically provide
      indemnification to these agents for any liability or expenses incurred by
      them in performing their obligations. Because the obligated amounts of these
      types of indemnifications often are not explicitly stated, the overall maximum
      amount of the obligation under such indemnifications cannot be reasonably
      estimated. Historically, no significant payments have been made with respect
      to these indemnifications. As of June 30, 2003, the fair value of these
      indemnifications related to arrangements entered into subsequent to December
      31, 2002 was insignificant.
    PPL, PPL Energy Supply, PPL Electric and PPL Montana and their subsidiaries
      also have various guarantees in contracts that they enter into in the normal
      course of business. These guarantees are primarily in the form of various
      indemnifications as well as warranties, related to services or equipment,
      that range in duration and coverage and that do not explicitly state the
      amount of the indemnification obligation. Historically, no significant payments
      have been made for these guarantees. As of June 30, 2003, the aggregate
      fair value of these guarantees related to arrangements entered into subsequent
      to December 31, 2002 was insignificant.
    PPL, on behalf of itself and its subsidiaries, maintains insurance that
      covers liability assumed under contract for bodily injury and property damage.
      The coverage requires a $4 million deductible per occurrence and provides
      maximum aggregate coverage of approximately $175 million. This insurance
      may be applicable to certain obligations under the contractual arrangements
      discussed above.
8. Related Party Transactions
    PLR Contract(PPL Energy Supply and PPL Electric)
    PPL Electric has power sales agreements with PPL EnergyPlus, effective
      January 1, 2002, to supply all of PPL Electric's PLR load through 2009.
      Under these contracts, PPL EnergyPlus will provide electricity at the pre-determined
      capped prices that PPL Electric is authorized to charge its PLR customers.
      For the three months ended June 30, 2003 and 2002, these purchases totaled
      $327 million and $339 million. For the six months ended June 30, 2003 and
      2002, these purchases totaled $714 million and $708 million. These purchases
      include nuclear decommissioning recovery and amortization of an up-front
      contract payment and are included in the Statement of Income as "Energy
      purchases from affiliate" by PPL Electric and as "Wholesale energy marketing
      to affiliates" revenues by PPL Energy Supply.
    Under the PLR contracts, PPL Electric is required to make performance assurance
      deposits with PPL EnergyPlus when the market price of electricity is less
      than the contract price by more than its contract collateral threshold.
      Conversely, PPL EnergyPlus is required to make performance assurance deposits
      with PPL Electric when the market price of electricity is greater than the
      contract price by more than its contract collateral threshold. At June 30,
      2003 and December 31, 2002, neither PPL Electric nor PPL EnergyPlus was
      required to make performance assurance deposits since the market price of
      electricity was within contract collateral thresholds.
    In 2001, PPL Electric made a $90 million payment to PPL EnergyPlus in connection
      with the PLR contracts. The upfront payment is being amortized by both parties
      over the term of the PLR contracts. The unamortized balance of this payment
      and other payments under the contract was $75 million at June 30, 2003 and
      $81 million at December 31, 2002.
    NUG Purchases(PPL Energy Supply and PPL Electric)
    PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity
      purchased under contracts with NUGs. PPL Electric purchases electricity
      from the NUGs at contractual rates and then sells the electricity at the
      same price to PPL EnergyPlus. For the three months ended June 30, 2003 and
      2002, these NUG purchases totaled $37 million and $40 million and for the
      six months ended June 30, 2003 and 2002 were $76 million and $82 million.
      These amounts are included in the Statement of Income as "Wholesale electric
      to affiliate" revenues by PPL Electric, and as "Energy purchases from affiliates"
      by PPL Energy Supply.
    Montana Retail Supply(PPL Montana)
    PPL Montana has a memorandum of understanding (MOU) with PPL EnergyPlus
      regarding the supply of energy to satisfy PPL EnergyPlus' obligations under
      its retail contracts. This MOU will remain in effect until terminated by
      mutual consent of the parties, or upon 90 days written notice of termination
      given by either party to the other party. Under the MOU, energy sales to
      PPL EnergyPlus for the three months ended June 30, 2003 and 2002 were $15
      million and $13 million and for the six months ended June 30, 2003 and 2002
      were $31 million and $30 million. These amounts are included in "Wholesale
      energy marketing to affiliate" revenues on the Statement of Income.
    Brokering and Contract Management Agreement(PPL Montana)
    Under a brokering and contract management agreement between PPL Montana
      and PPL EnergyPlus, PPL Montana paid PPL EnergyPlus $1 million and $2 million
      for the three months ended June 30, 2003 and 2002. For the six months ended
      June 30, 2003 and 2002, the payments were $2 million and $4 million.
    Allocations of Corporate Service Costs(PPL Energy Supply, PPL
      Electric and PPL Montana)
    PPL Services provides corporate functions such as financial, legal, human
      resources and information services. PPL Services bills the respective PPL
      subsidiaries for the cost of such services when they can be specifically
      identified. The cost of these services that is not directly charged to PPL
      subsidiaries is allocated to certain of the subsidiaries using a three-factor
      method based on an average of the subsidiaries' relative invested capital,
      operation and maintenance expenses, and number of employees. PPL Services
      allocated the following charges to PPL Energy Supply, PPL Electric and PPL
      Montana:
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Direct expensesPPL Energy Supply
        
        $
        23
        
        
        $
        23
        
        
        $
        45
        
        
        $
        43PPL Electric
        
        
        16
        
        
        
        14
        
        
        
        31
        
        
        
        28PPL Montana
        
        
        2
        
        
        
        3
        
        
        
        4
        
        
        
        4Overhead costsPPL Energy Supply
        
        
        14
        
        
        
        11
        
        
        
        28
        
        
        
        17PPL Electric
        
        
        6
        
        
        
        7
        
        
        
        13
        
        
        
        13PPL Montana
        
        
        1
        
        
        
        3
        
        
        
        2
        
        
        
        5Intercompany Borrowings
    (PPL Energy Supply)
    PPL Energy Supply, primarily through its financing subsidiary PPL Investment
      Corporation, had notes receivable from affiliates of PPL totaling $227 million
      and $655 million at June 30, 2003 and December 31, 2002. At June 30, 2003,
      the largest note receivable was from PPL Energy Funding, with interest equal
      to LIBOR plus 3% and a balance of $194 million. Interest earned on loans
      to affiliates, included in "Other Income - net" on the Statement of Income,
      was $4 million and $6 million for the three months ended June 30, 2003 and
      2002 and was $12 million and $11 million for the six months ended June 30,
      2003 and 2002.
    (PPL Electric)
    In 2001, PPL Electric made a $150 million demand loan from excess cash
      to PPL Energy Funding. Interest on the loan is due monthly at an annual
      interest rate of 4.0%. The outstanding balance of this loan was $100 million
      and $90 million at June 30, 2003 and December 31, 2002. Intercompany interest
      income was $1 million for the three months ended June 30, 2002, and was
      $2 million and $5 million for the six months ended June 30, 2003 and 2002.
    (PPL Montana)
    In 2002, PPL Montana entered into a $100 million three-year credit facility
      with PPL Investment Corporation on market terms to meet its liquidity needs.
      PPL Montana had outstanding borrowings under this facility of $19 million
      and $26 million at June 30, 2003 and December 31, 2002, which are shown
      as "Revolving line of credit with affiliate" on the Balance Sheet.
    Trademark Royalties(PPL Energy Supply)
    In the fourth quarter of 2002, a PPL subsidiary that owns PPL trademarks
      began billing certain affiliates who use these trademarks. PPL Energy Supply
      was allocated $9 million and $20 million of this license fee for the three
      and six months ended June 30, 2003, which is primarily included in "Other
      operation and maintenance" on the Statement of Income.
9. Other Income - Net
    (PPL)
    The breakdown of PPL's Other Income was as follows:
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Other IncomeInterest income
        
        $
        4
        
        
        $
        6
        
        
        $
        7
        
        
        $
        13Earnings on nuclear decommissioning
            trust (a)
        
        
        6
        
        
        
        
        
        
        
        8Hyder - related activity
        
        
        4
        
        
        
        
        
        
        
        4Gain on property sales
        
        
        3
        
        
        
        
        
        
        
        3Rental income
        
        
        3
        
        
        
        
        
        
        
        3Legal claim settlements
        
        
        3
        
        
        
        
        
        
        
        3Equity earnings
        
        
        1
        
        
        
        1
        
        
        
        
        
        
        
        1Miscellaneous
        
        
        4
        
        
        
        3
        
        
        
        13
        
        
        
        10Total
        
        
        28
        
        
        
        10
        
        
        
        41
        
        
        
        24Other DeductionsDomestic project development costs
        
        
        1
        
        
        
        
        
        
        
        1Non-operating taxes other than income
        
        
        1
        
        
        
        1
        
        
        
        1
        
        
        
        1Miscellaneous
        
        
        3
        
        
        
        5
        
        
        
        8
        
        
        
        12Other Income - net
        
        $
        23
        
        
        $
        4
        
        
        $
        31
        
        
        $
        11(a)
        Effective with the adoption of SFAS
            143 on January 1, 2003 (as described in Note 12), realized earnings
            on the nuclear decommissioning trust are recorded in "Other Income
            - net." Prior to January 1, 2003, such realized earnings served to
            increase the nuclear decommissioning liability.(PPL Energy Supply)
    The breakdown of PPL Energy Supply's Other Income was as follows:

    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Other IncomeAffiliated interest income
        
        $
        4
        
        
        $
        6
        
        
        $
        12
        
        
        $
        11Earnings on nuclear decommissioning
            trust (a)
        
        
        6
        
        
        
        
        
        
        
        8Hyder - related activity
        
        
        4
        
        
        
        
        
        
        
        4Interest income
        
        
        3
        
        
        
        5
        
        
        
        4
        
        
        
        10Gain on property sales
        
        
        3
        
        
        
        
        
        
        
        3Rental income
        
        
        3
        
        
        
        
        
        
        
        3Legal claim settlements
        
        
        3
        
        
        
        
        
        
        
        3Equity earnings
        
        
        1
        
        
        
        1
        
        
        
        2
        
        
        
        2Miscellaneous
        
        
        1
        
        
        
        3
        
        
        
        10
        
        
        
        7Total
        
        
        28
        
        
        
        15
        
        
        
        49
        
        
        
        30Other DeductionsNon-operating taxes other than income
        
        
        1
        
        
        
        1
        
        
        
        1
        
        
        
        1Miscellaneous
        
        
        2
        
        
        
        4
        
        
        
        6
        
        
        
        8Other Income - net
        
        $
        25
        
        
        $
        10
        
        
        $
        42
        
        
        $
        21(a)
        Effective with the adoption of SFAS
            143 on January 1, 2003 (as described in Note 12), realized earnings
            on the nuclear decommissioning trust are recorded in "Other Income
            - net." Prior to January 1, 2003, such realized earnings served to
            increase the nuclear decommissioning liability.
10. Derivative Instruments and Hedging Activities
    (PPL, PPL Energy Supply and PPL Montana)
    Fair Value Hedges
    PPL Energy Supply and PPL Montana enter into financial or physical contracts
      to hedge a portion of the fair value of firm commitments of forward electricity
      sales. These contracts range in maturity through 2006. Additionally, PPL
      and PPL Energy Supply enter into financial contracts to hedge fluctuations
      in market value of existing debt issuances. These contracts range in maturity
      through 2029.
    As a result of settling certain transactions with a counterparty that exited
      its energy marketing function, PPL and PPL Energy Supply recognized a net
      gain of $1 million for the three and six months ended June 30, 2003 resulting
      from firm commitments that no longer qualified as fair value hedges. PPL
      Montana recognized a net loss of $1 million for the three and six months
      ended June 30, 2003. These transactions were reflected in "Energy purchases"
      on the Statement of Income. PPL, PPL Energy Supply and PPL Montana did not
      recognize any net gains or losses for similar activity for the three and
      six months ended June 30, 2002.
    PPL, PPL Energy Supply and PPL Montana did not recognize any gains or losses
      resulting from the ineffective portion of fair value hedges for the three
      and six months ended June 30, 2003 or 2002.
    Cash Flow Hedges
    PPL Energy Supply and PPL Montana enter into financial and physical contracts,
      including forwards, futures and swaps, to hedge the price risk associated
      with electric, gas and oil commodities. These contracts range in maturity
      through 2006. Additionally, PPL and PPL Energy Supply enter into financial
      interest rate swap contracts to hedge interest expense associated with both
      existing and anticipated debt issuances. These contracts range in maturity
      through 2010. PPL and PPL Energy Supply also enter into foreign currency
      forward and swap contracts to hedge exchange rates associated with firm
      commitments and debt financings denominated in foreign currencies and to
      hedge the net investment of foreign operations. These forward contracts
      range in maturity through 2028.
    Cash flow hedges may be discontinued because it is probable that the original
      forecasted transaction will not occur by the end of the originally specified
      time period. PPL and PPL Energy Supply discontinued certain cash flow hedges
      which resulted in a loss of $11 million being reclassified from other comprehensive
      income into earnings for the three and six months ended June 30, 2003 (reported
      in "Interest Expense" on the Statement of Income).
    Due to hedge ineffectiveness, PPL and PPL Energy Supply recorded a net
      loss of $1 million into earnings for the three and six months ended June
      30, 2003, and an insignificant amount for the three and six months ended
      June 30, 2002.
    As of June 30, 2003, the deferred net loss, after tax, on derivative instruments
      in accumulated other comprehensive income expected to be reclassified into
      earnings during the next twelve months was $9 million, $5 million and $3
      million for PPL, PPL Energy Supply and PPL Montana.
    The following table shows the after-tax change in accumulated unrealized
      gains or losses on derivatives in other comprehensive income:
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002PPLBeginning accumulated derivative gain
        $
        34
        
        
        $
        12
        
        
        $
        7
        
        
        $
        23Net change associated with current
            period hedging activities and other
        
        19
        
        
        
        
        
        
        
        68
        
        
        
        (8
        )Net change associated with hedges
            of net investments
        
        (3
        )
        
        
        
        
        
        
        (3
        )Net change from reclassification into
            earnings
        
        (29
        )
        
        
        
        
        
        
        (51
        )
        
        
        (3
        )Ending accumulated derivative gain
        $
        21
        
        
        $
        12
        
        
        $
        21
        
        
        $
        12

    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002PPL Energy SupplyBeginning accumulated derivative gain
        $
        52
        
        
        $
        34
        
        
        $
        23
        
        
        $
        47Net change associated with current
            period hedging activities and other
        
        28
        
        
        
        (2
        )
        
        
        75
        
        
        
        (11
        )Net change associated with hedges
            of net investments
        
        (3
        )
        
        
        
        
        
        
        (3
        )Net change from reclassification into
            earnings
        
        (30
        )
        
        
        1
        
        
        
        (48
        )
        
        
        (3
        )Ending accumulated derivative gain
        $
        47
        
        
        $
        33
        
        
        $
        47
        
        
        $
        33PPL MontanaBeginning accumulated derivative gain
        $
        13
        
        
        $
        19
        
        
        $
        4
        
        
        $
        33Net change associated with current
            period hedging activities and other
        
        (14
        )
        
        
        (2
        )
        
        
        (5
        )
        
        
        (13
        )Net change from reclassification into
            earnings
        
        (2
        )
        
        
        3
        
        
        
        (2
        )Ending accumulated derivative gain
        $
        (3
        )
        
        $
        20
        
        
        $
        (3
        )
        
        $
        20The changes associated with current period activity and reclassifications
      into earnings were significantly higher in 2003 than 2002 due to foreign
      currency hedges at WPD that were not reported on a consolidated basis during
      the first half of 2002. The transaction gains and losses arising from the
      remeasurement of its foreign-currency denominated debt are offset by a related
      amount reclassified each period from other comprehensive income to earnings.
    Implementation Issues
    PPL adopted the final provisions of EITF 02-3, "Issues Involved in Accounting
      for Derivative Contracts Held for Trading Purposes and Contracts Involved
      in Energy Trading and Risk Management Activities," during the fourth quarter
      of 2002. As such, PPL now reflects its net realized and unrealized gains
      and losses associated with all derivatives that are held for trading purposes
      in the "Net energy trading margins" line on the Statement of Income. Non-derivative
      contracts that met the definition of energy trading activities as defined
      by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities,"
      are reflected in the financial statements using the accrual method of accounting.
      Under the accrual method of accounting, unrealized gains and losses are
      not reflected in the financial statements. Prior periods have been reclassified.
      PPL did not need to record a cumulative effect of this change in accounting
      principle because all non-derivative energy-related trading contracts had
      been shown in the financial statements at their amortized cost. This amortized
      cost reflected modeling reserves that incorporated the lack of independence
      in valuing contracts for which there were no external market prices.
    The financial statement impact of netting energy trading activities is
      as follows:
    Three
            Months
            Ended June 30,
        
        
        Six Months
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002PPL and PPL Energy
            SupplyPrior classificationWholesale energy marketing
        $
        197
        
        
        $
        132
        
        
        $
        513
        
        
        $
        206Energy purchases
        
        183
        
        
        
        130
        
        
        
        506
        
        
        
        190Net energy trading margins
        $
        14
        
        
        $
        2
        
        
        $
        7
        
        
        $
        16PPL MontanaPrior classificationWholesale energy marketing
        $
        5
        
        
        $
        7
        
        
        $
        13
        
        
        $
        (1
        )Energy purchases
        
        5
        
        
        
        7
        
        
        
        13Net energy trading margins
        $
        
        
        
        $
        
        
        
        $
        
        
        
        $
        (1
        )Credit Concentration
    PPL, PPL Energy Supply and PPL Montana enter into contracts with many entities
      for the purchase and sale of energy. Most of these contracts are considered
      a normal part of doing business and, as such, the mark-to-market value of
      these contracts is not reflected in the financial statements. However, the
      mark-to-market value of these contracts is considered when committing to
      new business from a credit perspective.
    PPL, PPL Energy Supply and PPL Montana have credit exposures to energy
      trading partners. The majority of these exposures were the mark-to-market
      value of multi-year contracts for energy sales. Therefore, if these counterparties
      fail to perform their obligations under such contracts, the companies would
      not experience an immediate financial loss, but would experience lower revenues
      in future years to the extent that replacement sales could not be made at
      the same prices as sales under the defaulted contracts.
    At June 30, 2003, PPL had a credit exposure of $177 million to energy trading
      partners. Six counterparties accounted for 43% of this exposure. No other
      individual counterparty accounted for more than 3% of the exposure. With
      two exceptions, each of the six primary counterparties had an investment
      grade credit rating from Standard & Poor's. PPL entered into a multi-year
      contract with one non-investment grade counterparty through a bidding process
      sponsored by a state regulatory commission. The other non-investment grade
      counterparty has refused to supply credit assurance and PPL has therefore
      stopped trading with this company.
    At June 30, 2003, PPL Energy Supply had a credit exposure of $280 million
      to energy trading partners. Seven counterparties accounted for 64% of this
      exposure. No other individual counterparty accounted for more than 2% of
      the exposure. The largest exposure, $102 million, was to PPL Electric, under
      the long-term contracts to provide PPL Electric's PLR load. With two exceptions,
      the other six counterparties have an investment grade credit rating from
      Standard & Poor's. PPL Energy Supply entered into a multi-year contract
      with one non-investment grade counterparty through a bidding process sponsored
      by a state regulatory commission. The other non-investment grade counterparty
      has refused to supply credit assurance and PPL Energy Supply has therefore
      stopped trading with this company.
    At June 30, 2003, PPL Montana had a credit exposure of $36 million to energy
      trading partners. Three counterparties accounted for 63% of this exposure.
      No other individual counterparty accounted for more than 3% of the exposure.
      Each of the three primary counterparties has an investment grade credit
      rating from Standard & Poor's.
    PPL, PPL Energy Supply and PPL Montana have the right to request collateral
      from each of these counterparties, except for one government agency, in
      the event their credit rating falls below investment grade, or in one case
      below current levels. It is also the policy of PPL, PPL Energy Supply and
      PPL Montana to enter into netting agreements with all of their counterparties
      to minimize credit exposure.
11. Goodwill
    (PPL and PPL Energy Supply)
    The changes in the carrying amounts of goodwill by segment were as follows:
    PPL Energy
            Supply
        
        
        
        
        
        PPLSupply
        
        
        International
        
        
        Total
        
        
        Delivery(a)
        
        
        TotalBalance as of January 1,
            2003
        
        $
        85
        
        
        $
        334
        
        
        $
        419
        
        
        $
        55
        
        
        $
        474Effect of foreign exchange
            rates
        
        
        
        
        
        
        9
        
        
        
        9
        
        
        
        
        
        
        
        9Purchase accounting adjustments
        
        
        1
        
        
        
        (26
        ) (b)
        
        
        (25
        )
        
        
        
        
        
        
        (25
        )Balance as of June 30, 2003
        
        $
        86
        
        
        $
        317
        
        
        $
        403
        
        
        $
        55
        
        
        $
        458(a)
        
        The Delivery segment is
            not part of PPL Energy Supply.(b)
        
        See Note 6 for additional
            information.The reporting units of the Supply, Delivery and International segments
      completed the transition impairment test in the first quarter of 2002 in
      accordance with SFAS 142, "Goodwill and Other Intangible Assets." A transition
      goodwill impairment loss of $150 million was recognized in the Latin American
      reporting unit within the International segment, and is reported as a "Cumulative
      Effect of a Change in Accounting Principle" on the Statement of Income.
      The fair value of the reporting unit was estimated using the expected present
      value of future cash flows.
12. Asset Retirement Obligations
    (PPL and PPL Energy Supply)
    PPL and PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement
      Obligations," effective January 1, 2003. Application of the new rules resulted
      in an increase in net property, plant and equipment of $32 million, reversal
      of previously recorded liabilities of $304 million, recognition of asset
      retirement obligations of $229 million, recognition of a deferred tax liability
      of $44 million and a cumulative effect of adoption that increased net income
      by $63 million or $0.37 per share. For the three and six months ended June
      30, 2003, PPL and PPL Energy Supply recognized $4 million and $9 million
      of accretion expense and an insignificant amount of depreciation expense
      as a result of applying SFAS 143.
    PPL and PPL Energy Supply identified various legal obligations to retire
      long-lived assets, the largest of which relates to the decommissioning of
      the Susquehanna station. PPL and PPL Energy Supply identified and recorded
      other asset retirement obligations related to significant interim retirements
      at the Susquehanna station, various environmental requirements for coal
      piles, ash basins and other waste basin retirements.
    PPL and PPL Energy Supply also identified legal retirement obligations
      that were not measurable at this time. These items included the retirement
      of certain transmission assets and a reservoir. These retirement obligations
      were not measurable due to indeterminable dates of retirement.
    Amounts collected from PPL Electric's customers for decommissioning, less
      applicable taxes, are deposited in external trust funds for investment and
      can only be used for future decommissioning costs. The fair value of the
      nuclear decommissioning trust was $320 million and $287 million as of June
      30, 2003 and December 31, 2002.
    PPL and PPL Energy Supply's asset retirement obligations are included in
      "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance
      Sheet. The changes in the carrying amounts of asset retirement obligations
      were as follows:
    PPL
        
        
        
        PPL Energy SupplyAsset retirement obligation at January
            1, 2003
        
        $
        229
        
        
        $
        229Add: Accretion expense
        
        
        9
        
        
        
        9Less: Settlement
        
        
        (3
        )
        
        
        (3
        )Asset retirement obligation at June
            30, 2003
        
        $
        235
        
        
        $
        235The pro forma asset retirement obligation liability balances calculated
      as if SFAS 143 had been adopted on January 1, 2002 were $235 million, $229
      million and $211 million as of June 30, 2003, December 31, 2002 and January
      1, 2002.
    The pro forma effects of the application of SFAS 143 calculated as if it
      had been adopted on January 1, 2002 (rather than January 1, 2003) are presented
      below:
    (PPL)
    Three
            Months 
            Ended June 30,
        
        
        Six Months
            
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Reported net income (loss) - before
            cumulative effect of a change in accounting principle (a)
        
        $
        116
        
        
        $
        (27
        )
        
        $
        292
        
        
        $
        120Pro forma net income (loss) - before
            cumulative effect of a change in accounting principle
        
        $
        116
        
        
        $
        (35
        )
        
        $
        292
        
        
        $
        113Reported net income (loss)
        
        $
        116
        
        
        $
        (27
        )
        
        $
        355
        
        
        $
        (30
        )Pro forma net income (loss)
        
        $
        116
        
        
        $
        (35
        )
        
        $
        292
        
        
        $
        (37
        )Basic EPS:Reported net income (loss) - before
            cumulative effect of a change in accounting principle
        
        $
        0.68
        
        
        $
        (0.18
        )
        
        $
        1.73
        
        
        $
        0.82Pro forma net income (loss) - before
            cumulative effect of a change in accounting principle
        
        $
        0.68
        
        
        $
        (0.24
        )
        
        $
        1.73
        
        
        $
        0.77Reported net income (loss)
        
        $
        0.68
        
        
        $
        (0.18
        )
        
        $
        2.10
        
        
        $
        (0.20
        )Pro forma net income (loss)
        
        $
        0.68
        
        
        $
        (0.24
        )
        
        $
        1.73
        
        
        $
        (0.25
        )Diluted EPS:Reported net income (loss) - before
            cumulative effect of a change in accounting principle
        
        $
        0.67
        
        
        $
        (0.18
        )
        
        $
        1.72
        
        
        $
        0.82Pro forma net income (loss) - before
            cumulative effect of a change in accounting principle
        
        $
        0.67
        
        
        $
        (0.24
        )
        
        $
        1.72
        
        
        $
        0.77Reported net income (loss)
        
        $
        0.67
        
        
        $
        (0.18
        )
        
        $
        2.09
        
        
        $
        (0.20
        )Pro forma net income (loss)
        
        $
        0.67
        
        
        $
        (0.24
        )
        
        $
        1.72
        
        
        $
        (0.25
        )(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.
    (PPL Energy Supply)
    Three
            Months 
            Ended June 30,
        
        
        Six Months
            
            Ended June 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Reported net income - before cumulative
            effect of a change in accounting principle (a)
        
        $
        132
        
        
        $
        9
        
        
        $
        285
        
        
        $
        154Pro forma net income - before cumulative
            effect of a change in accounting principle
        
        $
        132
        
        
        $
        
        
        
        $
        285
        
        
        $
        147Reported net income
        
        $
        132
        
        
        $
        9
        
        
        $
        348
        
        
        $
        4Pro forma net income (loss)
        
        $
        132
        
        
        $
        
        
        
        $
        285
        
        
        $
        (3
        )(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.(PPL Electric)
    PPL Electric adopted SFAS 143 effective January 1, 2003 and did not record
      any asset retirement obligations upon adoption. PPL Electric identified
      legal retirement obligations for the retirement of certain transmission
      assets that were not measurable at this time due to indeterminable dates
      of retirement.
    (PPL Montana)
    PPL Montana adopted SFAS 143 effective January 1, 2003. PPL Montana recorded
      asset retirement obligations associated with various environmental requirements
      for coal piles, ash basins and other waste basin retirements. The impact
      of these asset retirement obligations was insignificant.
    Reconciliation of Prior Annual Periods(PPL and PPL Energy Supply)
    The pro forma asset retirement obligation liability balances calculated
      as if SFAS 143 had been adopted on January 1, 2000 were $211 million, $196
      million and $181 million as of December 31, 2001, December 31, 2000 and
      January 1, 2000.
    The pro forma effects of the application of SFAS 143 calculated as if it
      had been adopted on January 1, 2000 (rather than January 1, 2003) are presented
      below:
    
    PPLFor the
            Years Ended 
            December 31,2002
        
        
        2001
        
        
        2000Reported net income - before extraordinary
            item and cumulative effect of a change in accounting principle (a)
        
        $
        358
        
        
        $
        169
        
        
        $
        487Pro forma net income - before extraordinary
            item and cumulative effect of a change in accounting principle
        
        $
        349
        
        
        $
        167
        
        
        $
        489Reported net income
        
        $
        208
        
        
        $
        179
        
        
        $
        498Pro forma net income
        
        $
        199
        
        
        $
        177
        
        
        $
        500Basic EPS:Reported net income - before extraordinary
            item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.16
        
        
        $
        3.38Pro forma net income - before extraordinary
            item and cumulative effect of a change in accounting principle
        
        $
        2.29
        
        
        $
        1.15
        
        
        $
        3.39Reported net income
        
        $
        1.37
        
        
        $
        1.23
        
        
        $
        3.45Pro forma net income
        
        $
        1.31
        
        
        $
        1.21
        
        
        $
        3.46Diluted EPS:Reported net income - before extraordinary
            item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.15
        
        
        $
        3.37Pro forma net income - before extraordinary
            item and cumulative effect of a change in accounting principle
        
        $
        2.29
        
        
        $
        1.14
        
        
        $
        3.38Reported net income
        
        $
        1.36
        
        
        $
        1.22
        
        
        $
        3.44Pro forma net income
        
        $
        1.31
        
        
        $
        1.21
        
        
        $
        3.45(a)
        Represents income before extraordinary
            item and cumulative effect of a change in accounting principle, less
            dividends and distributions on preferred securities.PPL Energy
            SupplyFor the
            Years Ended 
            December 31,2002
        
        
        2001
        
        
        2000Reported net income - before
            cumulative effect of a change in accounting principle (a)
        
        $
        429
        
        
        $
        171
        
        
        $
        242Pro forma net income - before
            cumulative effect of a change in accounting principle
        
        $
        420
        
        
        $
        169
        
        
        $
        244Reported net income
        
        $
        279
        
        
        $
        174
        
        
        $
        242Pro forma net income
        
        $
        270
        
        
        $
        172
        
        
        $
        244(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.
13. Workforce Reduction
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In an effort to improve operational efficiency and reduce costs, PPL and
      its subsidiaries completed a workforce reduction in June 2002 that will
      eliminate up to 598 employees, or about 7% of PPL's U.S. workforce, at a
      cost of $74 million. The program was broad-based and impacted all employee
      groups except certain positions that are key to providing high-quality service
      to PPL's electricity delivery customers. Linemen, electricians and line
      foremen, for example, were not affected by the reductions. An additional
      $1 million workforce reduction charge was recorded in September 2002, when
      plans, specific to PPL Global and PPL Montana subsidiaries, were finalized
      which were expected to impact 26 employees. These additional reductions
      increased PPL's total charge for workforce reductions to $75 million for
      the elimination of up to 624 positions.
    PPL recorded the cost of the program as a one-time charge, included in
      the Statement of Income as "Workforce reduction" for the year ended December
      31, 2002. This charge reduced net income by $44 million after taxes. The
      program provides primarily for enhanced early retirement benefits and/or
      one-time special pension separation allowances based on an employee's age
      and years of service. These features of the program will be paid from the
      PPL Retirement Plan pension trust and increased PPL's pension and postretirement
      benefit liabilities by $65 million. The remaining $10 million of costs relate
      primarily to non-pension benefits, such as severance payments and outplacement
      costs, which will be paid by PPL, and are included on the Balance Sheet
      in "Current Liabilities - Other."
    PPL Energy Supply will ultimately eliminate up to 221 employees and has
      recorded a one-time charge of $41 million, $40 million in June 2002 and
      an additional $1 million in September 2002. This charge reduced net income
      by $24 million for the year ended December 31, 2002. Included in the charge
      was a $10 million allocation of the costs associated with the elimination
      of employees of PPL Services.
    PPL Electric will ultimately eliminate up to 260 employees and has recorded
      a one-time charge of $33 million, which reduced net income by $19 million
      for the year ended December 31, 2002. Included in the charge was a $6 million
      allocation of the costs associated with the elimination of employees of
      PPL Services.
    PPL Montana will ultimately eliminate up to ten employees and has recorded
      an insignificant one-time charge for the year ended December 31, 2002.
    As of June 30, 2003, 445 employees of PPL subsidiaries were terminated.
      Substantially all of the accrued non-pension benefits have been paid. Approximately
      180 positions targeted under the program, which are primarily bargaining
      unit, will be evaluated for termination over the next eighteen months, due
      to the timing of the automated meter reader implementation and the displacement
      process under the bargaining unit contract. PPL is currently evaluating
      the workforce reduction charge with its independent actuaries, which may
      result in a future adjustment.
14. New Accounting Standards
    SFAS 143 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 12 for a discussion of SFAS 143, "Accounting for Asset Retirement
      Obligations," and the impact of adoption.
    SFAS 146(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
      Exit or Disposal Activities." SFAS 146 addresses financial accounting and
      reporting for costs associated with exit or disposal activities and nullifies
      EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
      Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
      in a Restructuring)." SFAS 146 requires the recognition of a liability for
      costs associated with exit or disposal activities when the liability is
      incurred rather than at the date of a commitment to an exit or disposal
      plan. SFAS 146 also establishes that the initial liability should be measured
      at its estimated fair value. The provisions of SFAS 146 are effective for
      exit or disposal activities initiated after December 31, 2002, with earlier
      application encouraged. PPL and its subsidiaries adopted SFAS 146 effective
      January 1, 2003. The initial adoption did not have an impact on PPL
      or its subsidiaries. However, SFAS 146 may impact the accounting treatment
      of future disposal or exit activities.
    SFAS 148(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation
      - Transition and Disclosure, an Amendment of FASB Statement No. 123." SFAS
      148 provides three transition methods for adopting the fair value method
      of accounting for stock-based compensation prescribed under SFAS 123 and
      enhances the required disclosures regarding stock-based compensation effective
      for fiscal years ending after December 15, 2002. SFAS 148 also requires
      certain disclosures in financial reports issued for interim periods beginning
      after December 15, 2002.
    PPL and its subsidiaries elected to adopt the fair value method of accounting
      for stock-based compensation as of January 1, 2003 using the prospective
      method of transition, as permitted by SFAS 148. The prospective method provides
      that PPL and its subsidiaries will recognize expense for all stock-based
      compensation awards granted, modified or settled on or after January 1,
      2003. See Note 2 for a discussion of the change in accounting for stock-based
      compensation and the interim disclosures required by SFAS 148.
    SFAS 149(PPL, PPL Energy Supply and PPL Montana)
    In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
      Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
      SFAS 133 to improve financial accounting and reporting for derivative instruments
      and hedging activities. To ensure that contracts with comparable characteristics
      are accounted for similarly, SFAS 149 clarifies the circumstances under
      which a contract with an initial net investment meets the characteristics
      of a derivative, clarifies when a derivative contains a financing component,
      amends the definition of an "underlying" and amends certain other existing
      pronouncements. SFAS 149 is effective for contracts entered into or modified
      and for hedging relationships designated after June 30, 2003, except certain
      provisions relating to forward purchases or sales of when-issued securities
      or other securities that do not yet exist should be applied to both existing
      contracts and new contracts entered into after June 30, 2003. PPL, PPL Energy
      Supply and PPL Montana are in the process of evaluating the impact of the
      adoption of SFAS 149 on their financial position and results of operation.
    SFAS 150
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
      Instruments with Characteristics of Both Liabilities and Equity." SFAS 150
      establishes standards for classifying and measuring certain financial instruments
      that have characteristics of both liabilities and equity. The standards
      established by it require certain financial instruments that, under previous
      guidance, could be classified as equity or "mezzanine" equity to now be
      classified as liabilities on the balance sheet. SFAS 150 requires the following
      freestanding financial instruments to be classified as liabilities (or assets
      in some circumstances):
    ·
        mandatorily redeemable financial instruments,·
        financial instruments that embody obligations
            to repurchase equity shares in exchange for cash or other assets,
            including written put options and forward purchase contracts, and·
        certain financial instruments that embody
            obligations to issue a variable number of shares.SFAS 150 also requires disclosure regarding the terms of those instruments
      and settlement alternatives. SFAS 150 is effective for all financial instruments
      entered into or modified after May 31, 2003 and is otherwise effective at
      the beginning of the first interim period beginning after June 15, 2003.
      SFAS 150 prohibits the restatement of financial statements for periods prior
      to its adoption. SFAS 150 did not have an impact on PPL or its subsidiaries
      during the three or six months ended June 30, 2003.
    (PPL, PPL Energy Supply and PPL Electric)
    In accordance with SFAS 150, effective July 1, 2003, PPL will change its
      classification of the trust preferred securities of PPL Capital Funding
      Trust I, which were issued as a component of the PEPS Units, PPL Energy
      Supply will change its classification of the trust preferred securities
      issued by SIUK Capital Trust I and PPL Electric will change its classification
      of its preferred stock with sinking fund requirements. These securities
      are mandatorily redeemable financial instruments, as they require the issuer
      to redeem the securities for cash on a specified date. Thus, effective July
      1, 2003, these securities will be classified as liabilities instead of "mezzanine"
      equity on the balance sheet. Additionally, the distributions on these securities
      are required to be included as a component of "Interest Expense" instead
      of "Dividends and Distributions - Preferred Securities" in the Statement
      of Income effective July 1, 2003. Since SFAS 150 prohibits the restatement
      of financial statements for periods prior to its adoption, these changes
      will be made prospectively.
    FIN 45(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
      and Disclosure Requirements for Guarantees, Including Indirect Guarantees
      of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57,
      and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies
      that upon issuance of certain types of guarantees, the guarantor must recognize
      an initial liability for the fair value of the obligation it assumes under
      the guarantee. The offsetting entry will be dependent upon the circumstances
      under which the guarantee is issued, and the initial liability should typically
      be reduced as the guarantor is released from risk under the guarantee. FIN
      45 also requires a guarantor to make significant new disclosures for guarantees
      even if the likelihood of the guarantor's having to make payments is remote.
      The provisions relating to the initial recognition and measurement of guarantee
      obligations must be applied on a prospective basis to guarantees issued
      or modified after December 31, 2002. PPL and its subsidiaries adopted FIN
      45 effective January 1, 2003. FIN 45 did not have a significant impact on
      earnings for the three months or six months ended June 30, 2003. See Note
      7 for disclosure of guarantees and other assurances existing as of June
      30, 2003.
    FIN 46
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    In January 2003, the FASB issued Interpretation No. 46, "Consolidation
      of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46
      clarifies that variable interest entities, as defined therein, that do not
      disperse risks among the parties involved should be consolidated by the
      entity that is determined to be the primary beneficiary. FIN 46 also requires
      certain disclosures to be made by the primary beneficiary and by an enterprise
      that holds a significant variable interest in a variable interest entity
      but is not the primary beneficiary. FIN 46 applies immediately to variable
      interest entities created after January 31, 2003 and to variable interest
      entities in which an enterprise obtains an interest after January 31, 2003.
      For variable interest entities in which an enterprise holds a variable interest
      that was acquired before February 1, 2003, FIN 46 must be adopted no later
      than the first fiscal year or interim period beginning after June 15, 2003.
      FIN 46 did not have an impact on PPL or its subsidiaries during the three
      or six months ended June 30, 2003. PPL and its subsidiaries are in the process
      of evaluating entities in which they hold a variable interest that was acquired
      before February 1, 2003. Except as discussed below, PPL and its subsidiaries
      are currently not aware of any variable interest entities that are not consolidated
      as of June 30, 2003 but which they must consolidate in accordance with FIN
      46 effective July 1, 2003. As they continue to evaluate the impact
      of applying FIN 46, PPL and its subsidiaries may identify additional entities
      that they would need to consolidate.
    (PPL and PPL Energy Supply)
    The lessors under the operating leases for the Sundance, University Park
      and Lower Mt. Bethel generation facilities are variable interest entities
      in which PPL Energy Supply is the primary beneficiary. Consequently, under
      FIN 46, PPL Energy Supply will be required to consolidate the financial
      statements of the lessors effective July 1, 2003.  Upon initial consolidation, PPL Energy
      Supply will recognize $1.0 billion of additional assets and liabilities
      on its balance sheet and a charge of $21 million, after-tax, as a cumulative
      effect of a change in accounting principle. The additional assets consist
      principally of the generation facilities, and the additional liabilities
      consist principally of the lease financing. See below for a discussion of
      the leases.
    In May 2001, a subsidiary of PPL Energy Supply entered into a lease arrangement,
      as lessee, for the development, construction and operation of commercial
      power generation facilities. The lessor is a variable interest entity that
      was created for the sole purpose of owning the facilities and incurring
      the related financing costs. The $660 million operating lease arrangement
      covers the 450 MW gas-powered Sundance project near Coolidge, Arizona and
      the 540 MW gas-powered University Park project near University Park, Illinois.
      These facilities were substantially complete in July 2002, at which time
      the initial lease term commenced. At the end of the lease term, which is
      June 2008, the lessee has the option to extend the lease or purchase the
      facilities. If the lessee does not choose either of these options, then
      it must sell the assets on behalf of the lessor and guarantee a residual
      value up to $544 million based on a total lessor's investment of $656 million
      for both projects combined. If the financing is terminated early as a result
      of significant environmental damage, or an event of default, the lessee
      could be obligated to pay up to 100% of the lessor's investment in the facilities.
      The variable-rate financing, which matures in June 2008, is secured by,
      among other things, the generation facilities and the land on which the
      facilities are located. As of July 1, 2003, the aggregate carrying value
      of the facilities and the land is $625 million, net of accumulated depreciation
      of $18 million.
    In December 2001, another subsidiary of PPL Energy Supply entered into
      a $455 million operating lease arrangement, as lessee, for the development,
      construction and operation of a 600 MW gas-fired combined-cycle generation
      facility located in Lower Mt. Bethel Township, Northampton County, Pennsylvania.
      The lessor is a variable interest entity that was created for the sole purpose
      of owning the facilities and incurring the related financing costs. The
      initial lease term commences on the date of commercial operation, which
      is expected to occur in early 2004, and ends in December 2013. At the end
      of the lease term, the lessee has the option to extend the lease or purchase
      the facilities. If the lessee does not choose either of these options, then
      it must sell the assets on behalf of the lessor and guarantee a residual
      value estimated to be up to $321 million based on an estimated total lessor's
      investment of $455 million. The lessee could be obligated to pay up to 100%
      of the lessor's investment and other obligations in the facilities if the
      financing is terminated early as a result of a loss, destruction or condemnation
      of the project, or upon an event of default. Based on current market conditions,
      the total exposure as a result of such a termination is estimated to be
      up to $541 million as of June 30, 2003 and is estimated to be up to $604
      million as of the commencement of the lease. The fixed-rate financing, which
      matures in December 2013, is secured by, among other things, the generation
      facility, which has a carrying value of $377 million as of July 1, 2003.



---



PPL CORPORATION AND SUBSIDIARIES



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



This discussion should be read in conjunction with the Financial Statements
  and Combined Notes to Condensed Consolidated Financial Statements included in
  Item 1 above, and with the section entitled "Review of the Financial Condition
  and Results of Operations" in PPL's Annual Report to the SEC on Form 10-K for
  the year ended December 31, 2002. Terms and abbreviations appearing here are
  explained in the glossary. Dollars are in millions, except per share data, unless
  otherwise noted.

Results of Operations

The following discussion, that explains significant changes in principal items
  on the Statement of Income, compares the three and six months ended June 30,
  2003, to the comparable periods in 2002.

Prior to September 6, 2002, PPL Global held 51% of the equity interest in WPD,
  but shared joint control with Mirant. On September 6, 2002, PPL Global acquired
  the remaining 49% equity interest in WPD and gained complete control. The purchase
  of Mirant's interest was accounted for as a step-acquisition and resulted in
  the consolidation of WPD's results of operations as of January 1, 2002. Therefore,
  PPL's income statement for the three and six months ended June 30, 2002 has
  been reclassified to reflect the consolidation of WPD's results. Mirant's $28
  million and $53 million share of earnings for the three and six months ended
  June 30, 2002 is reflected in "Minority Interest."

WPD's results as consolidated in PPL's income statement are impacted by changes
  in foreign currency exchange rates. For the three and six months ended June
  30, 2003, as compared to the same periods in 2002, changes in foreign exchange
  rates increased WPD's portion of revenue and expense line items by about 10%
  and 11%.

The Statement of Income reflects the results of past operations and is not
  intended as any indication of future operating results. Future operating results
  will necessarily be affected by various and diverse factors and developments.
  Furthermore, because results for interim periods can be disproportionately influenced
  by various factors and developments and by seasonal variations, the results
  of operations for interim periods do not necessarily indicate results or trends
  for the year.

Earnings

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

|                            |                                                                        | Net Income                          |    
|--------------------------- | ---------------------------------------------------------------------- | ----------------------------------- | ---
|                            |                                                                        | Three Months
        Ended June 30, |    
|                            |                                                                        | 2003                                |    
|                            |                                                                        |                                     |    
|Income from core operations |                                                                        | $                                   | 116
|                            |                                                                        |                                     |    
|Unusual items (net of tax): |                                                                        |                                     |    
|                            |                                                                        |                                     |    
|                            | Accounting method change-asset retirement
        obligation (Note 12) |                                     |    
|                            |                                                                        |                                     |    
|                            | Goodwill impairment (Note 11)                                          |                                     |    
|                            |                                                                        |                                     |    
|                            | CEMAR impairment (Note 6)                                              |                                     |    
|                            |                                                                        |                                     |    
|                            | Workforce reduction (Note 13)                                          |                                     |    
|                            |                                                                        |                                     |    
|Net income (loss) - actual  |                                                                        | $                                   | 116
|                            |                                                                        |                                     |    



|                            |                                                                           | EPS - Diluted                       |     
|--------------------------- | ------------------------------------------------------------------------- | ----------------------------------- | ----
|                            |                                                                           | Three Months
        Ended June 30, |     
|                            |                                                                           | 2003                                |     
|                            |                                                                           |                                     |     
|Income from core operations |                                                                           | $                                   | 0.67
|                            |                                                                           |                                     |     
|Unusual items (net of tax): |                                                                           |                                     |     
|                            |                                                                           |                                     |     
|                            | Accounting method change - asset retirement
        obligations (Note 12) |                                     |     
|                            |                                                                           |                                     |     
|                            | Goodwill impairment (Note 11)                                             |                                     |     
|                            |                                                                           |                                     |     
|                            | CEMAR impairment (Note 6)                                                 |                                     |     
|                            |                                                                           |                                     |     
|                            | Workforce reduction (Note 13)                                             |                                     |     
|                            |                                                                           |                                     |     
|Net income (loss) - actual  |                                                                           | $                                   | 0.67
|                            |                                                                           |                                     |     

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



|               |                                                                                                  | June 30, 2003
        vs. June 30, 2002 |  
|-------------- | ------------------------------------------------------------------------------------------------ | --------------------------------------- | -
|               |                                                                                                  | Three Months
        Ended              |  
|Domestic:      |                                                                                                  |                                         |  
|               |                                                                                                  |                                         |  
|               | Higher wholesale energy margins                                                                  |                                         | $
|               |                                                                                                  |                                         |  
|               | Net energy trading margins                                                                       |                                         |  
|               |                                                                                                  |                                         |  
|               | Unregulated retail energy margins                                                                |                                         |  
|               |                                                                                                  |                                         |  
|               | Lower regulated retail energy margins                                                            |                                         |  
|               |                                                                                                  |                                         |  
|               | Delivery revenues (net of CTC/ITC amortization
        and interest expense on transition bonds) |                                         |  
|               |                                                                                                  |                                         |  
|               | Higher operating and maintenance expenses                                                        |                                         |  
|               |                                                                                                  |                                         |  
|               | Other                                                                                            |                                         |  
|               |                                                                                                  |                                         |  
|International: |                                                                                                  |                                         |  
|               |                                                                                                  |                                         |  
|               | Higher earnings from U.K. operations                                                             |                                         |  
|               |                                                                                                  |                                         |  
|               | Lower earnings from Latin American operations                                                    |                                         |  
|               |                                                                                                  |                                         |  
|               | Other                                                                                            |                                         |  
|               |                                                                                                  |                                         |  
|               |                                                                                                  | $                                       | 5
|               |                                                                                                  |                                         |  

The period to period changes in earnings components, including margins by activity
  and income statement line items, are discussed in the balance of the discussion
  in "Results of Operations." The increase in earnings from U.K. operations was
  primarily due to obtaining complete ownership of WPD in September 2002. (See
  Note 6 to the Financial Statements for additional information.)

PPL's future earnings could be impacted by a number of factors, including the
  following:

- PPL expects that the low level of wholesale energy prices will adversely
    impact margins in 2003 and beyond. Based upon current energy price levels,
    there is a risk that PPL may be unable to recover its investment in new gas-fired
    generation facilities. Under GAAP, PPL does not believe that there is an impairment
    charge to be recorded at this time. PPL is unable to predict the ultimate
    earnings impact of this issue, based upon energy price levels, applicable
    accounting rules and other factors, but such impact may be material. See "Application
    of Critical Accounting Policies - Asset Impairment" in PPL's Annual Report
    to the SEC on Form 10-K for the year ended December 31, 2002 for additional
    information.
- Earnings in the third quarter of 2003 and beyond will be impacted by the
    consolidation of variable interest entities (as discussed in Note 14 to the
    Financial Statements).
- In May 2003, PPL Electric announced that it expects to file a request for
    a delivery rate increase with the PUC in the spring of 2004. If approved,
    the new rates will go into effect January 2005, when PPL Electric's distribution
    rate cap expires. PPL Electric has not yet determined the amount of the rate
    increase it will request, and cannot predict the amount of such increase that
    will ultimately be approved by the PUC.
- PPL operates a synfuel facility and receives tax credits pursuant to Section
    29 of the Internal Revenue Code based on its sale of synfuel to unaffiliated
    third-party purchasers. See Note 7 to the Financial Statements for a discussion
    of the IRS announcement in June 2003, that it would be reviewing synfuel production
    procedures, and the projected annual earnings attributable to PPL's synfuel
    operations.

Domestic Energy Margins

The following tables provide summary data regarding changes in the components
  of domestic gross margins of wholesale and retail energy for the three and six
  months ended June 30, 2003, compared with the same periods in 2002:

|                                                     |                     | June 30, 2003
        vs. June 30, 2002 |    
|---------------------------------------------------- | ------------------- | --------------------------------------- | ---
|                                                     |                     | Three Months
        Ended              |    
|Utility revenues                                     |                     | $                                       | (27
|                                                     |                     |                                         |    
|Unregulated retail electric
        and gas revenues |                     |                                         | (9 
|                                                     |                     |                                         |    
|Wholesale energy marketing revenues                  |                     |                                         | 82 
|                                                     |                     |                                         |    
|Net energy trading margins                           |                     |                                         | 12 
|                                                     |                     |                                         |    
|Other revenue adjustments (a)                        |                     |                                         | 28 
|                                                     |                     |                                         |    
|                                                     | Total revenues      |                                         |    
|                                                     |                     |                                         |    
|Fuel                                                 |                     |                                         | 10 
|                                                     |                     |                                         |    
|Purchased power                                      |                     |                                         | 37 
|                                                     |                     |                                         |    
|Other cost adjustments (a)                           |                     |                                         | 14 
|                                                     |                     |                                         |    
|                                                     | Total cost of sales |                                         |    
|                                                     |                     |                                         |    
|                                                     |                     | Domestic gross energy margins           |    
|                                                     |                     |                                         |    



|(a) |  | Adjusted to exclude the impact of any revenues
        and costs not associated with domestic energy margins, in particular,
        revenues and costs related to the international operations of PPL Global
        and the domestic delivery operations of PPL Electric and PPL Gas Utilities.
        Also adjusted to include gains on sales of emission allowances, which
        are included in other operating expenses on the Statement of Income.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Changes in Gross Domestic Energy Margins By Activity

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

|                         |                               | June 30, 2003
        vs. June 30, 2002 |    
|------------------------ | ----------------------------- | --------------------------------------- | ---
|                         |                               | Three Months
        Ended              |    
|                         |                               |                                         |    
|Wholesale - Eastern U.S. |                               | $                                       | 27 
|                         |                               |                                         |    
|Wholesale - Western U.S. |                               |                                         | 8  
|                         |                               |                                         |    
|Net energy trading       |                               |                                         | 12 
|                         |                               |                                         |    
|Unregulated retail       |                               |                                         | 3  
|                         |                               |                                         |    
|Regulated retail         |                               |                                         | (25
|                         |                               |                                         |    
|                         | Domestic gross energy margins |                                         | $  
|                         |                               |                                         |    

Wholesale - Eastern U.S.

East wholesale margins were higher for the three and six months ended June
  30, 2003, compared to the same periods in 2002, primarily due to higher volumes,
  which increased 53% and 75%, respectively, over the same periods last year.
  The higher volumes were primarily driven by market opportunities to optimize
  the value of generating assets, and for the six months ended June 30, 2003,
  by higher spot prices that allowed PPL to increase the utilization of its higher
  cost generating units. In addition, 699 MW of new generation began commercial
  operations in mid-2002. Partially offsetting the increase in wholesale energy
  margins for the six months ended June 30, 2003, compared to the same period
  in 2002, was the buyout of a NUG contract in February 2002, which reduced power
  purchases by $25 million.

Wholesale - Western U.S.

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

In the Northwest, margins were $13 million and $23 million higher for the three
  and six months ended June 30, 2003, compared to the same periods in 2002, primarily
  due to higher wholesale prices. Average wholesale prices for the three and six
  months ended June 30, 2003 were $6/MWh and $13/MWh higher than those realized
  in the same periods in 2002. These amounts include a $3 million settlement with
  Energy West Resources, Inc. in June 2003.

In the Southwest, margins were $5 million and $4 million lower for the three
  and six months ended June 30, 2003, compared to the same periods in 2002, primarily
  due to less unrealized margins for hedging activities in this area.

Net Energy Trading

PPL enters into certain energy contracts that meet the criteria of trading
  derivatives as defined by EITF 02-3. These physical and financial contracts
  cover trading activity associated with electricity, gas and oil. The $12 million
  increase for the three months ended June 30, 2003, compared to the same period
  in 2002, was primarily due to realized gains associated with gas and oil swaps
  as well as unrealized gains on electricity positions. The $9 million decrease
  for the six months ended June 30, 2003, compared to the same period in 2002,
  was primarily due to unrealized losses for the six months ended June 30, 2003.
  The physical volumes associated with energy trading for the three months ended
  June 30, 2003 were 2,366 GWh and 3.4 Bcf, compared to 2,231 GWh and 1.9 Bcf
  for the three months ended June 30, 2002. Energy trading physical volumes for
  the six months ended June 30, 2003 were 4,857 GWh and 7.2 Bcf, compared to 4,736
  GWh and 5.1 Bcf for the six months ended June 30, 2002.

Unregulated Retail

Unregulated retail margins were higher for the three and six months ended June
  30, 2003, compared to the same periods in 2002 primarily due to the retention
  of existing electric contracts at renegotiated higher prices in the East and
  executing new electric contracts in both the East and the West, partially offset
  by lower retail gas margins as a result of exiting the retail gas market in
  March 2003. In addition, for the six months ended June 30, 2003, compared to
  the same period in 2002, the increase in margins was partially offset by significantly
  lower electric retail prices in the West.

Regulated Retail

Regulated retail margins in the East decreased by 12% and 16% for the three
  and six months ended June 30, 2003, compared to the same periods in 2002, due
  to higher supply costs resulting from higher purchased power prices which rose
  because of higher gas and oil prices and the abnormally cold winter. Average
  PJM spot market real time prices rose 22% and 69% for the three and six months
  ended June 30, 2003, compared to the same periods in 2002.

Utility Revenues

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

|               |                                                   | June 30, 2003
        vs. June 30, 2002 |    
|-------------- | ------------------------------------------------- | --------------------------------------- | ---
|               |                                                   | Three Months
        Ended              |    
|Domestic:      |                                                   |                                         |    
|               |                                                   |                                         |    
|               | Retail electric revenue (PPL
        Electric)    |                                         |    
|               |                                                   | Electric delivery                       |    
|               |                                                   |                                         |    
|               |                                                   | PLR electric generation supply          |    
|               |                                                   |                                         |    
|               |                                                   | Other                                   |    
|               |                                                   |                                         |    
|               | Wholesale electric revenue (PPL
        Electric) |                                         |    
|               |                                                   |                                         |    
|               | Gas revenue (PPL Gas Utilities)                   |                                         |    
|               |                                                   |                                         |    
|International: |                                                   |                                         |    
|               |                                                   |                                         |    
|               | Retail electric delivery (PPL
        Global)     |                                         |    
|               |                                                   |                                         |    
|               |                                                   | U.K.                                    |    
|               |                                                   |                                         |    
|               |                                                   | El Salvador                             |    
|               |                                                   |                                         |    
|               |                                                   | Bolivia                                 |    
|               |                                                   |                                         |    
|               |                                                   | Chile                                   |    
|               |                                                   |                                         |    
|               |                                                   | Brazil                                  |    
|               |                                                   |                                         |    
|               |                                                   | $                                       | (27
|               |                                                   |                                         |    

The decrease in utility revenues for the three months ended June 30, 2003,
  compared with the same period in 2002 was primarily due to:

- lower revenues in Brazil attributable to the deconsolidation of CEMAR. PPL
    Global stopped recording operating results of CEMAR upon relinquishing control
    to ANEEL. (See Note 6 to the Financial Statements for additional information);
    and
- lower PPL Electric PLR supply revenues due to a 5% decrease in sales volumes;
    offset by

- higher WPD revenues in the U.K. primarily due to the change in foreign currency
    exchange rates from period to period; and
- higher revenues in El Salvador primarily due to higher volumes and higher
    pass-through energy costs, partially offset by a 6% tariff reduction effective
    January 1, 2003.

The increase in utility revenues for the six months ended June 30, 2003, compared
  with the same period in 2002 was primarily due to:

- higher PPL Electric delivery revenues due to a 3.4% increase in electricity
    deliveries, primarily due to the colder winter weather in the first quarter
    of 2003;
- higher PPL Electric PLR supply revenues due to a 1% increase in customers'
    PLR rates;
- higher PPL Gas Utilities revenues primarily due to higher sales volumes
    of 21%, which were also attributable to the colder winter weather in the first
    quarter of 2003;
- higher WPD revenues in the U.K. due to the change in foreign currency exchange
    rates from period to period; and
- higher revenues in El Salvador due to higher volumes and higher pass-through
    energy costs, partially offset by a 6% tariff reduction effective January
    1, 2003; offset by
- lower revenues in Brazil due to the deconsolidation of CEMAR, as noted above.

Energy Related Businesses

Energy related businesses contributed $19 million less to operating income
  for the six months ended June 30, 2003, compared to the same period in 2002.
  The decrease resulted primarily from:

- a $7 million operating loss on some Hyder properties in 2003, which were
    subsequently sold in April 2003;
- a $4 million decrease in Latin America revenues from lower material and
    construction project sales. In 2002, PPL Global's Bolivian subsidiary participated
    in the construction of a 1,500 kilometer transmission line in rural areas
    of Bolivia;
- a $4 million credit recorded in 2002, due largely to a favorable settlement
    on the cancellation of a generation project in Washington state; and
- a $3 million decrease in pre-tax earnings of PPL's mechanical contractors,
    primarily due to the overall economic slowdown.

Other Operation Expenses

The increases in other operation expenses were primarily due to:



|                                                                                                                                                                                                                                                            |  | June 30, 2003
        vs. June 30, 2002 |   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | --
|                                                                                                                                                                                                                                                            |  | Three Months
        Ended              |   
|                                                                                                                                                                                                                                                            |  |                                         |   
|Decrease in pension income                                                                                                                                                                                                                                  |  | $                                       | 16
|                                                                                                                                                                                                                                                            |  |                                         |   
|Additional expenses of new generating
        facilities that became operational in mid-2002                                                                                                                                                                |  |                                         | 9 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Increase in WPD expenses due
        to increases in foreign currency exchange rates, regulatory accounting
        adjustments, and resolution of purchase accounting contingencies in the
        second quarter of 2002 related to the Hyder acquisition |  |                                         | 12
|                                                                                                                                                                                                                                                            |  |                                         |   
|Accretion expense as a result
        of adopting SFAS 143, "Accounting for Asset Retirement Obligations." See
        Note 12.                                                                                                                             |  |                                         | 4 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Outage costs associated with
        the turbine replacement at the Susquehanna station                                                                                                                                                                     |  |                                         | 8 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Impairment charge on transmission
        rights                                                                                                                                                                                                            |  |                                         | 4 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Reduction in salaries and benefits
        as a result of the workforce reduction initiated in 2002                                                                                                                                                         |  |                                         | (9
|                                                                                                                                                                                                                                                            |  |                                         |   
|Decrease in the Clean Air Act
        contingency relating to generating facilities                                                                                                                                                                         |  |                                         |   
|                                                                                                                                                                                                                                                            |  |                                         |   
|Other                                                                                                                                                                                                                                                       |  |                                         | 8 
|                                                                                                                                                                                                                                                            |  |                                         |   
|                                                                                                                                                                                                                                                            |  | $                                       | 52
|                                                                                                                                                                                                                                                            |  |                                         |   

The decreases in pension income for the three and six months ended June 30,
  2003, were attributable to PPL's primary domestic pension plan and the U.K.
  pension plans of WPD. As a result of weak capital markets during 2002, PPL's
  domestic and U.K. pension plans experienced significant asset losses. The weakened
  market performance decreased economic forecasts, which resulted in PPL reducing
  its assumed expected return on assets for its pension plans. In addition, declining
  fixed-income security yield rates resulted in PPL decreasing its discount rate
  assumption for its pension plans as of December 31, 2002. These events and assumption
  changes reduced the amount of pension income PPL will record in 2003. Through
  June 30, 2003, PPL recorded approximately $22 million of pension income and
  will record approximately $21 million of additional pension income in the second
  half of 2003. Future levels of pension income or expense depend on ongoing market
  conditions and results.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs and interest expense on the transition
  bonds offset ITC revenues, resulting in a minimal impact on earnings.

Maintenance Expenses

Maintenance expenses increased by $7 million for the three months ended June
  30, 2003, compared with the same period in 2002. This increase was primarily
  due to $8 million of additional outage costs associated with the turbine replacement
  at the Susquehanna station and a $6 million increase in WPD expenses due to
  increases in foreign currency exchange rates, regulatory accounting adjustments,
  and resolution of purchase accounting contingencies in the second quarter of
  2002 related to the Hyder acquisition. These increases were partially offset
  by an $8 million decrease in expenses from outage work at the Brunner Island
  plant completed in the spring of 2002, as opposed to the normal fall outage.

Maintenance expenses increased by $11 million for the six months ended June
  30, 2003, compared with the same period in 2002. This increase was affected
  by the same items for the three-month period, as well as $2 million of work
  performed by PPL Electric to assure reliability of the transmission and distribution
  system and an additional $1 million from increased foreign currency exchange
  rates.

Depreciation

Normal plant additions accounted for the increase in depreciation of $11 million
  for the six months ended June 30, 2003, compared with the same period in 2002.
  However, there were also a few significant transactions with offsetting impacts,
  as follows:

- WPD depreciation increased by $14 million. Of that amount, $6 million relates
    to depreciation on the write-up to fair value of assets acquired in the acquisition,
    $6 million resulted from increased foreign currency exchange rates, and the
    remaining $2 million reflects the increase in distribution assets.
- PPL Global's write-down of CEMAR resulted in a $4 million decrease in depreciation
    on those assets in 2003.
- Due to the adoption of SFAS 143, "Accounting for Asset Retirement Obligations,"
    on January 1, 2003, PPL Susquehanna depreciation expense (which previously
    included nuclear decommissioning expense) decreased by about $10 million for
    the six months ended June 30, 2003, compared with the same period in 2002.
    There was a corresponding recording of accretion expense in 2003, which is
    part of operation expense.

Write-down of International Energy Projects

See Note 6 to the Financial Statements for additional information on a $6 million
  charge in the three months ended March 31, 2002 and a $94 million charge in
  the three months ended June 30, 2002 to reflect additional write-downs of PPL
  Global's investment in CEMAR.

Workforce Reduction

See Note 13 to the Financial Statements for information regarding the $74 million
  charge recorded in June 2002.

Other Income - net

See Note 9 to the Financial Statements for details of other income.

Financing Costs

The decrease in interest expense was due to:

|                                                                               |  | June 30, 2003
        vs. June 30, 2002 |    
|------------------------------------------------------------------------------ |  | --------------------------------------- | ---
|                                                                               |  | Three Months
        Ended              |    
|                                                                               |  |                                         |    
|Decreased long-term debt expense
        due to net long-term debt retirements |  | $                                       | (15
|                                                                               |  |                                         |    
|Decreased long-term debt expense
        from the deconsolidation of CEMAR     |  |                                         | (8 
|                                                                               |  |                                         |    
|Write-off unamortized swap costs
        on WPD debt restructuring             |  |                                         | 11 
|                                                                               |  |                                         |    
|Increase in short-term debt
        expense                                    |  |                                         | 2  
|                                                                               |  |                                         |    
|Capitalized interest and other                                                 |  |                                         | 6  
|                                                                               |  |                                         |    
|                                                                               |  | $                                       | (4 
|                                                                               |  |                                         |    

Dividends and distributions on preferred securities decreased by $4 million
  and $9 million during the three and six months ended June 30, 2003, compared
  with the same periods in 2002, due to the retirement of preferred securities
  in 2002.

Income Taxes

Income taxes increased by $20 million and $3 million for the three and six
  months ended June 30, 2003, compared to the same periods in 2002. The increases
  were due to:

- higher pre-tax book income, resulting in $65 million and $48 million increases
    in income taxes for the three and six months ended June 30, 2003; offset by
- a reduction related to an impairment charge on PPL's investment in CEMAR
    resulting in a $33 million deferred income tax valuation allowance recorded
    in the second quarter of 2002; and
- differences in income recognition for tax purposes related to foreign affiliates
    resulting in $10 million and $11 million reductions in income taxes for the
    three and six months ended June 30, 2003.

Cumulative Effect of a Change in Accounting Principle

PPL adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective
  January 1, 2003. SFAS 143 addresses the accounting for obligations associated
  with the retirement of tangible long-lived assets. It requires legal obligations
  associated with the retirement of long-lived assets to be recognized as a liability
  in the financial statements. Application of the new rules resulted in a cumulative
  effect of adoption that increased net income by $63 million in 2003. See Note
  12 to the Financial Statements for additional information.

PPL adopted SFAS 142, "Goodwill and Other Intangible Assets," on January 1,
  2002. SFAS 142 requires an annual impairment test of goodwill and other intangible
  assets that are not subject to amortization. PPL conducted a transition impairment
  analysis in the first quarter of 2002 and recorded a transition goodwill impairment
  charge of $150 million. See Note 11 to the Financial Statements for additional
  information.

Financial Condition

Liquidity

At June 30, 2003, PPL had $370 million of cash and cash equivalents and $122
  million of short-term debt. At December 31, 2002, PPL had $245 million
  in cash and cash equivalents and $943 million of short-term debt. The increase
  in cash position was primarily the net result of:

- cash provided by operating activities of $498 million,
- the issuance of $986 million of long-term debt, and
- the issuance of $411 million of common stock, offset by
- the net decrease of $834 million of short-term debt,
- the retirement of $404 million of long-term debt,
- payment of $145 million of common and preferred dividends, and
- capital expenditures of $357 million.

In July 2003, PPL Energy Supply and PPL Electric each determined that, based
  on their strong current cash positions and anticipated cash flows, they will
  not need to access the commercial paper markets through at least the end of
  2003. Neither company currently has any commercial paper outstanding. As a result,
  PPL Energy Supply and PPL Electric each requested Standard & Poor's Ratings
  Services (S&P), Moody's Investors Service, Inc. (Moody's) and Fitch Ratings
  (Fitch) to withdraw their ratings for these currently inactive commercial paper
  programs, which they did effective as of July 9, 2003. Based on current cash
  positions and availabilities under their respective revolving credit facilities,
  PPL Energy Supply and PPL Electric do not expect this decision to limit their
  ability to fund their short-term liquidity needs.

Rating Agency Decisions - PPL

S&P, Moody's and Fitch recently reviewed the credit ratings on the debt
  and preferred securities of PPL and its subsidiaries. Based on their respective
  reviews, the rating agencies made certain ratings revisions which are described
  below.

Management does not expect these ratings decisions to impact PPL and its subsidiaries'
  ability to raise new long-term debt. These ratings decisions will have an immaterial
  impact on PPL and its subsidiaries' cost of maintaining their credit facilities
  and the cost of any new long-term debt.

The ratings of S&P, Moody's 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 their securities.

S&P

In April 2003, S&P notified PPL, PPL Energy Supply and PPL Electric that
  it:

- affirmed both the 'A-' ratings on PPL Electric's first mortgage bonds and
    senior secured bonds and the 'BBB' corporate credit ratings for PPL and PPL
    Energy Supply;
- lowered the rating on PPL Capital Funding's senior unsecured debt to 'BBB-'
    from 'BBB';
- placed PPL Electric on negative outlook. S&P indicated that PPL and
    PPL Energy Supply remain on negative outlook; and
- affirmed the 'A-2' commercial paper ratings of PPL Energy Supply and PPL
    Electric.

S&P indicated that the rating revision on PPL Capital Funding's senior
  unsecured debt is based on its structural subordination, which it noted will
  increase as new debt is financed at PPL Energy Supply. S&P also indicated
  that the negative outlook for PPL and its subsidiaries reflects its view of
  weak debt-protection measures due to low wholesale energy prices.

Moody's

In May 2003, Moody's downgraded the credit ratings on the debt and preferred
  securities of PPL, PPL Electric and PPL Energy Supply. The ratings downgraded
  include:

- PPL Electric's first mortgage bonds and senior secured bonds, to 'Baa1'
    from 'A3';
- PPL Energy Supply's senior unsecured notes, to 'Baa2' from 'Baa1';
- PPL Capital Funding's senior unsecured debt, to 'Baa3' from 'Baa2'; and
- PPL's senior unsecured debt that is not currently outstanding but that may
    be issued under PPL's shelf registration statement on file with the SEC, to
    'Baa3' from 'Baa2'.

The Moody's ratings outlook was stable for each of PPL, PPL Electric, PPL Energy
  Supply and PPL Capital Funding.

Neither PPL Electric's nor PPL Energy Supply's short-term debt ratings were
  impacted by Moody's long-term debt review.

Moody's stated that the downgrades reflect its concerns about PPL's high debt
  levels, PPL Energy Supply's modest exposure to merchant generation risk, the
  continued weakness in the wholesale power market and the associated financial
  impact on PPL Energy Supply, and concerns regarding the amount of cash flow
  to be generated from PPL Energy Supply's non-regulated domestic operations and
  the free cash flow available from its regulated international assets. However,
  Moody's also indicated that the full requirements contract between PPL Electric
  and PPL EnergyPlus, which previously was approved by the PUC and which extends
  through December 2009, mitigates PPL Electric's supply and price risk and provides
  a predictable stream of cash flows to PPL Energy Supply during such time period.
  Moody's also noted that PPL's management has already implemented a number of
  initiatives to strengthen the company's current credit quality and reduce its
  debt levels, such as the issuance of over $1 billion of common stock and mandatory
  convertible securities over the last few years, a sizeable reduction in planned
  capital expenditures, the cancellation of projects under development, workforce
  reductions and write-downs of some non-core investments.

Fitch

Also in May 2003, Fitch notified PPL, PPL Energy Supply and PPL Capital Funding
  that it:

- downgraded PPL Capital Funding's senior unsecured debt to 'BBB' from 'BBB+';
- downgraded PPL's senior unsecured debt that is not currently outstanding
    but that may be issued under PPL's shelf registration statement on file with
    the SEC, to 'BBB' from 'BBB+';
- affirmed both the 'BBB+' rating of PPL Energy Supply's senior unsecured
    debt, and the 'F2' rating of its commercial paper; and
- placed each of PPL, PPL Capital Funding and PPL Energy Supply on negative
    outlook.

Fitch indicated that the revised ratings for PPL and PPL Capital Funding reflect
  the structural subordination of PPL to that of its subsidiaries and Fitch's
  expectations of lower cash flow from PPL Electric until early 2005. Fitch indicated
  that the change in outlook for these companies results from the increase during
  2002 in PPL's generation asset portfolio that is dependent on merchant generation,
  continued weakness in U.S. merchant energy markets and exposure to international
  distribution assets primarily in Latin America and the U.K. However, Fitch noted
  that PPL Energy Supply derives significant earnings and cash flow from long-term
  supply contracts, including the full requirements contract between PPL Electric
  and PPL EnergyPlus, that on average account for about 70% of PPL Energy Supply's
  gross margin over the next five years.

Rating Agency Decisions - WPD

In February 2003, Moody's confirmed the ratings of WPDH Limited and WPD (South
  Wales) at 'Baa2' and 'Baa1,' and downgraded WPD LLP from 'Baa1' to 'Baa2' and
  SIUK Capital Trust I from 'Baa2' to 'Baa3.' The outlook on all ratings was stable.
  In March 2003, S&P assigned its 'BBB+' senior unsecured debt rating to the
  £200 million bonds issued by WPD (South West). At the same time the 'BBB+'
  and 'A-2' corporate credit ratings on SIUK PLC were withdrawn as a result of
  the acquisition of its debt by WPD LLP. S&P assigned its 'BBB' long-term
  and 'A-2' short-term corporate credit ratings to WPD LLP in line with the ratings
  on the rest of the WPD group.

Following a review of holding companies of U.K. regulated utilities, in July
  2003 S&P downgraded the long-term ratings from 'BBB' to 'BBB-' and short-term
  ratings from 'A-2' to 'A-3' for both WPDH Limited and WPD LLP, and retained
  a negative outlook. At the same time, S&P reaffirmed the credit ratings
  for WPD (South West) and WPD (South Wales) at 'BBB+.' This is in line with S&P
  U.K.'s recently announced implementation of a new methodology related to U.K.
  electric distribution holding companies wherein electric distribution operating
  companies rated in the BBB category will have the parent holding company (WPDH
  Limited) notched down by two categories from the operating company rating level.
  WPD's management does not expect the placement of WPD on negative outlook to
  limit its ability to fund its short-term liquidity needs or access new long-term
  debt or to impact the cost of any new long-term debt.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk

As of June 30, 2003, PPL estimated that a 10% adverse movement in market prices
  across all geographic areas and time periods would have decreased the value
  of the commodity contracts in its non-trading portfolio by approximately $200
  million. However, the change in the value of the non-trading portfolio would
  have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL's unsold generation would be improved. Because PPL's electricity
  portfolio is generally in a net sales position, the adverse movement in prices
  is usually an increase in prices. Conversely, because PPL's commodity fuels
  portfolio is generally in a net purchase position, the adverse movement in prices
  is usually a decrease in prices. If both of these scenarios happened, the implied
  margins for the unsold generation would increase.

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

PPL's trading contracts mature at various times through 2005. The following
  chart sets forth PPL's net fair market value of trading contracts:

|                                                                           |  | Three Months
        Ended June 30, |     |   | Six Months
        Ended June 30, |  
|-------------------------------------------------------------------------- |  | ----------------------------------- | --- | - | --------------------------------- | -
|                                                                           |  | 2003                                |     |   | 2002                              |  
|                                                                           |  |                                     |     |   |                                   |  
|Fair value of contracts outstanding
        at the beginning of the period |  | $                                   | (16 | ) |                                   | $
|                                                                           |  |                                     |     |   |                                   |  
|Contracts realized or otherwise
        settled during the period          |  |                                     | 10  |   |                                   |  
|                                                                           |  |                                     |     |   |                                   |  
|Fair value of new contracts
        at inception                           |  |                                     | (2  | ) |                                   |  
|                                                                           |  |                                     |     |   |                                   |  
|Other changes in fair values                                               |  |                                     | 1   |   |                                   |  
|                                                                           |  |                                     |     |   |                                   |  
|Fair value of contracts outstanding
        at the end of the period       |  | $                                   | (7  | ) |                                   | $
|                                                                           |  |                                     |     |   |                                   |  

During the three and six months ended June 30, 2003, PPL reversed net losses
  of approximately $10 million, and during the three and six months ended June
  30, 2002, PPL reversed net gains/(losses) of approximately $(2) million and
  $1 million, related to contracts entered into prior to January 1 of the previous
  year. These amounts do not reflect intra-year contracts that were entered into
  and settled during the period.

"Other changes in fair values" represents changes in the market value of contracts
  outstanding at the end of the period.

As of June 30, 2003, the net unrealized gain on PPL's trading activities expected
  to be realized in earnings during the next three months is approximately $8
  million.

The following chart segregates estimated fair values of PPL's trading portfolio
  at June 30, 2003 based on whether the fair values are determined by quoted market
  prices or other more subjective means.

|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains/(Losses) |   
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | --
|                                                                     |  | Maturity
        Less Than
        1 Year                            |   
|                                                                     |  |                                                                      |   
|Source of Fair Value                                                 |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices actively quoted                                               |  | $                                                                    | 3 
|                                                                     |  |                                                                      |   
|Prices provided by other external sources                            |  |                                                                      | (8
|                                                                     |  |                                                                      |   
|Prices based on models and other valuation
        methods           |  |                                                                      | (3
|                                                                     |  |                                                                      |   
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | (8
|                                                                     |  |                                                                      |   

The "Prices actively quoted" category includes the fair value of exchange-traded
  natural gas futures contracts quoted on the New York Mercantile Exchange.

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

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

As of June 30, 2003, PPL estimated that a 10% adverse movement in market prices
  across all geographic areas and time periods would have decreased the value
  of the commodity contracts in its trading portfolio by $7 million.

Interest Rate Risk

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

At June 30, 2003, PPL's potential annual exposure to increased interest expense,
  based on a 10% increase in interest rates, was estimated at $2 million.

PPL is also exposed to changes in the fair value of its U.S. and international
  debt portfolios. At June 30, 2003, PPL estimated that its potential exposure
  to a change in the fair value of its debt portfolios, through a 10% adverse
  movement in interest rates, was $222 million.

PPL utilizes various risk management instruments to reduce its exposure to
  adverse interest rate movements for future anticipated financings. While PPL
  is exposed to changes in the fair value of these instruments, they are designed
  such that an economic loss in value should generally be offset by interest rate
  savings at the time the future anticipated financing is completed. At June 30,
  2003, PPL estimated that its potential exposure to a change in the fair value
  of these instruments, through a 10% adverse movement in interest rates, was
  approximately $3 million.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge
  certain foreign currency exposures, including firm commitments, recognized assets
  or liabilities and net investments. In addition, PPL enters into financial instruments
  to protect against foreign currency translation risk.

PPL holds contracts for the forward purchase of 26 million euros and £1
  million to pay for certain equipment of a PPL Energy Supply subsidiary in 2003
  and 2004. The estimated value of these forward purchases as of June 30, 2003,
  being the amount PPL would receive to terminate them, was $5 million.

PPL executed forward sale transactions for £25 million to hedge a portion
  of its net investment in WPDH Limited. The estimated value of these agreements
  as of June 30, 2003 was insignificant.

To protect expected income in British pounds sterling, PPL entered into average
  rate options for £26 million and average rate forward sale agreements
  for £20 million. To protect expected income in Chilean pesos, PPL entered
  into average rate options for 4 billion Chilean pesos. At June 30, 2003, the
  market value of these positions, representing the amount PPL would pay to terminate
  them, was $1 million.

WPDH Limited executed cross-currency swaps totaling $1.3 billion to hedge the
  value of its U.S. dollar-denominated bonds. The estimated value of this position
  on June 30, 2003, being the amount PPL would pay to terminate them, was $29
  million.

PPL executed a non-deliverable, forward purchase agreement for 3 billion Chilean
  Pesos to hedge the translation risk of a Chilean subsidiary's U.S. dollar receivable.
  The market value of this position at June 30, 2003 was insignificant.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of June 30, 2003, these funds were invested primarily
  in domestic equity securities and fixed-rate, fixed-income securities and are
  reflected at fair value on PPL's Balance Sheet. The mix of securities is designed
  to provide returns to be used to fund Susquehanna's decommissioning and to compensate
  for inflationary increases in decommissioning costs. However, the equity securities
  included in the trusts are exposed to price fluctuation in equity markets, and
  the values of fixed-rate, fixed-income securities are exposed to changes in
  interest rates. PPL Susquehanna actively monitors the investment performance
  and periodically reviews asset allocation in accordance with its nuclear decommissioning
  trust policy statement. At June 30, 2003, a hypothetical 10% adverse movement
  in interest rates and a 10% decrease in equity prices would have resulted in
  an estimated $20 million reduction in the fair value of the trust assets.

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

Related Party Transactions

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

Acquisitions and Development

From time-to-time, PPL and its subsidiaries are involved in negotiations with
  third parties regarding acquisitions, joint ventures and other arrangements
  which may or may not result in definitive agreements. See Note 6 to the Financial
  Statements for information regarding recent acquisitions and development activities.

At June 30, 2003, PPL had domestic generation projects under development which
  would provide 645 MW of additional generation.

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

Environmental Matters

See Note 7 to the Financial Statements for a discussion of environmental matters.

New Accounting Standards

FIN 46

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
  Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarifies that variable
  interest entities, as defined therein, that do not disperse risks among the
  parties involved should be consolidated by the entity that is determined to
  be the primary beneficiary. FIN 46 also requires certain disclosures to be made
  by the primary beneficiary and by an enterprise that holds a significant variable
  interest in a variable interest entity but is not the primary beneficiary. FIN
  46 applies immediately to variable interest entities created after January 31,
  2003 and to variable interest entities in which an enterprise obtains an interest
  after January 31, 2003. For variable interest entities in which an enterprise
  holds a variable interest that was acquired before February 1, 2003, FIN 46
  must be adopted no later than the first fiscal year or interim period beginning
  after June 15, 2003. FIN 46 did not have an impact on PPL during the three or
  six months ended June 30, 2003. PPL is in the process of evaluating entities
  in which it holds a variable interest that was acquired before February 1, 2003.
  Except as discussed below, PPL is currently not aware of any variable interest
  entities that are not consolidated as of June 30, 2003 but which it must consolidate
  in accordance with FIN 46 effective July 1, 2003. As it continues to evaluate
  the impact of applying FIN 46, PPL may identify additional entities that it
  would need to consolidate.

The lessors under the operating leases for the Sundance, University Park and
  Lower Mt. Bethel generation facilities are variable interest entities in which
  PPL is the primary beneficiary. Consequently, under FIN 46, PPL will be required
  to consolidate the financial statements of the lessors effective July 1, 2003.
  Upon initial consolidation, PPL will recognize $1.0 billion of additional assets and liabilities
  on its balance sheet and a charge of $21 million, after-tax, as a cumulative
  effect of a change in accounting principle. The additional assets consist principally
  of the generation facilities, and the additional liabilities consist principally
  of the lease financing. See Note 14 to the Financial Statements for a discussion
  of the leases.

Other

See Note 14 to the Financial Statements for information on other new accounting
  standards adopted in 2003 or pending adoption.

Application of Critical Accounting Policies

PPL's financial condition and results of operations are impacted by the methods,
  assumptions and estimates used in the application of critical accounting policies.
  The following accounting policies are particularly important to the financial
  condition or results of operations of PPL, and require estimates or other judgments
  of matters inherently uncertain: price risk management, pension and other postretirement
  benefits, asset impairment, leasing, loss accruals, and asset retirement obligations.

See Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31,
  2002 for a discussion of each critical accounting policy, except for asset retirement
  obligations which is discussed below. PPL's senior management has reviewed these
  critical accounting policies, and the estimates and assumptions regarding them,
  with its Audit Committee. In addition, PPL's senior management reviewed the
  Form 10-K disclosures regarding the application of these critical accounting
  policies with the Audit Committee.

Asset Retirement Obligations

In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations,"
  which addresses the accounting for obligations associated with the retirement
  of tangible long-lived assets. SFAS 143 requires legal obligations associated
  with the retirement of long-lived assets to be recognized as a liability in
  the financial statements. The initial obligation should be measured at the estimated
  fair value. An equivalent amount should be recorded as an increase in the value
  of the capitalized asset and allocated to expense over the useful life of the
  asset. Until the obligation is settled, the liability should be increased, through
  the recognition of accretion expense in the income statement, for changes in
  the obligation due to the passage of time. SFAS 143 is effective for fiscal
  years beginning after June 15, 2002.

In determining asset retirement obligations, management must make significant
  judgments and estimates to calculate fair value. Fair value is developed through
  consideration of estimated retirement costs in today's dollars, inflated to
  the anticipated retirement date and then discounted back to the date the asset
  retirement obligation was incurred. Changes in assumptions and estimates included
  within the calculations of asset retirement obligations could result in significantly
  different results than those identified and recorded in the financial statements.

PPL adopted SFAS 143 effective January 1, 2003. Application of the new rules
  resulted in an increase in net property, plant and equipment of $32 million,
  reversal of previously recorded liabilities of $304 million, recognition of
  asset retirement obligations of $229 million, recognition of a deferred tax
  liability of $44 million and a cumulative effect of adoption that increased
  net income by $63 million or $0.37 per share. PPL's most significant assumptions
  surrounding asset retirement obligations are the forecasted retirement cost,
  discount rate and inflation rate. A variance in the forecasted retirement cost,
  discount rate or inflation rate could have a significant impact on the ARO liability
  and the cumulative effect gain.

The following chart reflects the sensitivities associated with a change in
  these assumptions upon initial adoption. Each sensitivity below reflects an
  evaluation of the change based solely on a change in that assumption only.



|                |  | Change inAssumption |  | Impact on Cumulative Effect |  | Impact onARO Liability
|--------------- |  | ------------------- |  | --------------------------- |  | ----------------------
|                |  |                     |  |                             |  |                       
|Retirement Cost |  | 10/(10)%            |  | $(10)/$10                   |  | $21/$(21)             
|                |  |                     |  |                             |  |                       
|Discount Rate   |  | 0.25/(0.25)%        |  | $10/$(11)                   |  | $(22)/$25             
|                |  |                     |  |                             |  |                       
|Inflation Rate  |  | 0.25/(0.25)%        |  | $(12)/$11                   |  | $25/$(22)             





---



PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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

This discussion should be read in conjunction with the Financial Statements
  and Combined Notes to Condensed Consolidated Financial Statements included in
  Item 1 above, and with the section entitled "Review of the Financial Condition
  and Results of Operations" in PPL Energy Supply's Annual Report to the SEC on
  Form 10-K for the year ended December 31, 2002. Terms and abbreviations appearing
  here are explained in the glossary. Dollars are in millions, unless otherwise
  noted.

Results of Operations

The following discussion, that explains significant changes in principal items
  on the Statement of Income, compares the three and six months ended June 30,
  2003, to the comparable periods in 2002.

Prior to September 6, 2002, PPL Global held 51% of the equity interest in WPD,
  but shared joint control with Mirant. On September 6, 2002, PPL Global acquired
  the remaining 49% equity interest in WPD and gained complete control. The purchase
  of Mirant's interest was accounted for as a step-acquisition and resulted in
  the consolidation of WPD's results of operations as of January 1, 2002. Therefore,
  PPL Energy Supply's income statement for the three and six months ended June
  30, 2002 has been reclassified to reflect the consolidation of WPD's results.
  Mirant's $28 million and $53 million share of earnings for the three and six
  months ended June 30, 2002 is reflected in "Minority Interest."

WPD's results as consolidated in PPL Energy Supply's income statement are impacted
  by changes in foreign currency exchange rates. For the three and six months
  ended June 30, 2003, as compared to the same periods in 2002, changes in foreign
  exchange rates increased WPD's portion of revenue and expense line items by
  about 10% and 11%.

The Statement of Income reflects the results of past operations and is not
  intended as any indication of future operating results. Future operating results
  will necessarily be affected by various and diverse factors and developments.
  Furthermore, because results for interim periods can be disproportionately influenced
  by various factors and developments and by seasonal variations, the results
  of operations for interim periods do not necessarily indicate results or trends
  for the year.

Earnings

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

|                            | Three Months
        Ended June 30,                                      |     |  | Six Months
        Ended June 30, |  
|--------------------------- | ------------------------------------------------------------------------ | --- |  | --------------------------------- | -
|                            | 2003                                                                     |     |  | 2002                              |  
|                            |                                                                          |     |  |                                   |  
|Income from core operations | $                                                                        | 132 |  |                                   | $
|                            |                                                                          |     |  |                                   |  
|Unusual items (net of tax): |                                                                          |     |  |                                   |  
|                            |                                                                          |     |  |                                   |  
|                            | Accounting method change - asset retirement
        obligation (Note 12) |     |  |                                   |  
|                            |                                                                          |     |  |                                   |  
|                            | Goodwill impairment (Note 11)                                            |     |  |                                   |  
|                            |                                                                          |     |  |                                   |  
|                            | CEMAR impairment (Note 6)                                                |     |  |                                   |  
|                            |                                                                          |     |  |                                   |  
|                            | Workforce reduction (Note 13)                                            |     |  |                                   |  
|                            |                                                                          |     |  |                                   |  
|Net income - actual         | $                                                                        | 132 |  |                                   | $
|                            |                                                                          |     |  |                                   |  

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

|               |                                               | June 30, 2003
        vs. June 30, 2002 |  
|-------------- | --------------------------------------------- | --------------------------------------- | -
|               |                                               | Three Months
        Ended              |  
|               |                                               |                                         |  
|Domestic:      |                                               |                                         |  
|               |                                               |                                         |  
|               | Higher wholesale energy margins               |                                         | $
|               |                                               |                                         |  
|               | Net energy trading margins                    |                                         |  
|               |                                               |                                         |  
|               | Unregulated retail energy margins             |                                         |  
|               |                                               |                                         |  
|               | Lower regulated retail energy margins         |                                         |  
|               |                                               |                                         |  
|               | Trademark royalties to affiliates             |                                         |  
|               |                                               |                                         |  
|               | Higher operating and maintenance expenses     |                                         |  
|               |                                               |                                         |  
|               | Other                                         |                                         |  
|               |                                               |                                         |  
|International: |                                               |                                         |  
|               |                                               |                                         |  
|               | Higher earnings from U.K. operations          |                                         |  
|               |                                               |                                         |  
|               | Lower earnings from Latin American operations |                                         |  
|               |                                               |                                         |  
|               | Other                                         |                                         |  
|               |                                               |                                         |  
|               |                                               | $                                       | 6
|               |                                               |                                         |  

The period to period changes in earnings components, including margins by activity
  and income statement line items, are discussed in the balance of the discussion
  in "Results of Operations." The increase in earnings from U.K. operations was
  primarily due to obtaining complete ownership of WPD in September 2002. (See
  Note 6 to the Financial Statements for additional information.)

PPL Energy Supply's future earnings could be impacted by a number of factors,
  including the following:

- PPL Energy Supply expects that the low level of wholesale energy prices
    will adversely impact margins in 2003 and beyond. Based upon current energy
    price levels, there is a risk that PPL Energy Supply may be unable to recover
    its investment in new gas-fired generation facilities. Under GAAP, PPL Energy
    Supply does not believe that there is an impairment charge to be recorded
    at this time. PPL Energy Supply is unable to predict the ultimate earnings
    impact of this issue, based upon energy price levels, applicable accounting
    rules and other factors, but such impact may be material. See "Application
    of Critical Accounting Policies - Asset Impairment" in PPL Energy Supply's
    Annual Report to the SEC on Form 10-K for the year ended December 31, 2002
    for additional information.
- Earnings in the third quarter of 2003 and beyond will be impacted by the
    consolidation of variable interest entities (as discussed in Note 14 to the
    Financial Statements).
- PPL Energy Supply operates a synfuel facility and receives tax credits pursuant
    to Section 29 of the Internal Revenue Code based on its sale of synfuel to
    unaffiliated third-party purchasers. See Note 7 to the Financial Statements
    for a discussion of the IRS announcement in June 2003, that it would be reviewing
    synfuel production procedures, and the projected annual earnings attributable
    to PPL Energy Supply's synfuel operations.

Domestic Energy Margins

The following tables provide summary data regarding changes in the components
  of domestic gross margins of wholesale and retail energy for the three and six
  months ended June 30, 2003, compared with the same periods in 2002:



|                                                     |                     | June 30, 2003
        vs. June 30, 2002 |    
|---------------------------------------------------- | ------------------- | --------------------------------------- | ---
|                                                     |                     | Three Months
        Ended              |    
|                                                     |                     |                                         |    
|Wholesale energy marketing revenues                  |                     | $                                       | 82 
|                                                     |                     |                                         |    
|Wholesale energy marketing to
        affiliates     |                     |                                         | (12
|                                                     |                     |                                         |    
|Unregulated retail electric
        and gas revenues |                     |                                         | (9 
|                                                     |                     |                                         |    
|Net energy trading margins                           |                     |                                         | 12 
|                                                     |                     |                                         |    
|                                                     | Total revenues      |                                         |    
|                                                     |                     |                                         |    
|Fuel                                                 |                     |                                         | 12 
|                                                     |                     |                                         |    
|Purchased power                                      |                     |                                         | 36 
|                                                     |                     |                                         |    
|Purchased power from affiliates                      |                     |                                         | (2 
|                                                     |                     |                                         |    
|Other cost adjustments (a)                           |                     |                                         | 2  
|                                                     |                     |                                         |    
|                                                     | Total cost of sales |                                         |    
|                                                     |                     |                                         |    
|                                                     |                     | Domestic gross energy margins           |    
|                                                     |                     |                                         |    

|(a) |  | Adjusted to exclude the impact of any costs
        not associated with domestic energy margins, in particular, costs related
        to the international operations of PPL Global. Also adjusted to include
        gains on sales of emission allowances, which are included in other operating
        expenses on the Statement of Income.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                

Changes in Gross Domestic Energy Margins By Activity

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

|                         |                               | June 30, 2003
        vs. June 30, 2002 |    
|------------------------ | ----------------------------- | --------------------------------------- | ---
|                         |                               | Three Months
        Ended              |    
|                         |                               |                                         |    
|Wholesale - Eastern U.S. |                               | $                                       | 27 
|                         |                               |                                         |    
|Wholesale - Western U.S. |                               |                                         | 8  
|                         |                               |                                         |    
|Net energy trading       |                               |                                         | 12 
|                         |                               |                                         |    
|Unregulated retail       |                               |                                         | 3  
|                         |                               |                                         |    
|Regulated retail         |                               |                                         | (25
|                         |                               |                                         |    
|                         | Domestic gross energy margins |                                         | $  
|                         |                               |                                         |    

Wholesale - Eastern U.S.

East wholesale margins were higher for the three and six months ended June
  30, 2003, compared to the same periods in 2002, primarily due to higher volumes,
  which increased 53% and 75%, respectively, over the same periods last year.
  The higher volumes were primarily driven by market opportunities to optimize
  the value of generating assets, and for the six months ended June 30, 2003,
  by higher spot prices that allowed PPL Energy Supply to increase the utilization
  of its higher cost generating units. In addition, 699 MW of new generation began
  commercial operations in mid-2002. Partially offsetting the increase in wholesale
  energy margins for the six months ended June 30, 2003, compared to the same
  period in 2002, was the buyout of a NUG contract in February 2002, which reduced
  power purchases by $25 million.

Wholesale - Western U.S.

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

In the Northwest, margins were $13 million and $23 million higher for the three
  and six months ended June 30, 2003, compared to the same periods in 2002, primarily
  due to higher wholesale prices. Average wholesale prices for the three and six
  months ended June 30, 2003 were $6/MWh and $13/MWh higher than those realized
  in the same periods in 2002. These amounts include a $3 million settlement with
  Energy West Resources, Inc. in June 2003.

In the Southwest, margins were $5 million and $4 million lower for the three
  and six months ended June 30, 2003, compared to the same periods in 2002, primarily
  due to less unrealized margins for hedging activities in this area.

Net Energy Trading

PPL Energy Supply enters into certain energy contracts that meet the criteria
  of trading derivatives as defined by EITF 02-3. These physical and financial
  contracts cover trading activity associated with electricity, gas and oil. The
  $12 million increase for the three months ended June 30, 2003, compared to the
  same period in 2002, was primarily due to realized gains associated with gas
  and oil swaps as well as unrealized gains on electricity positions. The $9 million
  decrease for the six months ended June 30, 2003, compared to the same period
  in 2002, was primarily due to unrealized losses for the six months ended June
  30, 2003. The physical volumes associated with energy trading for the three
  months ended June 30, 2003 were 2,366 GWh and 3.4 Bcf, compared to 2,231 GWh
  and 1.9 Bcf for the three months ended June 30, 2002. Energy trading physical
  volumes for the six months ended June 30, 2003 were 4,857 GWh and 7.2 Bcf, compared
  to 4,736 GWh and 5.1 Bcf for the six months ended June 30, 2002.

Unregulated Retail

Unregulated retail margins were higher for the three and six months ended June
  30, 2003, compared to the same periods in 2002 primarily due to the retention
  of existing electric contracts at renegotiated higher prices in the East and
  executing new electric contracts in both the East and the West, partially offset
  by lower retail gas margins as a result of exiting the retail gas market in
  March 2003. In addition, for the six months ended June 30, 2003, compared to
  the same period in 2002, the increase in margins was partially offset by significantly
  lower electric retail prices in the West.

Regulated Retail

Regulated retail margins in the East decreased by 12% and 16% for the three
  and six months ended June 30, 2003, compared to the same periods in 2002, due
  to higher supply costs resulting from higher purchased power prices which rose
  because of higher gas and oil prices and the abnormally cold winter. Average
  PJM spot market real time prices rose 22% and 69% for the three and six months
  ended June 30, 2003, compared to the same periods in 2002.

Utility Revenues

The decreases in utility revenues were attributable to the following:

|               |                                               | June 30, 2003
        vs. June 30, 2002 |  
|-------------- | --------------------------------------------- | --------------------------------------- | -
|               |                                               | Three Months
        Ended              |  
|               |                                               |                                         |  
|International: |                                               |                                         |  
|               |                                               |                                         |  
|               | Retail electric delivery (PPL
        Global) |                                         |  
|               |                                               |                                         |  
|               |                                               | U.K.                                    |  
|               |                                               |                                         |  
|               |                                               | El Salvador                             |  
|               |                                               |                                         |  
|               |                                               | Bolivia                                 |  
|               |                                               |                                         |  
|               |                                               | Chile                                   |  
|               |                                               |                                         |  
|               |                                               | Brazil                                  |  
|               |                                               |                                         |  
|               |                                               |                                         | $
|               |                                               |                                         |  

The decrease for both periods was primarily due to the deconsolidation of CEMAR.
  PPL Global stopped recording operating results of CEMAR upon relinquishing control
  to ANEEL. (See Note 6 to the Financial Statements for additional information.)

The decreases for the three and six month periods were partially offset by:

- higher WPD revenues in the U.K. primarily due to the change in foreign currency
    exchange rates from period to period; and
- higher revenues in El Salvador primarily due to higher volumes and higher
    pass-through energy costs, partially offset by a 6% tariff reduction effective
    January 1, 2003.

Energy Related Businesses

Energy related businesses contributed $18 million less to operating income
  for the six months ended June 30, 2003, compared to the same period in 2002.
  The decrease resulted primarily from:

- a $7 million operating loss on some Hyder properties in 2003, which were
    subsequently sold in April 2003;
- a $4 million decrease in Latin America revenues from lower material and
    construction project sales. In 2002, PPL Global's Bolivian subsidiary participated
    in the construction of a 1,500 kilometer transmission line in rural areas
    of Bolivia;
- a $4 million credit recorded in 2002, due largely to a favorable settlement
    on the cancellation of a generation project in Washington state; and
- a $3 million decrease in pre-tax earnings of PPL Energy Supply's mechanical
    contractors, primarily due to the overall economic slowdown.

Other Operation and Maintenance

The increases in other operation and maintenance expenses were primarily due
  to:

|                                                                                                                                                                                                                                                            |  | June 30, 2003
        vs. June 30, 2002 |   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | --
|                                                                                                                                                                                                                                                            |  | Three Months
        Ended              |   
|                                                                                                                                                                                                                                                            |  |                                         |   
|Decrease in pension income                                                                                                                                                                                                                                  |  | $                                       | 10
|                                                                                                                                                                                                                                                            |  |                                         |   
|Additional expenses of new generating
        facilities that became operational in mid-2002                                                                                                                                                                |  |                                         | 9 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Increase in WPD expenses due
        to increases in foreign currency exchange rates, regulatory accounting
        adjustments, and resolution of purchase accounting contingencies in the
        second quarter of 2002 related to the Hyder acquisition |  |                                         | 17
|                                                                                                                                                                                                                                                            |  |                                         |   
|Outage costs associated with
        the turbine replacement at the Susquehanna station                                                                                                                                                                     |  |                                         | 16
|                                                                                                                                                                                                                                                            |  |                                         |   
|Allocated trademark license
        fees from a PPL subsidiary                                                                                                                                                                                              |  |                                         | 9 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Accretion expense as a result
        of adopting SFAS 143, "Accounting for Asset Retirement Obligations." See
        Note 12.                                                                                                                             |  |                                         | 4 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Impairment charge on transmission
        rights                                                                                                                                                                                                            |  |                                         | 4 
|                                                                                                                                                                                                                                                            |  |                                         |   
|Reduction in salaries and benefits
        as a result of the workforce reduction initiated in 2002                                                                                                                                                         |  |                                         | (5
|                                                                                                                                                                                                                                                            |  |                                         |   
|Decrease in the Clean Air Act
        contingency relating to generating facilities                                                                                                                                                                         |  |                                         |   
|                                                                                                                                                                                                                                                            |  |                                         |   
|Decrease in Brunner Island expenses
        from outage work completed in the Spring of 2002, as opposed to the normal
        fall outage                                                                                                                  |  |                                         | (8
|                                                                                                                                                                                                                                                            |  |                                         |   
|Other                                                                                                                                                                                                                                                       |  |                                         |   
|                                                                                                                                                                                                                                                            |  |                                         |   
|                                                                                                                                                                                                                                                            |  | $                                       | 56
|                                                                                                                                                                                                                                                            |  |                                         |   

The decreases in pension income for the three and six months ended June 30,
  2003, were attributable to PPL Energy Supply's participation in PPL's primary
  domestic pension plan and the U.K. pension plans of WPD. As a result of weak
  capital markets during 2002, PPL's domestic and U.K. pension plans experienced
  significant asset losses. The weakened market performance decreased economic
  forecasts, which resulted in PPL reducing its expected return on assets assumption
  for its pension plans. In addition, declining fixed income security yield rates
  resulted in PPL decreasing its discount rate assumption for its pension plans
  as of December 31, 2002. These events and assumption changes reduced the amount
  of pension income PPL will record in 2003. Through June 30, 2003, PPL Energy
  Supply recorded approximately $20 million of pension income and will record
  approximately $20 million of additional pension income in the second half of
  2003. Future levels of income or expense will depend on ongoing market conditions
  and results.

Depreciation

Normal plant additions accounted for the increase in depreciation of $6 million
  for the six months ended June 30, 2003, compared with the same period in 2002.
  However, there were also a few significant transactions with offsetting impacts,
  as follows:

- WPD depreciation increased by $14 million. Of that amount, $6 million relates
    to depreciation on the write-up to fair value of assets acquired in the acquisition,
    $6 million resulted from increased foreign currency exchange rates, and the
    remaining $2 million reflects the increase in distribution assets.
- PPL Global's write-down of CEMAR resulted in a $4 million decrease in depreciation
    on those assets in 2003.
- Due to the adoption of SFAS 143, "Accounting for Asset Retirement Obligations,"
    on January 1, 2003, PPL Susquehanna depreciation expense (which previously
    included nuclear decommissioning expense) decreased by about $10 million for
    the six months ended June 30, 2003, compared with the same period in 2002.
    There was a corresponding recording of accretion expense in 2003, which is
    part of operation expense.

Write-down of International Energy Projects

See Note 6 to the Financial Statements for additional information on a $6 million
  charge in the three months ended March 31, 2002 and a $94 million charge in
  the three months ended June 30, 2002 to reflect additional write-downs of PPL
  Global's investment in CEMAR.

Workforce Reduction

See Note 13 to the Financial Statements for information regarding the $40 million
  charge recorded in June 2002.

Other Income - net

See Note 9 to the Financial Statements for details of other income.

Interest Expense

The changes in interest expense were due to:

|                                                                               |  | June 30, 2003
        vs. June 30, 2002 |   
|------------------------------------------------------------------------------ |  | --------------------------------------- | --
|                                                                               |  | Three Months
        Ended              |   
|                                                                               |  |                                         |   
|Decreased long-term debt expense
        due to net long-term debt retirements |  |                                         |   
|                                                                               |  |                                         |   
|Decreased long-term debt expense
        from the deconsolidation of CEMAR     |  | $                                       | (8
|                                                                               |  |                                         |   
|Write-off unamortized swap costs
        on WPD debt restructuring             |  |                                         | 11
|                                                                               |  |                                         |   
|Increase in short-term debt
        expense                                    |  |                                         | 2 
|                                                                               |  |                                         |   
|Capitalized interest and other                                                 |  |                                         | 4 
|                                                                               |  |                                         |   
|                                                                               |  | $                                       | 9 
|                                                                               |  |                                         |   

Income Taxes

Income taxes decreased by $4 million and $40 million for the three and six
  months ended June 30, 2003, compared to the same periods in 2002. The decreases
  were due to:

- higher pre-tax book income, resulting in $41 million and $7 million increases
    in income taxes for the three and six months ended June 30, 2003; offset by
- a reduction related to an impairment charge on PPL Energy Supply's investment
    in CEMAR resulting in a $33 million deferred income tax valuation allowance
    recorded in the second quarter of 2002; and
- differences in income recognition for tax purposes related to foreign affiliates
    resulting in $10 million and $11 million reductions in income taxes for the
    three and six months ended June 30, 2003.

Cumulative Effect of a Change in Accounting Principle

PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement Obligations,"
  effective January 1, 2003. SFAS 143 addresses the accounting for obligations
  associated with the retirement of tangible long-lived assets. It requires legal
  obligations associated with the retirement of long-lived assets to be recognized
  as a liability in the financial statements. Application of the new rules resulted
  in a cumulative effect of adoption that increased net income and equity by $63
  million. See Note 12 to the Financial Statements for additional information.

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

Financial Condition

Liquidity

At June 30, 2003, PPL Energy Supply had $207 million of cash and cash equivalents
  and $122 million of short-term debt. At December 31, 2002, PPL Energy Supply
  had $149 million in cash and cash equivalents and $928 million of short-term
  debt. The increase in cash position was primarily the net result of:

- cash provided by operating activities of $322 million,
- the net decrease of $428 million of notes receivables from affiliates,
- the issuance of $797 million of long-term debt, and
- $262 million from contributions from Member, offset by
- the net decrease of $819 million of short-term debt,
- the retirement of $53 million of long-term debt,
- $650 million of distributions to Member, and
- capital expenditures of $234 million.

In July 2003, PPL Energy Supply determined that, based on its strong current
  cash position and anticipated cash flows, it would not need to access the commercial
  paper markets through at least the end of 2003. PPL Energy Supply currently
  has no commercial paper outstanding. As a result, PPL Energy Supply requested
  Standard & Poor's Ratings Services (S&P), Moody's Investors Service,
  Inc. (Moody's) and Fitch Ratings (Fitch) to withdraw their ratings for the currently
  inactive commercial paper program, which they did effective as of July 9, 2003.
  Based on current cash position and availabilities under its respective revolving
  credit facilities, PPL Energy Supply does not expect this decision to limit
  its ability to fund its short-term liquidity needs.

Rating Agency Decisions - PPL Energy Supply

S&P, Moody's and Fitch recently reviewed the credit ratings on the debt
  of PPL Energy Supply. Based on their respective reviews, the rating agencies
  made certain ratings revisions which are described below.

Management does not expect these ratings decisions to impact PPL Energy Supply's
  ability to raise new long-term debt. These ratings decisions will have an immaterial
  impact on PPL Energy Supply's cost of maintaining its credit facilities and
  the cost of any new long-term debt.

The ratings of S&P, Moody's and Fitch are not a recommendation to buy,
  sell or hold any securities of PPL Energy Supply. 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 its
  securities.

S&P

In April 2003, S&P notified PPL Energy Supply that it affirmed the 'BBB'
  corporate credit rating for PPL Energy Supply. S&P indicated that PPL Energy
  Supply remains on negative outlook. S&P indicated that the negative outlook
  for PPL Energy Supply reflects its view of weak debt-protection measures due
  to low wholesale energy prices. S&P also affirmed the 'A-2' commercial paper
  rating of PPL Energy Supply.

Moody's

In May 2003, Moody's downgraded the credit ratings on PPL Energy Supply's senior
  unsecured notes to 'Baa2' from 'Baa1'. The Moody's ratings outlook was stable
  for PPL Energy Supply.

Moody's stated that its downgrade reflects its concerns about PPL Energy Supply's
  modest exposure to merchant generation risk, the continued weakness in the wholesale
  power market and the associated financial impact on PPL Energy Supply, and concerns
  regarding the amount of cash flow to be generated from PPL Energy Supply's non-regulated
  domestic operations and the free cash flow available from its regulated international
  assets. However, Moody's also indicated that the full requirements contract
  between PPL Electric and PPL EnergyPlus, which previously was approved by the
  PUC and which extends through December 2009, provides a predictable stream of
  cash flows to PPL Energy Supply during such time period. Moody's also noted
  that PPL Energy Supply's management has already implemented a number of initiatives
  to strengthen the company's current credit quality and reduce its debt levels,
  such as a sizeable reduction in planned capital expenditures, the cancellation
  of projects under development, workforce reductions and write-downs of some
  non-core investments.

PPL Energy Supply's short-term debt rating was not impacted by Moody's long-term
  debt review.

Fitch

Also in May 2003, Fitch notified PPL Energy Supply that it:

- affirmed both the 'BBB+' rating of PPL Energy Supply's senior unsecured
    debt, and the 'F2' rating of its commercial paper; and
- placed PPL Energy Supply on negative outlook.

Fitch indicated that the change in outlook for PPL Energy Supply results from
  the increase during 2002 in its generation asset portfolio that is dependent
  on merchant generation, continued weakness in U.S. merchant energy markets and
  exposure to international distribution assets primarily in Latin America and
  the U.K. However, Fitch noted that PPL Energy Supply derives significant earnings
  and cash flow from long-term supply contracts, including the full requirements
  contract between PPL Electric and PPL EnergyPlus, that on average account for
  about 70% of PPL Energy Supply's gross margin over the next five years.

Rating Agency Decisions - WPD

In February 2003, Moody's confirmed the ratings of WPDH Limited and WPD (South
  Wales) at 'Baa2' and 'Baa1,' and downgraded WPD LLP from 'Baa1' to 'Baa2' and
  SIUK Capital Trust I from 'Baa2' to 'Baa3.' The outlook on all ratings was stable.
  In March 2003, S&P assigned its 'BBB+' senior unsecured debt rating to the
  £200 million bonds issued by WPD (South West). At the same time the 'BBB+'
  and 'A-2' corporate credit ratings on SIUK PLC were withdrawn as a result of
  the acquisition of its debt by WPD LLP. S&P assigned its 'BBB' long-term
  and 'A-2' short-term corporate credit ratings to WPD LLP in line with the ratings
  on the rest of the WPD group.

Following a review of holding companies of U.K. regulated utilities, in July
  2003 S&P downgraded the long-term ratings from 'BBB' to 'BBB-' and short-term
  ratings from 'A-2' to 'A-3' for both WPDH Limited and WPD LLP, and retained
  a negative outlook. At the same time, S&P reaffirmed the credit ratings
  for WPD (South West) and WPD (South Wales) at 'BBB+.' This is in line with S&P
  U.K.'s recently announced implementation of a new methodology related to U.K.
  electric distribution holding companies wherein electric distribution operating
  companies rated in the BBB category will have the parent holding company (WPDH
  Limited) notched down by two categories from the operating company rating level.
  WPD's management does not expect the placement of WPD on negative outlook to
  limit its ability to fund its short-term liquidity needs or access new long-term
  debt or to impact the cost of any new long-term debt.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk

As of June 30, 2003, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its non-trading portfolio by approximately
  $200 million. However, the change in the value of the non-trading portfolio
  would have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL Energy Supply's unsold generation would be improved. Because PPL
  Energy Supply's electricity portfolio is generally in a net sales position,
  the adverse movement in prices is usually an increase in prices. Conversely,
  because PPL Energy Supply's commodity fuels portfolio is generally in a net
  purchase position, the adverse movement in prices is usually a decrease in prices.
  If both of these scenarios happened, the implied margins for the unsold generation
  would increase.

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

PPL Energy Supply's trading contracts mature at various times through 2005.
  The following chart sets forth PPL Energy Supply's net fair market value of
  trading contracts:

|                                                                           |  | Three Months
        Ended June 30, |     |   | Six Months
        Ended June 30, |  
|-------------------------------------------------------------------------- |  | ----------------------------------- | --- | - | --------------------------------- | -
|                                                                           |  | 2003                                |     |   | 2002                              |  
|                                                                           |  |                                     |     |   |                                   |  
|Fair value of contracts outstanding
        at the beginning of the period |  | $                                   | (16 | ) |                                   | $
|                                                                           |  |                                     |     |   |                                   |  
|Contracts realized or otherwise
        settled during the period          |  |                                     | 10  |   |                                   |  
|                                                                           |  |                                     |     |   |                                   |  
|Fair value of new contracts
        at inception                           |  |                                     | (2  | ) |                                   |  
|                                                                           |  |                                     |     |   |                                   |  
|Other changes in fair values                                               |  |                                     | 1   |   |                                   |  
|                                                                           |  |                                     |     |   |                                   |  
|Fair value of contracts outstanding
        at the end of the period       |  | $                                   | (7  | ) |                                   | $
|                                                                           |  |                                     |     |   |                                   |  

During the three and six months ended June 30, 2003, PPL Energy Supply reversed
  net losses of approximately $10 million, and during the three and six months
  ended June 30, 2002, PPL Energy Supply reversed net gains/(losses) of approximately
  $(2) million and $1 million, related to contracts entered into prior to January
  1 of the previous year. These amounts do not reflect intra-year contracts that
  were entered into and settled during the period.

"Other changes in fair values" represents changes in the market value of contracts
  outstanding at the end of the period.

As of June 30, 2003, the net unrealized gain on PPL Energy Supply's trading
  activities expected to be realized in earnings during the next three months
  is approximately $8 million.

The following chart segregates estimated fair values of PPL Energy Supply's
  trading portfolio at June 30, 2003 based on whether the fair values are determined
  by quoted market prices or other more subjective means.

|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains/(Losses) |   
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | --
|                                                                     |  | Maturity
        Less Than
        1 Year                            |   
|                                                                     |  |                                                                      |   
|Source of Fair Value                                                 |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices actively quoted                                               |  | $                                                                    | 3 
|                                                                     |  |                                                                      |   
|Prices provided by other external sources                            |  |                                                                      | (8
|                                                                     |  |                                                                      |   
|Prices based on models and other valuation
        methods           |  |                                                                      | (3
|                                                                     |  |                                                                      |   
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | (8
|                                                                     |  |                                                                      |   

The "Prices actively quoted" category includes the fair value of exchange-traded
  natural gas futures contracts quoted on the New York Mercantile Exchange.

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

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

As of June 30, 2003, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its trading portfolio by $7 million.

Interest Rate Risk

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

At June 30, 2003, PPL Energy Supply's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Energy Supply is also exposed to changes in the fair value of its debt
  portfolio. At June 30, 2003, PPL Energy Supply estimated that its potential
  exposure to a change in the fair value of its debt portfolio, through a 10%
  adverse movement in interest rates, was $131 million.

PPL and PPL Energy Supply utilize various risk management instruments to reduce
  PPL Energy Supply's exposure to adverse interest rate movements for future anticipated
  financings. While PPL Energy Supply is exposed to changes in the fair value
  of these instruments, they are designed such that any economic loss in value
  should be offset by interest rate savings at the time the future anticipated
  financing is completed. At June 30, 2003, PPL Energy Supply estimated that its
  potential exposure to a change in the fair value of these instruments, through
  a 10% adverse movement in interest rates, was insignificant.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge
  certain foreign currency exposures, including firm commitments, recognized assets
  or liabilities and net investments. In addition, PPL enters into financial instruments
  to protect against foreign currency translation risk.

PPL holds contracts for the forward purchase of 26 million euros and £1
  million to pay for certain equipment of a PPL Energy Supply subsidiary in 2003
  and 2004. The estimated value of these forward purchases as of June 30, 2003,
  being the amount PPL would receive to terminate them, was $5 million.

PPL executed forward sale transactions for £25 million to hedge a portion
  of PPL Energy Supply's net investment in WPDH Limited. The estimated value of
  these agreements as of June 30, 2003 was insignificant.

To protect expected income in British pounds sterling, PPL entered into average
  rate options for £26 million and average rate forward sale agreements
  for £20 million. To protect expected income in Chilean pesos, PPL entered
  into average rate options for 4 billion Chilean pesos. At June 30, 2003, the
  market value of these positions, representing the amount PPL would pay to terminate
  them, was $1 million.

WPDH Limited executed cross-currency swaps totaling $1.3 billion to hedge the
  value of its U.S. dollar-denominated bonds. The estimated value of this position
  on June 30, 2003, being the amount PPL would pay to terminate them, was $29
  million.

PPL executed a non-deliverable, forward purchase agreement for 3 billion Chilean
  Pesos to hedge the translation risk of a Chilean subsidiary's U.S. dollar receivable.
  The market value of this position at June 30, 2003 was insignificant.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of June 30, 2003, these funds were invested primarily
  in domestic equity securities and fixed-rate, fixed-income securities and are
  reflected at fair value on PPL Energy Supply's Balance Sheet. The mix of securities
  is designed to provide returns to be used to fund Susquehanna's decommissioning
  and to compensate for inflationary increases in decommissioning costs. However,
  the equity securities included in the trusts are exposed to price fluctuation
  in equity markets, and the values of fixed-rate, fixed-income securities are
  exposed to changes in interest rates. PPL Susquehanna actively monitors the
  investment performance and periodically reviews asset allocation in accordance
  with its nuclear decommissioning trust policy statement. At June 30, 2003, a
  hypothetical 10% adverse movement in interest rates and a 10% decrease in equity
  prices would have resulted in an estimated $20 million reduction in the fair
  value of the trust assets.

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

Related Party Transactions

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

For additional information on related party transactions, see Note 8 to the
  Financial Statements.

Acquisitions and Development

From time-to-time, PPL Energy Supply and its subsidiaries are involved in negotiations
  with third parties regarding acquisitions, joint ventures and other arrangements
  which may or may not result in definitive agreements. See Note 6 to the Financial
  Statements for information regarding recent acquisitions and development activities.

At June 30, 2003, PPL Energy Supply had domestic generation projects under
  development which would provide 645 MW of additional generation.

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

Environmental Matters

See Note 7 to the Financial Statements for a discussion of environmental matters.

New Accounting Standards

FIN 46

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
  Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarifies that variable
  interest entities, as defined therein, that do not disperse risks among the
  parties involved should be consolidated by the entity that is determined to
  be the primary beneficiary. FIN 46 also requires certain disclosures to be made
  by the primary beneficiary and by an enterprise that holds a significant variable
  interest in a variable interest entity but is not the primary beneficiary. FIN
  46 applies immediately to variable interest entities created after January 31,
  2003 and to variable interest entities in which an enterprise obtains an interest
  after January 31, 2003. For variable interest entities in which an enterprise
  holds a variable interest that was acquired before February 1, 2003, FIN 46
  must be adopted no later than the first fiscal year or interim period beginning
  after June 15, 2003. FIN 46 did not have an impact on PPL Energy Supply during
  the three or six months ended June 30, 2003. PPL Energy Supply is in the process
  of evaluating entities in which it holds a variable interest that was acquired
  before February 1, 2003. Except as discussed below, PPL Energy Supply is currently
  not aware of any variable interest entities that are not consolidated as of
  June 30, 2003 but which it must consolidate in accordance with FIN 46 effective
  July 1, 2003. As it continues to evaluate the impact of applying FIN 46,
  PPL Energy Supply may identify additional entities that it would need to consolidate.

The lessors under the operating leases for the Sundance, University Park and
  Lower Mt. Bethel generation facilities are variable interest entities in which
  PPL Energy Supply is the primary beneficiary. Consequently, under FIN 46, PPL
  Energy Supply will be required to consolidate the financial statements of the
  lessors effective July 1, 2003. Upon initial consolidation, PPL Energy Supply will recognize
  $1.0 billion of additional assets and liabilities on its balance sheet and a
  charge of $21 million, after-tax, as a cumulative effect of a change in accounting
  principle. The additional assets consist principally of the generation facilities,
  and the additional liabilities consist principally of the lease financing. See
  Note 14 to the Financial Statements for a discussion of the leases.

Other

See Note 14 to the Financial Statements for information on other new accounting
  standards adopted in 2003 or pending adoption.

Application of Critical Accounting Policies

PPL Energy Supply's financial condition and results of operations are impacted
  by the methods, assumptions and estimates used in the application of critical
  accounting policies. The following accounting policies are particularly important
  to the financial condition or results of operations of PPL Energy Supply, and
  require estimates or other judgments of matters inherently uncertain: price
  risk management, pension and other postretirement benefits, asset impairment,
  leasing, loss accruals, and asset retirement obligations.

See Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended
  December 31, 2002 for a discussion of each critical accounting policy, except
  for asset retirement obligations which is discussed below. PPL's senior management
  has reviewed these critical accounting policies, and the estimates and assumptions
  regarding them, with its Audit Committee. In addition, PPL's senior management
  reviewed the Form 10-K disclosures regarding the application of these critical
  accounting policies with the Audit Committee.

Asset Retirement Obligations

In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations,"
  which addresses the accounting for obligations associated with the retirement
  of tangible long-lived assets. SFAS 143 requires legal obligations associated
  with the retirement of long-lived assets to be recognized as a liability in
  the financial statements. The initial obligation should be measured at the estimated
  fair value. An equivalent amount should be recorded as an increase in the value
  of the capitalized asset and allocated to expense over the useful life of the
  asset. Until the obligation is settled, the liability should be increased, through
  the recognition of accretion expense in the income statement, for changes in
  the obligation due to the passage of time. SFAS 143 is effective for fiscal
  years beginning after June 15, 2002.

In determining asset retirement obligations, management must make significant
  judgments and estimates to calculate fair value. Fair value is developed through
  consideration of estimated retirement costs in today's dollars, inflated to
  the anticipated retirement date and then discounted back to the date the asset
  retirement obligation was incurred. Changes in assumptions and estimates included
  within the calculations of asset retirement obligations could result in significantly
  different results than those identified and recorded in the financial statements.

PPL Energy Supply adopted SFAS 143 effective January 1, 2003. Application of
  the new rules resulted in an increase in net property, plant and equipment of
  $32 million, reversal of previously recorded liabilities of $304 million, recognition
  of asset retirement obligations of $229 million, recognition of a deferred tax
  liability of $44 million and a cumulative effect of adoption that increased
  net income by $63 million. PPL Energy Supply's most significant assumptions
  surrounding asset retirement obligations are the forecasted retirement cost,
  discount rate and inflation rate. A variance in the forecasted retirement cost,
  discount rate or inflation rate could have a significant impact on the ARO liability
  and the cumulative effect gain.

The following chart reflects the sensitivities associated with a change in
  these assumptions upon initial adoption. Each sensitivity below reflects an
  evaluation of the change based solely on a change in that assumption only.



|                |  | Change inAssumption |  | Impact on Cumulative Effect |  | Impact on ARO Liability
|--------------- |  | ------------------- |  | --------------------------- |  | -----------------------
|                |  |                     |  |                             |  |                        
|Retirement Cost |  | 10/(10)%            |  | $(10)/$10                   |  | $21/$(21)              
|                |  |                     |  |                             |  |                        
|Discount Rate   |  | 0.25/(0.25)%        |  | $10/$(11)                   |  | $(22)/$25              
|                |  |                     |  |                             |  |                        
|Inflation Rate  |  | 0.25/(0.25)%        |  | $(12)/$11                   |  | $25/$(22)              





---



PPL ELECTRIC UTILITIES CORPORATION
  AND SUBSIDIARIES



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

This discussion should be read in conjunction with the Financial Statements
  and Combined Notes to Condensed Consolidated Financial Statements included in
  Item 1 above, and with the section entitled "Review of the Financial Condition
  and Results of Operations" in PPL Electric's Annual Report to the SEC on Form
  10-K for the year ended December 31, 2002. Terms and abbreviations appearing
  here are explained in the glossary. Dollars are in millions, unless otherwise
  noted.

Results of Operations

The following discussion, that explains significant changes in principal items
  on the Statement of Income, compares the three and six months ended June 30,
  2003, to the comparable periods in 2002.

The Statement of Income reflects the results of past operations and is not
  intended as any indication of future operating results. Future operating results
  will necessarily be affected by various and diverse factors and developments.
  Furthermore, because results for interim periods can be disproportionately influenced
  by various factors and developments and by seasonal variations, the results
  of operations for interim periods do not necessarily indicate results or trends
  for the year.

Earnings

The changes in net income from period to period were, in part, attributable
  to an unusual item in 2002 with a $19 million unfavorable earnings impact. Income
  from core operations, which excludes the impact of unusual items, should not
  be considered as an alternative to net income, which is an indicator of operating
  performance determined in accordance with GAAP. PPL Electric believes that income
  from core operations, although a non-GAAP measure, is also useful and meaningful
  to investors because it provides them with PPL Electric's underlying earnings
  performance as another criterion in making their investment decisions. PPL Electric's
  management also uses income from core operations in measuring certain corporate
  performance goals. Other companies may use different measures to present financial
  performance. The table below reconciles income from core operations to net income,
  by eliminating the impact of unusual items.

|                            | Three Months
        Ended June 30, |  |  | Six Months
        Ended June 30, |  
|--------------------------- | ----------------------------------- |  |  | --------------------------------- | -
|                            | 2003                                |  |  | 2002                              |  
|                            |                                     |  |  |                                   |  
|Income from core operations | $                                   |  |  |                                   | $
|                            |                                     |  |  |                                   |  
|Unusual item (net of tax):  |                                     |  |  |                                   |  
|                            |                                     |  |  |                                   |  
|                            | Workforce reduction (Note 13)       |  |  |                                   |  
|                            |                                     |  |  |                                   |  
|Net income (loss) - actual  | $                                   |  |  |                                   | $
|                            |                                     |  |  |                                   |  

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

|                                                                                                        |  | June 30, 2003
        vs. June 30, 2002 |    
|------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ---
|                                                                                                        |  | Three Months
        Ended              |    
|                                                                                                        |  |                                         |    
|Higher delivery revenues (net of CTC/ITC
        amortization and interest expense on transition bonds) |  |                                         |    
|                                                                                                        |  |                                         |    
|Higher operating and maintenance expenses                                                               |  | $                                       | (5 
|                                                                                                        |  |                                         |    
|Higher interest expense (excluding transition
        bond interest expense)                            |  |                                         | (2 
|                                                                                                        |  |                                         |    
|Higher depreciation expense                                                                             |  |                                         | (2 
|                                                                                                        |  |                                         |    
|Other - net                                                                                             |  |                                         | (2 
|                                                                                                        |  |                                         |    
|                                                                                                        |  | $                                       | (11
|                                                                                                        |  |                                         |    

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

In May 2003, PPL Electric announced that it expects to file a request for a
  delivery rate increase with the PUC in the spring of 2004. If approved, the
  new rates will go into effect in January 2005, when PPL Electric's distribution
  rate cap expires. PPL Electric has not yet determined the amount of the rate
  increase it will request, and cannot predict the amount of such increase that
  will ultimately be approved by the PUC.

Operating Revenues

Retail Electric

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

| |                                | June 30, 2003
        vs. June 30, 2002 |   
| | ------------------------------ | --------------------------------------- | --
| |                                | Three Months
        Ended              |   
| |                                |                                         |   
| | Electric delivery              |                                         | $ 
| |                                |                                         |   
| | PLR electric generation supply |                                         |   
| |                                |                                         |   
| | Other                          |                                         |   
| |                                |                                         |   
| |                                | $                                       | (4
| |                                |                                         |   

The increase in operating revenues from retail electric operations for the
  six months ended June 30, 2003, compared with the same period in 2002, was primarily
  due to higher delivery revenues resulting from increased sales volumes of 3.4%.
  The increase in sales volume was due to colder winter weather in the first quarter
  of 2003. Also contributing to the increase were higher PLR supply revenues due
  to a 1% increase in customers' PLR rates.



Retail Electric to Affiliate

PPL Electric bills PPL Generation for power plant electricity usage, as well
  as usage in its offices and other facilities. As of April 2003, the power plants
  began self supplying their station use, and PPL Electric began billing PPL Generation
  the minimum bill for their station usage, although they continue to be billed
  for office and facility usage. This resulted in decreased retail electric revenues
  to affiliate for the three and six months ended June 30, 2003, compared with
  the same periods in 2002.

Wholesale Electric to Affiliate

PPL Electric has a contract to sell to PPL EnergyPlus the electricity that
  PPL Electric purchases under contracts with NUGs. With the termination in February
  2002 of a NUG contract, PPL Electric purchased less NUG energy in 2003 and therefore
  had less electricity to sell to PPL EnergyPlus.

Energy Purchases from Affiliate

Energy purchases from affiliate decreased by $12 million for the three months
  ended June 30, 2003, compared with the same period in 2002. The decrease reflects
  lower purchases under the power supply contracts with PPL EnergyPlus needed
  to support PLR load, due to milder weather during the second quarter of 2003
  as compared to the same period in 2002.

Higher prices in 2003, as compared to the same period in 2002, resulted in
  energy purchases from affiliate increasing by $6 million for the six months
  ended June 30, 2003. See Note 8 to the Financial Statements for a discussion
  of the power supply contracts.

Other Operation Expenses

The increases in other operation expenses were due to:

|                                                                                                    |  | June 30, 2003
        vs. June 30, 2002 |   
|--------------------------------------------------------------------------------------------------- |  | --------------------------------------- | --
|                                                                                                    |  | Three Months
        Ended              |   
|Decrease in pension income                                                                          |  | $                                       | 5 
|                                                                                                    |  |                                         |   
|                                                                                                    |  |                                         |   
|Environmental accrual for a
        manufactured gas plant                                          |  |                                         | 2 
|                                                                                                    |  |                                         |   
|Increases in expenses in responding
        to customers' service calls                             |  |                                         | 1 
|                                                                                                    |  |                                         |   
|Increase to property damage
        provision, based on an aging of those accounts                  |  |                                         | 1 
|                                                                                                    |  |                                         |   
|Increased electric contractor/additional
        material costs                                     |  |                                         |   
|                                                                                                    |  |                                         |   
|Increased residential weatherization
        program expenses                                       |  |                                         |   
|                                                                                                    |  |                                         |   
|Reduction in salaries and benefits
        as a result of the workforce reduction initiated in 2002 |  |                                         | (3
|                                                                                                    |  |                                         |   
|Other                                                                                               |  |                                         | 1 
|                                                                                                    |  |                                         |   
|                                                                                                    |  | $                                       | 7 
|                                                                                                    |  |                                         |   

The decreases in pension income for the three and six months ended June 30,
  2003 were attributable to PPL Electric's participation in PPL's primary domestic
  pension plan. As a result of weak capital markets during 2002, PPL's domestic
  pension plans experienced significant asset losses. The weakened market performance
  decreased economic forecasts, which resulted in PPL reducing its expected return
  on assets assumption. In addition, declining fixed income security yield rates
  resulted in PPL's decreasing its discount rate assumption for its pension plans
  as of December 31, 2002. These events and assumption changes reduced the amount
  of pension income PPL will record in 2003. PPL Electric participates in PPL's
  primary domestic pension plan and is allocated approximately 46% of the obligations
  and costs of that plan. Through June 30, 2003, PPL Electric was allocated approximately
  $2 million of pension income and expects to be allocated an additional $2 million
  of pension income in the second half of 2003. Future levels of pension income
  or expense depend on ongoing market conditions and results.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs and interest expense on the transition
  bonds offset ITC revenues, resulting in a minimal impact on earnings.

Maintenance Expenses

Maintenance expenses increased by $5 million for the six months ended June
  30, 2003, compared with the same period in 2002. The increase was primarily
  due to $2 million of work performed to assure reliability of the transmission
  and distribution system and $2 million in lower rent allocations to other PPL
  affiliates in 2003.

Depreciation

Depreciation increased by $4 million for the six months ended June 30, 2003,
  compared with the same period in 2002, primarily due to plant and software additions,
  including the automated meter reading project.

Workforce Reduction

See Note 13 to the Financial Statements for information regarding the $33 million
  charge recorded in June 2002.

Income Taxes

Income taxes increased by $10 million and $14 million for the three and six
  months ended June 30, 2003, compared to the same periods in 2002, as a result
  of higher pre-tax book income.

Dividends and Distributions - Preferred Securities

Dividends and distributions on preferred securities decreased by $4 million
  and $9 million during the three and six months ended June 30, 2003, compared
  with the same periods in 2002, due to the retirement of preferred securities
  in 2002.

Financial Condition

Liquidity

At June 30, 2003, PPL Electric had $60 million of cash and cash equivalents
  and no short-term debt. At December 31, 2002, PPL Electric had $29 million of
  cash and cash equivalents and $15 million of short-term debt. The increase in
  cash position was primarily the net result of:

- cash provided by operating activities of $233 million,
- the issuance of $190 million of long-term debt, and
- a $75 million capital contribution from PPL, offset by
- the retirement of $291 million of long-term debt,
- payment of $21 million of common and preferred dividends,
- retirement of preferred stock of $10 million,
- repayment of commercial paper of $15 million, and
- capital expenditures of $112 million.

In July 2003, PPL Electric determined that, based on its strong current cash
  position and anticipated cash flows, it would not need to access the commercial
  paper markets through at least the end of 2003. PPL Electric currently has no
  commercial paper outstanding. As a result, PPL Electric requested Standard &
  Poor's Ratings Services (S&P), Moody's Investors Service, Inc. (Moody's)
  and Fitch Ratings (Fitch) to withdraw their ratings for the currently inactive
  commercial paper program, which they did effective as of July 9, 2003. Based
  on current cash position and availabilities under its respective revolving credit
  facilities, PPL Electric does not expect this decision to limit its ability
  to fund its short-term liquidity needs.

Rating Agency Decisions

S&P and Moody's recently reviewed the credit ratings on the debt and preferred
  securities of PPL Electric. Based on their respective reviews, the rating agencies
  made certain ratings revisions which are described below.

Management does not expect these ratings decisions to impact PPL Electric's
  ability to raise new long-term debt. These ratings decisions will have an immaterial
  impact on PPL Electric's cost of maintaining its credit facilities and the cost
  of any new long-term debt.

The ratings of S&P and Moody's 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 its securities.

S&P

In April 2003, S&P notified PPL Electric that it affirmed 'A-' ratings
  on PPL Electric's first mortgage bonds and senior secured bonds, and placed
  PPL Electric on negative outlook. S&P also affirmed the 'A-2' commercial
  paper rating of PPL Electric.

Moody's

In May 2003, Moody's downgraded the credit ratings on PPL Electric's first
  mortgage bonds and senior secured bonds to 'Baa1' from 'A3.' The ratings outlook
  was stable for PPL Electric. PPL Electric's short-term debt rating was not impacted
  by Moody's long-term debt review.

For additional information on PPL Electric's liquidity, see Item 7, "Review
  of the Financial Condition and Results of Operations," in PPL Electric's Annual
  Report to the SEC on Form 10-K for the year ended December 31, 2002.

Risk Management

Market Risk

Commodity Price Risk - PLR Contracts

PPL Electric and PPL EnergyPlus have power supply agreements under which PPL
  EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement)
  energy and capacity to fulfill PPL Electric's PLR obligation through 2009. As
  a result, PPL Electric has shifted any electric price risk relating to its PLR
  obligation to PPL EnergyPlus for 2002 through 2009. See Note 8 to the Financial
  Statements for information on the PLR contracts.

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which increases its
  interest rate risk. At June 30, 2003, PPL Electric's potential annual exposure
  to increased interest expense, based on a 10% increase in interest rates, was
  $1 million.

PPL Electric is also exposed to changes in the fair value of its debt portfolio.
  At June 30, 2003, PPL Electric estimated that its potential exposure to a change
  in the fair value of its debt portfolio, through a 10% adverse movement in interest
  rates, was approximately $54 million.



Related Party Transactions

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

For additional information on related party transactions, see Note 8 to the
  Financial Statements.

Environmental Matters

See Note 7 to the Financial Statements for a discussion of environmental matters.

New Accounting Standards

See Note 14 to the Financial Statements for information on new accounting standards
  adopted in 2003 or pending adoption.



Application of Critical Accounting Policies

PPL Electric's financial condition and results of operations are impacted by
  the methods, assumptions and estimates used in the application of critical accounting
  policies. The following accounting policies are particularly important to the
  financial condition or results of operations of PPL Electric, and require estimates
  or other judgments of matters inherently uncertain: pension and other postretirement
  benefits, and loss accruals. See Item 7, "Review of the Financial Condition
  and Results of Operations," in PPL Electric's Annual Report to the SEC on Form
  10-K for the year ended December 31, 2002 for a discussion of each critical
  accounting policy. PPL's senior management has reviewed these critical accounting
  policies, and the estimates and assumptions regarding them, with its Audit Committee.
  In addition, PPL's senior management reviewed the Form 10-K disclosures regarding
  the application of these critical accounting policies with the Audit Committee.



---



PPL MONTANA, LLC AND SUBSIDIARIES



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

The following analysis of the results of operations and financial condition
  of PPL Montana is abbreviated as PPL Montana meets the conditions set forth
  in General Instruction (H)(1)(a) and (b) of Form 10-Q. This discussion should
  be read in conjunction with the Financial Statements and Combined Notes to Condensed
  Consolidated Financial Statements included in Item 1 above, and with the section
  entitled "Review of the Financial Condition and Results of Operations" in PPL
  Montana's Annual Report to the SEC on Form 10-K for the year ended December
  31, 2002. Terms and abbreviations appearing here are explained in the glossary.

Results of Operations

The following discussion explains significant changes in principal items on
  the Statement of Income, comparing the six months ended June 30, 2003, to the
  comparable period in 2002.

The Statement of Income reflects the results of past operations and is not
  intended as any indication of future operating results. Future operating results
  will necessarily be affected by various and diverse factors and developments.
  Furthermore, because results for interim periods can be disproportionately influenced
  by various factors and developments and by seasonal variations, the results
  of operations for interim periods are not necessarily indicative of results
  or trends for the year.

Earnings

Net income increased by $16 million for the six months ended June 30, 2003,
  compared with the same period in 2002. The increase was primarily due to higher
  wholesale prices in the western U.S.

Operating Revenues

Operating revenues increased by $42 million for the six months ended June 30,
  2003, compared with the same period in 2002. The increase was primarily due
  to an increase in wholesale energy prices from the prices experienced in 2002.
  The increase in power prices resulted in an increase in revenues of $35 million
  and an increase in volume sold resulted in an increase in revenues of $7 million.

Operating Expense

Operating expenses increased by $15 million during the six months ended June
  30, 2003, compared with the same period in 2002. Operating expenses consist
  mainly of expenses for fuel, energy purchases, transmission tariffs, plant operations
  and maintenance, lease rental payments, and general and administrative expenses.
  The increase was primarily due to a $15 million increase in energy purchases
  due to an increase in power prices.

Generation increased by 229 million kWh during the six months ended June 30,
  2003, compared with the same period in 2002. This increase was due to higher
  hydroelectric generation caused by improved water flows in the first half of
  2003 as well as improved operational performance from the coal fired generation
  units.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk

As of June 30, 2003, PPL Montana estimated that a 10% adverse movement in market
  prices across all geographic areas and time periods would have decreased the
  value of the commodity contracts in its non-trading portfolio by approximately
  $89 million. However, the change in the value of the non-trading portfolio would
  have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL Montana's unsold generation would be improved. Because PPL Montana's
  electricity portfolio is generally in a net sales position, the adverse movement
  in prices is usually an increase in prices.

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

PPL Montana's trading contracts mature at various times through 2003. PPL Montana's
  net fair market value of trading contracts as of June 30, 2003 was insignificant.

As of June 30, 2003, the net unrealized gain on PPL Montana's trading activities
  expected to be realized in earnings during the next three months is insignificant.

PPL Montana estimated that a 10% adverse movement in market prices across all
  geographic areas and time periods would have decreased the value of the commodity
  contracts in its trading portfolio by an insignificant amount at June 30, 2003.

Interest Rate Risk

PPL Montana may use borrowings to provide funds for its operations. PPL and
  PPL Energy Supply may utilize various financial derivative products and risk
  management techniques on behalf of PPL Montana to adjust the mix of fixed and
  floating interest rates in PPL Montana's debt portfolio and thereby reduce its
  exposure to adverse interest rate movements. PPL Montana had $19 million in
  borrowings outstanding as of June 30, 2003, and estimates its exposure to increased
  interest expense, based on a 10% increase in interest rates, to be insignificant.

New Accounting Standards



See Note 14 to the Financial Statements for information on new accounting standards
  adopted in 2003 or pending adoption.

Application of Critical Accounting Policies

PPL Montana's financial condition and results of operations are impacted by
  the methods, assumptions and estimates used in the application of critical accounting
  policies. The following accounting policies are particularly important to the
  financial condition or results of operations of PPL Montana, and require estimates
  or other judgments of matters inherently uncertain: price risk management, pension
  and other postretirement benefits, leasing, and loss accruals.

See Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL Montana's Annual Report to the SEC on Form 10-K for the year ended December
  31, 2002 for a discussion of each critical accounting policy. PPL's senior management
  has reviewed these critical accounting policies, and the estimates and assumptions
  regarding them, with its Audit Committee. In addition, PPL's senior management
  reviewed the Form 10-K disclosures regarding the application of these critical
  accounting policies with the Audit Committee.

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PPL CORPORATIONPPL ENERGY SUPPLY, LLCPPL ELECTRIC UTILITIES CORPORATIONPPL MONTANA, LLC AND SUBSIDIARIES



Item 3. Quantitative and Qualitative Disclosures About Market Risk



Reference is made to "Risk Management - Energy Marketing & Trading and
  Other" in Management's Discussion and Analysis of Financial Condition and Results
  of Operations.

|Item
        4. Controls and Procedures
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|(a)                                    
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PART II. OTHER INFORMATION

|Item
        1. Legal Proceedings                                                                                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                  
|For additional information regarding various
        pending administrative and judicial proceedings involving regulatory,
        environmental and other matters, which information is incorporated by
        reference into this Part II, see:
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|Item 4.
        Submission of Matters to a Vote of Security Holders
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|Item
        6. Exhibits and Reports on Form 8-K
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|(a)                                             
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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)                                  
|                      |                                               
|                      | PPL Montana, LLC                              
|                      | (Registrant)                                  
|                      |                                               
|                      |                                               
|                      |                                               
|                      |                                               
|Date: August 12, 2003 | /s/  John R. Biggar                           
|                      | John R. Biggar                                
|                      | Executive Vice President
          and        
|                      | Chief Financial Officer                       
|                      | (PPL Corporation)                             
|                      | (principal financial officer)                 
|                      |                                               
|                      |                                               
|                      |                                               
|                      |                                               
|                      | /s/  James E. Abel                            
|                      | James E. Abel                                 
|                      | Treasurer                                     
|                      | (PPL Energy Supply, LLC)                      
|                      | (principal financial officer)                 
|                      |                                               
|                      |                                               
|                      |                                               
|                      |                                               
|                      | /s/  Joseph J. McCabe                         
|                      | Joseph J. McCabe                              
|                      | Vice President and Controller                 
|                      | (PPL Electric Utilities
          Corporation)
|                      | (principal accounting officer)                
|                      |                                               
|                      |                                               
|                      |                                               
|                      |                                               
|                      | /s/  Charles S. Baker                         
|                      | Charles S. Baker                              
|                      | Controller                                    
|                      | (PPL Montana, LLC)                            
|                      | (principal accounting officer)