UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549



Form 10-Q



|[X]  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 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,168,562,458
        shares outstanding at April 30, 2003, excluding 31,014,292 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 April 30, 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 MARCH 31, 2003Table of Contents



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|GLOSSARY OF TERMS AND ABBREVIATIONS                                                                                                                   |                                                                                                      
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|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                           
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|                                                                                                                                                      | Item 4. Controls
        and Procedures                                                              
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|PART II. OTHER INFORMATION                                                                                                                            |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      | Item 1. Legal Proceedings                                                                            
|                                                                                                                                                      | Item 6. Exhibits
        and Reports on Form 8-K                                                     
|                                                                                                                                                      |                                                                                                      
|SIGNATURES                                                                                                                                            | 72                                                                                                   
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|CERTIFICATIONS                                                                                                                                        |                                                                                                      
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|COMPUTATION OF RATIO OF EARNINGS
        TO FIXED CHARGES                                                                                             |                                                                                                      
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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, a subsidiary of WPDL and previous owner of South Wales Electricity plc.  In March 2001, South Wales Electricity plc was acquired by WPDH Limited and renamed WPD (South Wales).

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

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

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

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

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

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

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

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

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

PPL 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 northeastern Pennsylvania.

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

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

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

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

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 (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 Western Power Distribution 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;
- foreign exchange rates;
- new state or federal legislation;
- national or regional economic conditions, including any potential effects
    arising from the September 11, 2001 terrorist attacks in the U.S. and any
    consequential hostilities or other hostilities; and
- the commitments and liabilities of PPL and its subsidiaries.

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

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

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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                                                                                                                       
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|Other Income - net                                                                                                                     
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|Interest Expense                                                                                                                       
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|Income Before Income Taxes
        and Minority Interest                                                                               
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|Income Taxes                                                                                                                           
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|Minority Interest                                                                                                                      
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|Income Before Cumulative
        Effect of a Change in Accounting Principle                                                            
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|Cumulative Effect of a Change
        in Accounting Principle (net of income taxes)                                                    
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|Income Before Dividends and
        Distributions on Preferred Securities                                                              
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|Dividends and Distributions
        - Preferred Securities                                                                             
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|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                                                                                 
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|PPL Corporation and Subsidiaries                                                                                                       
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
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|Net Cash Provided
        by (Used in) 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)                                                                                                                  
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|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)                                                                                                                  
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|Liabilities and Equity                                                                                                                 
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|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                                                                                         
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|Minority Interest                                                                                                                      
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|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)                                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|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 (Loss) Before Distributions
        on Preferred Securities                                                                     
|                                                                                                                                       
|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 Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by Operating
        Activities                                                                                      
|                                                                                                                                       
|Cash Flows From Investing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Financing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net 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                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|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 Before Income Taxes                                                                                                             
|                                                                                                                                       
|Income Taxes                                                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|Income Before Dividends and
        Distributions on Preferred Securities                                                              
|                                                                                                                                       
|Dividends and 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 Electric Utilities Corporation 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 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 AND COMPREHENSIVE
        INCOME
|-------------------------------------------------------------------------------------------------------
|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)                                                                                                                                     |  | PPL Electric's net income approximates
        comprehensive income.                                                                       
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|(b)                                                                                                                                     |  | Shares in thousands. No par value. 170
        million shares authorized. All common shares of PPL Electric stock are
        owned by PPL.
|                                                                                                                                       
|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                                                                                                                       
|                                                                                                                                       
|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 (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 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.

---

|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
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|Member's Equity at end of period                                                                                                       
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|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 Condensed Consolidated Balance Sheet as of December
      31, 2002 is derived from each Registrant's 2002 audited Balance Sheet. The
      condensed consolidated financial statements and notes thereto should be
      read in conjunction with the consolidated 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
      months ended March 31, 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 March 31, 2002 and December 31, 2002 financial statements
      have been reclassified to conform to the presentation in the March 31, 2003
      financial statements. The required reclassification of energy trading activity
      to a net basis, as described in Note 11, and the retroactive consolidation
      of WPD, as described in Note 7, are the most significant reclassifications
      of the March 31, 2002 financial statements.
2. Summary of Significant Accounting Policies
    The following accounting policy disclosures represent updates to the "Summary
      of Significant Accounting Policies" footnote 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 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 15 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 will require PPL and
      its subsidiaries to recognize compensation expense for stock options issued.
      Fair value for the stock options will be determined using the Black-Scholes
      options pricing model. Stock option expense was less than $1 million for
      the three months ended March 31, 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 will 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 March 31,2003
        
        
        2002IncomeNet Income (Loss) - as reported
        
        $
        239
        
        
        $
        (3
        )Add: Stock-based employee compensation
            expense included in reported net income, net of tax
        
        
        1
        
        
        
        1Deduct: Total stock-based compensation
            expense determined under the fair value method for all awards, net
            of tax
        
        
        2
        
        
        
        2Pro forma net income (loss)
        
        $
        238
        
        
        $
        (4
        )EPSBasic - as reported
        
        $
        1.43
        
        
        $
        (0.02
        )Basic - pro forma
        
        $
        1.43
        
        
        $
        (0.03
        )Diluted - as reported
        
        $
        1.43
        
        
        $
        (0.02
        )Diluted - pro forma
        
        $
        1.42
        
        
        $
        (0.03
        )(PPL Energy Supply)
    Recognition of stock-based compensation expense, including awards granted
      to employees of PPL Energy Supply and an allocation of the costs of awards
      granted to employees of PPL Services, determined using the fair value method
      for all outstanding awards, would have decreased PPL Energy Supply's reported
      earnings by $1 million for both the three months ended March 31, 2003 and
      2002.
    (PPL Electric and PPL Montana)
    Stock-based compensation expense for PPL Electric and PPL Montana, including
      awards granted to employees of PPL Electric and PPL Montana 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 both the three
      months ended March 31, 2003 and 2002.
    Asset Retirement Obligations
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 13 for a discussion of accounting for asset retirement obligations.
    New Accounting Standards
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 15 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 certain
      interest income, exist at the PPL Energy Supply level, but are eliminated
      in consolidation at the PPL level. Finally, certain expense items are fully
      allocated to the segments at the PPL level only.
    Segments include direct charges, as well as an allocation of indirect corporate
      costs, for services provided by PPL Services. These service costs include
      functions such as financial, legal, human resources and information services.
    See Note 9 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.
    PPL
        
        
        PPL Energy
            SupplyThree
            Months
            Ended March 31,
        
        
        Three
            Months
            Ended March 31,2003
        
        
        2002
        
        
        2003
        
        
        2002Income Statement DataRevenues from external customersSupply
        
        $
        447
        
        
        $
        369
        
        
        $
        833
        
        
        $
        739International
        
        
        262
        
        
        
        280
        
        
        
        262
        
        
        
        280Delivery (a)
        
        
        778
        
        
        
        7051,487
        
        
        
        1,354
        
        
        
        1,095
        
        
        
        1,019Net Income (Loss)Supply (b)
        
        
        151
        
        
        
        116
        
        
        
        165
        
        
        
        140International (c)
        
        
        51
        
        
        
        (145
        )
        
        
        51
        
        
        
        (145
        )Delivery (a)
        
        
        37
        
        
        
        26$
        239
        
        
        $
        (3
        )
        
        $
        216
        
        
        $
        (5
        )
    PPL
        
        
        PPL Energy SupplyMarch 31,
            2003
        
        
        December 31,
            2002
        
        
        March 31,
            2003
        
        
        December 31,
            2002Balance Sheet DataTotal assetsSupply
        
        $
        5,196
        
        
        $
        4,907
        
        
        $
        5,690
        
        
        $
        5,563International
        
        
        4,766
        
        
        
        4,773
        
        
        
        4,766
        
        
        
        4,773Delivery (a)
        
        
        5,991
        
        
        
        5,867$
        15,953
        
        
        $
        15,547
        
        
        $
        10,456
        
        
        $
        10,336(a)
        
        The Delivery segment is not a component
            of PPL Energy Supply.(b)
        
        The Supply segment in 2003 includes the
            "Cumulative Effect of a Change in Accounting Principle" recorded in
            January 2003. See Note 13 for additional information.(c)
        
        The International segment in 2002 includes
            the "Cumulative Effect of a Change in Accounting Principle" recorded
            in March 2002. See Note 12 for additional information.
4. Investment in Unconsolidated Affiliates - at Equity
    (PPL and PPL Energy Supply)
    Investments in unconsolidated affiliates accounted for under the equity
      method by PPL and PPL Energy Supply were $229 million at March 31, 2003
      and $234 million at December 31, 2002. In the third quarter of 2002, PPL
      Global acquired a controlling interest in WPDH Limited and WPDL. As a result,
      PPL Global fully consolidated the financial results of WPD at September
      30, 2002, while prior WPD results had been accounted for under the equity
      method. For purposes of comparability, the summarized information for WPD
      has been excluded from the March 31, 2002 income statement data presented
      below.
    Summarized below is information from the financial statements of unconsolidated
      affiliates accounted for under the equity method, underlying the amounts
      included in PPL's and PPL Energy Supply's consolidated financial statements:
    Three Months
            Ended March 31,2003
        
        
        2002Income Statement DataRevenues
        
        $
        31
        
        
        $
        25Operating Income
        
        
        3
        
        
        
        3Net Loss
        
        
        (5
        )
        
        
        (21
        )
5. 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. In the calculation of diluted EPS, weighted average shares outstanding
      are increased for additional shares that would be outstanding if potentially
      dilutive securities were converted to common stock. Potentially dilutive
      securities consist of:
    ·
        stock options, restricted stock and restricted
            stock units granted under the incentive compensation plans,·
        stock units representing common stock
            granted under directors compensation programs, and·
        PEPS Units.The basic and diluted EPS calculations, and the reconciliation of the shares
      (in thousands) used in the calculations, are shown below:
    Three Months
            Ended March 31,2003
        
        
        2002Income (Numerator)Net Income - before cumulative effect
            of a change in accounting principle (a)
        
        $
        176
        
        
        $
        147Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        63
        
        
        
        (150
        )Net Income (Loss)
        
        $
        239
        
        
        $
        (3
        )Shares (Denominator)Shares for Basic EPS
        
        
        166,506
        
        
        
        146,753Add: Incremental sharesStock options and other share-based
            awards
        
        
        510
        
        
        
        338Shares for Diluted EPS
        
        
        167,016
        
        
        
        147,091Basic EPSNet Income - before cumulative effect
            of a change in accounting principle
        
        $
        1.06
        
        
        $
        1.00Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        0.37
        
        
        
        (1.02
        )Net Income (Loss)
        
        $
        1.43
        
        
        $
        (0.02
        )Diluted EPSNet Income - before cumulative effect
            of a change in accounting principle
        
        $
        1.06
        
        
        $
        1.00Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        0.37
        
        
        
        (1.02
        )Net Income (Loss)
        
        $
        1.43
        
        
        $
        (0.02
        )(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 PEPS Units 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.
    Stock options to purchase 1,673,000 and 879,000 PPL common shares for the
      three months ended March 31, 2003 and 2002 were not included in those period's
      computations 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.
    Grants of 42,000 shares of unvested restricted stock were excluded from
      the diluted EPS calculations for the three months ended March 31, 2003 as
      they would have been antidilutive as calculated under the treasury stock
      method.
6. Credit Arrangements and Financing Activities
    Credit Arrangements
    (PPL, PPL Energy Supply and PPL Electric)
    At March 31, 2003, no borrowings were outstanding under any PPL Electric
      or PPL Energy Supply credit facilities. Both PPL Electric and PPL Energy
      Supply have the ability to cause the lenders to issue letters of credit
      under their respective facilities. At March 31, 2003, PPL Electric had $40
      million of letters of credit outstanding under its facility, and PPL Energy
      Supply had $67 million of letters of credit outstanding under its $500 million
      facility.
    (PPL Montana)
    At March 31, 2003, PPL Montana had outstanding borrowings of $16 million
      under its credit facility with another PPL Energy Supply subsidiary.
    (PPL and PPL Energy Supply)
    At March 31, 2003, WPD (South West) had outstanding borrowings of £31
      million ($49 million based on current exchange rates) under its £100
      million credit facility maturing in October 2003. No borrowings were outstanding
      at March 31, 2003 under its £150 million credit facility that matures
      in October 2007. At March 31, 2003, WPD (South West) also had uncommitted
      credit line borrowings of £22 million ($35 million based on current
      exchange rates) in separate agreements with lender banks.
    WPD (South West) maintained a bridge facility to meet short-term liquidity
      needs. After the balance sheet date, 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." This bridge facility expired
      in April 2003.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    The subsidiaries of PPL are separate legal entities. PPL's subsidiaries
      are not liable for the debts of PPL. Accordingly, creditors of PPL may not
      satisfy their debts from the assets of the subsidiaries absent a specific
      contractual undertaking by a subsidiary to pay PPL's creditors or as required
      by applicable law or regulation. Similarly, absent a specific contractual
      undertaking or as required by applicable law or regulation, PPL is not liable
      for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries
      may not satisfy their debts from the assets of PPL absent a specific contractual
      undertaking by PPL to pay the creditors of its subsidiaries or as required
      by applicable law or regulation.
    Similarly, the subsidiaries of PPL Energy Supply, PPL Electric and PPL
      Montana are separate legal entities. These subsidiaries are not liable for
      the debts of PPL Energy Supply, PPL Electric and PPL Montana. Accordingly,
      creditors of PPL Energy Supply, PPL Electric and PPL Montana may not satisfy
      their debts from the assets of their subsidiaries absent a specific contractual
      undertaking by a subsidiary to pay the creditors or as required by applicable
      law or regulation. In addition, absent a specific contractual undertaking
      or as required by applicable law or regulation, PPL Energy Supply, PPL Electric
      and PPL Montana are not liable for the debts of their subsidiaries. Accordingly,
      creditors of these subsidiaries may not satisfy their debts from the assets
      of PPL Energy Supply, PPL Electric or PPL Montana absent a specific contractual
      undertaking by that parent to pay the creditors of its subsidiaries or as
      required by applicable law or regulation.
    Financing Activities
    (PPL)
    In 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 $73 million of common stock in the first quarter of 2003, including
      $58 million of common stock under its Structured Equity Shelf Program.
    (PPL and PPL Energy Supply)
    At March 31, 2003, PPL Energy Supply had $635 million of commercial paper
      outstanding, $13 million of which was held by a PPL affiliate.
    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) entered into an agreement to issue an additional £50
      million of 5.875% bonds due 2027. WPD intends to use the proceeds from this
      issuance to pay down short-term borrowings. Because PPL Global consolidates
      WPD's accounts on a one-month lag, the cash flows associated with these
      issuances are not reflected in the financial statements for the three months
      ended March 31, 2003. However, £250 million, or $393 million at current
      exchange rates, of short-term debt at March 31, 2003 has been reclassified
      as long-term debt in connection with these transactions. The issuance of
      this long-term debt will result in an $11 million pre-tax write-off of unamortized
      swap restructuring costs in the second quarter of 2003.
    In the first quarter of 2003, WPD retired £6 million (approximately
      $9 million at current exchange rates) of 7.375% unsecured bonds due 2028.
    (PPL Energy Supply)
    During the first quarter of 2003, PPL Energy Supply distributed $305 million
      to its parent company, PPL Energy Funding.
    (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 February 2003, PPL Electric provided notice to shareowners of its 6.15%
      Series Preferred Stock of its intention to redeem all outstanding shares
      of the Series on April 1, 2003. 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 March 2003, PPL Electric applied for the release from the lien of the
      1945 First Mortgage Bond Indenture of certain transmission lines and other
      equipment having a fair value of approximately $47 million upon the basis
      of approximately $47 million of cash deposited with the Trustee. In April
      2003, as permitted by the 1945 First Mortgage Bond Indenture, this cash
      deposit was applied to retire approximately $46 million aggregate principal
      amount of PPL Electric's First Mortgage Bonds, 7-7/8% Series due 2023, at
      par value, plus accrued interest.
    During the first quarter of 2003, PPL Transition Bond Company made principal
      payments on transition bonds totaling $70 million.
    In the first quarter of 2003, PPL Electric received a capital contribution
      of $75 million from PPL.
    At March 31, 2003, PPL Electric had $136 million of commercial paper outstanding.
    
    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.
7. Acquisitions, Development and Divestitures
    Domestic Generation Projects(PPL and PPL Energy Supply)
    In January 2003, PPL announced that it had decided to not 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 all four of
      the Unit 2 steam turbines at the Susquehanna station. This project will
      provide up to an additional 50 MW of generation capacity, of which PPL Susquehanna
      has a 90% undivided interest.The total project cost is estimated
      at $80 million.
    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. WPD operates two electric distribution
      companies in the U.K., which together serve approximately 2.5 million end-users
      and have about 2,500 employees. The acquisition was initially funded by
      the issuance of commercial paper by PPL Energy Supply. The commercial paper
      was paid off with proceeds of the September 2002 common stock sale by PPL.
    Prior to the acquisition, PPL Global held 51% of the equity interest in
      WPD but shared control with Mirant pursuant to a shareholders' agreement.
      The shareholders' agreement was terminated in connection with the closing
      of the acquisition. No regulatory approvals were required for this transaction.
    The purchase of Mirant's interest in WPD was accounted for as a step-acquisition
      and resulted in the consolidation of WPD's accounts by PPL and PPL Energy
      Supply.
    The assets acquired and liabilities assumed were recorded at estimated
      fair values as determined by management based on information currently available.
      PPL Global is in the process of obtaining an independent appraisal of the
      fair value of acquired property, plant and equipment and any intangible
      assets. Management is also completing its review and determination of fair
      value of other assets acquired and liabilities assumed, including pre-acquisition
      contingencies. Accordingly, the preliminary allocation of purchase price
      is subject to revision based on the final determination of appraised and
      other fair values. The following table summarizes the preliminary allocation
      of purchase price based on estimated fair values of the assets acquired
      and liabilities assumed at the date of acquisition, plus the book value
      of assets and liabilities underlying PPL Global's previous 51% equity ownership:
    Current assets
        
        $
        228Investments (a)
        
        
        (447
        )Property, plant and equipment
        
        
        3,440Goodwill
        
        
        196Other
        
        
        244Total assets acquired
        
        
        3,661Current liabilities
        
        
        787Long-term debt
        
        
        1,581Other
        
        
        1,057Total liabilities assumed
        
        
        3,425Net 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 three months ended March 31, 2003 and
      2002 include consolidated WPD results for the three month periods ended
      February 28, 2003 and 2002. This reflects PPL Global's policy of recording
      the results of controlled subsidiaries on a one-month lag. The portion of
      earnings attributable to Mirant in the first quarter of 2002, $25 million,
      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.
    In July 2002, PPL announced a proposal to sell all of its equity interest
      in CEMAR to Franklin Park Energy, LLC. On August 21, 2002, ANEEL denied
      the request for transfer of PPL's equity interest and subsequently the purchase
      and sale agreement was terminated. Also 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. ANEEL's officials have indicated to PPL that
      the other two injunctions outstanding against the sale process could possibly
      be lifted as well. However, PPL has not yet been notified by ANEEL of any
      revised schedule for the sale process.
    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. Although return of control to PPL Global is considered
      unlikely, PPL Global is evaluating the accounting treatment if control is
      returned in the future. At March 31, 2003, the negative investment of $14
      million was included in "Deferred Credits and Other Noncurrent Liabilities
      - Other." Any negative carrying value of the investment in CEMAR will be
      reversed upon the final sale or other disposition of the company.
    Other(PPL)
    In April 2003, a subsidiary of PPL Telcom acquired the fiber optic network
      of a Fairfax, Virginia-based company for approximately $10 million in cash
      and the assumption of certain long-term contractual obligations for the
      right to use portions of a fiber 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.
8. 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 March 31, 2003, the remaining liability associated with the above market
      NUG contracts was $409 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 March 31, 2003 was $63 million and is included on the
      Balance Sheet in "Deferred Credits and Other Noncurrent Liabilities - Other"
      for PPL, in "Current Liabilities - Other" and "Deferred Credits and Other
      Noncurrent Liabilities - Other" for PPL Energy Supply and in "Wholesale
      energy commitments" for PPL Montana.
    On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate
      of 450 MW of energy to be supplied by PPL Montana. Under two five-year agreements,
      PPL EnergyPlus 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 amounting to 37 MW of electricity from June through December
      of 2003 and 75 MW from January 2004 through December 2006.
    Legal Matters
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL and its subsidiaries are involved in numerous legal proceedings, claims
      and litigation in the ordinary course of business. PPL and its subsidiaries
      cannot predict the ultimate outcome of such matters, or whether such matters
      may result in material liabilities.
    Tax Assessment Appeals (PPL, PPL Energy Supply and PPL Montana)
    Pursuant to changes in PURTA enacted in 1999, PPL subsidiaries have filed
      a number of tax assessment appeals in various Pennsylvania counties where
      PPL facilities are located. These appeals challenge existing local tax assessments,
      which now comprise the basis for payment of the PURTA tax on PPL's properties.
      Also, as of January 1, 2000, generation facilities are no longer taxed
      under PURTA, and these local assessments will be used directly to determine
      local real estate tax liability for PPL's power plants. In July 1999, PPL
      filed retroactive appeals for tax years 1998 and 1999, as permitted by the
      new law. In addition, PPL has filed appeals for 2000 and beyond, as permitted
      under normal assessment procedures. It is anticipated that assessment appeals
      may now be an annual occurrence.
    Hearings on the pending appeals were held by the boards of assessment appeals
      in each county, and decisions have now been rendered by all counties. To
      the extent the appeals were denied or PPL was not otherwise satisfied with
      the results, PPL filed further appeals from the board decisions with the
      appropriate county Courts of Common Pleas.
    Of the three pending proceedings in Pennsylvania, only the appeal concerning
      the assessed value of the Susquehanna nuclear station will result in annual
      local taxes exceeding $1 million. The county assessment of the Susquehanna
      station indicated a market value of $3.9 billion. Based on this value,
      the annual local taxes for the Susquehanna station would have been about
      $70 million. However, PPL was able to reach a settlement with the local
      taxing authorities in December 2000, for tax years 2000 and beyond. This
      settlement will result in the payment of annual local taxes of about $3
      million. PPL and the local taxing authorities also reached a settlement
      concerning the 1998 and 1999 tax years which, if effectuated, would not
      result in any additional PURTA tax liability for PPL. This portion of the
      settlement with the local tax authorities is subject, however, to the outcome
      of claims asserted by certain intervenors which are described below.
    In August 2000, over PPL's objections, the court permitted Philadelphia
      City and County, the Philadelphia School District and the Southeastern Pennsylvania
      Transportation Authority (SEPTA) (collectively, the "Philadelphia parties")
      to intervene in the case. The Philadelphia parties have intervened because
      they believe a change in the assessment of the plant will affect the amount
      they would collect under PURTA for the tax years 1998 and 1999. As part
      of the change in the law, the local real estate assessment determines what
      the 1998 and 1999 PURTA payments by PPL will be. In November 2000, the Philadelphia
      parties submitted their own appraisal report, which indicates that the taxable
      fair market value of the Susquehanna station under PURTA for 1998 and 1999
      is approximately $2.3 billion. Based on this appraisal, PPL would have to
      pay up to an extra $213 million in PURTA taxes for tax years 1998 and 1999.
    PPL's appeal of the Susquehanna station assessment for 1998 and 1999 was
      decided in its favor by the Luzerne County Court of Common Pleas. The Philadelphia
      parties appealed this decision to the Commonwealth Court, and PPL cross-appealed
      on the issue of the right of the Philadelphia parties to intervene. As a
      result of these proceedings and appeals, it is possible that a final determination
      of market value and the associated tax liability for 1998 and 1999 may not
      occur for several years.
    PPL Montana is currently protesting certain property tax assessments by
      the Montana Department of Revenue (MDOR) on its generation facilities. The
      tax liabilities in dispute are approximately $1.7 million for 2000, $1.8
      million for 2001 and $8.6 million for 2002. PPL Montana's dispute with respect
      to most of the 2002 tax liability is based on the assessed value used by
      the MDOR for PPL Montana's hydroelectric facilities versus the assessed
      value used for the facilities of another hydroelectric generator in the
      state. The state tax appeals board is scheduled to hear the 2000 and 2001
      disputes in 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. In November
      2001, PPL Montana and the other defendants filed a motion to dismiss the
      plaintiffs' complaint on the basis that it fails to state a claim upon which
      relief may be granted, and the plaintiffs filed a motion for the lawsuit
      to be certified by the court as a class-action. In August 2002, the court
      denied this motion to dismiss, except as to certain matters not relating
      to PPL Montana, and granted the plaintiffs' motion for the certification
      of the lawsuit. In January 2003, the case was removed to the U.S. District
      Court in Montana. PPL, PPL Energy Supply and PPL Montana cannot predict
      the outcome of this matter.
    Energy West Litigation (PPL Montana)
    In July 2001, PPL Montana filed an action in state court and a responsive
      pleading in federal court, both related to a breach of contract by Energy
      West Resources, Inc. (Energy West), a Great Falls, Montana-based energy
      aggregator. PPL Montana 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, and the federal court ruled in PPL Montana's
      favor with respect to the liability phase of the trial in March 2003. The
      first damages phase of the trial is set for June 2003. PPL Montana is claiming
      damages of approximately $18 million. PPL Montana cannot predict the outcome
      of the damages phase of the trial.
    NorthWestern Corporation Litigation(PPL, PPL Energy Supply
      and PPL Montana)
    In connection with the acquisition of the Montana generation assets, the
      Montana Power APA, which was previously assigned to PPL Montana by PPL Global,
      includes a provision concerning the proposed purchase by PPL Montana of
      a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission
      System (CTS) for $97 million. During 2002, PPL Montana had been in discussions
      with NorthWestern regarding the proposed purchase of the CTS and the claims
      that PPL Montana believes it has against NorthWestern arising from the Montana
      Power APA and related agreements. Notwithstanding such discussions, in September
      2002, NorthWestern filed a lawsuit against PPL Montana in Montana state
      court seeking specific performance of PPL Montana's purchase of the CTS
      or, alternatively, damages for breach of contract. Pursuant to PPL Montana's
      application, the matter was removed to the U.S. District Court for the District
      of Montana, Butte Division. Following the removal of the matter to the federal
      court, PPL Montana moved to dismiss NorthWestern's claim for specific performance
      of PPL Montana's purchase of the CTS. NorthWestern subsequently asserted
      additional claims against PPL Montana arising under the Montana Power APA.
      In December 2002, NorthWestern filed a motion seeking summary judgment as
      to certain of its claims against PPL Montana. In May 2003, the U.S. District
      Court denied PPL Montana's motion to dismiss and NorthWestern's motion for
      summary judgment. PPL, PPL Energy Supply and PPL Montana cannot predict
      the outcome of this litigation.
    Regulatory Issues
    California ISO and Pacific Northwest (PPL, PPL Energy Supply
      and PPL Montana)
    Through its subsidiaries, PPL has made approximately $18 million of sales
      to the California ISO, of which $17 million has not been paid to PPL subsidiaries.
      Given the myriad of electricity supply problems presently faced by the California
      electric utilities and the California ISO, PPL cannot predict whether or
      when it will receive payment. As of March 31, 2003, PPL has fully reserved
      for possible underrecoveries of payments for these sales.
    Litigation arising out of the California electricity supply situation has
      been filed at the FERC and in California courts against sellers of energy
      to the California ISO. The plaintiffs and intervenors in these proceedings
      allege abuses of market power, manipulation of market prices, unfair trade
      practices and violations of state antitrust laws, among other things, and
      seek price caps on wholesale sales in California and other western power
      markets, refunds of excess profits allegedly earned on these sales of energy,
      and other relief, including treble damages and attorneys' fees. Certain
      of PPL's subsidiaries have intervened in the FERC proceedings in order to
      protect their interests, but have not been named by any plaintiffs in any
      of the court actions alleging abuses of market power, manipulation of market
      prices, unfair trade practices and violations of state antitrust laws. However,
      in April 2002, PPL Montana was named by a defendant in a consolidated court
      proceeding, which combined into one master proceeding several of the lawsuits
      alleging antitrust violations and unfair trade practices. Specifically,
      one of the original generators being sued by the various plaintiffs in the
      consolidated court proceeding filed a cross-complaint against 30 other generators
      and power marketers, including PPL Montana. This generator denies that any
      unlawful, unfair or fraudulent conduct occurred or caused any harm to the
      plaintiffs, and explains that the plaintiffs' claims are completely barred
      by federal law. Nonetheless, this generator alleges that it filed its complaint
      against the other generators and power marketers in order to assist the
      court in resolving the proceeding and asserts that if it is found liable,
      the other generators and power marketers, including PPL Montana, caused,
      contributed to and/or participated in the plaintiffs' alleged losses. This
      litigation, originally brought in state court in California, has been removed
      to federal court in California.
    In addition, PPL Montana has been named as a defendant in a declaratory
      judgment action initiated by the State of California to prevent certain
      members of the California Power Exchange from seeking compensation for the
      state's seizure of certain energy contracts. PPL Montana is a member of
      the California Power Exchange, but it has no energy contracts with or through
      the California Power Exchange and has not sought compensation in connection
      with the state's seizure.
    Attorneys general in several western states, including California, have
      begun investigations related to the electricity supply situation in California
      and other western states. The FERC has determined that all sellers of energy
      into markets operated by the California ISO and the California Power Exchange,
      including PPL Montana, should be subject to refund liability for the period
      beginning October 2, 2000 through June 20, 2001 and 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,
      will be required to refund. The FERC also is considering whether to order
      refunds for spot market bilateral sales made in the Pacific Northwest, including
      sales made by PPL Montana during the period December 2000 through June 2001.
      The FERC Administrative Law Judge assigned to the Pacific Northwest proceeding
      has recommended that no refunds be ordered for such sales into the Pacific
      Northwest. The FERC presently is considering this recommendation. The FERC
      discussed the Pacific Northwest issues at a meeting in April 2003 but has
      not yet issued any orders as a result. The FERC has been conducting an additional
      investigation of alleged price manipulation in power markets in California
      and the western U.S. In connection with this investigation, the FERC has
      served several sets of data requests on sellers of energy in those markets,
      including PPL Montana. PPL Montana sold only a small amount of electricity
      into the California market during 2000 and 2001, and it did not sell any
      electricity into the California market during 2002. In its response to a
      FERC data request concerning PPL Montana's California trading strategies,
      PPL Montana explained that it did not engage in the type of California trading
      strategies that have been attributed to Enron. In responses to FERC data
      requests concerning whether PPL Montana and PPL EnergyPlus engaged in so-called
      "wash trades" in the western U.S., PPL Montana and PPL EnergyPlus explained
      that they have not, and do not, engage in such trades. In April 2003, as
      a result of its investigation, the FERC issued several orders that could
      result in the revocation of market-based rate authority from several companies.
      Neither PPL EnergyPlus nor PPL Montana were included in these orders.
    While PPL believes that it has not engaged in any improper trading practices,
      PPL cannot predict whether, or the extent to which, any of its subsidiaries
      will be the target of any additional governmental investigations or named
      in other lawsuits or refund proceedings, the outcome of any such lawsuits
      or proceedings or whether the ultimate impact on PPL of the electricity
      supply situation in California and other western states will be material.
    PJM Capacity Transactions(PPL, PPL Energy Supply and
      PPL Electric)
    In November 2001, the PJM Market Monitor publicly released a report prepared
      for the PUC entitled "Capacity Market Questions" relating to the pricing
      of installed capacity in the PJM daily market during the first quarter of
      2001. The report concludes that PPL EnergyPlus (identified in the report
      as "Entity 1") was able to exercise market power to raise the market-clearing
      price above the competitive level during that period. PPL EnergyPlus does
      not agree with the Market Monitor's conclusions that it exercised market
      power; in addition, the Market Monitor acknowledged in his report that PJM's
      standards and rules did not prohibit PPL EnergyPlus' conduct. In November
      2001, the PUC issued an Investigation Order directing its Law Bureau to
      conduct an investigation into PJM capacity market and the allegations in
      the Market Monitor's report. In June 2002, the PUC issued an investigation
      report alleging, among other things, that PPL had "unfairly manipulated
      electricity markets in early 2001," and that "there was an unlawful exercise
      of market power and market rules gaming by PPL" that was damaging to wholesale
      and retail electricity markets in Pennsylvania. The PUC stated that it was
      not authorized to, and was not attempting to, adjudicate the merits of PPL's
      defenses to these charges, but has referred the matter to the U.S. Department
      of Justice - Antitrust Division, or DOJ, the FERC and the Pennsylvania Attorney
      General. PPL had previously responded to certain information requests of
      the DOJ in connection with a civil investigative demand regarding capacity
      transactions in PJM, and PPL has agreed to provide the Office of the Pennsylvania
      Attorney General with any information that it provided to the DOJ. In addition,
      in July 2002, PPL appealed the PUC order to the Commonwealth Court of Pennsylvania.
      Since the PUC clarified that its report has no precedential value and should
      be given no weight in any future proceedings, PPL consented to having its
      appeal dismissed by the Commonwealth Court. Accordingly, the Commonwealth
      Court dismissed the appeal in September 2002. Although PPL believes that
      the PUC's report is inaccurate, that its conclusions are groundless, and
      that PPL acted ethically and legally, in compliance with all applicable
      laws and regulations, PPL cannot predict the outcome or extent of any investigations,
      litigation or other proceedings related to this matter.
    In September 2002, PPL was served with a complaint filed by Utilimax.com,
      Inc., which was a member of PJM, in the U.S. District Court for the Eastern
      District of Pennsylvania against PPL and PPL EnergyPlus alleging, among
      other things, violations of the federal antitrust laws in connection with
      the capacity transactions described in the PJM Market Monitor report. In
      addition, in December 2002, PPL was served with a complaint against PPL,
      PPL EnergyPlus and PPL Electric filed in the same court by a group of 14
      Pennsylvania boroughs that apparently alleges, in broad terms, similar violations
      of the federal antitrust laws. These boroughs are wholesale customers of
      PPL Electric. Although PPL, PPL EnergyPlus and PPL Electric believe the
      claims under both complaints are without merit and intend to defend the
      actions vigorously, they cannot predict the outcome of these matters.
    FERC Market-Based Rate Authority (PPL and PPL Energy Supply)
    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to
      make wholesale sales of electric power and related products at market-based
      rates. In that order, the FERC directed PPL EnergyPlus to file an updated
      market analysis within three years of the date of the order, and every three
      years thereafter. PPL EnergyPlus filed its initial updated market analysis
      in December 2001. Several parties thereafter filed interventions and protests
      requesting that, in light of the PJM Market Monitor's report described above,
      PPL EnergyPlus be required to provide additional information demonstrating
      that it has met the FERC's market power tests necessary for PPL EnergyPlus
      to continue its market-based rate authority. PPL EnergyPlus has responded
      that the FERC does not require the economic test suggested by the intervenors
      and that, in any event, it would meet such economic test if required by
      the FERC. PPL EnergyPlus cannot predict the outcome of this matter.
    FERC Notice of Proposed Rulemaking (PPL, PPL Energy Supply, PPL
      Electric and PPL Montana)
    In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled
      "Remedying Undue Discrimination through Open Access Transmission Service
      and Standard Electricity Market Design." The proposed rule is currently
      available for public comment, with a final rule expected in late 2003. The
      proposed rule contains a proposed implementation date of July 31, 2003.
      However, since the issuance of the proposed rule, the FERC has announced
      several delays in the comment deadlines. Thus, any implementation dates
      are likely to be later than originally projected. This far-reaching proposed
      rule, in its current form, purports to establish uniform transmission rules
      and establish a standard market design by, among other things:
    ·
        enacting standard transmission tariffs
            and uniform market mechanisms,·
        monitoring and mitigating "market power,"·
        managing transmission congestion through
            pricing and tradable financial rights,·
        requiring independent operational control
            over transmission facilities,·
        forming state advisory committees on
            regional transmission organizations and resource adequacy, and·
        exercising FERC jurisdiction over all
            transmission service.In April 2003, the FERC issued a White Paper describing certain modifications
      to the proposed rule. The FERC has requested comments and will be holding
      numerous public comment sessions concerning the White Paper. If adopted,
      this proposed rule may have a significant impact on PPL and its subsidiaries,
      which cannot be predicted at this time.
    Montana Hydroelectric License Contingencies(PPL Montana)
    PPL Montana has 11 hydroelectric facilities and one storage reservoir licensed
      by the FERC pursuant to the Federal Power Act under long-term licenses which
      expire on varying dates from 2009 through 2040. Pursuant to Section 8(e)
      of the Federal Power Act, the FERC approved the transfer from Montana Power
      to PPL Montana of all pertinent licenses and any amendments in connection
      with the Montana APA.
    The Kerr Dam Project license was jointly issued by the FERC to Montana
      Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation
      in 1985, and required Montana Power to hold and operate the project for
      30 years. The license required Montana Power, and subsequently PPL Montana
      as a result of the purchase of the Kerr Dam from Montana Power, to continue
      to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife
      and the habitat. Such implementation will require payments totaling approximately
      $6 million between 2003 and 2020.
    PPL Montana entered into a Memorandum of Understanding (MOU) with state,
      federal and private entities related to the issuance in 2000 of the FERC
      renewal license for the nine dams for the Missouri-Madison project. The
      MOU requires PPL Montana to implement plans to mitigate the impact of its
      projects on fish, wildlife, habitat and to increase recreational opportunities.
      The MOU was created to maximize collaboration between the parties and possibilities
      for matching funds. Such implementation will require payments by PPL Montana
      totaling $20 million between 2002 and 2010.
    Wallingford Deactivation (PPL and PPL Energy Supply)
    In January 2003, PPL negotiated an agreement with the Independent System
      Operator - 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 has filed a
      request with the FERC for such approval. PPL has 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. If the FERC approves
      the cost-based rates, PPL will re-evaluate its filing to temporarily deactivate
      the units. PPL cannot predict whether the FERC will approve its request
      for cost-based rates or the length of time that PPL will deactivate these
      units if the FERC denies its request.
    U.K. Electricity Regulation(PPL and PPL Energy Supply)
    The principal legislation governing the structure of the electricity industry
      in Great Britain is the Electricity Act 1989 (the "Electricity Act"), as
      amended by the Utilities Act 2000 (the "Utilities Act").
    The provisions in the Utilities Act include the replacement of individual
      gas and electricity regulators with the Gas and Electricity Markets Authority
      (the "Regulator"). The principal objective of the Regulator is to protect
      the interests of consumers, wherever appropriate, by promoting effective
      competition in electricity generation and supply. There currently is no
      competition in electricity distribution.
    Each distribution business constitutes a natural regional monopoly and
      is subject to control on the prices it can charge and the quality of supply
      it must provide. The operations of WPD are regulated under its distribution
      licenses, pursuant to which income generated is subject to an allowed revenue
      regulatory framework that provides economic incentives to minimize operating,
      capital and financing costs. Under the Electricity Act, WPD is under a statutory
      duty to connect any customer requiring electricity within their area and
      to maintain that connection. The allowed revenue that is recovered from
      electricity supply businesses through charges by the Distribution Network
      Operator (DNO) made for the use of the distribution network is regulated
      on the basis of the Retail Price Index (RPI) minus X formula. The allowed
      revenue is increased by RPI minus X during the tenure of each price control
      period. (RPI is a measure of inflation and equals the percentage change
      in the U.K. RPI between the six-month period of July to December in the
      previous year. The X factor is established by the Regulator following review
      and represents an annual efficiency factor.) The Regulator currently sets
      the Distribution Price Control Formula for five-year periods.
    The current Distribution Price Control Formula permits DNOs, within a review
      period, to partially retain additional revenues due to increased distribution
      of units and to retain all increases in operating profit due to efficient
      operations and the reduction of expenses (including financing costs). The
      Regulator may reduce this increase in operating profit through a one-off
      price reduction in the first year of the new pricing regime, if the Regulator
      determines that it is not a function of efficiency savings, or, if genuine
      efficiency savings have been made, and the Regulator determines that customers
      should benefit through lower prices.
    In December 1999, the Regulator published final price proposals for distribution
      price control for the 12 DNOs in England and Wales. These proposals represented
      a reduction to distribution prices of 20% for WPD (South West) and 26% for
      WPD (South Wales) effective April 2000, followed by a reduction in real
      terms (i.e., before inflation is taken into account) of 3% each year from
      April 2001. This price control is scheduled to operate until March 2005.
    
    Improvements in quality of supply form an important part of the final proposals.
      Revised targets for system performance, in terms of the security and availability
      of supply, were proposed with new targets for reductions in minutes lost
      and interruptions.
    The Regulator has introduced a quality of service incentive plan for the
      period from April 2002 to March 2005. Companies will be penalized annually
      up to 2% of revenue for failing to meet their quality of supply targets
      for the incentive plan. The plan includes a mechanism for rewarding companies
      which exceed their targets based on their rate of improvement of performance
      during the period and a process for rewarding exceptional performance by
      specifying how the targets will be reset.
    Distribution businesses must also meet the Guaranteed and Overall Standards
      of Performance, which are set by the Regulator to ensure an appropriate
      level of quality of supply. If a company fails to provide the level of service
      specified, it must make a fixed payment to the retail customer affected.
    Environmental Matters - Domestic
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Due to the environmental issues discussed below or other environmental
      matters, PPL subsidiaries may be required to modify, replace or cease operating
      certain facilities to comply with statutes, regulations and actions by regulatory
      bodies or courts. In this regard, PPL subsidiaries also may incur capital
      expenditures or operating expenses in amounts which are not now determinable,
      but which could be significant.
    Air(PPL, PPL Energy Supply and PPL Montana)
    The Clean Air Act deals, in part, with acid rain, attainment of federal
      ambient ozone standards and toxic air emissions in the U.S. PPL's subsidiaries
      are in substantial compliance with the Clean Air Act.
    The Bush administration and certain members of Congress have made proposals
      regarding possible amendments to the Clean Air Act. These amendments could
      require significant further reductions in nitrogen oxide, sulfur dioxide
      and mercury and could possibly require measures to limit carbon dioxide.
    The Pennsylvania DEP has finalized regulations requiring further seasonal
      (May-June) nitrogen oxide reductions to 80% from 1990 levels starting in
      2003. These further reductions are based on the requirements of the Northeast
      Ozone Transport Region Memorandum of Understanding and two EPA ambient ozone
      initiatives: the September 1998 EPA State Implementation Plan (SIP) call
      (i.e., EPA's requirement for states to revise their SIPs) issued under Section
      110 of the Clean Air Act, requiring reductions from 22 eastern states, including
      Pennsylvania; and the EPA's approval of petitions filed by Northeastern
      states, requiring reductions from sources in 12 Northeastern states and
      Washington, D.C., including PPL sources. The EPA's SIP-call was substantially
      upheld by the D.C. Circuit Court of Appeals on challenge. Although the Court
      extended the implementation deadline to May 2004, the Pennsylvania DEP has
      not changed its rules accordingly. PPL expects to achieve the 2003 nitrogen
      oxide reductions with the recent installation of SCR technology on the Montour
      units, and may install SCR technology on one or more Brunner Island units
      at a later date.
    The EPA has also developed new standards for ambient levels of ozone and
      fine particulates in the U.S. These standards have been upheld following
      court challenges. The new particulates standard may require further reductions
      in sulfur dioxide and year-round nitrogen oxide reductions commencing in
      2010-2012 at SIP-call levels in Pennsylvania for certain PPL subsidiaries,
      and at slightly less stringent levels in Montana. The revised ozone standard
      is not expected to have a material effect on facilities of PPL subsidiaries.
    Under the Clean Air Act, the EPA has been studying the health effects of
      hazardous air emissions from power plants and other sources in order to
      determine what emissions should be regulated, and has determined that mercury
      and nickel emissions must be regulated. The EPA may determine that other
      hazardous air emissions from power plants should be regulated. In this regard,
      the EPA is expected to develop mercury and nickel regulations by 2004.
    In 1999, the EPA initiated enforcement actions against several utilities,
      asserting that older, coal-fired power plants operated by those utilities
      have, over the years, been modified in ways that subject them to more stringent
      "New Source" requirements under the Clean Air Act. The EPA has since issued
      notices of violation and commenced enforcement activities against other
      utilities. Although the EPA has threatened to continue expanding its enforcement
      actions, the future direction of the "New Source" requirements is presently
      unclear. Therefore, at this time, PPL is unable to predict whether such
      EPA enforcement actions will be brought with respect to any of its affiliates'
      plants. However, the EPA regional offices that regulate plants in Pennsylvania
      (Region III) and Montana (Region VIII) have indicated an intention to issue
      information requests to all utilities in their jurisdiction. The Region
      VIII office issued such a request to PPL Montana's Corette plant in 2000,
      and the Region III office issued such a request to PPL Generation's Martins
      Creek plant in 2002. PPL and its subsidiaries have responded to both of
      these information requests. PPL cannot presently predict what, if any, action
      the EPA might take in this regard. Should the EPA or any state initiate
      one or more enforcement actions against PPL or its subsidiaries, compliance
      with any such enforcement actions could result in additional capital and
      operating expenses in amounts which are not now determinable, but which
      could be significant.
    The EPA has finalized some changes to its "New Source" regulations, which
      do not significantly affect PPL's plants. However, the EPA is also proposing
      to further revise its regulations in a way that will require power plants
      to either meet "New Source" performance standards or undergo "New Source"
      review for many maintenance and repair activities that are currently exempt,
      or both. The cost of addressing these proposals, if finalized, is not now
      determinable but could be significant.
    
    The New Jersey DEP and some New Jersey residents have raised environmental
      concerns with respect to the Martins Creek plant, particularly with respect
      to sulfur dioxide emissions and the opacity of the plume. PPL Martins Creek
      is discussing these concerns with the New Jersey DEP and the Pennsylvania
      DEP. The cost of addressing New Jersey's sulfur dioxide concerns and opacity
      issues is not now determinable but could be significant.
    Water/Waste(PPL, PPL Energy Supply and PPL Montana)
    A final NPDES permit has been issued to the Brunner Island generating plant.
      The permit contains a provision requiring further studies on the thermal
      impact of the cooling water discharge from the plant. Depending on the outcome
      of these studies, the plant could be subject to capital and operating costs
      that are not now determinable, but which could be significant.
    The EPA has significantly tightened the water quality standard for arsenic.
      The revised standard may require several PPL subsidiaries to 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 significant costs on PPL subsidiaries, which are not now determinable,
      but which could be significant.
    Superfund and Other Remediation
    (PPL and PPL Electric)
    In 1995, PPL Electric entered into a consent order with the Pennsylvania
      DEP to address a number of sites where it may be liable for remediation.
      This may include potential PCB contamination at certain PPL Electric substations
      and pole sites; potential contamination at a number of coal gas manufacturing
      facilities formerly owned or operated by PPL Electric; and oil or other
      contamination which may exist at some of PPL Electric's former generating
      facilities. As of March 31, 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. Environmental investigations are ongoing at one former gas manufacturing
      facility site that has been added to the consent order (located in Sunbury,
      Pennsylvania) and the costs of remediation that may be required at this
      site are not now determinable, but could be significant.
    In 1996, PPL Gas Utilities entered into a similar consent order with the
      Pennsylvania DEP to address a number of sites where subsidiaries of PPL
      Gas Utilities may be liable for remediation. The sites primarily include
      former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities
      are also investigating the potential for any mercury contamination from
      gas meters and regulators. Accordingly, PPL Gas Utilities and Pennsylvania
      DEP have agreed to add 72 meter/regulation sites to the consent order. As
      of March 31, 2003, PPL Gas Utilities had addressed 15% of the sites under
      its consent order.
    At March 31, 2003, PPL Electric and PPL Gas Utilities had accrued approximately
      $4 million and $10 million, representing the estimated amounts they will
      have to spend for site remediation, including those sites covered by each
      company's consent orders mentioned above. Depending on the outcome of investigations
      at sites where investigations have not 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 indentified 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 1999, the Montana Supreme Court held in favor of several citizens' groups
      that the right to a clean and healthful environment is a fundamental right
      guaranteed by the Montana Constitution. The court's ruling could result
      in significantly more stringent environmental laws and regulations, as well
      as an increase in citizens' suits under Montana's environmental laws. The
      effect on PPL Montana of any such changes in laws or regulations or any
      such increase in legal actions is not currently determinable, but it could
      be significant.
    Under the Montana Power APA, PPL Montana is indemnified by Montana Power
      for any pre-acquisition environmental liabilities. However, this indemnification
      is conditioned on certain circumstances and subject to certain limitations
      set forth in the Montana Power APA, including circumstances under which
      PPL Montana and Montana Power would share in certain costs. As a result
      of the acquisition by NorthWestern of Montana Power's electricity delivery
      business, PPL Montana will pursue any such indemnification claims against
      NorthWestern.
    Future cleanup or remediation work at sites currently under review, or
      at sites not currently identified, may result in material additional operating
      costs for PPL subsidiaries that cannot be estimated at this time.
    Asbestos (PPL and PPL Energy Supply)
    
    There have been increasing litigation claims throughout the U.S. based
      on exposure to asbestos against companies that manufacture or distribute
      asbestos products or that have these products on their premises. Certain
      of PPL's generation subsidiaries and certain of its energy services subsidiaries,
      such as those that have supplied, may have supplied or installed asbestos
      material in connection with the repair or installation of 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 has been appealed by the New Jersey DEP
      to the Pennsylvania DEP Environmental Hearing Board. The PPL Global subsidiary
      involved in the Lower Mt. Bethel lease financing has joined with the Pennsylvania
      DEP in opposing this appeal. In addition, in August 2002, the Northampton
      County Court of Common Pleas issued a decision concerning the permissible
      noise levels from the Lower Mt. Bethel facility when it becomes operational.
      Specifically, the court's decision addressed the noise measurement criteria
      and the point at which the noise levels are to be measured. PPL has appealed
      the court's decision to the Commonwealth Court, and an intervenor in the
      lawsuit has cross-appealed the court's decision. The Lower Mt. Bethel facility
      is expected to be operational in late 2003. PPL cannot predict the outcome
      of these matters or their ultimate impact on the Lower Mt. Bethel facility
      or on PPL Energy Supply, but such impact may be material.
    Environmental Matters - International
    U.K. (PPL and PPL Energy Supply)
    
    WPD's distribution businesses are subject to numerous regulatory and statutory
      requirements with respect to environmental matters. WPD believes it has
      taken and continues to take measures to comply with the applicable laws
      and governmental regulations for the protection of the environment. There
      are no material legal or administrative proceedings pending against WPD
      with respect to environmental matters. See "Environmental Matters-Domestic-Electric
      and Magnetic Fields" for a discussion of EMFs.
    Latin America(PPL and PPL Energy Supply)
    Certain of PPL's affiliates have electric distribution operations in Latin
      America. PPL believes that these operations are in compliance in all material
      respects with all applicable laws and government regulations to protect
      the environment. PPL is not aware of any material administrative proceeding
      against these companies with respect to environmental matters.
    Other
    Commitments - Acquisitions, Development and Lease Activities(PPL and PPL Energy Supply)
    At March 31, 2003, a lessor had $40 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 15 for additional information on guarantees under operating lease
      arrangements.
    Nuclear Insurance(PPL and PPL Energy Supply)
    PPL Susquehanna is a member of certain insurance programs which provide
      coverage for property damage to members' nuclear generating stations. Facilities
      at the Susquehanna station are insured against property damage losses up
      to $2.75 billion under these programs. PPL Susquehanna is also a member
      of an insurance program which provides insurance coverage for the cost of
      replacement power during prolonged outages of nuclear units caused by certain
      specified conditions. Under the property and replacement power insurance
      programs, PPL Susquehanna could be assessed retroactive premiums in the
      event of the insurers' adverse loss experience. Effective April 1, 2002,
      this maximum assessment increased from $20 million to $40 million, to increase
      the insurer's capacity to cover catastrophic losses.
    PPL Susquehanna's public liability for claims resulting from a nuclear
      incident at the Susquehanna station is limited to about $9.55 billion under
      provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna
      is protected against this liability by a combination of commercial insurance
      and an industry assessment program. In the event of a nuclear incident at
      any of the reactors covered by The Price Anderson Amendments Act of 1988,
      PPL Susquehanna could be assessed up to $176 million per incident, payable
      at $20 million per year.
    Guarantees and Other Assurances
    (PPL, PPL Energy Supply and PPL Electric)
    In the normal course of business, PPL, PPL Energy Supply and PPL Electric
      enter into agreements that provide financial performance assurance to third
      parties on behalf of certain subsidiaries. Such agreements include, for
      example, guarantees, stand-by letters of credit issued by financial institutions
      and surety bonds issued by insurance companies. These agreements are entered
      into primarily to support or enhance the creditworthiness attributed to
      a subsidiary on a stand-alone basis, thereby facilitating the extension
      of credit to accomplish the subsidiaries' intended commercial purposes.
    (PPL)
    PPL 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
      15 for a discussion of FIN 45. The guarantees provided as of March 31, 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, are not recorded in the financial statements.
    (PPL)
    PPL or its subsidiaries provide guarantees in the aggregate amount of approximately
      $20 million, as of March 31, 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
      March 31, 2003, the aggregate maximum exposure related to these standby
      letters of credit was $9 million. These letters of credit expire in 2004.
    PPL Energy Supply provides a guarantee in the amount of approximately $10
      million, as of March 31, 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 is approximately
      $9 million as of March 31, 2003.
    Certain PPL Generation subsidiaries provide residual value guarantees under
      the operating leases for the Sundance, University Park and Lower Mt. Bethel
      generating facilities. See Note 15 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 March 31, 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 March 31, 2003 was a net liability of $2 million, which is included in
      price risk management assets and liabilities on the Balance Sheet. These
      option contracts expire from April 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 $18 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 £27 million, or $43 million at current exchange rates, under
      a contract assigned as part of one of these sales. Finally, WPD and its
      affiliates remain secondarily responsible for lease payments under certain
      leases that they have assigned to third parties. These various 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 $8 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 an aggregate
      of approximately $75 million under these arrangements.
    (PPL Electric)
    PPL Electric provides a guarantee in the amount of approximately $7 million,
      as of March 31, 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 March 31,
      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 $93 million. The aggregate carrying value of PPL Electric's
      residual value guarantees issued subsequent to December 31, 2002 was $18
      million at March 31, 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 a 50% interest in Colstrip Units 1 and 2 and a 30% interest
      in Unit 3 through four non-cancelable operating leases. These leases expire
      in 2036, unless the terms are extended. Upon early cancellation of the leases
      by PPL Montana, an event of default or an event of loss, PPL Montana could
      be required to pay a termination value of amounts sufficient to allow the
      lessors to repay amounts owing on the lessors' notes and make the lessors
      whole for their equity investment and anticipated return on investment.
      As of March 31, 2003, the estimated aggregate termination value payment
      was $516 million.
    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 March 31, 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 March 31, 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 March 31, 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 March 31, 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 indemnities
      or 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 March 31, 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.
9. 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 March 31, 2003 and 2002, these purchases totaled
      $387 million and $369 million, including nuclear decommissioning recovery
      and amortization of an up-front contract payment. These purchases 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 March
      31, 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 August 2001, PPL Electric made a $90 million payment to PPL EnergyPlus
      in connection with the PLR contracts. The upfront payment is being amortized
      by both parties over the term of the PLR contracts. The unamortized balance
      of this payment and other payments under the contract was $78 million at
      March 31, 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 March 31, 2003
      and 2002, these NUG purchases totaled $39 million and $42 million and 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 March 31, 2003 and 2002 were $16
      million and $17 million and 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 March 31, 2003 and 2002.
    Allocations of Corporate Service Costs(PPL Energy Supply, PPL
      Electric and PPL Montana)
    Corporate functions such as financial, legal, human resources and information
      services were transferred to PPL Services in the corporate realignment.
      PPL Services bills the respective PPL subsidiaries for the cost of such
      services when they can be specifically identified. The cost of these services
      that is not directly charged to PPL subsidiaries is allocated to certain
      of the subsidiaries based on the relative capital invested by PPL in these
      subsidiaries. During the three months ended March 31, 2003 and 2002, PPL
      Services allocated the following charges to PPL Energy Supply, PPL Electric
      and PPL Montana:
    PPL Energy
            Supply
        
        PPL Electric
        
        PPL Montana2003
        
        
        2002
        
        
        2003
        
        
        2002
        
        
        2003
        
        
        2002Direct expenses
        $
        21
        
        $
        20
        
        $
        14
        
        $
        14
        
        $
        1
        
        $
        1Overhead costs
        
        14
        
        
        6
        
        
        6
        
        
        6
        
        
        1
        
        
        2Intercompany Borrowings
    (PPL Energy Supply)
    PPL Energy Supply, through its financing subsidiary PPL Investment Corporation,
      had notes receivable from affiliates of PPL totaling $622 million and $655
      million at March 31, 2003 and December 31, 2002. The largest note receivable
      was from PPL Energy Funding with interest equal to LIBOR plus 3%, with a
      $566 million balance at March 31, 2003. Interest earned on loans to affiliates,
      included in "Other Income - net," was $7 million and $5 million for the
      three months ended March 31, 2003 and 2002.
    At March 31, 2003, $13 million of PPL Energy Supply's commercial paper
      was held by a PPL affiliate.
    (PPL Electric)
    In 2001, PPL Electric made a loan from excess cash to PPL Energy Funding.
      The loan was a demand promissory note in the original principal amount of
      $150 million requiring interest to be paid monthly at an annual interest
      rate of 4.0%. There were no borrowings outstanding under this loan at March
      31, 2003 and $90 million was outstanding at December 31, 2002. Intercompany
      interest income was $2 million and $4 million for the three months ended
      March 31, 2003 and 2002.
    (PPL Montana)
    In 2002, PPL Montana entered into a $100 million three-year credit facility
      with another PPL Energy Supply subsidiary on market terms to meet its liquidity
      needs. PPL Montana had outstanding borrowings under this facility of $16
      million and $26 million at March 31, 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 $11 million of this license fee for the three months ended
      March 31, 2003, which is primarily included in "Other operation and maintenance"
      on the Statement of Income.
10. Other Income - Net
    (PPL)
    The breakdown of PPL's other income was as follows:
    Three Months
            Ended March 31,2003
        
        
        2002Other IncomeInterest income
        $
        3
        
        
        $
        7Equity earnings
        
        (1
        )Gain on sale of emission allowances
        
        2Earnings on nuclear decommissioning
            trust (a)
        
        2Miscellaneous
        
        9
        
        
        
        7Total
        
        15
        
        
        
        14Other DeductionsMiscellaneous
        
        5
        
        
        
        7Other Income - net
        $
        10
        
        
        $
        7(a)
        Effective with
            the adoption of SFAS 143 on January 1, 2003 (as described in Note
            13), 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 March 31,2003
        
        
        2002Other IncomeAffiliated interest income
        $
        7
        
        
        $
        5Interest income
        
        1
        
        
        
        5Equity earnings
        
        2
        
        
        
        1Gain on sale of emission allowances
        
        2Earnings on nuclear decommissioning
            trust (a)
        
        2Miscellaneous
        
        8
        
        
        
        4Total
        
        22
        
        
        
        15Other DeductionsMiscellaneous
        
        3
        
        
        
        4Other Income - net
        $
        19
        
        
        $
        11(a)
        Effective with
            the adoption of SFAS 143 on January 1, 2003 (as described in Note
            13), 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.
11. 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.
    PPL, PPL Energy Supply and PPL Montana did not recognize any net gains/(losses)
      resulting from firm commitments that no longer qualified as fair value hedges
      (reported in "Wholesale energy marketing" revenues and "Energy purchases"
      on the Statement of Income) for the three months ended March 31, 2003 or
      2002.
    PPL, PPL Energy Supply and PPL Montana did not recognize any gains/(losses)
      resulting from the ineffective portion of fair value hedges for the three
      months ended March 31, 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 2013. 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, PPL Energy Supply and PPL Montana discontinued certain
      cash flow hedges which resulted in an insignificant amount being reclassified
      from other comprehensive income into earnings (reported in "Wholesale energy
      marketing" revenues, "Energy purchases" and "Interest Expense" on the Statement
      of Income).
    Due to hedge ineffectiveness, PPL, PPL Energy Supply and PPL Montana reclassified
      an insignificant amount into earnings (reported in "Wholesale energy marketing"
      revenues and "Energy purchases" on the Statement of Income).
    As of March 31, 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 $5 million, $6 million and $2
      million for PPL, PPL Energy Supply and PPL Montana.
    The following table shows the change in accumulated unrealized gains or
      losses on derivatives in other comprehensive income:
    Three
            Months Ended March 31,2003
        
        
        2002PPLBeginning accumulated derivative
            gain
        
        $
        7
        
        
        $
        23Net change associated with
            current period hedging activities and other
        
        
        49
        
        
        
        (8
        )Net changes associated with
            C15 accounting change (a)
        
        
        
        
        
        
        (3
        )Net change from reclassification
            into earnings
        
        
        (22
        )Ending accumulated derivative
            gain
        
        $
        34
        
        
        $
        12Three
            Months Ended March 31,2003
        
        
        2002PPL Energy SupplyBeginning accumulated derivative
            gain
        
        $
        23
        
        
        $
        47Net change associated with
            current period hedging activities and other
        
        
        47
        
        
        
        (9
        )Net changes associated with
            C15 accounting change (a)
        
        
        
        
        
        
        (3
        )Net change from reclassification
            into earnings
        
        
        (18
        )
        
        
        (1
        )Ending accumulated derivative
            gain
        
        $
        52
        
        
        $
        34PPL MontanaBeginning accumulated derivative
            gain
        
        $
        4
        
        
        $
        33Net change associated with
            current period hedging activities and other
        
        
        9
        
        
        
        (11
        )Net change from reclassification
            into earnings
        
        
        
        
        
        
        (3
        )Ending accumulated derivative
            gain
        
        $
        13
        
        
        $
        19(a)
        In June 2001, the FASB cleared
            DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales
            Exception for Certain Option-Type Contracts and Forward Contracts
            in Electricity," which extends the normal purchases and normal sales
            exception to electricity purchase and sale agreements meeting certain
            criteria. The mark-to-market value recorded in accumulated other comprehensive
            income is being amortized through the original delivery term of the
            contracts.Implementation Issues
    PPL adopted the final provisions of EITF 02-3 during the fourth quarter
      of 2002. As such, PPL now reflects its net realized and unrealized gains
      and losses associated with all derivatives that are held for trading purposes
      in the "Net energy trading margins" line on the Statement of Income. Non-derivative
      contracts that met the definition of energy trading activities as defined
      by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities,"
      are reflected in the financial statements using the accrual method of accounting.
      Under the accrual method of accounting, unrealized gains and losses are
      not reflected in the financial statements. Prior periods have been reclassified.
      PPL did not need to record a cumulative effect of this change in accounting
      principle because all non-derivative energy-related trading contracts had
      been shown in the financial statements at their amortized cost. This 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
            March 31,2003
        
        
        2002PPL and PPL Energy SupplyPrior classificationWholesale energy marketing
        
        $
        316
        
        
        $
        74Energy purchases
        
        
        323
        
        
        
        60Net energy trading margins
        
        $
        (7
        )
        
        $
        14PPL MontanaPrior classificationWholesale energy marketing
        
        $
        8
        
        
        $
        (8
        )Energy purchases
        
        
        8
        
        
        
        (7
        )Net 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
      a new business from a credit perspective.
    PPL, PPL Energy Supply and PPL Montana have credit exposures to energy
      trading partners. The majority of these exposures were the mark-to-market
      value of multi-year contracts for energy sales. Therefore, if these counterparties
      fail to perform their obligations under such contracts, the companies would
      not experience an immediate financial loss, but would experience lower revenues
      in future years to the extent that replacement sales could not be made at
      the same prices as sales under the defaulted contracts.
    At March 31, 2003, PPL had a credit exposure of $218 million to energy
      trading partners. Seven counterparties accounted for 60% of this exposure.
      No other individual counterparty accounted for more than 3% of the exposure.
      With two exceptions, each of the seven primary counterparties had an investment
      grade credit rating from Standard & Poor's. One non-investment grade
      counterparty has agreed to amend its contract with PPL in a manner that
      substantially reduces PPL's exposure. The other non-investment grade counterparty
      has refused to supply credit assurance and PPL has therefore stopped trading
      with this company.
    At March 31, 2003, PPL Energy Supply had a credit exposure of $346 million
      to energy trading partners. Eight counterparties accounted for 75% of this
      exposure. No other individual counterparty accounted for more than 2% of
      the exposure. The largest exposure, $128 million, was to PPL Electric, under
      the long-term contract to provide PPL Electric's PLR load. With two exceptions,
      the other six counterparties have an investment grade credit rating from
      Standard & Poor's. One non-investment grade counterparty has agreed
      to amend its contract with PPL Energy Supply in a manner that substantially
      reduces PPL Energy Supply's exposure. The other non-investment grade counterparty
      has refused to supply credit assurance and PPL Energy Supply has therefore
      stopped trading with this company.
    At March 31, 2003, PPL Montana had a credit exposure of $83 million to
      energy trading partners. Three counterparties accounted for 81% of this
      exposure. No other individual counterparty accounted for more than 3% of
      the exposure. With one exception, each of the three primary counterparties
      has an investment grade credit rating from Standard & Poor's. The non-investment
      grade counterparty has agreed to amend its contract with PPL Montana in
      a manner that substantially reduces PPL Montana's exposure.
    PPL, PPL Energy Supply and PPL Montana have the right to request collateral
      from each of these counterparties, except for one government agency, in
      the event their credit rating falls below investment grade. It is also the
      policy of PPL, PPL Energy Supply and PPL Montana to enter into netting agreements
      with all of their counterparties to minimize credit exposure.
12. Goodwill and Other Intangible Assets
    The financial statements of PPL and its subsidiaries are prepared in accordance
      with SFAS 142, "Goodwill and Other Intangible Assets," which eliminates
      the amortization of goodwill and other acquired intangible assets with indefinite
      economic useful lives. SFAS 142 requires an annual impairment test of goodwill
      at the reporting unit level. A reporting unit is a segment or one level
      below a segment (referred to as a component). Intangible assets other than
      goodwill that are not subject to amortization are also required to undergo
      an annual impairment test. The following information is disclosed in accordance
      with SFAS 142.
    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
        
        
        
        
        
        
        (6
        )
        
        
        (6
        )
        
        
        
        
        
        
        (6
        )Purchase accounting adjustments
            (b)
        
        
        
        
        
        
        (28
        )
        
        
        (28
        )
        
        
        
        
        
        
        (28
        )Balance as of March 31,
            2003
        
        $
        85
        
        
        $
        300
        
        
        $
        385
        
        
        $
        55
        
        
        $
        440(a)
        
        The Delivery segment is
            not part of PPL Energy Supply.(b)
        
        See Note 7 for additional
            information.Goodwill is included in "Goodwill and other intangibles" on the Balance
      Sheet.
    The reporting units of the Supply, Delivery and International segments
      completed the transition impairment test in the first quarter of 2002. A
      transition goodwill impairment loss of $150 million was recognized in the
      Latin American reporting unit within the International segment, and is reported
      as a "Cumulative Effect of a Change in Accounting Principle" on the Statement
      of Income. The fair value of the reporting unit was estimated using the
      expected present value of future cash flows.
13. Asset Retirement Obligation
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations,"
      which addresses the accounting for obligations associated with the retirement
      of tangible long-lived assets. SFAS 143 requires legal obligations associated
      with the retirement of long-lived assets to be recognized as a liability
      in the financial statements. The initial obligation should be measured at
      the estimated fair value. An equivalent amount should be recorded as an
      increase in the value of the capitalized asset and allocated to expense
      over the useful life of the asset. Until the obligation is settled, the
      liability should be increased, through the recognition of accretion expense
      in the income statement, for changes in the obligation due to the passage
      of time. SFAS 143 is effective for fiscal years beginning after June 15,
      2002.
    (PPL and PPL Energy Supply)
    PPL and PPL Energy Supply adopted SFAS 143 effective January 1, 2003. Application
      of the new rules resulted in an increase in net property, plant and equipment
      of $32 million, reversal of 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
      months ended March 31, 2003, as a result of the adoption of SFAS 143, PPL
      and PPL Energy Supply recognized $5 million of accretion expense and an
      insignificant amount of depreciation expense.
    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 $290 million and $287 million as of March
      31, 2003 and December 31, 2002.
    PPL and PPL Energy Supply's asset retirement obligations are included in
      the "Deferred Credits and Other Noncurrent Liabilities - Other" line 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
        
        
        $
        229Accretion expense
        
        
        5
        
        
        
        5Asset retirement obligation
            at March 31, 2003
        
        $
        234
        
        
        $
        234The pro forma asset retirement obligation liability balances calculated
      as if SFAS 143 had been adopted on January 1, 2002 were $234 million, $229
      million and $211 million as of March 31, 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
        
        
        PPL Energy
            SupplyThree
            Months 
            Ended March 31,
        
        
        Three
            Months 
            Ended March 31,2003
        
        
        2002
        
        
        2003
        
        
        2002Reported net income before cumulative
            effect of a change in accounting principle
        
        $
        176
        
        
        $
        147
        
        
        $
        153
        
        
        $
        145Pro forma net income before cumulative
            effect of a change in accounting principle
        
        $
        176
        
        
        $
        148
        
        
        $
        153
        
        
        $
        146Reported net income (loss)
        
        $
        239
        
        
        $
        (3
        )
        
        $
        216
        
        
        $
        (5
        )Pro forma net income (loss)
        
        $
        176
        
        
        $
        (2
        )
        
        $
        153
        
        
        $
        (4
        )Three Months 
            Ended March 31,2003
        
        
        2002Basic EPS:Reported net income before cumulative
            effect of a change in accounting principle
        
        $
        1.06
        
        
        $
        1.00Pro forma net income before cumulative
            effect of a change in accounting principle
        
        $
        1.06
        
        
        $
        1.01Reported net income (loss)
        
        $
        1.43
        
        
        $
        (0.02
        )Pro forma net income (loss)
        
        $
        1.06
        
        
        $
        (0.02
        )Diluted EPS:Reported net income before cumulative
            effect of a change in accounting principle
        
        $
        1.06
        
        
        $
        1.00Pro forma net income before cumulative
            effect of a change in accounting principle
        
        $
        1.06
        
        
        $
        1.00Reported net income (loss)
        
        $
        1.43
        
        
        $
        (0.02
        )Pro forma net income (loss)
        
        $
        1.06
        
        
        $
        (0.02
        )(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
        
        $
        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
        
        
        $
        3.45PPL Energy
            SupplyFor the
            Years Ended 
            December 31,2002
        
        
        2001
        
        
        2000Reported net income before
            cumulative effect of a change in accounting principle
        
        $
        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
14. Workforce Reduction
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In an effort to improve operational efficiency and reduce costs, PPL and
      its subsidiaries completed a workforce reduction in June 2002 that will
      eliminate up to 598 employees, or about 7% of PPL's U.S. workforce, at a
      cost of $74 million. The program was broad-based and impacted all employee
      groups except certain positions that are key to providing high-quality service
      to PPL's electricity delivery customers. Linemen, electricians and line
      foremen, for example, were not affected by the reductions. An additional
      $1 million workforce reduction charge was recorded in September 2002, when
      plans, specific to PPL Global and PPL Montana subsidiaries, were finalized
      which are expected to impact 26 employees. These additional reductions increased
      PPL's total charge for workforce reductions to $75 million for the elimination
      of up to 624 positions.
    PPL recorded the cost of the program as a one-time charge of $75 million
      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, which 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 recorded
      an insignificant one-time charge for the year ended December 31, 2002.
    As of March 31, 2003, 396 employees of PPL subsidiaries were terminated
      and have received $8 million of non-pension benefits. The remaining $2 million
      liability for non-pension benefits will be paid over the next three months.
15. New Accounting Standards 
    SFAS 143 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 13 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 June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
      with Exit or Disposal Activities." SFAS 146 addresses financial accounting
      and reporting for costs associated with exit or disposal activities and
      nullifies EITF 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 December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure, an Amendment of FASB Statement
      No. 123." SFAS 148 provides three transition methods for adopting the fair
      value method of accounting for stock-based compensation 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 currently
      evaluating the impact of the adoption of SFAS 149 on their financial position
      and results of operations.
    FIN 45(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
      and Disclosure Requirements for Guarantees, Including Indirect Guarantees
      of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57,
      and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies
      that upon issuance of certain types of guarantees, the guarantor must recognize
      an initial liability for the fair value of the obligation it assumes under
      the guarantee. 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 quarter ended March 31, 2003. See Note 8 for disclosure
      of guarantees and other assurances existing as of March 31, 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 quarter
      ended March 31, 2003.
    (PPL and PPL Energy Supply)
    PPL Energy Supply currently believes that the lessors under its operating
      leases for the Sundance, University Park and Lower Mt. Bethel generating
      facilities are variable interest entities in which it is the primary beneficiary.
      Consequently, PPL and PPL Energy Supply would be required to consolidate
      the financial statements of the lessors under FIN 46. The principal impact
      from consolidating the lessors under these leases would be the inclusion
      of the generating facilities as assets and the lease financing as liabilities
      in the consolidated balance sheets of PPL and PPL Energy Supply. Additionally,
      PPL and PPL Energy Supply would be required to recognize a cumulative effect
      of a change in accounting principle in connection with the initial consolidation
      of these variable interest entities. Upon applying FIN 46 to these entities
      effective July 1, 2003, PPL Energy Supply estimates that the initial adoption
      will result in approximately $1.1 billion of additional assets and liabilities
      on its balance sheet and a cumulative effect of a change in accounting principle
      of approximately $11 million after tax. 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 estimated to be up to $545 million based on an estimated total lessor's
      investment of $657 million for both projects combined. If the financing
      is terminated early as a result of significant environmental damage, or
      an event of default, the lessee could be obligated to pay up to 100% of
      the lessor's investment in the facilities.
    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 is approximately 10 years, beginning on the date of commercial
      operation, which is expected to occur in late 2003. At the end of the lease
      term, the lessee has the option to extend the lease or purchase the 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 $531 million as of March 31, 2003 and is estimated to be up to $591
      million as of the commencement of the lease.

---

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 months ended March 31, 2003,
  to the comparable period 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 months ended March 31, 2002 has been reclassified
  to reflect the consolidation of WPD's results. Mirant's $25 million share of
  earnings for the first quarter of 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 months ended March 31, 2003,
  as compared to the same period in 2002, changes in foreign exchange rates increased
  WPD's portion of revenue and expense line items by about 12%.

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

Earnings

Net income (loss), and the related EPS, were as follows:

|                        |  | Three Months Ended March
        31, |     
|----------------------- |  | ------------------------------------ | ----
|                        |  | 2003                                 |     
|                        |  |                                      |     
|Net income (loss)       |  | $                                    | 239 
|EPS - basic and diluted |  | $                                    | 1.43

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

|                            |  | Three Months Ended March
        31, |     
|--------------------------- |  | ------------------------------------ | ----
|                            |  | 2003                                 |     
|                            |  |                                      |     
|Income from core operations |  | $                                    | 176 
|EPS - basic and diluted     |  | $                                    | 1.06

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

|                            |                               | Net Income                            |     |    | EPS-Diluted                           |  
|--------------------------- | ----------------------------- | ------------------------------------- | --- | -- | ------------------------------------- | -
|                            |                               | Three Months 
        Ended March 31, |     |    | Three Months 
        Ended March 31, |  
|                            |                               | 2003                                  |     |    | 2002                                  |  
|                            |                               |                                       |     |    |                                       |  
|Net income (loss) - actual  |                               | $                                     | 239 |    |                                       | $
|Unusual items (net of tax): |                               |                                       |     |    |                                       |  
|                            | ARO transition (Note 13)      |                                       |     | 63 |                                       |  
|                            | Goodwill impairment (Note 12) |                                       |     |    |                                       |  
|                            | CEMAR impairment (Note 7)     |                                       |     |    |                                       |  
|                            |                               |                                       |     |    |                                       |  
|Income from core operations |                               | $                                     | 176 |    |                                       | $
|                            |                               |                                       |     |    |                                       |  

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

| |  | Three Months Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | ------------------------------------------------------------ | 

|Domestic:      |                                                                                                  |   |    |    
|-------------- | ------------------------------------------------------------------------------------------------ | - | -- | ---
|               |                                                                                                  |   |    |    
|               | Wholesale energy margins                                                                         |   | $  | 11 
|               |                                                                                                  |   |    |    
|               | Net energy trading margins                                                                       |   |    | (12
|               |                                                                                                  |   |    |    
|               | Unregulated retail energy margins                                                                |   |    | (1 
|               |                                                                                                  |   |    |    
|               | Regulated retail energy margins                                                                  |   |    | (27
|               |                                                                                                  |   |    |    
|               | Delivery revenues (net of CTC/ITC amortization
        and interest expense on transition bonds) |   |    | 15 
|               |                                                                                                  |   |    |    
|               | Lower interest expense                                                                           |   |    | 7  
|               |                                                                                                  |   |    |    
|               | Higher O&M costs                                                                                 |   |    | (6 
|               |                                                                                                  |   |    |    
|               | Other                                                                                            |   |    | 1  
|               |                                                                                                  |   |    |    
|International: |                                                                                                  |   |    |    
|               |                                                                                                  |   |    |    
|               | Higher earnings from U.K. operations                                                             |   |    | 29 
|               |                                                                                                  |   |    |    
|               | Higher earnings from Latin American operations                                                   |   |    | 8  
|               |                                                                                                  |   |   
|               |                                                                                                  | $ | 25 |    
|               |                                                                                                  |   |   

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 7 to the Financial Statements for additional information). The increased
  Latin American earnings resulted from the deconsolidation of CEMAR (as discussed
  in Note 7) and improved earnings in Chile.

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.

Future earnings will also be impacted by the consolidation of variable interest
  entities (as discussed in Note 15 to the Financial Statements).

Domestic Energy Margins

The following tables provide summary data regarding changes in the components
  of domestic gross margins of wholesale and retail energy for the three months
  ended March 31, 2003, compared with the same period in 2002:

| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|Utility revenues                             |                     | $                             | 69  |    
|-------------------------------------------- | ------------------- | ----------------------------- | --- | ---
|                                             |                     |                              
|Unregulated retail electric and gas revenues |                     |                               | 3   |    
|                                             |                     |                               |     |    
|Wholesale energy marketing revenues          |                     |                               | 105 |    
|                                             |                     |                               |     |    
|Net energy trading margins                   |                     |                               | (21 | )  
|                                             |                     |                               |     |    
|Other revenue adjustments (a)                |                     |                               | (49 | )  
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|                                             | Total revenues      |                               |     | 107
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|Fuel                                         |                     |                               | 50  |    
|                                             |                     |                               |     |    
|Purchased power                              |                     |                               | 104 |    
|                                             |                     |                               |     |    
|Other cost adjustments (a)                   |                     |                               | 3   |    
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|                                             | Total cost of sales |                               |     | 157
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|                                             |                     | 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 energy costs related to the international operations of PPL Global and the domestic delivery operations of PPL Electric and PPL Gas Utilities.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in Gross Domestic Energy Margins By Activity

Gross margin calculations are dependent on the allocation of fuel and purchased
  power costs to the activities 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.

| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|Wholesale - Eastern U.S. |                               | $ | 7   |    
|------------------------ | ----------------------------- | - | --- | ---
|                         |                               |   |     |    
|Wholesale - Western U.S. |                               |   | 11  |    
|                         |                               |   |     |    
|Net energy trading       |                               |   | (21 | )  
|                         |                               |   |     |    
|Unregulated retail       |                               |   | (1  | )  
|                         |                               |   |     |    
|Regulated retail         |                               |   | (46 | )  
|                         |                               |   |    
|                         |                               |   |     |    
|                         | Domestic gross energy margins |   | $   | (50
|                         |                               |   |     |    
|                         |                               |   |    

Wholesale - Eastern U.S.

Eastern wholesale margins were higher for the three months ended March 31,
  2003, compared to the same period in 2002, despite a buyout of a NUG contract
  in February 2002 that reduced purchased power costs by $25 million. Eastern
  wholesale margins increased primarily due to volumes, which were driven higher
  by generation output which increased 1,406 GWh for the three months ended March
  31, 2003 compared to the same period in 2002. Contributing to this increase
  was 699 MW of new generation that began commercial operations in mid-2002.

Wholesale - Western U.S.

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

In the Northwest, margins were $10 million higher for the three months ended
  March 31, 2003 compared to the same period in 2002, primarily due to an increase
  in average realized wholesale prices by $7/MWh and an 8% increase in volumes.

In the Southwest, margins were relatively flat with only a $1 million increase
  for the three months ended March 31, 2003, compared to the same period in 2002,
  because of a planned maintenance outage in 2003. Also, the cost of gas did not
  justify operating the plants as often as in the prior period.

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 $21 million
  decrease for the three months ended March 31, 2003, compared to the same period
  in 2002, was primarily due to unrealized losses for the three months ended March
  31, 2003 and forward electric sales realized for the three month period ended
  March 31, 2003 being settled with higher spot prices than during the same period
  in 2002. The physical volumes associated with energy trading were 2,490 GWh
  and 3.8 Bcf for the three months ended March 31, 2003, compared to 2,505 GWh
  and 3.2 Bcf for the three months ended March 31, 2002.

Unregulated Retail

Unregulated retail margins declined slightly for the three months ended March
  31, 2003, compared to the same period in 2002, primarily due to lower gas margins
  in the East and significantly lower electric retail prices in the West. This
  was offset by a realized gain of $5 million as a result of selling the East
  retail gas contracts and settling related financial hedges.

Regulated Retail

Regulated retail margins in the East for the three months ended March 31, 2003
  were 22% lower than the same period in 2002, primarily due to higher supply
  costs resulting from the extreme weather change from mild in 2002 to harsh in
  2003. This resulted in reliance on marginal generating units and caused spot
  market prices to increase. PJM on-peak prices averaged $33/MWh more, an increase
  of 129%, for the three months ended March 31, 2003 compared to the same period
  in 2002.

Utility Revenues

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

| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|Retail electric revenue    |                   |                                |    |   
|-------------------------- | ----------------- | ------------------------------ | -- | --
|                           |                   |                                |    |   
|                           | PPL Electric:     |                                |    |   
|                           |                   |                                |    |   
|                           |                   | Electric delivery              |    | $ 
|                           |                   |                                |    |   
|                           |                   | PLR electric generation supply |    |   
|                           |                   |                                |    |   
|                           |                   | Other                          |    |   
|                           |                   |                                |    |   
|                           | PPL Global:       |                                |    |   
|                           |                   |                                |    |   
|                           |                   | Electric delivery              |    |   
|                           |                   |                                |   
|                           |                   |                                | 54 |   
|Wholesale electric revenue |                   |                                |    |   
|                           | PPL Electric      |                                |    | 1 
|                           |                   |                                |    |   
|Gas revenue                |                   |                                | 14 |   
|                           |                   |                                |   
|                           | PPL Gas Utilities |                                | $  | 69
|                           |                   |                                |   

The increase in utility revenues for the three months ended March 31, 2003,
  compared with the same period in 2002 was primarily due to:

- higher PPL Electric delivery and PLR revenues due to a 9.8% increase in
    electricity deliveries, primarily due to colder winter weather in the first
    quarter of 2003;
- higher PPL Gas Utilities revenues of $14 million, primarily due to higher
    sales volumes, also due in part to colder winter weather experienced in the
    first quarter of 2003; offset by
- lower PPL Global international electricity delivery revenues, primarily
    due to the deconsolidation of CEMAR. PPL Global stopped recording operating
    results of CEMAR upon relinquishing control to ANEEL. (See Note 7 to the Financial
    Statements for additional information.) As a result, revenues from electricity
    deliveries in Brazil were $30 million lower in the first three months of 2003,
    compared with the same period in 2002. This decrease was partially offset
    by $19 million of increased WPD revenues in 2003 compared with 2002. This
    increase was primarily due to the change in foreign currency exchange rates
    from period to period.

Energy Related Businesses

Energy related businesses contributed $15 million less to operating income
  for the three months ended March 31, 2003, compared to the same period in 2002.
  Approximately $11 million of the decrease was due to PPL Global and resulted
  primarily from:

- 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 $1 million decrease due to the disposition of the Hyder properties in
    2002, which have been sold or otherwise disposed.

Other Operation Expenses

Other operation expenses were essentially unchanged for the three months ended
  March 31, 2003, compared to the same period in 2002. However, other operation
  expenses increased because of a $16 million decrease in pension income and $9
  million of additional expenses of new generating facilities that became operational
  in mid-2002. These increases were offset by:

- an $8 million decrease in the Clean Air Act contingency relating to the
    generating facilities,
- $4 million related to an insurance settlement at the Martins Creek generating
    station, and
- an estimated $9 million reduction in salaries and benefits as a result of
    the workforce reduction initiated in 2002.

The $16 million decrease in pension income was 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 March 31, 2003, PPL recorded
  approximately $11 million of pension income and will record approximately $32
  million of additional pension income in 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 increased by $18 million for the
  three months ended March 31, 2003, compared with the same period in 2002. This
  increase was primarily due to $14 million of higher ITC amortization in 2003
  as a result of higher billed ITC revenues. Billed ITC revenues were higher as
  a result of increased electricity delivery revenues. (ITC revenues are offset
  by interest expense on the transition bonds and the amortization of recoverable
  transition costs, resulting in minimal impact on earnings.)

Depreciation

Depreciation increased by $10 million for the three months ended March 31,
  2003, compared with the same period in 2002. This increase was primarily due
  to an increase of $11 million relating to WPD. Of that amount, $6 million relates
  to depreciation on the write-up to fair value of assets acquired in the acquisition,
  $3 million resulted from increased exchange rates, and the remaining $2 million
  reflects the increase in distribution assets. These increases were partially
  offset by a decrease of $2 million due to PPL Global's write-down of CEMAR resulting
  in decreased depreciation on these assets in 2003.

Write-down of International Energy Projects

See Note 7 to the Financial Statements for information on a $6 million charge
  in the three months ended March 31, 2002 to reflect an additional write-down
  of PPL Global's investment in CEMAR.

Other Income - net

See Note 10 to the Financial Statements for details of other income.

Financing Costs

Interest expense decreased by $22 million during the three months ended March
  31, 2003, compared with the same period in 2002. The decrease was primarily
  due to a $12 million decrease in long-term debt expense from debt retirements
  and a $9 million decrease in long-term debt expense from the deconsolidation
  of CEMAR in 2002.

Dividends and distributions on preferred securities decreased by $5 million
  during the three months ended March 31, 2003, compared with the same period
  in 2002, due to the retirement of preferred securities in 2002.

Income Taxes

Income taxes decreased by $17 million for the three months ended March 31,
  2003, compared to the same period in 2002, as a result of lower pre-tax book
  income.

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
  13 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 12 to the Financial Statements for additional
  information.

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

During 2003, PPL also adopted:

- the fair value method of accounting for stock-based compensation under SFAS
    123, "Accounting for Stock-Based Compensation,"
- SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities,"
- SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,
    an Amendment of FASB Statement No. 123,"
- 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 Recission of FASB Interpretation
    No. 34," and
- FIN 46, "Consolidation of Variable Interest Entities, an Interpretation
    of ARB No. 51."

See Notes 2, 8 and 15 to the Financial Statements for a discussion of these
  adoptions.

New Accounting Standards

See Note 15 to the Financial Statements for information on new accounting standards.

Financial Condition

Liquidity

At March 31, 2003, PPL had $397 million of cash and cash equivalents and $886
  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 the net result of:

- $153 million of cash provided by operating activities;
- the issuance of $332 million of commercial paper;
- the issuance of $90 million of long-term debt; and
- the issuance of $73 million of common stock; offset by
- the retirement of $248 million of long-term debt, payment of $72 million
    of common and preferred dividends and $169 million of capital expenditures.

Rating Agency Decisions - PPL

Standard & Poor's (S&P), Moody's Investor Services (Moody's) and Fitch
  Ratings (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 limit the Registrants'
  ability to fund their short-term liquidity needs through the issuance of commercial
  paper or borrowing under their revolving credit facilities. In addition, management
  does not expect these ratings decisions to impact the Registrants' ability to
  raise new long-term debt. These ratings decisions will have an immaterial impact
  on the Registrants' 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 the Registrants or their 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 has:

- 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'; and
- placed PPL Electric on negative outlook. S&P indicated that PPL and
    PPL Energy Supply remain on negative outlook.

S&P also 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 the Registrants 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'.

These ratings decisions concluded Moody's review for downgrade that it commenced
  in April 2003. The ratings outlook is 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
  under review by Moody's, and those ratings remain unchanged.

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 Energy Supply, 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 has:

- 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 Energy Supply, 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.
  Also in January, S&P completed a review of WPD and affirmed its 'BBB+' long-term
  and 'A-2' short-term corporate credit ratings on WPD Holdings U.K. and related
  entities, WPD (South West) and WPD (South Wales). 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. S&P's
  outlook for the WPD group is negative. 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.

Planned Financing

Subject to market conditions, in May 2003:

- PPL plans to issue up to $270 million of its common stock pursuant to an
    underwritten public offering under its universal shelf registration statement
    currently on file with the SEC; and
- PPL Energy Supply plans to issue up to $350 million of debt or convertible
    debt, in either case pursuant to an offering exempt from the registration
    requirements of the Securities Act of 1933. If convertible debt is issued,
    PPL Energy Supply expects that it would be guaranteed by PPL and convertible
    into PPL's common stock.

The consummation of each such offering is independent of and is not contingent
  upon the other offering. PPL and PPL Energy Supply expect to use the proceeds
  of each offering to repurchase commercial paper of PPL Energy Supply and for
  general corporate purposes.

For additional information on PPL's liquidity, 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.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk

As of March 31, 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 $196
  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 2006. The following
  chart sets forth PPL's net fair market value of trading contracts:

|                                                                           |  | Three Months Ended March
        31, |    
|-------------------------------------------------------------------------- |  | ------------------------------------ | ---
|                                                                           |  | 2003                                 |    
|                                                                           |  |                                      |    
|Fair value of contracts outstanding at
        the beginning of the period |  | $                                    | (6 
|                                                                           |  |                                      |    
|Contracts realized or otherwise settled
        during the period          |  |                                      | (1 
|                                                                           |  |                                      |    
|Fair value of new contracts at inception                                   |  |                                      |    
|                                                                           |  |                                      |    
|Other changes in fair values                                               |  |                                      | (9 
|                                                                           |  |                                      |    
|Fair value of contracts outstanding at
        the end of the period       |  | $                                    | (16
|                                                                           |  |                                      |    

During the three months ended March 31, 2003 and 2002, PPL reversed net gains
  of approximately $1 million and $3 million related to contracts entered into
  prior to January 1 of the previous year. This amount does 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 March 31, 2003, the net unrealized loss on PPL's trading activities expected
  to be realized in earnings during the next three months is approximately $5
  million.

The following chart segregates estimated fair values of PPL's trading portfolio
  at March 31, 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                                               |  | $                                                                    | 1  
|                                                                     |  |                                                                      |    
|Prices provided by other external sources                            |  |                                                                      |    
|                                                                     |  |                                                                      |    
|Prices based on models and other valuation
        methods           |  |                                                                      | (17
|                                                                     |  |                                                                      |    
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | (16
|                                                                     |  |                                                                      |    

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

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

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

As of March 31, 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 $6 million.

Interest Rate Risk

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

At March 31, 2003, PPL's potential annual exposure to increased interest expense,
  based on a 10% increase in interest rates, was estimated at $5 million.

PPL is also exposed to changes in the fair value of its debt portfolio. At
  March 31, 2003, PPL estimated that its potential exposure to a change in the
  fair value of its debt portfolio, through a 10% adverse movement in interest
  rates, was $208 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 March
  31, 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 $9 million.

PPL is also exposed to changes in the fair value and interest expense of its
  foreign debt portfolio. At March 31, 2003, PPL estimated that its potential
  exposure to a change in the fair value of its foreign debt portfolio, through
  a 10% adverse movement in interest rates, was $58 million. At March 31, 2003,
  PPL estimated that that its potential exposure to increased interest expense
  in its foreign debt portfolio, through a 10% adverse movement in interest rates,
  was insignificant.

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 to pay for
  certain equipment in 2003. The estimated value of these forward purchases as
  of March 31, 2003, being the amount PPL would receive to terminate them, was
  $4 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 March 31, 2003, being the amount PPL would have to pay to terminate them,
  was $2 million.

To protect expected income in British pounds sterling, PPL entered into average
  rate options for £26 million. To protect expected income in Chilean pesos, PPL
  entered into average rate options for 4 billion Chilean pesos. The market value
  of these positions was insignificant at March 31, 2003.

WPDH Limited entered into 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 March 31, 2003, being the amount PPL would receive to terminate
  them, was $31 million.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of March 31, 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 March 31, 2003, a hypothetical 10% adverse movement
  in interest rates and a 10% decrease in equity prices would have resulted in
  an estimated $16 million reduction in the fair value of the trust assets.

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 7 to the Financial
  Statements for information regarding recent acquisitions and development activities.

At March 31, 2003, PPL subsidiaries had domestic generation projects under
  development which would provide 690 MW of additional generation. Subsequently,
  the Susquehanna Unit 2 steam turbine replacement was completed, which added
  up to 45 MW, representing PPL's 90% share, to its generation capacity.

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 8 to the Financial Statements for a discussion of environmental matters.

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. Each sensitivity below reflects an evaluation of the change
  based solely on a change in that assumption only.

|                |  | Change in Assumption |  | 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 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 months ended March 31, 2003,
  to the comparable period 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 months ended March 31, 2002
  has been reclassified to reflect the consolidation of WPD's results. Mirant's
  $25 million share of earnings for the first quarter of 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 months ended March
  31, 2003, as compared to the same period in 2002, changes in foreign exchange
  rates increased WPD's portion of revenue and expense line items by about 12%.

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

|                            |                               | Three Months Ended
        March 31, |    
|--------------------------- | ----------------------------- | ------------------------------------ | ---
|                            |                               | 2003                                 |    
|                            |                               |                                      |    
|Net income (loss) - actual  |                               | $                                    | 216
|                            |                               |                                      |    
|Unusual items (net of tax): |                               |                                      |    
|                            |                               |                                      |    
|                            | ARO transition (Note 13)      |                                      |    
|                            |                               |                                      |    
|                            | Goodwill impairment (Note 12) |                                      |    
|                            |                               |                                      |    
|                            | CEMAR impairment (Note 7)     |                                      |    
|                            |                               |                                      |    
|Income from core operations |                               | $                                    | 153
|                            |                               |                                      |    

The $4 million increase in core earnings for the three months ended March 31,
  2003, compared with the same period in 2002 was primarily due to (with after-tax
  changes noted):



| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|Domestic:      |                                                |   |   |    
|-------------- | ---------------------------------------------- | - | - | ---
|               |                                                |   |   |    
|               | Wholesale energy margins                       |   | $ | 11 
|               |                                                |   |   |    
|               | Net energy trading margins                     |   |   | (12
|               |                                                |   |   |    
|               | Unregulated retail energy margins              |   |   | (1 
|               |                                                |   |   |    
|               | Regulated retail energy margins                |   |   | (27
|               |                                                |   |   |    
|               | Trademark royalties to affiliates              |   |   | (6 
|               |                                                |   |   |    
|               | Other                                          |   |   | 2  
|               |                                                |   |   |    
|International: |                                                |   |   |    
|               |                                                |   |   |    
|               | Higher earnings from U.K. operations           |   |   | 29 
|               |                                                |   |   |    
|               | Higher earnings from Latin American operations |   |   | 8  
|               |                                                |   |  
|               |                                                | $ | 4 |    
|               |                                                |   |  

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 7 to the Financial Statements for additional information). The increased
  Latin American earnings resulted from the deconsolidation of CEMAR (as described
  in Note 7), and improved earnings in Chile.

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.

Future earnings will also be impacted by the consolidation of variable interest
  entities (as discussed in Note 15 to the Financial Statements).

Domestic Energy Margins

The following tables provide summary data regarding changes in the components
  of domestic gross margins of wholesale and retail energy for the three months
  ended March 31, 2003, compared to the same period in 2002:

| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|                                             |                     |                               |     |    
|-------------------------------------------- | ------------------- | ----------------------------- | --- | ---
|Wholesale energy marketing revenues          |                     | $                             | 105 |    
|                                             |                     |                               |     |    
|Wholesale energy marketing to affiliates     |                     |                               | 20  |    
|                                             |                     |                               |     |    
|Unregulated retail electric and gas revenues |                     |                               | 3   |    
|                                             |                     |                               |     |    
|Net energy trading margins                   |                     |                               | (21 | )  
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|                                             | Total revenues      |                               |     | 107
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|Fuel                                         |                     |                               | 41  |    
|                                             |                     |                               |     |    
|Purchased power                              |                     |                               | 104 |    
|                                             |                     |                               |     |    
|Purchased power from affiliates              |                     |                               | (1  | )  
|                                             |                     |                               |     |    
|Other cost adjustments (a)                   |                     |                               | 13  |    
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|                                             | Total cost of sales |                               |     | 157
|                                             |                     |                               |    
|                                             |                     |                               |     |    
|                                             |                     | Domestic gross energy margins |     | $  
|                                             |                     |                               |    
|                                             |                     |                               |     |    

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

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.

| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|Wholesale - Eastern U.S. |                               | $ | 7   |    
|------------------------ | ----------------------------- | - | --- | ---
|                         |                               |   |     |    
|Wholesale - Western U.S. |                               |   | 11  |    
|                         |                               |   |     |    
|Net energy trading       |                               |   | (21 | )  
|                         |                               |   |     |    
|Unregulated retail       |                               |   | (1  | )  
|                         |                               |   |     |    
|Regulated retail         |                               |   | (46 | )  
|                         |                               |   |    
|                         |                               |   |     |    
|                         | Domestic gross energy margins |   | $   | (50
|                         |                               |   |     |    
|                         |                               |   |    

Wholesale - Eastern U.S.

Eastern wholesale margins were higher for the three months ended March 31,
  2003, compared to the same period in 2002, despite a buyout of a NUG contract
  in February 2002 that reduced purchased power costs by $25 million. Eastern
  wholesale margins increased primarily due to volumes, which were driven higher
  by generation output which increased 1,406 GWh for the three months ended March
  31, 2003 compared to the same period in 2002. Contributing to this increase
  was 699 MW of new generation that began commercial operations in mid-2002.

Wholesale - Western U.S.

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

In the Northwest, margins were $10 million higher for the three months ended
  March 31, 2003 compared to the same period in 2002, primarily due to an increase
  in average realized wholesale prices by $7/MWh and an 8% increase in volumes.

In the Southwest, margins were relatively flat with only a $1 million increase
  for the three months ended March 31, 2003, compared to the same period in 2002,
  because of a planned maintenance outage in 2003. Also, the cost of gas did not
  justify operating the plants as often as in the prior period.

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 $21 million
  decrease for the three months ended March 31, 2003, compared to the same period
  in 2002, was primarily due to unrealized losses for the three months ended March
  31, 2003 and forward electric sales realized for the three month period ended
  March 31, 2003 being settled with higher spot prices than during the same period
  in 2002. The physical volumes associated with energy trading were 2,490 GWh
  and 3.8 Bcf for the three months ended March 31, 2003, compared to 2,505 GWh
  and 3.2 Bcf for the three months ended March 31, 2002.

Unregulated Retail

Unregulated retail margins declined slightly for the three months ended March
  31, 2003, compared to the same period in 2002, primarily due to lower gas margins
  in the East and significantly lower electric retail prices in the West. This
  was offset by a realized gain of $5 million as a result of selling the East
  retail gas contracts and settling related financial hedges.

Regulated Retail

Regulated retail margins in the East for the three months ended March 31, 2003
  were 22% lower than the same period in 2002, primarily due to higher supply
  costs resulting from the extreme weather change from mild in 2002 to harsh in
  2003. This resulted in reliance on marginal generating units and caused spot
  market prices to increase. PJM on-peak prices averaged $33/MWh more, an increase
  of 129%, for the three months ended March 31, 2003 compared to the same period
  in 2002.

Utility Revenues

PPL Energy Supply's utility revenues consist of the delivery of electricity
  by PPL Global international subsidiaries. Utility revenues decreased by $7 million
  for the three months ended March 31, 2003, compared with the same period in
  2002. This decrease was primarily attributable to the deconsolidation of CEMAR.
  PPL Global stopped recording operating results of CEMAR upon relinquishing control
  to ANEEL. (See Note 7 to the Financial Statements for additional information.)
  As a result, revenues from electricity deliveries in Brazil were $30 million
  lower in the first three months of 2003, compared with the same period in 2002.
  This decrease was partially offset by $19 million of increased WPD revenues
  in 2003, compared with 2002. This increase was primarily due to the change in
  foreign currency exchange rates from period to period.

Energy Related Businesses

Energy related businesses contributed $17 million less to operating income
  for the three months ended March 31, 2003, compared to the same period in 2002.
  Approximately $11 million of the decrease was due to PPL Global and resulted
  primarily from:

- 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 $1 million decrease due to the disposition of the Hyder properties in
    2002, which have been sold or otherwise disposed.

Other Operation and Maintenance

Other operation and maintenance expenses increased by $5 million for the three
  months ended March 31, 2003, compared to the same period in 2002. This increase
  was primarily due to:

- $11 million of allocated trademark license fees from a PPL subsidiary,
- a $9 million decrease in pension income, and
- $9 million of additional expenses of new generating facilities that became
    operational in mid-2002.

These increases were offset by:

- an $8 million decrease in the Clean Air Act contingency relating to the
    generating facilities,
- $4 million related to an insurance settlement at the Martins Creek generating
    station, and
- an estimated $5 million reduction in salaries and benefits as a result of
    the workforce reduction initiated in 2002.

The $9 million decrease in pension income was 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
  March 31, 2003, PPL Energy Supply recorded approximately $10 million of pension
  income and will record approximately $30 million of additional pension income
  in 2003. Future levels of income or expense will depend on ongoing market conditions
  and results.

Depreciation

Depreciation increased by $8 million for the three months ended March 31, 2003,
  compared with the same period in 2002. This increase was primarily due to an
  increase of $11 million relating to WPD. Of that amount, $6 million relates
  to depreciation on the write-up to fair value of assets acquired in the acquisition,
  $3 million resulted from increased exchange rates, and the remaining $2 million
  reflects the increase in distribution assets. These increases were partially
  offset by a decrease of $2 million due to PPL Global's write-down of CEMAR resulting
  in decreased depreciation on these assets in 2003.

Write-down of International Energy Projects

See Note 7 to the Financial Statements for information on a $6 million charge
  in the three months ended March 31, 2002 to reflect an additional write-down
  of PPL Global's investment in CEMAR.

Other Income - net

See Note 10 to the Financial Statements for details of other income.

Interest Expense

Interest expense decreased by $9 million during the three months ended March
  31, 2003, compared with the same period in 2002, because of the deconsolidation
  of CEMAR in 2002.

Income Taxes

Income taxes decreased by $36 million for the three months ended March 31,
  2003, compared to the same period in 2002, as a result of lower pre-tax book
  income.

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 13 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
  12 to the Financial Statements for additional information.

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

During 2003, PPL Energy Supply also adopted:

- the fair value method of accounting for stock-based compensation under SFAS
    123, "Accounting for Stock-Based Compensation,"
- SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities,"
- SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,
    an Amendment of FASB Statement No. 123,"
- 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 Recission of FASB Interpretation
    No. 34," and
- FIN 46, "Consolidation of Variable Interest Entities, an Interpretation
    of ARB No. 51."

See Notes 2, 8 and 15 to the Financial Statements for a discussion of these
  adoptions.

New Accounting Standards

See Note 15 to the Financial Statements for information on new accounting standards.

Financial Condition

Liquidity

At March 31, 2003, PPL Energy Supply had $102 million of cash and cash equivalents
  and $762 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 decrease in cash position was the net result of:

- $109 million in capital expenditures, and $305 million of distributions
    to parent; offset by
- the issuance of $223 million of commercial paper and $119 million of cash
    provided by operating activities.

Rating Agency Decisions - PPL Energy Supply

Standard & Poor's (S&P), Moody's Investor Services (Moody's) and
  Fitch Ratings (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 limit PPL Energy Supply's
  ability to fund its short-term liquidity needs through the issuance of commercial
  paper or borrowing under its revolving credit facilities. In addition, 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 has affirmed the
  'BBB' corporate credit rating for PPL Energy Supply. S&P indicated that
  PPL Energy Supply remains on negative outlook.

S&P also affirmed the 'A-2' commercial paper rating of PPL Energy Supply.

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.

Moody's

In May 2003, Moody's downgraded the credit ratings on PPL Energy Supply's senior
  unsecured notes to 'Baa2' from 'Baa1'. This ratings decision concluded Moody's
  review for downgrade that it commenced in April 2003. The ratings outlook is
  stable for PPL Energy Supply.

PPL Energy Supply's short-term debt rating was not under review by Moody's,
  and that rating remains unchanged.

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 Energy Supply, 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'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.

Fitch

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

- 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 Energy Supply, 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.
  Also in January, S&P completed a review of WPD and affirmed its 'BBB+' long-term
  and 'A-2' short-term corporate credit ratings on WPD Holdings U.K. and related
  entities, WPD (South West) and WPD (South Wales). 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. S&P's
  outlook for the WPD group is negative. 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.

Planned Financing

Subject to market conditions, in May 2003, PPL Energy Supply plans to issue
  up to $350 million of debt or convertible debt, in either case pursuant to an
  offering exempt from the registration requirements of the Securities Act of
  1933. If convertible debt is issued, PPL Energy Supply expects that it would
  be guaranteed by PPL and convertible into PPL's common stock. PPL Energy Supply
  expects to use the proceeds of this offering to repurchase its commercial paper
  and for general corporate purposes.

For additional information on PPL Energy Supply's liquidity, 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.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk

As of March 31, 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
  $196 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 2006.
  The following chart sets forth PPL Energy Supply's net fair market value of
  trading contracts:

|                                                                           |  | Three Months Ended March
        31, |    
|-------------------------------------------------------------------------- |  | ------------------------------------ | ---
|                                                                           |  | 2003                                 |    
|                                                                           |  |                                      |    
|Fair value of contracts outstanding at
        the beginning of the period |  | $                                    | (6 
|                                                                           |  |                                      |    
|Contracts realized or otherwise settled
        during the period          |  |                                      | (1 
|                                                                           |  |                                      |    
|Fair value of new contracts at inception                                   |  |                                      |    
|                                                                           |  |                                      |    
|Other changes in fair values                                               |  |                                      | (9 
|                                                                           |  |                                      |    
|Fair value of contracts outstanding at
        the end of the period       |  | $                                    | (16
|                                                                           |  |                                      |    

During the three months ended March 31, 2003 and 2002, PPL Energy Supply reversed
  net gains of approximately $1 million and $3 million related to contracts entered
  into prior to January 1 of the previous year. This amount does 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 March 31, 2003, the net unrealized loss on PPL Energy Supply's trading
  activities expected to be realized in earnings during the next three months
  is approximately $5 million.

The following chart segregates estimated fair values of PPL Energy Supply's
  trading portfolio at March 31, 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                                               |  | $                                                                    | 1  
|                                                                     |  |                                                                      |    
|Prices provided by other external sources                            |  |                                                                      |    
|                                                                     |  |                                                                      |    
|Prices based on models and other valuation
        methods           |  |                                                                      | (17
|                                                                     |  |                                                                      |    
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | (16
|                                                                     |  |                                                                      |    

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

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

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

As of March 31, 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 $6 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-rate interest rates in its
  debt portfolios, adjusting the duration of its debt portfolios and locking in
  U.S. Treasury rates (and interest rate spreads over treasuries) in anticipation
  of future financing, when appropriate. Risk limits under the risk management
  program are designed to balance risk exposure to volatility in interest expense
  and losses in the fair value of PPL Energy Supply's debt portfolio due to changes
  in the absolute level of interest rates.

At March 31, 2003, PPL Energy Supply's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was estimated at
  $3 million.

PPL Energy Supply is also exposed to changes in the fair value of its debt
  portfolio. At March 31, 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 $105 million.

PPL utilizes various risk management instruments to reduce PPL Energy Supply's
  exposure to adverse interest rate movements for future anticipated financings.
  While PPL Energy Supply is exposed to changes in the fair value of these instruments,
  they are designed such that any economic loss in value should be offset by interest
  rate savings at the time the future anticipated financing is completed. At March
  31, 2003, PPL Energy Supply had not entered into any such instruments.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge
  certain foreign currency exposures, including firm commitments, recognized assets
  or liabilities and net investments. 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 to pay for
  certain equipment in 2003. The estimated value of these forward purchases as
  of March 31, 2003, being the amount PPL would receive to terminate them, was
  $4 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 March 31, 2003, being the amount PPL would have to pay to terminate them,
  was $2 million.

To protect expected income in British pounds sterling, PPL entered into average
  rate options for £26 million. To protect expected income in Chilean pesos, PPL
  entered into average rate options for 4 billion Chilean pesos. The market value
  of these positions were insignificant at March 31, 2003.

WPDH Limited entered into 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 March 31, 2003, being the amount PPL would receive to terminate
  them, was $31 million.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of March 31, 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 March 31, 2003,
  a hypothetical 10% adverse movement in interest rates and a 10% decrease in
  equity prices would have resulted in an estimated $16 million reduction in the
  fair value of the trust assets.

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 9 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 7 to the Financial
  Statements for information regarding recent acquisitions and development activities.

At March 31, 2003, PPL Energy Supply subsidiaries had domestic generation projects
  under development which would provide 690 MW of additional generation. Subsequently,
  the Susquehanna Unit 2 steam turbine replacement was completed, which added
  up to 45 MW, representing PPL Energy Supply's 90% share, to its generation capacity.

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 8 to the Financial Statements for a discussion of environmental matters.

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. Each sensitivity below reflects an evaluation of the change
  based solely on a change in that assumption only.

|                |  | Change in Assumption |  | 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 months ended March 31, 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 do not necessarily indicate results or trends
  for the year.

Earnings

Net income increased by $9 million for the three months ended March 31, 2003,
  compared with the same period in 2002. The after-tax changes in earnings were
  primarily due to:

| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|Higher delivery revenues (net of CTC/ITC 
      amortization and interest expense on 
      transition bonds) |  | $ | 15 |  
|------------------------------------------------------------------------------------------------------------- |  | - | -- | -
|                                                                                                              |  |   |    |  
|Higher operating and maintenance costs                                                                        |  |   | (5 | )
|                                                                                                              |  |   |    |  
|Higher interest expense (excluding transition 
      bond interest expense)                                   |  |   | (2 | )
|                                                                                                              |  |   |    |  
|Lower dividends on preferred securities                                                                       |  |   | 3  |  
|                                                                                                              |  |   |    |  
|Other - net                                                                                                   |  |   | (2 | )
|                                                                                                              |  |   |   
|                                                                                                              |  | $ | 9  |  
|                                                                                                              |  |   |   

Operating Revenues

Retail Electric

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

| |  | Three Months
        Ended
        March 31, 2003 vs. March 31, 2002 | 
| |  | -------------------------------------------------------------------- | 

|PPL Electric: |                                |  |   |   
|------------- | ------------------------------ |  | - | --
|              |                                |  |   |   
|              | Electric delivery              |  | $ | 43
|              |                                |  |   |   
|              | PLR electric generation supply |  |   | 20
|              |                                |  |   |   
|              | Other                          |  |   | (2
|              |                                |  |  
|              |                                |  | $ | 61
|              |                                |  |  

The increase in operating revenues from retail electric operations for the
  three months ended March 31, 2003, compared with the same period in 2002 was
  primarily due to higher delivery revenues resulting from increased sales volumes
  of 9.8%. Also contributing to the increase was a 5.7% growth in sales from providing
  electric generation supply as a PLR. Both the delivery and supply increases
  were impacted by colder winter weather for the three months ended March 31,
  2003, compared with the same period 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 increased by $18 million for the three months
  ended March 31, 2003, compared with the same period in 2002. This increase reflects
  higher purchases under power supply contracts with PPL EnergyPlus needed to
  support a higher PLR load due to significantly colder weather. See Note 9 to
  the Financial Statements for a discussion of the power supply contracts.

Other Operation Expenses

Other operation expenses increased by $6 million for the three months ended
  March 31, 2003, compared with the same period in 2002. This increase was primarily
  due to a $5 million decrease in pension income. Also contributing to the increase
  were higher wages of approximately $2 million. These and other increases were
  partially offset by an estimated $4 million reduction in salaries and benefits
  as a result of the workforce reduction initiated in 2002.

The $5 million decrease in pension income was 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 March 31, 2003, PPL Electric was allocated approximately $1 million
  of pension income and expects to be allocated an additional $3 million of pension
  income. Future levels of pension income or expense depend on ongoing market
  conditions and results.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs increased by $18 million for the
  three months ended March 31, 2003, compared with the same period in 2002. This
  increase was primarily due to $14 million of higher ITC amortization in 2003
  as a result of higher billed ITC revenues. Billed ITC revenues were higher as
  a result of increased electricity delivery revenues. (ITC revenues are offset
  by interest expense on the transition bonds and the amortization of recoverable
  transition costs, resulting in minimal impact on earnings.)

Maintenance Expenses

Maintenance expenses increased by $3 million for the three months ended March
  31, 2003, compared with the same period in 2002. This increase was primarily
  due to lower rent allocations to other PPL affiliates in 2003.

Income Taxes

Income taxes increased by $4 million for the three months ended March 31, 2003,
  compared to the same period in 2002, as a result of higher pre-tax book income.

Dividends and Distributions - Preferred Securities

Dividends and distributions on preferred securities decreased by $5 million
  during the three months ended March 31, 2003, compared with the same period
  in 2002, due to the retirement of preferred securities in 2002.

Change in Accounting Principle and New Accounting Standards

During 2003, PPL Electric adopted:

- the fair value method of accounting for stock-based compensation under SFAS
    123, "Accounting for Stock-Based Compensation,"
- SFAS 143, "Accounting for Asset Retirement Obligations,"
- SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities,"
- SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,
    an Amendment of FASB Statement No. 123,"
- 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 Recission of FASB Interpretation
    No. 34," and
- FIN 46, "Consolidation of Variable Interest Entities, an Interpretation
    of ARB No. 51."

See Notes 2, 8, 13 and 15 to the Financial Statements for a discussion of these
  adoptions and information on new accounting standards pending adoption.

Financial Condition

Liquidity

At March 31, 2003, PPL Electric had $213 million of cash and cash equivalents
  and $136 million of 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 the net result of:

- $46 million of cash provided by operating activities;
- the issuance of $121 million of commercial paper;
- the issuance of $90 million of long-term debt;
- the repayment of $90 million of notes receivable from affiliates; and
- a $75 million capital contribution from PPL; offset by
- the retirement of $178 million of long-term debt; and
- $54 million of capital expenditures.

Rating Agency Decisions

Standard & Poor's (S&P) and Moody's Investor Services (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 limit PPL Electric's
  ability to fund its short-term liquidity needs through the issuance of commercial
  paper or borrowing under its revolving credit facilities. In addition, 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 has 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'.

These ratings decisions concluded Moody's review for downgrade that it commenced
  in April 2003. The ratings outlook is stable for PPL Electric.

PPL Electric's short-term debt rating was not under review by Moody's, and
  that rating remains unchanged.

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 9 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 March 31, 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 March 31, 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 $51 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 9 to the
  Financial Statements.

Environmental Matters

See Note 8 to the Financial Statements for a discussion of environmental matters.

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 because 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, that explains significant changes in principal items
  on the Statement of Income, compares the three months ended March 31, 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 do not necessarily indicate results or trends
  for the year.

Earnings

Net income increased by $6 million for the three months ended March 31, 2003,
  compared with the same period in 2002. This increase was primarily due to higher
  wholesale prices in the western U.S.

Operating Revenues

Operating revenues increased by $23 million for the three months ended March
  31, 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 $16
  million and an increase in volume sold resulted in an increase in revenues of
  $7 million.

Operating Expenses

Operating expenses increased by $13 million during the three months ended March
  31, 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 $14 million increase in energy purchases,
  related to an increase in power costs in the western U.S. The increase in power
  prices resulted in a $7 million increase in energy purchases and an increase
  in volumes purchased resulted in an increase in energy purchases of $7 million.

Generation decreased by 11 million kWh during the three months ended March
  31, 2003, compared to the same period in 2002. This decrease was primarily the
  result of lower hydroelectric generation caused by lower water flows in the
  first quarter of 2003.

New Accounting Standards

See Note 15 to the Financial Statements for information on new accounting standards
  adopted in 2003 or pending adoption.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk

As of March 31, 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
  $73 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 March 31, 2003 was insignificant.

As of March 31, 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 March 31, 2003
  and December 31, 2002.

Interest Rate Risk

PPL Montana may use borrowings to provide funds for its operations. PPL Montana
  may utilize various financial derivative products and risk management techniques
  to adjust the mix of fixed and floating-rate interest rates in its debt portfolio
  and thereby reduce its exposure to adverse interest rate movements. PPL Montana
  had $16 million in borrowings outstanding as of March 31, 2003, and its interest
  rate risk was not significant.

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.

---

PPL CORPORATIONPPL ENERGY SUPPLY, LLC
  PPL ELECTRIC UTILITIES CORPORATION
  PPL 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
|---------------------------------------
|                                       
|(a)                                    
|                                       
|                                       
|                                       
|(b)                                    
|                                       
|                                       

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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:
|                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                  

|Item
        6. Exhibits and Reports on Form 8-K
|------------------------------------------------
|                                                
|(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: May 13, 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)                 | 

---

|CERTIFICATION                                                                                                    
|-----------------------------------------------------------------------------------------------------------------
|                                                                                                                 
|                                                                                                                 
|I, WILLIAM F. HECHT, the principal executive
        officer of PPL Corporation (the "registrant"), certify that:
|                                                                                                                 
|1.                                                                                                               
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|Date: May 13, 2003                                                                                               
|                                                                                                                 

---

|CERTIFICATION                                                                                                  
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               
|                                                                                                               
|I, JOHN R. BIGGAR, the principal financial
        officer of PPL Corporation (the "registrant"), certify that:
|                                                                                                               
|1.                                                                                                             
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|2.                                                                                                             
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|Date: May 13, 2003                                                                                             
|                                                                                                               

---

|CERTIFICATION                                                                                                           
|------------------------------------------------------------------------------------------------------------------------
|                                                                                                                        
|                                                                                                                        
|I, WILLIAM F. HECHT, the principal executive
        officer of PPL Energy Supply, LLC (the "registrant"), certify that:
|                                                                                                                        
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|Date: May 13, 2003                                                                                                      
|                                                                                                                        

---

|CERTIFICATION                                                                                                        
|---------------------------------------------------------------------------------------------------------------------
|                                                                                                                     
|                                                                                                                     
|I, JAMES E. ABEL, the principal financial officer
        of PPL Energy Supply, LLC (the "registrant"), certify that:
|                                                                                                                     
|1.                                                                                                                   
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|2.                                                                                                                   
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|Date: May 13, 2003                                                                                                   
|                                                                                                                     

---

|CERTIFICATION                                                                                                                              
|-------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                           
|                                                                                                                                           
|I, MICHAEL E. BRAY, the principal executive
        officer of PPL Electric Utilities Corporation (the "registrant"), certify
        that:
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|1.                                                                                                                                         
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|5.                                                                                                                                         
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|6.                                                                                                                                         
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|Date: May 13, 2003                                                                                                                         
|                                                                                                                                           

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|CERTIFICATION                                                                                                                    
|---------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                 
|                                                                                                                                 
|I, JAMES E. ABEL, the principal financial officer
        of PPL Electric Utilities Corporation (the "registrant"), certify that:
|                                                                                                                                 
|1.                                                                                                                               
|                                                                                                                                 
|2.                                                                                                                               
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|3.                                                                                                                               
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|4.                                                                                                                               
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|5.                                                                                                                               
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|6.                                                                                                                               
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|                                                                                                                                 
|Date: May 13, 2003                                                                                                               
|                                                                                                                                 

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|CERTIFICATION                                                                                                    
|-----------------------------------------------------------------------------------------------------------------
|                                                                                                                 
|                                                                                                                 
|I, JAMES H. MILLER, the principal executive
        officer of PPL Montana, LLC (the "registrant"), certify that:
|                                                                                                                 
|1.                                                                                                               
|                                                                                                                 
|2.                                                                                                               
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|3.                                                                                                               
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|4.                                                                                                               
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|5.                                                                                                               
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|6.                                                                                                               
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|                                                                                                                 
|                                                                                                                 
|Date: May 13, 2003                                                                                               
|                                                                                                                 

---

|CERTIFICATION                                                                                                  
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               
|                                                                                                               
|I, JAMES E. ABEL, the principal financial officer
        of PPL Montana, LLC (the "registrant"), certify that:
|                                                                                                               
|1.                                                                                                             
|                                                                                                               
|2.                                                                                                             
|                                                                                                               
|3.                                                                                                             
|                                                                                                               
|4.                                                                                                             
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|5.                                                                                                             
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|6.                                                                                                             
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|                                                                                                               
|Date: May 13, 2003                                                                                             
|                                                                                                               

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