<PAGE>

                                 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 period ended March 31, 2001
                                      --------------
                                      OR
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from _________ to _________

<TABLE>
<CAPTION>
  Commission File    Registrant; State of Incorporation;                        IRS Employer
  Number             Address and Telephone Number                               Identification No.
  ------             ----------------------------                               ------------------
  <S>                <C>                                                        <C>
  1-11459            PPL Corporation                                            23-2758192
                     (Exact name of Registrant as specified in its charter)
                     (Pennsylvania)
                     Two North Ninth Street
                     Allentown, PA  18101-1179
                     (610) 774-5151

  1-905              PPL Electric Utilities Corporation                         23-0959590
                     (Exact name of Registrant as specified in its charter)
                     (Pennsylvania)
                     Two North Ninth Street
                     Allentown, PA  18101-1179
                     (610) 774-5151

  333-50350          PPL Montana, LLC                                           54-1928759
                     (Exact name of Registrant as specified in its charter)
                     (Delaware)
                     303 North Broadway - Suite 400
                     Billings, MT 59101
                     (406) 869-5100
</TABLE>

Indicate by check mark whether the registrant (1) has 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

     PPL Corporation                         Yes   X         No _____
                                                ----
     PPL Electric Utilities Corporation      Yes   X         No _____
                                                ----
     PPL Montana, LLC                        Yes   X         No _____
                                                ----
          PPL Montana, LLC's initial Registration Statement on Form S-4 became
effective on March 2, 2001

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,
                                             145,954,884 shares outstanding at
                                             April 30, 2001, excluding
                                             30,993,637 shares held as treasury
                                             stock

     PPL Electric Utilities Corporation      Common stock, no par value,
                                             102,230,382 shares outstanding and
                                             all held by PPL Corporation at
                                             April 30, 2001, excluding
                                             55,070,000 shares held as treasury
                                             stock

     PPL Montana, LLC                        PPL Corporation indirectly holds
                                             all of the member interests in PPL
                                             Montana, LLC
<PAGE>

                                PPL Corporation
                      PPL Electric Utilities Corporation
                                      And
                               PPL Montana, LLC
                               ----------------

                                   FORM 10-Q
                     FOR THE QUARTER ENDED MARCH 31, 2001

                               Table of Contents
                               -----------------

<TABLE>
<CAPTION>
                                                                                                                    Page
                                                                                                                    ----
<S>                                                                                                                 <C>
GLOSSARY OF TERMS AND ABBREVIATIONS

FORWARD-LOOKING INFORMATION                                                                                           1

PART I.  FINANCIAL INFORMATION

     PPL Corporation and Subsidiaries

           Item 1.   Financial Statements

                     Consolidated Statement of Income                                                                 4

                     Consolidated Statement of Cash Flows                                                             5

                     Consolidated Balance Sheet                                                                       6

                     Consolidated Statement of Shareowners' Common Equity and Other
                     Comprehensive Income                                                                             8

                     Notes to Consolidated Financial Statements                                                       9

           Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations           19

           Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                      24

     PPL Electric Utilities Corporation and Subsidiaries

           Item 1.   Financial Statements

                     Consolidated Statement of Income                                                                26

                     Consolidated Statement of Cash Flows                                                            27

                     Consolidated Balance Sheet                                                                      28

                     Consolidated Statement of Shareowner's Common Equity and Other
                     Comprehensive Income                                                                            30

                     Notes to Consolidated Financial Statements                                                      31

           Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations           33

           Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                      35
</TABLE>
<PAGE>

                           Table of Contents (cont'd)
                           --------------------------

<TABLE>
<CAPTION>
                                                                                                                   Page
                                                                                                                   ----
<S>                                                                                                                <C>
PPL Montana, LLC and Subsidiaries

              Item 1.   Financial Statements

                        Consolidated Statement of Income                                                            38

                        Consolidated Statement of Cash Flows                                                        39

                        Consolidated Balance Sheet                                                                  40

                        Consolidated Statement of Member's Equity and Other Comprehensive Income                    42

                        Notes to Consolidated Financial Statements                                                  43

              Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations       47

              Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                  49


PART II. OTHER INFORMATION

              Item 1.   Legal Proceedings                                                                           50

              Item 6.   Exhibit and Reports on Form 8-K                                                             50

SIGNATURES                                                                                                          51

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES                                                                   53
</TABLE>
<PAGE>

                       GLOSSARY OF TERMS AND ABBREVIATIONS

BG&E - Baltimore Gas & Electric Company.

CEMAR - Companhia Energetica do Maranhao, a Brazilian electric distribution
holding company in which PPL Global has a majority ownership interest.

CGE - Compania General Electricidad, SA, a distributor of energy in Chile and
Argentina, in which PPL Global has a minority ownership interest.

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

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

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

DEP - Pennsylvania Department of Environmental Protection.

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


a.   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.


b.   It required 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.


c.   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.

DRIP - Dividend reinvestment plan.

EC - Electricidad de Centroamerica, S.A. de C.V, an El Salvadoran holding
company and the majority owner of Del Sur. PPL Global has 100% ownership of EC.

EITF (Emerging Issues Task Force) - an organization that aids the FASB in
identifying emerging issues that may require FASB action.

EMEL - Empresas Emel, S.A., a Chilean electric distribution holding company of
which PPL Global has majority ownership.

EPA - Environmental Protection Agency.

EPS - Earnings per share.

ESOP - Employee Stock Ownership Plan.

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

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

Hyder - Hyder plc, a subsidiary of WPDL and owner of South Wales Electricity
plc, Welsh Water and other service-oriented businesses.

ICP - Incentive Compensation Plan.

ISO - Independent System Operator.

LIBOR - London Interbank Offered Rate.

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

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

NOx - nitrogen oxide.

NPDES - National Pollutant Discharge Elimination System.

NRC (Nuclear Regulatory Commission) - federal agency that regulates operation of
nuclear power facilities.

NUGs - (Non-Utility Generators) - generating plants not owned by public
utilities whose electrical output must be purchased by utilities under the PURPA
if the plant meets certain criteria.

PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical
equipment up to the late-1970s. Now classified as a hazardous chemical.
<PAGE>

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, referring to PPL Electric providing electricity
to retail customers within its delivery territory who have chosen not to shop
for electricity under the Customer Choice Act.

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

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

PPL Electric - PPL Electric Utilities Corporation, a regulated subsidiary which
distributes and transmits 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, an unregulated subsidiary
which, as of July 1, 2000, is the parent company for most of PPL's unregulated
businesses.

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

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

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

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

PPL Holtwood - PPL Holtwood, LLC, a subsidiary of PPL Generation which owns
PPL's hydroelectric generating operations in Pennsylvania.

PPL Maine - PPL Maine, LLC, formerly Penobscot Hydro, LLC., which is a
subsidiary of PPL Generation.

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

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

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

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

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

PURTA - Public Utility Reality Tax Act.

RMC - Risk Management Committee.

SCR - selective catalytic reduction.

SEC - Securities and Exchange Commission.

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

SNCR - selective non-catalytic reduction.

SO2 - sulfur dioxide.

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

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

UGI - UGI Corporation.

WPD - Western Power Distribution, the trading name for South Western
Electricity, plc, a British regional electric utility company.

WPDH - WPD Holdings UK, a jointly owned subsidiary of PPL Global and Mirant.
WPDH owns WPD.

WPDL - Western Power Distribution Limited, a jointly owned subsidiary of PPL
Global and Mirant. WPDL owns 100% of the common shares of Hyder.
<PAGE>

                          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 Electric and PPL Montana believe that
the expectations and assumptions reflected in these statements are reasonable,
there can be no assurance that these expectations will prove to have been
correct. These forward-looking statements involve a number of risks and
uncertainties, and actual results may differ materially from the results
discussed in the forward-looking statements. In addition to the specific factors
discussed in the 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; operating performance of plants and other facilities;
environmental conditions and requirements; system conditions and operating
costs; development of new projects, markets and technologies; performance of new
ventures; political, regulatory or economic conditions in countries where PPL or
its subsidiaries conduct business; receipt of necessary governmental approvals;
capital market conditions; stock price performance; foreign exchange rates; 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 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 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 Electric and PPL Montana undertake no obligations to update
the information contained in such statement to reflect subsequent developments
or information.

                                       1
<PAGE>

                        PPL CORPORATION AND SUBSIDIARIES

                                       3
<PAGE>

PPL CORPORATION AND SUBSIDIARIES
--------------------------------
Part 1. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------

In the opinion of PPL, the unaudited financial statements included herein
reflect all adjustments necessary to present fairly the Consolidated Balance
Sheet as of March 31, 2001 and December 31, 2000, and the Consolidated Statement
of Income and Consolidated Statement of Cash Flows for the periods ended March
31, 2001 and 2000.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)

<TABLE>
<CAPTION>
                                                                                                       Three Months
                                                                                                      Ended March 31,
                                                                                               ---------------------------
                                                                                                 2001              2000
                                                                                               ---------         ---------
<S>                                                                                            <C>               <C>
Operating Revenues
     Retail electric and gas.............................................................      $     956         $     845
     Wholesale energy marketing and trading..............................................            469               462
     Energy related businesses...........................................................            141               106
                                                                                               ---------         ---------
     Total...............................................................................          1,566             1,413
                                                                                               ---------         ---------

Operating Expenses
     Operation
         Fuel............................................................................            187               145
         Energy purchases................................................................            396               463
         Other...........................................................................            184               169
         Amortization of recoverable transition costs....................................             71                63
     Maintenance.........................................................................             54                49
     Depreciation........................................................................             63                68
     Taxes, other than income............................................................             41                51
     Energy related businesses...........................................................            114                85
                                                                                               ---------         ---------
     Total...............................................................................          1,110             1,093
                                                                                               ---------         ---------

Operating Income........................................................................             456               320

Other Income and (Deductions) - Net.....................................................               4                (1)
                                                                                               ---------         ---------

Income Before Interest, Income Taxes and Minority Interest..............................             460               319

Interest Expense........................................................................             104                88
                                                                                               ---------         ---------

Income Before Income Taxes and Minority Interest........................................             356               231

Income Taxes............................................................................             126                82

Minority Interest.......................................................................               2                 1
                                                                                               ---------         ---------

Income Before Dividends on Preferred Stock..............................................             228               148

Preferred Stock Dividend Requirements...................................................               6                 6
                                                                                               ---------         ---------

Net Income..............................................................................       $     222         $     142
                                                                                               =========         =========

Earnings Per Share of Common Stock
     Basic...............................................................................      $    1.53         $    0.99
     Diluted.............................................................................      $    1.52         $    0.99

Dividends Declared per Share of Common Stock............................................       $   0.265         $   0.265
</TABLE>

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

                                       4
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
                                                                                                  Three Months Ended
                                                                                                        March 31,
                                                                                              ---------------------------
                                                                                                  2001           2000
                                                                                              ------------   ------------

<S>                                                                                           <C>              <C>
Net Cash Provided by Operating Activities...............................................      $      181       $      125

Cash Flows From Investing Activities
     Expenditures for property, plant and equipment......................................           (108)            (102)
     Investment in electric energy projects..............................................           (163)             (18)
     Sale of nuclear fuel to trust.......................................................                              27
     Loan to affiliated company..........................................................              4
     Other investing activities - net....................................................            (13)               3
                                                                                              ----------       ----------
        Net cash used in investing activities............................................           (280)             (90)
                                                                                              ----------       ----------

Cash Flows From Financing Activities
     Issuance of long-term debt..........................................................                             500
     Issuance of common stock............................................................             24
     Deposit of funds for the retirement of long-term debt...............................             (5)             (28)
     Retirement of long-term debt........................................................            (65)             (61)
     Termination of nuclear fuel lease...................................................                            (154)
     Payment of common and preferred dividends...........................................            (44)             (42)
     Net decrease in short-term debt.....................................................            (22)            (224)
     Payments on capital lease obligation................................................                             (11)
     Other financing activities - net....................................................                              12
                                                                                              ----------       ----------
        Net cash used in financing activities............................................           (112)              (8)
                                                                                              ----------       ----------

Net Increase (Decrease) In Cash and Cash Equivalents.....................................           (211)              27
Cash and Cash Equivalents at Beginning of Period........................................             480              133
                                                                                              ----------       ----------
Cash and Cash Equivalents at End of Period..............................................      $      269       $      160
                                                                                              ==========       ==========

Supplemental  Disclosures of Cash Flow  Information  Cash paid during the
     period for:
        Interest (net of amount capitalized).............................................     $       88       $      78
        Income taxes.....................................................................     $       20       $       9
</TABLE>

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

                                       5
<PAGE>

CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                              March 31,      December 31,
                                                                                 2001            2000
                                                                              ---------      ------------

<S>                                                                           <C>              <C>
Assets

Current Assets
     Cash and cash equivalents............................................    $     269        $     480
     Accounts receivable (less reserve:  2001, $68; 2000, $70)............          596              588
     Notes receivable - affiliated company................................          110              114
     Unbilled revenues....................................................          216              279
     Fuel, materials and supplies - at average cost.......................          208              197
     Prepayments..........................................................          112               40
     Deferred income taxes................................................          205               75
     Unrealized derivative gains..........................................          131               79
     Other................................................................           86               93
                                                                              ---------        ---------
                                                                                  1,933            1,945
                                                                              ---------        ---------

Investments
     Investments in unconsolidated affiliates at equity...................          842              800
     Investments in unconsolidated affiliates at cost.....................          138               46
     Nuclear plant decommissioning trust fund.............................          260              268
     Other................................................................           52               47
                                                                              ---------        ---------
                                                                                  1,292            1,161
                                                                              ---------        ---------

Property, Plant and Equipment - net
     Electric utility plant in service
         Transmission and distribution....................................        2,832            2,841
         Generation.......................................................        2,252            2,177
         General..........................................................          278              294
                                                                              ---------        ---------
                                                                                  5,362            5,312
     Construction work in progress........................................          323              261
     Nuclear fuel.........................................................          122              123
                                                                              ---------        ---------
         Electric utility plant...........................................        5,807            5,696
     Gas and oil utility plant............................................          188              177
     Other property.......................................................           73               75
                                                                              ---------        ---------
                                                                                  6,068            5,948
                                                                              ---------        ---------

Regulatory and Other Noncurrent Assets
     Recoverable transition costs.........................................        2,354            2,425
     Other................................................................          899              881
                                                                              ---------        ---------
                                                                                  3,253            3,306
                                                                              ---------        ---------

                                                                              $  12,546        $  12,360
                                                                              =========        =========
</TABLE>

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

                                       6
<PAGE>

CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                             March 31,       December 31,
                                                                                2001             2000
                                                                             ---------       ------------
<S>                                                                           <C>            <C>
Liabilities and Equity

Current Liabilities
    Short-term debt.......................................................    $  1,015          $    902
    Note payable - affiliated company.....................................                           135
    Long-term debt........................................................         524               317
    Above market NUG contracts............................................          91                93
    Accounts payable......................................................         385               506
    Taxes.................................................................         293               223
    Interest..............................................................          58                42
    Dividends.............................................................          46                45
    Unrealized derivative losses..........................................         490                84
    Other.................................................................         120               164
                                                                              --------          --------
                                                                                 3,022             2,511
                                                                              --------          --------

Long-term Debt............................................................       4,196             4,467
                                                                              --------          --------

Deferred Credits and Other Noncurrent Liabilities
    Deferred income taxes and investment tax credits......................       1,422             1,412
    Above market NUG contracts............................................         559               581
    Other.................................................................         938               976
                                                                              --------          --------
                                                                                 2,919             2,969
                                                                              --------          --------

Commitments and Contingent Liabilities....................................
                                                                              --------          --------

Minority Interest.........................................................          60                54
                                                                              --------          --------

Company-obligated mandatorily redeemable preferred securities of
     subsidiary trust holding solely company debentures...................         250               250
                                                                              --------          --------

Preferred Stock
    With sinking fund requirements........................................          47                47
    Without sinking fund requirements.....................................          50                50
                                                                              --------          --------
                                                                                    97                97
                                                                              --------          --------
Shareowners' Common Equity
    Common stock..........................................................           2                 2
    Capital in excess of par value........................................       1,919             1,895
    Treasury stock........................................................        (836)             (836)
    Earnings reinvested...................................................       1,182               999
    Accumulated other comprehensive income................................        (253)              (36)
    Capital stock expense and other.......................................         (12)              (12)
                                                                              --------          --------
                                                                                 2,002             2,012
                                                                              --------          --------

                                                                              $ 12,546          $ 12,360
                                                                              ========          ========
</TABLE>

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

                                       7
<PAGE>

CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY AND OTHER
COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                               For the Three Months Ended
                                                                                                        March 31,
                                                                                              ----------------------------
                                                                                                  2001             2000
                                                                                              -----------      -----------

<S>                                                                                           <C>              <C>
Common stock at beginning of period (a)....................................................   $         2      $         2
                                                                                              -----------      -----------
Common stock at end of period..............................................................             2                2
                                                                                              -----------      -----------

Capital in excess of par value at beginning of period......................................         1,895            1,860
     Common stock issued (a)...............................................................            24
                                                                                              -----------      -----------
Capital in excess of par value at end of period............................................         1,919            1,860
                                                                                              -----------      -----------

Treasury stock at beginning of period......................................................          (836)            (836)
                                                                                              -----------      -----------
Treasury stock at end of period............................................................          (836)            (836)
                                                                                              -----------      -----------

Earnings reinvested at beginning of period.................................................           999              654
     Net income (b)........................................................................           222              142
     Cash dividends declared on common stock...............................................           (39)             (38)
                                                                                              -----------      -----------
Earnings reinvested at end of period.......................................................         1,182              758
                                                                                              -----------      -----------

Accumulated other comprehensive income (loss) at beginning of period.......................           (36)             (55)
     Unrealized (loss) on available-for-sale securities (b)................................            (2)
     Foreign currency translation adjustments (b)..........................................           (25)              20
     Unrealized (loss) on qualifying derivatives (b).......................................          (190)
                                                                                              -----------      -----------
Accumulated other comprehensive income (loss) at end of period.............................          (253)             (35)
                                                                                              -----------      -----------

Capital stock expense and other at beginning of period.....................................           (12)             (12)
                                                                                              -----------      -----------
Capital stock expense and other at end of period...........................................           (12)             (12)
                                                                                              -----------      -----------

Total Shareowners' Common Equity...........................................................   $     2,002      $     1,737
                                                                                              ===========      ===========

Common stock shares at beginning of period (a).............................................       145,041          143,697
     Common stock issued through the ESOP, DRIP, ICP and structured equity program.........           582
                                                                                              -----------      -----------
Common stock shares at end of period.......................................................       145,623          143,697
                                                                                              ===========      ===========

(a)  In thousands.  $.01 par value, 390 million shares authorized.  Each share
     entitles the holder to one vote on any question presented to any shareowners'
     meeting.
(b)  Statement of Comprehensive Income:
     Net income............................................................................   $       222      $       142
     Other comprehensive income, net of tax:
         Foreign currency translation adjustments, net of tax (benefit) of $(11), $2.......           (25)              20
         Unrealized (loss) on qualifying derivatives, net of tax (benefit) of $(126).......          (190)
         Unrealized (loss) on available-for-sale securities, net of tax (benefit) of $(2)..            (2)
                                                                                              -----------      -----------

         Total other comprehensive income (loss)...........................................          (217)              20
                                                                                              -----------      -----------
     Comprehensive income .................................................................   $         5      $       162
                                                                                              ===========      ===========
</TABLE>


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

                                       8
<PAGE>

                                PPL CORPORATION

                  Notes to Consolidated Financial Statements
                  ------------------------------------------

Terms and abbreviations appearing in Notes to Consolidated Financial Statements
are explained in the glossary.

1.   Interim Financial Statements

Certain information in footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the U.S., has been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the SEC. These financial statements should be read in
conjunction with the financial statements and notes included in PPL's Annual
Report to the SEC on Form 10-K for the year ended December 31, 2000. Note 17 to
the Financial Statements in that report describes the corporate realignment
effected on July 1, 2000.

Certain amounts in the March 31, 2000 and December 31, 2000 financial statements
have been reclassified to conform to the presentation in the March 31, 2001
financial statements.

2.   Segment and Related Information

PPL's reportable segments are Supply, Delivery, International and Corporate. The
Supply group includes the domestic unregulated energy marketing and generation
functions of PPL EnergyPlus and PPL Generation. The Delivery group includes the
regulated electric and gas delivery businesses of PPL Electric and PPL Gas
Utilities. The International group, which includes PPL Global, was formerly
named "Development." The principal businesses of PPL Global are the acquisition
and development of both U.S. and international energy projects, and the
ownership and operation of international energy projects. The majority of PPL
Global's international investments are located in the U.K., Chile, El Salvador
and Brazil. Corporate includes interest expense not directly allocated to the
segments. In prior periods such interest was allocated for segment reporting
purposes. Segments, other than Corporate, include direct charges, as well as an
allocation of indirect corporate costs, for services provided by PPL Services.
These services include functions such as financial, legal, human resources, and
information services.

Previously reported 2000 information has been restated to conform to the current
presentation. Financial data for PPL's business segments are as follows
(millions of dollars):


                                                  Three Months Ended
                                                       March 31,
                                                       ---------
                                                    2001       2000
                                                    ----       ----
Income Statement data
Revenues from external customers
     Supply....................................   $  1,038   $    989
     Delivery..................................        366        322
     International.............................        162        102
                                                  --------   --------
                                                  $  1,566   $  1,413
                                                  ========   ========

Intersegment revenues
    N/A - There are no intersegment
      revenues.

Net Income
     Supply....................................   $    179   $    109
     Delivery..................................         41         32
     International.............................         20          5
     Corporate.................................        (18)        (4)
                                                  --------   --------
                                                  $    222   $    142
                                                  ========   ========


                                                 March 31, December 31,
                                                    2001       2000
                                                    ----       ----
Balance Sheet data
Total assets
     Supply....................................   $  2,927   $  2,625
     Delivery..................................      5,971      6,049
     International.............................      2,345      2,468
     Corporate.................................      1,303      1,218
                                                  --------   --------
                                                  $ 12,546   $ 12,360
                                                  ========   ========

3.   Investments in Unconsolidated Affiliates - at Equity

PPL's investments in unconsolidated affiliates accounted for under the equity
method were $842 million and $800 million at March 31, 2001 and December 31,
2000, respectively. The most significant investment was PPL Global's investment
in WPDH, which was $472 million at March 31, 2001 and $479 million at December
31, 2000. At March 31, 2001, PPL Global had a 51% equity ownership interest in
WPDH, but shared joint control with Mirant. Accordingly, PPL Global accounts for
its investment in WPDH (and other investments where it has majority ownership
but lacks voting control) under the equity method of accounting.

                                       9
<PAGE>

Summarized below is information from the financial statements of unconsolidated
affiliates, as included in PPL's consolidated financial statements under the
equity method for the periods noted (millions of dollars):


                                                  Three Months Ended
                                                       March 31,
                                                       ---------
                                                    2001       2000
                                                    ----       ----
Income Statement Data
Revenues.......................................     $176       $141
Operating Income...............................       87         65
Net Income.....................................       79         44


                                                March 31,   December 31,
                                                  2001          2000
                                                  ----          ----
Balance Sheet Data
Current Assets.................................  $  953        $  396
Noncurrent Assets..............................   5,419         4,904
Current Liabilities............................     503           409
Noncurrent Liabilities.........................   4,170         3,365

4.   Earnings Per Share

Basic EPS is calculated by dividing earnings available to common shareowners
("Net Income" on the Consolidated 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 for PPL consist of stock options granted under
the incentive compensation plans and stock units representing common stock
granted under directors compensation programs.

The basic and diluted earnings per share calculations, and the reconciliation of
the shares used in the calculations, are shown below.

                                                  Three Months Ended
                                                       March 31,
                                                       ---------
                                                    2001       2000
                                                    ----       ----
(Millions of Dollars - except per share data)
(Thousands of Shares)

Net Income (Numerator).........................  $    222    $    142

Shares  (Denominator)
 Number of shares on which basic
earnings per share is calculated =
Weighted-average shares
outstanding during the period..................   145,317     143,697

Add- Incremental shares
attributable to stock options..................       858
Add- Incremental shares
attributable to stock units....................        69          64

Number of shares on which
diluted earnings per share is
calculated.....................................   146,244     143,761

Basic EPS......................................  $   1.53    $   0.99

Diluted EPS....................................  $   1.52    $   0.99


Stock options to purchase 1.976 million common shares for the period ending
March 31, 2000, were not included in that period's computation of diluted
earnings per share 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.

Net Income after preferred stock dividends is used in both the basic and diluted
EPS calculations.

5.   Financial Instruments

PPL enters into forward-starting interest rate swaps with various counterparties
to hedge interest rate risk associated with anticipated debt issuances. These
swaps obligate PPL to pay a specific fixed rate of interest on the notional
amount of each swap in exchange for a floating rate of interest on the notional
amount to be determined on the effective date. If interest rates rise, the swaps
increase in value and offset a higher rate of interest on new debt. At March 31,
2001, PPL had entered into $975 million of interest rate swaps with maturities
of three, five and seven years at fixed rates varying from 5.054% to 5.965%.
They are scheduled to start in May and July 2001 but the intent is to terminate
the swaps as the associated debt is issued. It is the intent that any gains or
losses realized when the debt is issued, and the swaps are terminated, will be
amortized over the life of the new debt.

PPL has also entered into current-starting interest rate swap agreements whereby
PPL agreed to pay a fixed rate of interest and receive a floating rate of
interest. These swaps economically adjust the mix of fixed and floating rate
debt by converting floating rate notes to fixed rate notes. As of March 31,
2001, PPL had entered into, and had outstanding, $175 million of such swaps that
mature in 2002.

During the first quarter of 2001, PPL completed the forward purchase of 51
million Euros to pay for certain equipment in 2002 and 2003. The estimated value
of these forward purchases as of March 31, 2001, being the amount PPL would have
to pay to terminate them, was $2.7 million. It is the intent that any gains or
losses realized when the transactions close would be amortized over the life of
the equipment. PPL also entered into forward contracts to sell British pounds
sterling in anticipation of the repayment during the second quarter of loans to
purchase the Hyder shares. A total of 78 million British pounds sterling were
sold forward for the second quarter. In March 2001, PPL realized gains of $2.8
million on maturing positions and entered into new forward sales of a small
notional amount.

6.   Sales to Other Electric Utilities

Under FERC-approved interconnection and power supply agreements, PPL EnergyPlus
supplied capacity and energy to UGI. This agreement terminated in February 2001.

PPL EnergyPlus provides BG&E with 129,000 kilowatts, or 6.6%, of PPL
Susquehanna's share of capacity and related energy from the Susquehanna station.
PPL EnergyPlus provided 274 million kWh to BG&E in the first quarter of 2001.
Sales to BG&E will continue under existing agreements through May 2001.

                                      10
<PAGE>

PPL Montana provides power to Montana Power under two wholesale transition sales
agreements. These agreements expire in December 2001 and June 2002.

In April 2001, PPL announced that PPL EnergyPlus has offered to provide Montana
Power with 500 megawatts of energy for five years beginning July 1, 2002. PPL
EnergyPlus would sell this energy at 4 cents per kWh to the extent that the
energy is produced by certain designated units of PPL Montana. After PPL
EnergyPlus and Montana Power finalize the agreement, it will be submitted to the
Montana Public Service Commission for review.

7.   Credit Arrangements and Financing Activities

PPL Electric and PPL Capital Funding issue commercial paper and borrow from
banks to provide short-term funds. PPL Capital Funding's commercial paper is
guaranteed by PPL. Bank borrowings generally bear interest at rates negotiated
at the time of the borrowing. At March 31, 2001, PPL Electric and PPL Capital
Funding had $527 million of short-term debt outstanding at interest rates
ranging from 5.73% to 6.54% per annum.

In order to enhance liquidity, and as a credit back-stop to the commercial paper
programs, PPL Electric, PPL Capital Funding and PPL (as guarantor for PPL
Capital Funding) share a 364-day $750 million credit facility and a five-year
$300 million credit facility, each with a group of banks. At March 31, 2001, no
borrowings were outstanding under either facility. At March 31, 2001, PPL
Capital Funding had issued letters of credit in the amount of $186 million and
$22 million on behalf of PPL Montana and Griffith Energy, LLC, respectively.
Subsequent to the end of the first quarter 2001, the letters of credit in
support of PPL Montana were reduced to $145 million and then cancelled and
replaced by letters of credit issued directly by PPL Montana.

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

At March 31, 2001, PPL Capital Funding had issued approximately $1.5 billion of
medium-term notes, of which $1.3 billion were issued at fixed rates between
5.75% and 8.375%, and $175 million at floating rates tied to three-month LIBOR.
There were no issuances of medium-term notes in the first quarter of 2001.

In March 2001, PPL Electric deposited with its Mortgage Trustee $5.2 million for
the purpose of retiring on July 1, 2001, all of its outstanding First Mortgage
Bonds, 9-3/8% Series due 2021, at par value through the maintenance and
replacement fund provisions of its Mortgage.

In March 2001, PPL Electric made a payment of $9.6 million to buy back an option
related to its 6-1/8% Reset Put Securities due 2006. The option would have
permitted a third party to re-market these securities, at higher interest rates,
in May 2001. PPL Electric recorded this charge, net of the $1.8 million balance
remaining on the third party option. The net charge of $7.8 million is included
in "Interest Expense" on the Consolidated Statement of Income for the three
months ended March 31, 2001. PPL Electric retired the $200 million, 6-1/8% Reset
Put Securities in May 2001.

During the first quarter of 2001, PPL Transition Bond Company made principal
payments on bonds totaling $65 million.

As of March 31, 2001, no borrowings were outstanding under PPL Montana's $100
million credit facilities. However, PPL Montana has issued letters of credit in
the aggregate amount of $64 million.

Subsequent to the end of the first quarter, PPL Montana entered into a new
credit facility to allow for incremental letter of credit capacity of $150
million. PPL Montana then issued $145 million letters of credit under this new
facility to replace the outstanding letters of credit issued on its behalf by
PPL Capital Funding.

In December 2000, PPL initiated a Structured Equity Shelf Program for the
issuance of up to $100 million in PPL common stock in small amounts on a
periodic basis. During the three months ended March 31, 2001, PPL issued $10
million of common stock under this program.

8.   Acquisitions, Development and Divestitures

Domestic Generation Project

In January 2001, PPL Montour, LLC acquired an additional interest in the
coal-fired Conemaugh Power Plant from Potomac Electric Power Company. Under the
terms of the acquisition agreement, PPL Montour and a subsidiary of Allegheny
Energy, Inc. jointly acquired a 9.72% interest in the 1,711 megawatt plant. PPL
Montour paid $78 million for this additional 83-megawatt interest in the plant.
The purchase increased PPL

                                      11
<PAGE>

Montour's ownership interest to 16.25% in the two-unit plant.

International Distribution Projects

In January 2001, PPL Global purchased an additional 5.6% of CGE from the Claro
group, bringing its total investment to $141 million, or about 8.5%. CGE
provides electricity delivery services to 1.4 million customers in Chile, and
natural gas delivery services to 200,000 customers in Santiago.

Energy Related Businesses

In February 2001, a subsidiary of PPL Energy Services Northeast, Inc. (formerly
Western Massachusetts Holdings, Inc.) executed an agreement acquiring certain
service assets from mechanical contracting and engineering subsidiaries of
NiSource Inc. for an amount that was not significant. Assets acquired include
contracts in process, accounts receivable, fixed assets and intangibles.

9.   Commitments and Contingent Liabilities

Wholesale Energy Commitments

As part of the purchase of generation assets from Montana Power, PPL Montana
agreed to supply electricity under two wholesale transition service agreements.
In addition, PPL Montana assumed a power purchase agreement and power sales
agreement. In accordance with purchase accounting guidelines, PPL Montana
recorded a liability of $118 million as an estimate of the fair value of the
contracts at the acquisition date. The supply and purchase contracts are
prospectively amortized over the contract terms as adjustments to "Wholesale
energy marketing and trading" revenues and "Energy purchases", on the
Consolidated Statement of Income respectively. The unamortized balance at March
31, 2001 was $92 million and is included in "Other" in the "Deferred Credits and
Other Noncurrent Liabilities" section of the Consolidated Balance Sheet.

Liability for Above Market NUG Contracts

At June 30, 1998, PPL Electric recorded a loss accrual for above market
contracts with NUGs of $854 million. Effective January 1999 PPL Electric began
reducing this liability as an offset to "Energy purchases" on the Consolidated
Statement of Income. This reduction is based on the estimated timing of the
purchases from the NUGs and projected market prices for this generation. The
final existing NUG contract expires in 2014. In connection with the corporate
realignment, effective July 1, 2000, the remaining balance of this liability was
transferred to PPL EnergyPlus. The liabilities associated with these above
market NUG contracts were $650 million at March 31, 2001.

Commitments - Acquisitions and Development Activities

PPL Global and its subsidiaries have committed additional capital and extended
loans to certain affiliates, joint ventures and partnerships in which they have
an interest. At March 31, 2001, PPL Global and its subsidiaries had
approximately $663 million of such commitments. The majority of these
commitments are for the purchase of turbine generators and related equipment
from General Electric.

Nuclear Insurance

PPL Susquehanna is a member of certain insurance programs which provide coverage
for property damage to members' nuclear generating stations. Facilities at the
Susquehanna station are insured against property damage losses up to $2.75
billion under these programs. PPL Susquehanna is also a member of an insurance
program which provides coverage for the cost of replacement power during
prolonged outages of nuclear units caused by certain specified conditions. Under
the property and replacement power insurance programs, PPL Susquehanna could be
assessed retroactive premiums in the event of the insurers' adverse loss
experience. At March 31, 2001, this maximum assessment was about $20 million.

PPL Susquehanna's public liability for claims resulting from a nuclear incident
at the Susquehanna station is limited to about $9.5 billion under provisions of
The Price Anderson Amendments Act of 1988. PPL Susquehanna is protected against
this liability by a combination of commercial insurance and an industry
assessment program. In the event of a nuclear incident at any of the reactors
covered by The Price Anderson Amendments Act of 1988, PPL Susquehanna could be
assessed up to $176 million per incident, payable at $20 million per year.

Environmental Matters

Air
---

The Clean Air Act deals, in part, with acid rain, attainment of federal ambient
ozone standards and toxic air emissions. PPL subsidiaries are in substantial
compliance with the Clean Air Act.

The DEP has finalized regulations requiring further seasonal (May-June) NOx
reductions to 80% from 1990 levels starting in 2003. These further reductions
are based on the requirements of the Northeast Ozone Transport Region Memorandum
of Understanding and two EPA ambient ozone initiatives: the September 1998 EPA
State Implementation Plan (SIP) call (i.e., EPA's

                                      12
<PAGE>

requirement for states to revise their SIPs) issued under Section 110 of the
Clean Air Act, requiring reductions from 22 eastern states, including
Pennsylvania; and the EPA's approval of petitions filed by Northeastern states,
requiring reductions from sources in 12 Northeastern states and Washington D.C.,
including PPL sources. The EPA's SIP-call was substantially upheld by the D.C.
Circuit Court of Appeals in an appeals proceeding.

Although the Court extended the implementation deadline to May 2004, the DEP has
not changed its rules accordingly. PPL expects to achieve the 2003 NOx
reductions with the recent installation of SCR technology on the Montour units
and possibly SCR or SNCR on a Brunner Island unit.

The EPA has also developed a revised ambient ozone standard and a new standard
for ambient fine particulates. These standards were challenged and remanded to
the EPA by the D.C. Circuit Court of Appeals in 1999. However, on appeal to the
United States Supreme Court, the D.C. Circuit Court's decision was reversed in
part and remanded to the D.C. Circuit. The new particulates standard, if
finalized, may require further reductions in SO2 for certain PPL subsidiaries
and year-round NOx reductions commencing in 2010-2012 at SIP-call levels in
Pennsylvania, and at slightly less stringent levels in Montana. The revised
ozone standard, if finalized, is not expected to have a material effect on
facilities of PPL subsidiaries.

Under the Clean Air Act, the EPA has been studying the health effects of
hazardous air emissions from power plants and other sources, in order to
determine what emissions should be regulated, and has determined that mercury
emissions must be regulated. In this regard, the EPA is expected to develop
regulations by 2004.

In 1999, the EPA initiated enforcement actions against several utilities,
asserting that older, coal-fired power plants operated by those utilities have,
over the years, been modified in ways that subject them to more stringent "New
Source" requirements under the Clean Air Act. The EPA has since issued notices
of violation and commenced enforcement activities against other utilities, and
has threatened to continue expanding its enforcement actions. At this time, PPL
is unable to predict whether such EPA enforcement actions will be brought with
respect to any of its affiliates' plants. However, the EPA regional offices that
regulate plants in Pennsylvania (Region III) and Montana (Region VIII) have
indicated an intention to issue information requests to all utilities in their
jurisdiction, and the Region VIII office has issued such a request to PPL
Montana's Corette plant. PPL cannot presently predict what, if any, action the
EPA might take following PPL's responses to such information requests. Should
the EPA initiate one or more enforcement actions against PPL, compliance with
any such EPA 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 put on hold its proposed revisions to its regulations that would
have required power plants to meet "New Source" performance standards and/or
undergo "New Source" review for many maintenance and repair activities that are
currently exempted.

Water/Waste
-----------

The final NPDES permit for the Montour plant contains stringent limits for iron
discharges. The results of a toxic reduction study show that additional water
treatment facilities or operational changes are needed at this station. A plan
for these changes is being developed and will be submitted to DEP in the fall of
2001.

Last year, the EPA significantly tightened the water quality standard for
arsenic. However, the EPA has now withdrawn the standard in order to further
study the matter. A tightened standard may require PPL Generation to further
treat wastewater and/or take abatement action at several of its power plants,
the cost of which is not now determinable, but which could be significant.

EPA's proposed requirements for new or modified water intake structures will
affect where generating facilities are built, will establish intake design
standards, and could lead to requirements for cooling towers at new power
plants. These proposed regulations are expected to be finalized by November of
2001. In the worst case, the rule could require new or modified cooling towers
at one or more PPL stations. Another new rule, expected to be finalized in 2003,
will address existing structures. Each of these rules could impose significant
costs on PPL, which are not now determinable.

Superfund and Other Remediation
-------------------------------

In 1995, PPL Electric entered into a consent order with the 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 and operated by PPL Electric; and oil or other contamination
which may exist at some of PPL Electric's former generating facilities. In
connection with the July 1, 2000 corporate realignment, PPL Electric's
generation facilities were transferred to subsidiaries of PPL Generation. As of
March 31, 2001, work has been completed on approximately three-quarters of the
sites included in the consent order.

In 1996, PPL Gas Utilities entered into a similar consent order with the DEP to
address a number of sites where

                                      13
<PAGE>

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. Any sites will likely be addressed under the
consent order.

At March 31, 2001, PPL Electric and PPL Gas Utilities had accrued approximately
$20 million combined, representing the estimated amounts they will have to spend
for site remediation, including those sites covered by each company's consent
orders mentioned above.

In October 1999, the Montana Supreme Court held in favor of several citizens'
groups that the right to a clean and healthful environment is a fundamental
right guaranteed by the Montana Constitution. The court's ruling could result in
significantly more stringent environmental laws and regulations, as well as an
increase in citizens' suits under Montana's environmental laws. The effect on
PPL Montana of any such changes in laws or regulations or any such increase in
legal actions are not now determinable, but could be significant.

Under the Montana Power acquisition agreement, PPL Montana is indemnified by
Montana Power for any pre-acquisition environmental liabilities. However, this
indemnification is conditioned on certain circumstances that can result in PPL
Montana and Montana Power sharing in certain costs within limits set forth in
the agreement.

Future cleanup or remediation work at sites currently under review, or at sites
not currently identified, may result in material additional operating costs for
PPL subsidiaries that cannot be estimated at this time.

General
-------

Due to the environmental issues discussed above or others, PPL subsidiaries may
be required to modify, replace or cease operating certain facilities to comply
with statutes, regulations and actions by regulatory bodies or courts. In this
regard, PPL subsidiaries also may incur capital expenditures, operating expenses
and other costs in amounts which are not now determinable, but which could be
significant.

Credit Support for Affiliated Companies

PPL provides certain guarantees for its subsidiaries. Specifically, PPL
guarantees all of the debt of PPL Capital Funding. As of March 31, 2001, PPL had
guaranteed $1.5 billion of medium-term notes and $477 million of commercial
paper issued by PPL Capital Funding. PPL had also guaranteed certain obligations
of PPL EnergyPlus for up to $742 million under power purchase and sales
agreements. PPL had also guaranteed certain obligations of other subsidiaries,
totaling $436 million at March 31, 2001. Additionally, PPL has caused lender
banks to issue letters of credit on behalf of affiliates. See Note 7.

10.  Related Party Transactions

A wholly-owned subsidiary of PPL Global extended a 76.5 million British pounds
sterling loan facility to WPDH. This facility provided funds that were loaned to
WPDL as temporary financing for the acquisition of Hyder. The facility was
executed in September 2000 and expires in September 2001. Interest is reset
monthly based on sterling LIBOR. This rate was 6.1% at March 31, 2001. At March
31, 2001, WPDH had borrowed 76.5 million British pounds sterling ($109 million
at the foreign exchange rate on March 31, 2001).

At December 31, 2000, PPL Global had a $135 million note payable to an affiliate
of WPDH. The note was denominated in U.S. dollars, and provided for interest at
market rates. PPL Global repaid this note in January 2001.

11.  Adoption of SFAS 133

PPL adopted SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", on January 1, 2001. SFAS 133 requires that derivative instruments
be recorded on the balance sheet as an asset or liability measured at its fair
value and that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 requires
that as of the date of adoption, the difference between the fair market value of
derivative instruments recorded on the balance sheet and the previous carrying
amount of those derivatives be reported in net income or other comprehensive
income, as appropriate.

In accordance with the transition provisions of SFAS 133, PPL recorded a
cumulative-effect adjustment of $10.6 million in earnings to recognize the
difference between the carrying values and fair values of derivatives not
designated as hedging instruments. The pre-tax adjustments are included as an
increase to "Wholesale energy market and trading" operating revenues and a
decrease to "Energy purchases" on the Consolidated Statement of Income for the
three months ended March 31, 2001. PPL also recorded a cumulative-effect charge
of $181.9 million in accumulated other comprehensive income to recognize the
difference between the carrying values and fair values of derivatives designated
as cash flow hedging instruments. PPL expects to reclassify $144.7 million into
earnings from the transition adjustment that was recorded in other comprehensive
income during the twelve months ended December 31, 2001.

Accounting for Derivatives and Hedging Activities

All derivatives are recognized on the balance sheet at their fair value.
According to SFAS 133, fair value is defined as the amount at which an asset
(liability) could

                                      14
<PAGE>

be bought (incurred) or sold (settled) in a current transaction between willing
parties, other than in a forced or liquidation sale. On the date the derivative
contract is executed, PPL designates the derivative as:

 .    A hedge of the fair value of a recognized asset or liability or of an
     unrecognized firm commitment ("fair value" hedge),

 .    A hedge of a forecasted transaction or of the variability of cash flows to
     be received or paid related to a recognized asset or liability ("cash flow"
     hedge),

 .    A foreign-currency fair-value or cash flow hedge ("foreign currency"
     hedge),

 .    A hedge of a net investment in a foreign operation, or

 .    A non-hedge derivative.

Changes in the fair value of a derivative that is highly effective as, and that
is designated and qualifies as, a fair value hedge, along with the gain or loss
on the hedged asset or liability that is attributable to the hedged risk, are
recorded in current period earnings. Changes in the fair value of a derivative
that is highly effective as, and that is designated as and qualifies as, a cash
flow hedge are recorded in other comprehensive income, until earnings are
affected by the variability of cash flows being hedged. Changes in the fair
value of derivatives that are designated as and qualifies as, foreign currency
hedges are recorded in either current period earnings or other comprehensive
income, depending on whether the hedge transaction is a fair value hedge or a
cash flow hedge. If however, a derivative is used as a hedge of a net investment
in a foreign operation, its changes in fair value, to the extent effective as a
hedge, are recorded in the cumulative translation adjustments account within
equity. Changes in the fair value of derivatives that are not designated as
hedging instruments are reported in current period earnings.

PPL formally documents all relationships between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives that
are designated as fair value, cash flow or foreign currency hedges to specific
assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. PPL formally assesses, both at the hedge's inception
and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash
flows of hedged items. When it is determined that a derivative is not highly
effective as a hedge, or that it has ceased to be a highly effective hedge, PPL
discontinues hedge accounting prospectively.

PPL discontinues hedge accounting prospectively when it is determined that the
derivative is no longer effective in offsetting changes in the fair value or
cash flows of a hedged item; the derivative expires or is sold, terminated or
exercised; the derivative is de-designated as a hedge instrument because it is
unlikely that a forecasted transaction will occur; or management determines that
designation of the derivative as a hedge instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair value hedge, the derivative
will continue to be carried on the balance sheet at its fair value, and the
hedged asset or liability will no longer be adjusted for changes in its fair
value. When hedge accounting is voluntarily discontinued so that the forecasted
transaction can be re-hedged with a new hedging instrument, the derivative will
continue to be carried on the balance sheet at its fair value, and gains and
losses that were accumulated in other comprehensive income will remain until the
hedged forecasted transaction impacts earnings. In all other situations in which
hedge accounting is discontinued, the derivative will be carried at its fair
value on the balance sheet, with changes in its fair value recognized in current
period earnings.

Derivative Instruments and Hedging Activities

PPL's primary market risk exposures are associated with commodity prices,
interest rate risk and currency exchange rates. PPL actively manages the market
risk inherent in its commodity, debt and foreign currency positions. The PPL
Board of Directors has adopted risk management policies to manage the risk
exposures related to energy prices, interest rates and foreign currency exchange
rates. These policies monitor and assist in controlling these market risks and
use derivative instruments to manage some associated commodity, debt, and
foreign currency activities. As of March 31, 2001, PPL held derivative
instruments designated as fair value hedging instruments and cash flow hedging
instruments.

PPL's derivative activities are subject to the management, direction and control
of the RMC. The RMC is composed of the chief financial officer and other
officers of PPL. The RMC reports to the board of directors on the scope of its
derivative activities. The RMC sets forth risk-management philosophy and
objectives through a corporate policy, provides guidelines for
derivative-instrument usage, and establishes procedures for control and
valuation, counterparty credit approval, and the monitoring and reporting of
derivative activity.

                                      15
<PAGE>

Market risk is the adverse effect on the value of a financial instrument that
results from a change in commodity prices, interest rates or currency exchange
rates. The market risk associated with commodity price, interest rate and
foreign exchange contracts is managed by the establishment and monitoring of
parameters that limit the types and degree of market risk that may be
undertaken.

PPL utilizes forward contracts, futures contracts, options and swaps as part of
its risk management strategy to minimize unplanned fluctuations in earnings
caused by commodity price, interest rate and foreign currency volatility.

PPL maintains a commodity price risk management strategy that uses derivative
instruments to minimize significant, unanticipated earnings fluctuations caused
by commodity price volatility. Fluctuations in electricity, natural gas and oil
commodities cause firm commitments for purchase or sale to develop unrealized
gains or losses when compared to current commodity prices; market values of oil
and gas inventories to differ in relation to cost; and actual cash outlays for
the purchase of electricity, gas and oil to differ from anticipated cash
outlays. PPL uses forwards, futures, swaps and options to hedge these risks.

PPL maintains an interest rate risk management strategy that uses derivative
instruments to minimize significant, unanticipated earnings fluctuations caused
by interest-rate volatility. Specific goals are to lower the cost of its
borrowed funds, and to adjust the fixed versus variable composition of its debt
portfolio as warranted. Interest rate fluctuations create an unrealized
appreciation or depreciation in the market value of the PPL's debt when compared
to its cost. Gains or losses on derivative instruments that are linked to the
debt, however, will generally offset the effect of this unrealized appreciation
or depreciation in market value. Additionally, interest rate fluctuations can
create an increase or decrease in the interest expense associated with future
anticipated debt issuances. Gains or losses on derivative instruments that are
linked to the anticipated future debt issuance, however, will generally offset
the effect of this increased or decreased future borrowing cost.

PPL maintains a foreign currency risk management strategy that uses derivative
instruments to protect its interests from unanticipated fluctuations in earnings
and cash flows caused by volatility in currency exchange rates. Movements in
foreign currency exchange rates pose a risk to PPL's operations since exchange
rate changes may affect cross-border transactions that involve equipment
purchases made in foreign currencies. Additionally, various subsidiary
investments and repatriated dividends are denominated in foreign currency,
thereby creating exposures to changes in exchange rates. PPL uses
foreign-currency forward-exchange contracts to hedge these risks.

By using derivative instruments to hedge exposures to changes in commodity
rates, interest rates and exchange rates PPL exposes itself to credit risk.
Credit risk is the failure of the counterparty to perform under the terms of the
derivative contract. When the fair value of a derivative contract is positive,
the counter party owes PPL, which creates repayment risk for PPL. When the fair
value of the derivative contract is negative, PPL owes the counterparty and,
therefore it does not possess repayment risk. PPL minimizes the credit (or
repayment) risk in derivative instruments by entering into transactions with
high quality counterparties whose credit ratings are BBB- / Baa3 or higher,
limiting the amount of exposure to each counterparty, and monitoring the
financial condition of its counterparties. Additionally, depending on the
situation, PPL obtains credit enhancements as provided for in contracts governed
by the International Swaps and Derivatives Association Master Agreement and/or
bilateral collateral arrangements.

Fair Value Hedges

PPL enters into financial contracts to hedge a portion of the fair value of firm
commitments to transport fuel to its generating facilities. These derivative
contracts range in maturity through 2004. For the three months ended March 31,
2001, the impact on the financial statements was not significant.

Cash Flow Hedges

PPL enters into physical and financial contracts, including forwards futures and
swaps to hedge the price risk associated with electric, gas and oil commodities.
These contracts range in maturity through 2008. As of March 31, 2001, PPL
recorded a net-of-tax loss of $197 million (reported in accumulated other
comprehensive income in the Shareowners' Common Equity section of the
Consolidated Balance Sheet). The most significant portion was attributable to
forward sales contracts and financial swaps in which PPL has reserved and stands
ready to deliver energy from the planned output of its wholly-owned generating
units. In these cases, PPL will realize a margin that represents the difference
between the sales price and the average cost of generation.

As a result of an unplanned outage and changes in other economic conditions, PPL
discontinued certain cash flow hedges which resulted in a net loss of
approximately $29 million (reported as a charge to "Wholesale energy marketing
and trading" revenues in the Consolidated Statement of Income) during the three
months ended March 31, 2001. Additionally, during this period PPL recognized a
charge to income resulting from cash flow

                                      16
<PAGE>

hedge ineffectiveness, the amount of which was not significant.

As of March 31, 2001, approximately $133 million of deferred net losses on
derivative instruments accumulated in other comprehensive income are expected to
be reclassified into earnings during the next twelve months. Transactions and
events that are expected to occur over the next twelve months and will
necessitate reclassifying to earnings these derivative losses include (a) the
sale of electricity, (b) the purchase and sale of natural gas and the purchase
of oil all of which are facilitated through physical or financial contracts. PPL
expects the majority of these losses to be largely offset by the inverse changes
in the market value of the underlying commodities such as the electricity
generated and the physical gas and oil purchased. PPL expects these offsetting
gains to exceed the mark-to-market losses on the associated derivative
instruments when the transactions are recorded in future earnings over the next
twelve months.

PPL enters into financial interest rate swaps to hedge interest expense
associated with both existing and anticipated debt issuances. These swaps range
in maturity through 2008. As of March 31, 2001, PPL recognized a net-of-tax loss
of $2 million (reported as a charge to accumulated other comprehensive income).
PPL expects this loss to be offset through lower interest rates incurred on the
issuance of anticipated debt.

As of March 31, 2001, the amount of deferred net losses on derivative
instruments in accumulated other comprehensive income that are expected to be
reclassified into earnings during the next twelve months is insignificant.
Transactions and events that are expected to occur over the next twelve months
(and that will necessitate reclassifying to earnings these derivative losses)
include the related amortization associated with the issuance of debt and the
repricing of variable rate debt.

PPL enters into foreign currency forward contracts to hedge exchange rates
associated with firm commitments denominated in foreign currencies. These
forwards range in maturity through 2003. For the three months ended March 31,
2001, PPL recognized a net-of-tax loss of $1.6 million (reported as a charge to
accumulated other comprehensive income). PPL expects this loss to be offset by
an inverse change in the exchange rate of the underlying commodity, the firm
commitment. PPL expects none of this loss to be reclassified into earnings over
the next twelve months.


Other Comprehensive Income

                                                             For the Three
                                                             Months Ended
                                                            March 31, 2001
                                                            --------------
                                                             ($ Millions)
Unrealized losses on derivatives qualified as hedges:
    Unrealized losses arising during the period due to
       the cumulative effect of a change in accounting
       principle at January 1, 2001.......................      $(182)

    Other unrealized losses arising during the
    period................................................        (25)

    Less:
       Reclassification adjustment for gains included
          in net income...................................         17
                                                                ------

Net unrealized losses on qualifying derivatives
    at March 31, 2001.....................................      $(190)
                                                                ======

12.  Sales to California Independent System Operator

Through subsidiaries, PPL has made approximately $18 million of sales to the
California Independent System Operator ("Cal ISO"), for which PPL has not yet
been paid in full. Given the myriad of electricity supply problems presently
faced by the California electric utilities and the Cal ISO, PPL cannot predict
when it will receive payment. As of March 31, 2001, PPL has fully reserved for
possible underrecoveries of payments for these sales.

Litigation arising out of the California electricity supply situation has been
filed at the FERC and in California courts against sellers of energy to the Cal
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, and other relief, including treble damages and
attorney's fees. Certain of PPL's subsidiaries have intervened in the FERC
proceedings in order to protect their interests, but have not been named as a
defendant in any of the court actions. Attorneys general in several western
states, including California, have begun investigations related to the
electricity supply situation in California and other western states. PPL cannot
predict whether any of its subsidiaries will eventually be the target of any
governmental investigation or named in these lawsuits or other lawsuits, the
outcome of any such proceeding or whether the ultimate impact on PPL or its
subsidiaries of the electricity supply situation in California and other western
states will be material.

13.  Subsequent Events

In April 2001, PPL announced a plan to confirm the structural separation of PPL
Electric from PPL and PPL's other affiliated companies, in a transaction that
leverages the electric transmission and

                                      17
<PAGE>

distribution business of PPL Electric. Upon completion of the transaction, PPL
will effectively double the amount of generating capacity it has to sell in
wholesale electricity markets while allowing PPL to retain valuable advantages
related to operating both energy supply and energy delivery businesses.

The transaction will be effected through a series of steps including:

 .    confirming the structural separation of PPL Electric from PPL and PPL's
     other affiliated companies;

 .    an increase in the leverage of PPL Electric through the issuance of
     approximately $900 million senior secured bonds without any material impact
     on PPL Electric's investment-grade credit rating; and

 .    the solicitation by PPL Electric, in early June 2001, of bids to contract
     with energy suppliers to meet all of the electricity needs associated with
     its obligation to serve customers under capped rates from 2002 through the
     end of 2009.

PPL Electric currently has a full requirements supply agreement with PPL
EnergyPlus that expires at the end of 2001. Under the Pennsylvania Customer
Choice Act, PPL Electric is required, through 2009, to provide electricity at
pre-set prices to its delivery customers who do not select an alternate
supplier. As part of the transaction, PPL Electric will solicit bids to contract
with energy suppliers to meet its obligation to deliver energy to its customers.
PPL EnergyPlus intends to be one of the parties to bid on the supply contract at
market competitive prices. To the extent that PPL EnergyPlus is a successful
bidder, it will have an eight-year contract to sell a portion of its available
energy at market-competitive wholesale prices. To the extent that PPL EnergyPlus
is not a successful bidder, it will have additional energy that can be sold in
the wholesale market at market rates.

Several aspects of the transaction must be reviewed and approved by the PUC.
These approvals are expected in the third quarter of 2001.

Also, in May 2001, PPL issued 20,000,000 shares of 7.75% Premium Equity
Participating Security Units ("PEPS Units") for $500 million.  Each PEPS Units
had an issue price of $25 and consists of a contract to purchase shares of PPL
common stock on or prior to May 18, 2004 and a trust preferred security with a
stated liquidation amount of $25 of PPL Capital Funding Trust I.  Each purchase
contract yields 0.46% per year in contract adjustment payments, paid quarterly,
on the $25 stated amount of the PEPS Unit and requires the holders of the
contracts to purchase a number of shares of PPL common stock on or prior to May
18, 2004.  The number of shares required to be purchased will depend on the
average market price of PPL's common stock prior to the purchase date, subject
to certain limitations.  Unless other arrangements are made, the holders'
obligations to purchase shares under the purchase contracts will be settled by
applying the proceeds of a remarketing of the trust preferred securities, which
have been pledged to secure these obligations.  Each trust preferred security
yields 7.29% per year, paid quarterly, until May 18, 2004.  The Trust's sole
source of funds for distributions are from payments of interest on 7.29%
subordinated notes due May 18, 2006 of PPL Capital Funding.  Following a
successful remarketing of the trust preferred securities during the period
February 18 to May 18, 2004, the interest rate on the subordinated notes and the
yield on the trust preferred securities will be reset at a rate that will be
equal to or greater than 7.29%. PPL has unconditionally guaranteed the payment
of principal and interest on the subordinated notes issued to PPL Capital
Funding Trust I by PPL Capital Funding. PPL used the net proceeds to pay down
short-term debt.

Finally, in September 2000 a PPL Global subsidiary entered into an agreement
with a lessor to lease turbine-generators and related equipment. The turbines
are being financed using a leasing structure that eliminates the need for cash
outlays during the turbine manufacturing process and diversifies PPL's funding
sources. In May 2001, the subsidiary entered into an agreement, initially for
$900 million, to be increased to $1.2 billion upon syndication, for financing
using a lease structure for the acquisition, development and construction of one
or more commercial power generation facilities.

                                      18
<PAGE>

                                PPL CORPORATION
                                ---------------

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

This discussion should be read in conjunction 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, 2000. Terms and
abbreviations appearing in Management's Discussion and Analysis of Financial
Condition and Results of Operations are explained in the glossary.

                             Results of Operations
                             ---------------------

The following discussion explains significant changes in principal items on the
Consolidated Statement of Income, comparing the three months ended March 31,
2001, to the comparable period in 2000.

The Consolidated Statement of Income reflects the results of past operations and
is not intended as any indication of future operating results. Future operating
results will necessarily be affected by various and diverse factors and
developments. Furthermore, because results for interim periods can be
disproportionately influenced by various factors and developments and by
seasonal variations, the results of operations for interim periods are not
necessarily indicative of results or trends for the year. Finally, PPL Global
acquired CEMAR in June 2000, and fully consolidated its accounts in September
2000. Accordingly, the results for the first quarter of 2001 include CEMAR,
whereas the first quarter of 2000 does not.

Earnings

Earnings per share were $1.53 (or $1.52 diluted) during the three months ended
March 31, 2001. These earnings were $.54 per share, or about 55%, higher than
the $.99 per share earned in the first quarter of 2000.

This earnings improvement was primarily attributable to higher earnings of PPL
Montana, resulting from increased margins on wholesale energy sales. This
reflects higher wholesale energy prices in the western U.S. The first quarter
earnings improvement also reflects higher PPL Global earnings from its equity
investments in the U.K. These earnings improvements were partially offset by
higher interest expense.

Operating Revenues

Retail Electric and Gas
-----------------------

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

                                                    Three Months Ended
                                             March 31, 2001 vs. March 31, 2000
                                             ---------------------------------
Retail Electric Revenue
  PPL Electric
    Electric delivery.......................                $   2
    PLR electric generation supply..........                   49
  PPL EnergyPlus
    Electric generation supply..............                  (21)
  PPL Global
    Electric delivery.......................                   46
  Other.....................................                   (2)
                                                            -----
                                                               74
                                                            -----
Retail Gas Revenue
  PPL Gas Utilities.........................                   24
  PPL EnergyPlus............................                   13
                                                            -----
                                                               37
                                                            -----

Retail Electric Revenue - total                             $ 111
                                                            =====

Operating revenues from retail electric operations increased by $111 million
during the three months ended March 31, 2001, when compared with the same period
in 2000. PPL Electric revenues as a PLR supplier increased $49 million in the
first quarter of 2001, as compared to the same period in 2000. This was
primarily due to a 26% increase in PLR sales volumes. Revenues from PPL Global
were $46 million, or 71%, greater in the first quarter of 2001 as compared to
the same period in 2000, primarily due to the revenues of CEMAR. Partially
offsetting these increases were lower PPL EnergyPlus retail revenues. This was
primarily due to expirations of contracts with existing customers.

Both PPL Gas Utilities and PPL EnergyPlus experienced higher retail gas revenues
during the three months ended March 31, 2001, when compared with the same period
in 2000. PPL Gas Utilities' increase was primarily due to a base rate increase
effective January 1, 2001, and higher off-system sales volumes.

                                      19
<PAGE>

Wholesale Energy Marketing and Trading
--------------------------------------

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

                                                    Three Months Ended
                                             March 31, 2001 vs. March 31, 2000
                                             ---------------------------------
  PPL Electric/PPL EnergyPlus
    Bilateral Sales.......................                 $(64)
    PJM...................................                    9
    Cost-based contracts..................                   (5)
    Gas & oil sales.......................                  (12)
  PPL Montana.............................                   91
  PPL Maine...............................                   (8)
  Other...................................                   (4)
                                                           ----
                                                           $  7
                                                           ====

Wholesale energy marketing and trading revenues increased by $7 million during
the three months ended March 31, 2001, when compared with the same period in
2000. PPL Montana revenues increased by $91 million, or 150%, in the first
quarter of 2001, as compared with the same period in 2000. This was primarily
due to favorable market conditions in the western U.S. Offsetting this increase
was a decrease in bilateral sales in the eastern U.S. This was due to less
trading activity in the first quarter of 2001, as compared to the first quarter
of 2000. This decrease in bilateral sales in the east was also accompanied by
lower energy purchases.

Energy Related Businesses

Energy related businesses contributed $27 million and $21 million to the
operating income of PPL for the three months ending March 31, 2001 and 2000,
respectively. The improvement in 2001 primarily reflects PPL Global's higher
equity earnings from WPDH, WPDL and other international investments. PPL
Global's equity earnings, net of its development, administrative and general
expenses, contributed an additional $15 million in operating income for the
three months ended March 31, 2001, compared to the same period in 2000. These
gains and others from PPL mechanical contracting and engineering subsidiaries
were partially offset by pre-tax operating losses from PPL's synfuels projects.
Energy related businesses are expected to provide an increasing share of PPL's
future earnings.

Fuel

Fuel costs increased by $42 million for the three months ended March 31, 2001,
compared with the same period in 2000.

Electric fuel costs increased by $18 million in the first quarter of 2001
compared with the same period in 2000. This increase was attributed to higher
generation by oil/gas fired and coal-fired stations as well as higher per-unit
costs for this generation. The increase in fossil fuel expense was partially
offset by a decrease in nuclear fuel costs.

The cost of natural gas and propane increased by $24 million in the first
quarter of 2001, compared with the same period in 2000. The increase reflects
higher prices, as well as higher off-system volume due to greater demand.

Energy Purchases

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

                                                      Three Months Ended
                                               March 31, 2001 vs. March 31, 2000
                                               ---------------------------------
  PPL EnergyPlus.............................              $  (78)
  PPL Maine..................................                  (7)
  PPL Global.................................                  15
  PPL Montana................................                   9
  Other......................................                  (6)
                                                           ------
                                                           $  (67)
                                                           ======

Energy purchases decreased by $67 million during the three months ended March
31, 2001, compared with the same period in 2000. This decrease resulted from
lower wholesale prices for energy purchases needed to supply wholesale load
obligations in the east, lower quantities of gas purchases for wholesale
activity, as well as recognized gains on certain long-term forward transactions.
The decrease was partially offset by an increase in prices for PJM interchange
purchases, as well as energy purchases of CEMAR.

Other Operation Expenses

Other operation expenses increased by $15 million for the three months ended
March 31, 2001, when compared with the same period in 2000. The increase
includes $13 million of CEMAR expenses. The balance of the increase reflects PPL
Montana's lease of the Colstrip generating facilities in the first quarter of
2001, as opposed to depreciating these facilities in the first quarter of 2000,
and higher nuclear operating expenses. These increases were partially offset by
higher pension income recorded in 2001. This higher pension income resulted from
pension investment performance.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs increased by $8 million during the
three months ended March 31, 2001, when compared with the same period in 2000.
This increase was primarily due to higher CTC rates in 2001.

Maintenance Expenses

Maintenance expenses increased by $5 million for the three months ended March
31, 2001, compared with the

                                      20
<PAGE>

same period in 2000. This increase was primarily due to PPL Susquehanna's Unit 2
refueling outage. Also contributing to the increase were higher general
maintenance costs at PPL's fossil plants.

Depreciation

Depreciation decreased by $5 million for the three months ended March 31, 2001,
when compared with the same period in 2000. This decrease was primarily due to a
change in the estimated remaining useful lives of certain PPL generating plants
based on studies done in conjunction with corporate realignment activities
undertaken in early 2000. Also contributing to the decrease were PPL Montana's
sale and leaseback of its investment in the Colstrip plant in July 2000, and a
change in life characteristics for transmission and distribution property. The
reduction in depreciation expense was partially offset by depreciation of
CEMAR's transmission, distribution and other assets.

Taxes, Other Than Income

Taxes other than income decreased by $10 million during the first three months
of 2001, when compared with the same period in 2000. This decrease was primarily
due to lower accruals for gross receipts tax due to a decrease in the
Pennsylvania gross receipts tax rate. Also, PURTA taxes were lower in the first
quarter of 2001, as compared to the same period in 2000.

Other Income and (Deductions)

Other income of PPL increased by $5 million for the three months ended March 31,
2001, when compared to the same period in 2000. The change was primarily due to
an increase in other income resulting from the negotiated reduction of
indebtedness by CEMAR.

Financing Costs

Interest expense was $16 million higher during the three months ended March 31,
2001, compared with the same period in 2000. This was primarily due to the
issuance of medium-term notes by PPL Capital Funding in 2000, the interest
expense of CEMAR, and the buyback of a call option to re-market securities.
These increases in interest expense were partially offset by the retirements of
first mortgage bonds and transition bonds.

Income Taxes

Income tax expense increased by $44 million for the three months ended March 31,
2001, when compared to the same period in 2000. The change was primarily due to
the increase in PPL's pre-tax book income.

                              Financial Condition
                              -------------------

Energy Marketing and Trading Activities

PPL, through its PPL EnergyPlus subsidiary, purchases and sells energy at the
wholesale level under FERC market-based tariffs throughout the U.S. PPL enters
into agreements to market energy and capacity from its generating assets in
Pennsylvania, Maine and Montana with the expectation of profiting from market
price fluctuations.

If PPL were unable to deliver firm capacity and energy under these agreements,
under certain circumstances it would be required to pay damages. These damages
would be based on the difference between the market price to acquire replacement
capacity or energy and the contract price of the undelivered capacity or energy.
Depending on price volatility in the wholesale energy markets, such damages
could be significant. Extreme weather conditions, unplanned power plant outages,
transmission disruptions, non-performance by counterparties (or their
counterparties) with which it has power contracts, and other factors could
affect PPL's ability to meet its firm capacity or energy obligations, or cause
significant increases in the market price of replacement capacity and energy.
Although PPL attempts to mitigate these risks, there can be no assurance that it
will be able to fully meet its firm obligations, that it will not be required to
pay damages for failure to perform, or that it will not experience counterparty
non-performance in the future.

PPL attempts to mitigate risks associated with open contract positions by
reserving generation capacity to deliver electricity to satisfy its net firm
sales contracts and, when necessary, by purchasing firm transmission service. In
addition, PPL adheres to its risk management policy and programs, including
established credit policies to evaluate counterparty credit risk. To date, PPL
has not experienced any significant losses due to non-performance by
counterparties. Additionally, given the current electric energy situation in
California, PPL has established a reserve to limit its exposure as a result of
sales within that market area. See Note 12 to the Financial Statements for
discussion related to the California energy situation.

Market Risk Sensitive Instruments

Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------

PPL actively manages the market risk inherent in its commodity, debt, foreign
currency and equity positions as detailed in Note 11 to the Financial
Statements. Nonetheless, adverse changes in commodity prices, interest rates,
foreign currency exchange rates and equity prices may result in losses in
earnings, cash flows

                                      21
<PAGE>

and/or fair values. The forward-looking information presented below provides
only estimates of what may occur in the future, assuming certain adverse market
conditions, due to reliance on model assumptions. As a result, actual future
results may differ materially from those presented. These disclosures are not
precise indicators of expected future losses, but only indicators of reasonably
possible losses.

Commodity Price Risk
--------------------

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

As of March 31, 2001, PPL estimated that a 10% adverse movement in market prices
across all geographic areas and time periods could have decreased the value of
its non-hedge portfolio by approximately $2 million. For PPL's hedge portfolio,
a 10% adverse movement in market prices across all geographic areas and time
periods could have decreased the value of its hedge portfolio by approximately
$295 million as of March 31, 2001. However, this would have been offset by an
increase in the value of the underlying commodity, the electricity generated. In
addition to commodity price risk, PPL's commodity positions are also subject to
operational and event risks including, among others, increases in load demand
and forced outages at power plants.

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

PPL enters into contracts to hedge the impact of market fluctuations on its
energy-related assets, liabilities and other contractual arrangements. In
addition, it executes these contracts to take advantage of market opportunities.
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.

Commodity Price Risk - PPL Electric
-----------------------------------

As part of the corporate realignment, PPL Electric and PPL EnergyPlus entered
into a long-term power sales agreement under which PPL EnergyPlus will sell PPL
Electric at a predetermined pricing arrangement, energy, capacity, and ancillary
services to fulfill its PLR obligation through 2001. As a result, PPL Electric
has shifted any electric price risk to PPL EnergyPlus for 2001.

In April 2001, PPL Electric announced its intent to lock in commitments for its
energy supply from 2002 through the end of 2009. PPL Electric expects to have
contracts in place by June 2001. See Note 13 to the Financial Statements for
additional information.

Interest Rate Risk
------------------

PPL and its subsidiaries, including PPL Electric, have issued debt to finance
their operations. PPL has also issued debt to provide funds for unregulated
energy investments, which also increases interest rate risk. PPL manages
interest rate risk 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 are designed to balance risk exposure to volatility in
interest expense and losses in the fair value of PPL's and PPL Electric's debt
portfolio due to changes in the absolute level of interest rates.

At March 31, 2001, PPL's potential annual exposure to increased interest expense
due to a 10% increase in interest rates was estimated at $7 million.

PPL is also exposed to changes in the fair value of its debt portfolio. At March
31, 2001, PPL estimated that its potential exposure to a change in the fair
value of its debt portfolio through a 10% adverse movement in interest rates was
$60 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 any economic loss in value should be offset by interest rate savings
at the time the future anticipated financing is completed. At March 31, 2001,
PPL estimated its potential exposure to a change in the fair value of these
instruments, through a 10% adverse movement in interest rates was approximately
$22 million.

See Notes 5 and 11 to the Financial Statements for a discussion of financial
derivative instruments outstanding at March 31, 2001.

                                      22
<PAGE>

Foreign Currency Risk
---------------------

PPL Global has investments in international energy-related distribution
facilities. PPL Global 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
foreign currency exposures including firm commitments, recognized assets or
liabilities, and net investments. At March 31, 2001, PPL had a purchase
obligation for equipment that is payable in Euros. In addition, PPL Global
expects the payment of certain payables in British pounds sterling. Therefore,
as of March 31, 2001 PPL had entered into forward contracts for the purchase of
51 million Euros and the sale of 78 million British pounds sterling. See Notes 5
and 11 to the Financial Statements for additional information.

Nuclear Decommissioning Fund - Securities Price Risk
----------------------------------------------------

PPL Susquehanna maintains trust funds, as required by the NRC, to fund certain
costs of decommissioning the Susquehanna station. As of March 31, 2001, these
funds were invested primarily in domestic equity securities and fixed-rate,
fixed income securities and are reflected at fair value on PPL's Consolidated
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. A hypothetical 10% increase in interest rates and a 10%
decrease in equity prices would have resulted in an estimated $18 million
reduction in the fair value of the assets as of March 31, 2001.

PPL Electric's restructuring settlement agreement in 1998 provided for the
collection of authorized nuclear decommissioning costs through the CTC.
Additionally, PPL Electric was permitted to seek recovery from customers of up
to 96% of any increases in these costs. Under the power purchase agreement
between PPL Electric and PPL EnergyPlus, these recoveries would be passed on to
PPL EnergyPlus. Similarly, these recoveries would be passed on to PPL
Susquehanna under a power purchase agreement between PPL EnergyPlus and PPL
Susquehanna. Therefore, PPL's securities price risk is expected to remain
insignificant.

Acquisitions and Development

See Note 8 to the Financial Statements for information regarding acquisitions
and development activities.

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

Additionally, in April 2001, PPL Global announced plans to develop a power plant
near University Park in Chicago, Illinois at an expected cost of $305 million.
The plant would be a 540-megawatt, simple-cycle, natural gas-fired electric
generation facility and is expected to be in service by the summer of 2002. PPL
Susquehanna also announced plans to increase the capacity of its Susquehanna
nuclear plant by 100 megawatts with the installation of more efficient steam
turbines on each of the two units. These improvements will be made in the spring
of 2003 and 2004 and are expected to cost $120 million. Also, in April 2001, PPL
Energy Services Northeast acquired two additional mechanical contracting and
engineering firms - Elmsford Sheet Metal Works, Inc. and Westech International,
Inc. The purchase prices for these companies, both based in New York State, were
not significant.

Further, WPDL had previously announced an agreement with the Welsh firm Glas
Cymru Cyfyngedig (Glas) for the disposition of Hyder's water business, Welsh
Water. This agreement was made subject to the successful refinancing of Welsh
Water. In May 2001, $2.7 billion of Welsh Water bonds were priced and spread
across 12 tranches. It is expected that this debt will be assumed by Glas,
completing the financial restructuring necessary to finalize the sale.

Development activities continue on the Griffith and Wallingford projects,
located near Kingman, AZ and Wallingford, CT, respectively. These facilities are
expected to be operational during the second and third quarters of 2001, and
will add in excess of 500 megawatts of capacity.

Financing Activities

See Notes 7 and 13 to the Financial Statements for a discussion of financing
activities.

Financing and Liquidity

Cash and cash equivalents decreased by $238 million more during the three months
ended March 31, 2001, compared with the same period in 2000. The reasons for
this change were:

                                      23
<PAGE>

 .    A $56 million increase in cash provided by operating activities, primarily
     due to an increase in operating income.

 .    A $190 million increase in cash used in investing activities, primarily due
     to greater investment in electric energy projects.

 .    A $104 million increase in cash used in financing activities, primarily due
     to lower issuances of debt.

Financial Indicators

Earnings for 2001 and 2000 were impacted by nonrecurring items. (See "Earnings"
in PPL's Form 10-K for the year ended December 31, 2000 for additional
information.) The following financial indicators reflect the elimination of
these impacts from earnings, and provide an additional measure of the underlying
earnings performance of PPL and its subsidiaries.

                                                     Twelve Months Ended
                                                          March 31,
                                                          ---------
                                                      2001   vs.   2000
                                                      ----         ----
Earnings per share, diluted,
   as adjusted................................      $  3.81      $  2.54
Return on average common equity...............        30.39%       20.32%
Times interest earned before income
   taxes......................................         3.41         3.05
Dividends declared per share..................      $  1.06      $ 1.015


Environmental Matters

See Note 9 to the Financial Statements for a discussion of environmental
matters.

Increasing Competition

The electric utility industry has experienced, and will continue to experience,
a significant increase in the level of competition in the energy supply market
at both the state and federal level. Refer to PPL's Form 10-K for the year ended
December 31, 2000 for a discussion of state and federal activities in this
regard.

PPL EnergyPlus serves industrial and commercial customers in Pennsylvania, New
Jersey, Delaware, Maine and Montana. PPL EnergyPlus is licensed to sell energy
in Maryland and Massachusetts, and has filed an application for such a license
in New York.


      Item 3. Quantitative and Qualitative Disclosures About Market Risk
      ------------------------------------------------------------------

Reference is made to "Quantitative and Qualitative Disclosures About Market
Risk," in the Management's Discussion and Analysis of Financial Condition and
Results of Operations.

                                      24
<PAGE>

              PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES

                                      25
<PAGE>

PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES
---------------------------------------------------
Part 1. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------

In the opinion of PPL Electric, the unaudited financial statements included
herein reflect all adjustments necessary to present fairly the Consolidated
Balance Sheet as of March 31, 2001 and December 31, 2000, and the Consolidated
Statement of Income and Consolidated Statement of Cash Flows for the periods
ended March 31, 2001 and 2000. All nonutility operating transactions are
included in "Other Income" in PPL Electric's Consolidated Statement of Income.
These financial statements have been impacted by the corporate realignment on
July 1, 2000. See Note 6 to Financial Statements for additional information.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                                     Three Months
                                                                                                    Ended March 31,
                                                                                              ----------------------------
                                                                                                   2001             2000
                                                                                              -------------    -----------
<S>                                                                                           <C>              <C>
Operating Revenues
      Retail electric.......................................................................   $     639        $      722
      Wholesale energy marketing and trading................................................          55               399
      Energy related businesses.............................................................           6                 6
                                                                                               ---------        ----------
      Total.................................................................................         700             1,127
                                                                                               ---------        ----------

Operating Expenses
      Operation
          Fuel..............................................................................                           112
          Energy purchases..................................................................         379               391
          Other.............................................................................          59               141
          Amortization of recoverable transition costs......................................          71                63
      Maintenance...........................................................................          13                42
      Depreciation..........................................................................          23                58
      Taxes, other than income..............................................................          28                46
      Energy related businesses.............................................................           6                 6
                                                                                               ---------        ----------
      Total.................................................................................         579               859
                                                                                               ---------        ----------

Operating Income ..........................................................................          121               268

Other Income - Net.........................................................................            4                11
                                                                                               ---------        ----------

Income Before Interest and Income Taxes....................................................          125               279

Interest Expense...........................................................................           62                61
                                                                                               ---------        ----------

Income Before Income Taxes.................................................................           63               218

Income Taxes...............................................................................           23                81
                                                                                               ---------        ----------

Net Income Before Dividends on Preferred Stock.............................................           40               137

Dividends on Preferred Stock...............................................................            6                 6
                                                                                               ---------        ----------

Earnings Available to PPL Corporation......................................................    $      34        $      131
                                                                                               =========        ==========
</TABLE>


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

                                      26
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                                      Three Months
                                                                                                     Ended March 31,
                                                                                              ---------------------------
                                                                                                   2001            2000
                                                                                              -------------   -----------
<S>                                                                                           <C>             <C>
Net Cash Provided by Operating Activities...................................................   $      36        $     106

Cash Flows From Investing Activities
    Expenditures for property, plant and equipment..........................................         (26)             (77)
    Sale of nuclear fuel to trust...........................................................                           27
    Loan to parent and affiliates...........................................................         (80)              13
    Other investing activities - net........................................................         (10)               2
                                                                                               ---------        ---------
        Net cash used in investing activities...............................................        (116)             (35)
                                                                                               ---------        ---------

Cash Flows From Financing Activities
    Retirement of long-term debt............................................................         (65)             (61)
    Deposit of funds for the retirement of long-term debt...................................          (5)             (28)
    Termination of nuclear fuel lease.......................................................                         (154)
    Payments on capital lease obligation....................................................                          (11)
    Payment of common and preferred dividends...............................................         (22)             (44)
    Net increase (decrease) in short-term debt..............................................          (4)             212
                                                                                               ---------        ---------
        Net cash used in financing activities...............................................         (96)             (86)
                                                                                               ---------        ---------


Net Decrease in Cash and Cash Equivalents...................................................        (176)             (15)
Cash and Cash Equivalents at Beginning of Period...........................................          267               52
                                                                                               ---------        ---------
Cash and Cash Equivalents at End of Period.................................................    $      91        $      37
                                                                                               =========        =========

Supplemental Disclosures of Cash Flow Information
    Cash paid (received) during the period for:
        Interest (net of amount capitalized)................................................   $      54        $      56
        Income taxes........................................................................   $       2        $      (3)
</TABLE>


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

                                      27
<PAGE>

CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                                     March 31,      December 31,
                                                                                                       2001            2000
                                                                                                   ------------    -------------
<S>                                                                                                <C>             <C>
Assets

Current Assets
    Cash and cash equivalents............................................................           $     91        $     267
    Accounts receivable (less reserve:  2001, $17; 2000, $16)............................                221              173
    Notes receivable from parent and its affiliates......................................                150               70
    Income tax receivable................................................................                 36               51
    Unbilled revenues....................................................................                104              137
    Fuel, materials and supplies - at average cost.......................................                 31               30
    Prepayments..........................................................................                 62                4
    Deferred income taxes................................................................                 37               35
    Other................................................................................                 12                9
                                                                                                   ----------      -----------
                                                                                                         744              776
                                                                                                   ----------      -----------


Investments..............................................................................                 28               18
                                                                                                   ----------      -----------
Property, Plant and Equipment - net
    Electric utility plant in service
       Transmission and distribution.....................................................              2,190            2,183
       General...........................................................................                180              180
                                                                                                   ----------      -----------
                                                                                                       2,370            2,363
    Construction work in progress........................................................                 32               33
                                                                                                   ----------      -----------
       Electric utility plant............................................................              2,402            2,396
    Other property.......................................................................                  5                5
                                                                                                   ----------      -----------
                                                                                                       2,407            2,401
                                                                                                   ----------      -----------
Regulatory and Other Noncurrent Assets
    Recoverable transition costs.........................................................              2,354            2,425
    Other................................................................................                306              304
                                                                                                   ----------      -----------
                                                                                                       2,660            2,729
                                                                                                   ----------      -----------

                                                                                                    $  5,839        $   5,924
                                                                                                   ==========      ===========
</TABLE>

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

                                      28
<PAGE>

CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                             March 31,      December 31,
                                                                                               2001             2000
                                                                                          -------------     ------------
<S>                                                                                       <C>               <C>
Liabilities and Equity

Current Liabilities
    Short-term debt..................................................................         $      55        $      59
    Long-term debt...................................................................               448              240
    Accounts payable.................................................................                40               62
    Accounts payable to parent and its affiliates....................................               116              108
    Taxes............................................................................                59               51
    Interest.........................................................................                19               20
    Dividends........................................................................                14               23
    Other............................................................................                38               62
                                                                                            -----------      -----------
                                                                                                    789              625
                                                                                            -----------      -----------

Long-term debt.......................................................................             2,613            2,886
                                                                                            -----------      -----------

Deferred Credits and Other Noncurrent Liabilities
    Deferred income taxes and investment tax credits.................................               737              724
    Other............................................................................               166              182
                                                                                            -----------      -----------
                                                                                                    903              906
                                                                                            -----------      -----------

Commitments and Contingent Liabilities...............................................
                                                                                            -----------      -----------

Company-obligated mandatorily redeemable preferred securities of
    subsidiary trust holding solely company debentures...............................               250              250
                                                                                            -----------      -----------

Preferred stock
    With sinking fund requirements...................................................                47               47
    Without sinking fund requirements................................................                50               50
                                                                                            -----------      -----------
                                                                                                     97               97
                                                                                            -----------      -----------
Shareowner's Common Equity
    Common stock.....................................................................             1,476            1,476
    Additional paid-in capital.......................................................                55               55
    Treasury stock...................................................................              (632)            (632)
    Earnings reinvested..............................................................               304              277
    Accumulated other comprehensive income...........................................
    Capital stock expense and other..................................................               (16)             (16)
                                                                                            -----------      -----------
                                                                                                  1,187            1,160
                                                                                            -----------      -----------

                                                                                              $   5,839        $   5,924
                                                                                            ===========      ===========
</TABLE>

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

                                      29
<PAGE>

CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY AND OTHER
COMPREHENSIVE INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                          For the Three Months Ended
                                                                                                   March 31,
                                                                                         ----------------------------
                                                                                             2001             2000
                                                                                         -----------     ------------
<S>                                                                                      <C>             <C>
Common stock at beginning of period.............................................          $   1,476        $   1,476
                                                                                        -----------     ------------
Common stock at end of period...................................................              1,476            1,476
                                                                                        -----------     ------------

Additional paid-in capital at beginning of period ..............................                 55               55
                                                                                        -----------     ------------
Additional paid-in capital at end of period.....................................                 55               55
                                                                                        -----------     ------------

Treasury stock at beginning of period...........................................               (632)            (632)
                                                                                        -----------     ------------
Treasury stock at end of period.................................................               (632)            (632)
                                                                                        -----------     ------------

Earnings reinvested at beginning of period......................................                277              419
     Net income (b).............................................................                 34              131
     Cash dividends declared on common stock....................................                 (7)             (38)
                                                                                        -----------     ------------
Earnings reinvested at end of period............................................                304              512
                                                                                        -----------     ------------

Accumulated other comprehensive income at beginning of period...................                                  (6)
                                                                                        -----------     ------------
Accumulated other comprehensive income at end of period.........................                                  (6)
                                                                                        -----------     ------------

Capital stock expense and other at beginning of period..........................                (16)             (16)
                                                                                        -----------     ------------
Capital stock expense and other at end of period................................                (16)             (16)
                                                                                        -----------     ------------

Total Shareowner's Common Equity................................................          $   1,187        $   1,389
                                                                                        ===========     ============

Common stock shares at beginning of period (a)..................................            102,230          102,230
                                                                                        -----------     ------------
Common stock shares at end of period............................................            102,230          102,230
                                                                                        ===========     ============

(a)  In thousands.  No par value.  170 million shares authorized.
     All common shares of PPL Electric stock are owned by PPL.
(b)  Statement of Comprehensive Income:
     Net income.................................................................          $      34        $     131
     Other comprehensive income.................................................
                                                                                        -----------     ------------
     Comprehensive Income.......................................................          $      34        $     131
                                                                                        ===========     ============
</TABLE>

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


                                      30
<PAGE>

                      PPL ELECTRIC UTILITIES CORPORATION

                  Notes to Consolidated Financial Statements
                  ------------------------------------------


Terms and abbreviations appearing in Notes to Consolidated Financial Statements
are explained in the glossary.

1.   Interim Financial Statements

Certain information in footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the U.S., has been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the SEC. These financial statements should be read in
conjunction with the financial statements and notes included in PPL Electric's
Annual Report to the SEC on Form 10-K for the year ended December 31, 2000.

Certain amounts in the March 31, 2000 and December 31, 2000 financial statements
have been reclassified to conform to the presentation in the March 31, 2001
financial statements.

2.   Credit Arrangements and Financing Activities

PPL Electric issues commercial paper and borrows from banks to provide short-
term funds for general corporate purposes. Bank borrowings generally bear
interest at rates negotiated at the time of the borrowing. At March 31, 2001,
PPL Electric had $50 million of commercial paper outstanding at an interest rate
of 6.22%.

In order to enhance liquidity, and as a credit back-stop to the commercial paper
programs, PPL Electric, PPL Capital Funding and PPL (as guarantor for PPL
Capital Funding) share a 364-day $750 million credit facility and a five-year
$300 million credit facility, each with a group of banks. At March 31, 2001, no
borrowings were outstanding under either facility.

In March 2001, PPL Electric deposited with its Mortgage Trustee $5.2 million for
the purpose of retiring on July 1, 2001, all of its outstanding First Mortgage
Bonds, 9-3/8% Series due 2021, at par value through the maintenance and
replacement fund provisions of its Mortgage.

During the first quarter of 2001, PPL Transition Bond Company made principal
payments on bonds totaling $65 million.

In March 2001, PPL Electric made a payment of $9.6 million to buy back an option
related to its 6 1/8% Reset Put Securities due 2006. The option would have
permitted a third party to re-market these securities at higher interest rates
in May 2001. PPL Electric recorded this charge, net of the $1.8 million balance
remaining on the third party option. The net charge of $7.8 million is included
in "Interest Expense" on the Consolidated Statement of Income for the three
months ended March 31, 2001. PPL Electric retired the $200 million, 6-1/8% Reset
Put Securities in May 2001.

3.   Commitments and Contingent Liabilities

Environmental Matters

Superfund and Other Remediation
-------------------------------

In 1995, PPL Electric entered into a consent order with the DEP to address a
number of sites where PPL Electric 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 and 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, 2001, work has been completed on approximately three-quarters of the
sites included in the consent order.

At March 31, 2001, PPL Electric had accrued approximately $5 million,
representing the amount it estimates it will have to spend for site remediation,
including those sites covered by its consent order mentioned above.

Guarantees of Affiliated Companies

At March 31, 2001, PPL Electric provided a guarantee in the amount of $12
million in support of Safe Harbor Water Power Corporation, in which PPL Holtwood
has an ownership interest.

4.   Related Party Transactions

As part of the corporate realignment, PPL Electric entered into power sales
agreements with PPL EnergyPlus for the purchase of electricity to meet its
obligations as a PLR for customers who have not selected an alternative supplier
under the Customer Choice Act. Under the terms of these agreements, this
electricity is purchased by PPL Electric at the applicable shopping credits
authorized by the PUC, plus nuclear decommissioning costs, less state taxes.
These purchases totaled $328 million for the three months ended March 31, 2001,
and are included in "Energy purchases" on the Consolidated Statement of Income.

Also as part of the corporate realignment, PPL Electric executed a reciprocal
contract with PPL EnergyPlus to sell electricity purchased under contracts with
NUGs. PPL Electric purchases electricity from the NUGs at

                                      31
<PAGE>

contractual rates, and then sells the electricity at the same price to PPL
EnergyPlus. These revenues totaled $45 million for the three months ended March
31, 2001, and are included in Operating Revenues as "Wholesale energy marketing
and trading" on the Consolidated Statement of Income.

Lastly, corporate functions such as financial, legal, human resources and
information services were transferred to PPL Services in the corporate
realignment. PPL Services bills the respective PPL subsidiaries for the cost of
such services when they can be specifically identified. The cost of these
services that are not directly charged to PPL subsidiaries are allocated to
certain of the subsidiaries based on the relative capital invested by PPL in
these subsidiaries. During the three months ended March 31, 2001, PPL Services
charged PPL Electric approximately $17 million for direct expenses, and
allocated PPL Electric approximately $5 million of overhead costs.

5.   Adoption of SFAS 133

PPL Electric adopted SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities", on January 1, 2001. SFAS 133 requires that every derivative
instrument be recorded on the balance sheet as an asset or liability measured at
its fair value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
133 requires that as of the date of adoption, the difference between the fair
market value of derivative instruments recorded on the balance sheet and the
previous carrying amount of those derivatives be reported in net income or other
comprehensive income, as appropriate. At March 31, 2001 and December 31, 2000
PPL Electric had no derivative instruments.

6.   Corporate Realignment

On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order
to effectively separate PPL Electric's regulated transmission and distribution
businesses from its recently deregulated generation businesses and to better
position the companies and their affiliates in the new competitive marketplace.
The realignment included PPL Electric's transfer of certain generation and
related assets, along with the associated liabilities, to PPL Energy Funding, a
wholly-owned subsidiary. PPL Electric then distributed its investment in PPL
Energy Funding to PPL. The net book value of this transfer, recorded effective
July 1, 2000, was $271 million.

As a result of the corporate realignment, PPL Electric's principal businesses
are the transmission and distribution of electricity to serve retail customers
in its franchised territory in eastern and central Pennsylvania, and the supply
of electricity to retail customers in that territory as a PLR. Other
subsidiaries of PPL and PPL Electric are generally aligned in the new corporate
structure according to their principal business functions.

The corporate realignment followed receipt of various regulatory approvals,
including approvals from the PUC, the FERC, the NRC and the IRS.

7.   Subsequent Events

In April 2001, PPL announced a plan to confirm the structural separation of PPL
Electric from PPL and PPL's other affiliated companies, in a transaction that
leverages the electric transmission and distribution business of PPL Electric.
Upon completion of the transaction, PPL will effectively double the amount of
generating capacity it has to sell in wholesale electricity markets while
allowing PPL to retain valuable advantages related to operating both energy
supply and energy delivery businesses.

The transaction will be effected through a series of steps including:

     .    confirming the structural separation of PPL Electric from PPL and
          PPL's other affiliated companies;

     .    an increase in the leverage of PPL Electric through the issuance of
          approximately $900 million senior secured bonds without any material
          impact on PPL Electric's investment-grade credit rating; and

     .    the solicitation by PPL Electric, in early June 2001, of bids to
          contract with energy suppliers to meet all of the electricity needs
          associated with its obligation to serve customers under capped rates
          from 2002 through the end of 2009.

PPL Electric currently has a full requirements supply agreement with PPL
EnergyPlus that expires at the end of 2001. Under the Pennsylvania Customer
Choice Act, PPL Electric is required, through 2009, to provide electricity at
pre-set prices to its delivery customers who do not select an alternate
supplier. As part of the transaction, PPL Electric will solicit bids to
contract with energy suppliers to meet its obligation to deliver energy to its
customers. PPL EnergyPlus intends to be one of the parties to bid on the supply
contract at market-competitive prices. To the extent that PPL EnergyPlus is a
successful bidder, it will have an eight-year contract to sell a portion of its
available energy at market competitive wholesale prices. To the extent that PPL
EnergyPlus is not a successful bidder, it will have additional energy that can
be sold in the wholesale market at market rates.

Several aspects of the transaction must be reviewed and approved by the PUC.
These approvals are expected in the third quarter of 2001.

                                      32
<PAGE>

                      PPL ELECTRIC UTILITIES CORPORATION

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

This discussion should be read in conjunction 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, 2000. Terms and
abbreviations appearing in Management's Discussion and Analysis of Financial
Condition and Results of Operations are explained in the glossary.

                             Results of Operations
                             ---------------------

The following discussion explains significant changes in principal items on the
Consolidated Statement of Income comparing the three months ended March 31,
2001, to the comparable period in 2000. Certain items on the Consolidated
Statement of Income have been impacted by the corporate realignment undertaken
by PPL and PPL Electric effective July 1, 2000. See Note 6 to the Financial
Statements for information regarding the corporate realignment.

The Consolidated Statement of Income of PPL Electric for the first three months
of 2001 includes the results of its remaining activities (the transmission and
distribution of electricity in its service territory and the supply of
electricity as a PLR in this territory under Pennsylvania's Customer Choice
Act). The results for the first three months of 2000 also include PPL Electric's
former electric generation and unregulated wholesale and retail marketing
functions. When discussing the results of operations for 2001 compared with
2000, the estimated results of operations of the electric generation and
unregulated marketing assets during the first three months of 2000 are
eliminated for purposes of comparability.

Earnings

PPL Electric's earnings available to PPL were $34 million for the three months
ended March 31, 2001, compared with $131 million during the same period in 2000.
After eliminating the estimated results of assets transferred in the corporate
realignment from the results of the first quarter of 2000, earnings decreased by
$7 million. The reduction in earnings was primarily due to a tax adjustment
which benefited earnings in 2000, the buyout of a call option to re-market
certain first mortgage bonds, and lower interest income.

Operating Revenues

Retail Electric
---------------

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

                                         Three Months Ended
                                 March 31, 2001 vs. March 31, 2000
                                 ---------------------------------
PPL Electric
    Electric delivery.....................    $    2
    PLR electric generation supply........        49
PPL EnergyPlus
    Electric generation supply............      (134)
                                             -------
                                              $  (83)
                                             =======

Operating revenues from retail electric operations decreased by $83 million
during the three months ended March 31, 2001, when compared with the same period
in 2000. After eliminating the revenues of assets transferred in the corporate
realignment from the results for the first quarter of 2000, retail electric
revenues increased by $51 million. This was primarily due to higher PPL Electric
revenues as a PLR supplier, attributable to a 26% increase in sales volumes.

Wholesale Energy Marketing and Trading
--------------------------------------

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

                                       Three Months Ended
                                March 31, 2001 vs. March 31, 2000
                                ---------------------------------

PPL Electric
    Bilateral Sales.......................   $(248)
    PJM...................................     (22)
    Cost based contracts..................     (34)
    Gas and oil sales.....................     (85)
    NUG purchases sold to affiliate.......      45
                                             -----
                                             $(344)
                                             =====

Wholesale energy marketing and trading revenues decreased by $344 million during
the three months ended March 31, 2001, when compared with the same period in
2000. After eliminating the revenues of assets transferred in the corporate
realignment from the results for the first quarter of 2000, wholesale revenues
increased by $1 million during the first quarter of 2001. The remaining
wholesale revenues consist of sales to municipalities and the sale of power
(purchased from NUGs) to PPL EnergyPlus.

                                      33
<PAGE>

Fuel

Effective with the July 1, 2000 corporate realignment, the generation of
electricity was assumed by PPL Generation.

Energy Purchases

Energy purchases decreased by $12 million for the three months ended March 31,
2001, compared with the same period in 2000. After eliminating the expenses of
assets transferred in the corporate realignment from the results for the first
quarter of 2000, energy purchases increased by $58 million during the first
quarter of 2001. This represents the estimated increase in PPL Electric's
purchases to support its higher PLR load in the first quarter of 2001 compared
with the first quarter of 2000.

Other Operation Expenses

Other operation expenses decreased by $82 million during the three months ended
March 31, 2001, when compared with the same period in 2000. After eliminating
the expenses of assets transferred in the corporate realignment from the results
for the first quarter of 2000, other operation expenses decreased by $1 million.
This decrease was primarily due to higher pension income in the first quarter of
2001, as compared to the same period in 2000.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs increased by $8 million during the
three months ended March 31, 2001, when compared with the same period in 2000.
This increase was primarily due to higher CTC rates in 2001.

Maintenance Expenses

Maintenance expenses decreased by $29 million during the three months ended
March 31, 2001, when compared with the same period in 2000. After eliminating
the expenses of assets transferred in the corporate realignment from the results
for the first quarter of 2000, maintenance expenses decreased by $2 million.

Depreciation

Depreciation decreased by $35 million for the three months ended March 31, 2001,
when compared with the same period in 2000. After eliminating the expenses of
assets transferred in the corporate realignment from the results for the first
quarter of 2000, depreciation decreased by $1 million between these periods.
This decrease reflects a change in life characteristics for transmission and
distribution property.

Taxes, Other Than Income

Taxes other than income decreased by $18 million during the three months ended
March 31, 2001, when compared with the same period in 2000. However, after
eliminating the taxes associated with assets transferred in the corporate
realignment from the results from the first quarter of 2000, taxes other than
income were approximately the same in both periods.

Other Income and (Deductions)

Other income and deductions decreased by $7 million during the three months
ended March 31, 2001, when compared with the same period in 2000. After
eliminating the income and deductions of assets transferred in the corporate
realignment from the results of the first quarter of 2000, other income
decreased by $3 million during the first quarter of 2001. This decrease was due
to a reduction in interest income from affiliated companies.

Financing Costs

Interest expense increased by $1 million during the three months ended March 31,
2001, when compared with the same period in 2000. After adjusting for the
interest expense associated with assets transferred in the corporate realignment
from the results for the first quarter of 2000, interest expense decreased by $4
million. This was the net effect of a charge to buy back a call option to re-
market the 6-1/8% reset put securities (as described in Note 2 to the Financial
Statements), offset by lower interest expense due to retirements of first
mortgage bonds and transition bonds, and lower commercial paper balances.

Income Taxes

Income tax expense decreased by $58 million for the three months ended March 31,
2001, when compared to the same period in 2000. After eliminating the estimated
income associated with assets transferred in the corporate realignment from the
results for the first quarter of 2000, income taxes decreased by $2 million
between the periods. This was in part due to an income tax adjustment that
reduced expense in the first quarter of 2000.

                              Financial Condition
                              -------------------

Energy Marketing and Trading Activities

In connection with the corporate realignment, effective July 1, 2000, PPL
Electric's unregulated energy marketing and trading activities were transferred
to PPL EnergyPlus.

                                      34
<PAGE>

Market Risk Sensitive Instruments

Commodity Price Risk - PPL Electric
-----------------------------------

As part of the corporate realignment, PPL Electric and PPL EnergyPlus entered
into a long-term power sales agreement under which PPL EnergyPlus will sell PPL
Electric (at a predetermined pricing arrangement) energy, capacity, and
ancillary services to fulfill its PLR obligation through 2001. As a result, PPL
Electric has shifted any electric price risk to PPL EnergyPlus for 2001.

In April 2001, PPL Electric announced its intent to lock in commitments for its
energy supply from 2002 through the end of 2009. PPL Electric expects to have
contracts in place by June 2001. See Note 7 to the Financial Statements for
additional information.

Interest Rate Risk
------------------

PPL Electric has issued debt to finance its operations, which increases interest
rate risk. At March 31, 2001, PPL Electric's potential annual exposure to
increased interest expense due to a 10% increase in interest rates was
approximately $1 million.

PPL Electric is also exposed to changes in the fair value of its debt portfolio.
At March 31, 2001, PPL Electric estimated that its potential exposure to a
change in the fair value of its debt portfolio, through a 10% adverse movement
in interest rates, was approximately $23 million.

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

Financing Activities

See Notes 2 and 7 to the Financial Statements for a discussion of financing
activities.

Financing and Liquidity

Cash and cash equivalents decreased by $161 million more during the three months
ended March 31, 2001, compared with the same period in 2000. The reasons for
this change were:

 .    A $70 million decrease in cash provided by operating activities, primarily
     due to the operating income of assets transferred in corporate realignment.

 .    An $81 million increase in cash used in investing activities, primarily due
     to an increase in loans to affiliated companies. This was partially offset
     by lower property, plant and equipment expenditures in 2001, due to the
     transfer of generation assets as part of the corporate realignment.

 .    A $10 million increase in cash used in financing activities.

Financial Indicators

Earnings for the twelve months ended March 31, 2001 and 2000 were impacted by
nonrecurring items and restructuring impacts. See "Earnings" in PPL Electric's
Form 10-K for the year ended December 31, 2000 for additional information. The
following financial indicators for PPL Electric reflect the elimination of these
impacts from earnings, and provide an additional measure of the underlying
earnings performance of PPL Electric and its subsidiaries. For purposes of
comparability with 2001, the results of assets transferred in the corporate
realignment were also eliminated for the twelve months ended March 31, 2000.

                                         12 Months Ended
                                             March 31,
                                    --------------------------
                                            Adjusted
                                               for
                                            Realignment
                                    2001      2000      2000
                                    ----      ----      ----
 Earnings available to PPL
    (adjusted, in millions).......  $ 141    $ 135     $ 358
 Times interest earned before
    income taxes..................   2.06     2.11      3.53

Environmental Matters

See Note 3 to the Financial Statements for a discussion of environmental
matters.

Increasing Competition

The electric utility industry has experienced, and will continue to experience,
a significant increase in the level of competition in the energy supply market
at both the state and federal level. PPL Electric's PLR supply business will be
affected by customers who select alternate suppliers. Refer to PPL Electric's
Form 10-K for the year ended December 31, 2000 for a discussion of state and
federal activities in this regard.

      Item 3. Quantitative and Qualitative Disclosures About Market Risk
      ------------------------------------------------------------------

Reference is made to "Quantitative and Qualitative Disclosures About Market
Risk," in the Management's Discussion and Analysis of Financial Condition and
Results of Operations.

                                      35
<PAGE>


                      (THIS PAGE LEFT BLANK INTENTIONALLY.)



                       PPL MONTANA, LLC AND SUBSIDIARIES


                                      37
<PAGE>

PPL MONTANA, LLC AND SUBSIDIARIES
---------------------------------
Part 1. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------

In the opinion of PPL Montana, LLC, the unaudited financial statements included
herein reflect all adjustments necessary to present fairly the Consolidated
Balance Sheet as of March 31, 2001 and December 31, 2000, and the Consolidated
Statement of Income, Consolidated Statement of Member's Equity and Other
Comprehensive Income and Consolidated Statement of Cash Flows for the periods
ended March 31, 2001 and 2000.

CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                                  Three Months
                                                                                                 Ended March 31,
                                                                                         -----------------------------
                                                                                              2001           2000
                                                                                         -------------  --------------
<S>                                                                                      <C>            <C>
Operating Revenues
      Wholesale energy marketing and trading.....................................           $   182         $    61
      Other revenues.............................................................                 1               1
                                                                                         -------------  --------------
      Total......................................................................               183              62
                                                                                         -------------  --------------
Operating Expenses
      Operation
          Fuel...................................................................                 9               9
          Energy purchases for wholesale.........................................                17               7
          Other operations and maintenance.......................................                20              12
          Transmission...........................................................                 3               4
      Depreciation...............................................................                 3               4
      Taxes, other than income...................................................                 3               4
                                                                                         -------------  --------------
      Total......................................................................                55              40
                                                                                         -------------  --------------

Operating Income ................................................................               128              22
                                                                                         -------------  --------------

Other Income and (Deductions) - Net..............................................                 1

Interest Expense.................................................................                 2               9
                                                                                         -------------  --------------

Income Before Income Taxes.......................................................               127              13
                                                                                         -------------  --------------

Income Taxes.....................................................................                50               5
                                                                                         -------------  --------------

Net Income.......................................................................           $    77         $     8
                                                                                         =============  ==============
</TABLE>

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

                                      38
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                                              Three Months
                                                                                                             Ended March 31,
                                                                                                   ------------------------------
                                                                                                        2001            2000
                                                                                                   -------------   --------------
<S>                                                                                                <C>             <C>
Net Cash Provided by Operating Activities...................................................           $  117           $    8

Cash Flows From Investing Activities
    Expenditures for property, plant and equipment..........................................               (7)              (4)
                                                                                                   -------------   --------------
        Net cash used in investing activities...............................................               (7)              (4)
                                                                                                   -------------   --------------

Cash Flows From Financing Activities
    Borrowings on revolving line of credit..................................................                                 5
    Repayments on revolving line of credit..................................................                                (5)
    Distribution to member..................................................................             (100)
                                                                                                   -------------   --------------
        Net cash used in financing activities...............................................             (100)
                                                                                                   -------------   --------------

Net Increase in Cash and Cash Equivalents..................................................                10                4
Cash and Cash Equivalents at Beginning of Period...........................................                79                3
                                                                                                   -------------   --------------
Cash and Cash Equivalents at End of Period.................................................            $   89           $    7
                                                                                                   =============   ==============

Supplemental Disclosures of Cash Flow Information
    Cash paid (received) during the period for:
        Interest (net of amount capitalized)................................................           $    0           $    5
        Income taxes........................................................................           $   27           $   (3)
</TABLE>

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

                                      39
<PAGE>

CONSOLIDATED BALANCE SHEET
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)


<TABLE>
<CAPTION>
                                                                                  March 31,      December 31,
                                                                                    2001            2000
                                                                                -----------     -------------
<S>                                                                            <C>              <C>
Assets

Current Assets
    Cash and cash equivalents...............................................    $       89       $       79
    Accounts receivable (less reserve:   2001, $18; 2000, $18)..............            56               87
    Joint owner accounts receivable.........................................             4                7
    Due from affiliates.....................................................            13
    Fuel, material and supplies - at average cost...........................             5                5
    Prepayments and other...................................................             6                5
    Deferred income taxes...................................................           139               20
                                                                                ----------       ----------
                                                                                       312              203
                                                                                ----------       ----------

Noncurrent Assets
    Property, Plant and Equipment - net....................................            433              428
    Deferred income taxes..................................................             27               31
    Other..................................................................             40               34
                                                                                ----------       ----------
                                                                                       500              493
                                                                                ----------       ----------
                                                                                $      812       $      696
                                                                                ==========       ==========

 </TABLE>

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

                                      40
<PAGE>

CONSOLIDATED BALANCE SHEET
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                March 31,      December 31,
                                                                                   2001            2000
                                                                                ---------      ------------

<S>                                                                            <C>             <C>
Liabilities and Equity

Current Liabilities
    Accounts payable.......................................................    $       46      $        50
    Due to affiliates......................................................                             18
    Due to member..........................................................            85               38
    Accrued expenses.......................................................            15               17
    Unrealized derivative losses...........................................           301
    Wholesale energy commitments...........................................            23               23
                                                                               ----------      -----------
                                                                                      470              146
                                                                               ----------      -----------

Noncurrent Liabilities
    Employee benefit obligations...........................................             9                8
    Wholesale energy commitments...........................................            69               75
    Other..................................................................            16               14
                                                                               ----------      -----------
                                                                                      564              243
                                                                               ----------      -----------

Commitments and Contingent Liabilities.....................................
                                                                               ----------      -----------

Member's Equity............................................................           430              453
Accumulated Other Comprehensive Income.....................................          (182)
                                                                               ----------      -----------
                                                                                      248              453
                                                                               ----------      -----------
                                                                               $      812      $       696
                                                                               ==========      ===========
</TABLE>

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

                                      41
<PAGE>

CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND OTHER
COMPREHENSIVE INCOME
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

<TABLE>
<CAPTION>
                                                                                                  For the Three Months Ended
                                                                                                           March 31,
                                                                                                 ----------------------------
                                                                                                     2001            2000
                                                                                                 -------------   ------------

<S>                                                                                              <C>             <C>
Member's equity at beginning of period........................................................   $      453      $       417
     Net income...............................................................................           77                8
     Distribution to member...................................................................         (100)
                                                                                                 ----------      -----------
Member's equity at end of period..............................................................          430              425
                                                                                                 ----------      -----------

Accumulated other comprehensive income at beginning of period.................................
     Unrealized (loss) on qualifying derivatives (a)..........................................         (182)
                                                                                                 ----------      -----------
Accumulated other comprehensive income at end of period.......................................         (182)
                                                                                                 ----------      -----------


Total Member's Equity and Accumulated Other Comprehensive Income..............................   $      248      $       425
                                                                                                 ==========      ===========

(a) Statement of Comprehensive Income:
     Net income...............................................................................   $       77      $         8
     Other comprehensive income, net of tax:
         Unrealized (loss) on qualifying derivatives, net of tax (benefit) of $(119)..........         (182)
                                                                                                 ----------      -----------
     Total other comprehensive income (loss)..................................................         (182)
                                                                                                 ----------      -----------
     Comprehensive income (loss)..............................................................   $     (105)     $         8
                                                                                                 ==========      ===========
</TABLE>

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

                                      42
<PAGE>

                       PPL MONTANA, LLC AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements
                  ------------------------------------------

Terms and abbreviations appearing in Notes to Consolidated Financial Statements
are explained in the glossary.

1.  Interim Financial Statements

Certain information in footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the U.S., has been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the SEC. These financial statements should be read in
conjunction with the financial statements and notes included in PPL Montana's
Form S-4 Registration Statement filed with the SEC on March 2, 2001 for the year
ended December 31, 2000.

Certain amounts in the December 31, 2000 financial statements have been
reclassified to conform to the presentation in the March 31, 2001 financial
statements.

2.  Credit Arrangements and Financing Activities

PPL Montana has a $100 million Tranche B Revolver which matures in November
2002. The maturity date may be extended with the consent of the lenders. Tranche
B Revolver provides that up to $75 million of the commitment may be used to
issue letters of credit. At March 31, 2001, there were no amounts outstanding
under Tranche B Revolver and $63.8 million of letters of credit were issued.

Subsequent to the end of the first quarter, PPL Montana entered into a new
credit facility to allow for incremental letter of credit capacity of $150
million. PPL Montana then issued $145 million of letters of credit under this
new facility to replace the outstanding letters of credit issued on its behalf
by PPL Capital Funding.

PPL has guaranteed certain obligations of PPL Montana for up to $186.2 million
under power purchase and sales agreements at March 31, 2001.

3.  Commitments and Contingent Liabilities

Wholesale Energy Commitments

As part of the purchase of generation assets from Montana Power, PPL Montana
agreed to supply electricity under two wholesale transition service agreements.
In addition, PPL Montana assumed a power purchase agreement and a power sales
agreement. In accordance with purchase accounting guidelines, PPL Montana
recorded a liability of $118 million as an estimate of the fair value of the
contracts at the acquisition date. The supply and purchase contracts are
prospectively amortized over the contract terms as adjustments to "Wholesale
energy marketing and trading" revenues and "Energy purchases for wholesale", on
the Consolidated Statement of Income respectively. The unamortized balance at
March 31, 2001 was $92 million.

Environmental Matters

Air
---

The Clean Air Act deals, in part, with acid rain, attainment of federal ambient
ozone standards and toxic air emissions. PPL Montana is substantially compliant
with the Clean Air Act.

The EPA has developed a revised ambient ozone standard and a new standard for
ambient fine particulates. These standards were challenged and remanded to the
EPA by the D.C. Circuit Court of Appeals in 1999. The United States Supreme
Court is reviewing the Circuit Court decision. The new particulates standard, if
finalized, may require further reductions in SO2 emissions for PPL Montana.

Under the Clean Air Act, the EPA has been studying the health effects of
hazardous air emissions from power plants and other sources, in order to
determine what should be regulated, and has determined that mercury emissions
must be regulated. In this regard, the EPA is expected to develop regulations by
2004.

In 1999, the EPA initiated enforcement actions against eight 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, and
has threatened to continue expanding its enforcement actions. 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's regional offices
that regulate PPL Montana's generation plants have indicated an intention to
issue information requests to all utilities in its jurisdiction and have issued
such a request to PPL Montana related to the J.E. Corette Steam Electric
Station. PPL Montana has responded to the EPA's request for information. PPL
Montana cannot predict what, if any, enforcement action the EPA might take.
Compliance with any such EPA enforcement action could result in additional
capital and operating expenses in

                                      43
<PAGE>

amounts which are not now determinable, but which could be significant.

The EPA has put on hold its proposed revisions to its regulations that would
have required power plants to meet "New Source" performance standards and/or
undergo "New Source" review for many maintenance and repair activities that are
currently exempt.

Water/Waste
-----------

Last year, the EPA significantly tightened the water quality standard for
arsenic.  However, the EPA has now withdrawn the standard in order to further
study the matter.  A tightened standard may require PPL Montana to further
treat wastewater and/or take abatement action at several of its power plants,
the cost of which is not now determinable, but which could be significant.

EPA's proposed requirements for new or modified water intake structures will
affect where generating facilities are built, will establish intake design
standards, and could lead to requirements for cooling towers at new power
plants.  These proposed regulations are expected to be finalized by November of
2001.  In the worst case, the rule could require new or modified cooling towers
at one or more PPL stations.  Another new rule, expected to be finalized in
2003, will address existing structures.  Each of these rules could impose
significant costs on PPL Montana, which are not now determinable.

Remediation
-----------

Future cleanup or remediation work at sites currently under review, or at sites
not currently identified, may result in material additional operating costs for
PPL Montana that cannot be estimated at this time. PPL Montana has been
indemnified by Montana Power for any preacquisition environmental liability.
However, this indemnification is conditioned on certain circumstances that can
result in PPL Montana and Montana Power sharing in certain costs within limits
set forth in the Asset Purchase Agreement.

In October 1999, the Montana Supreme Court held in favor of several citizens'
groups that the right to a clean and healthful environment is a fundamental
right guaranteed by the Montana Constitution. The Court's ruling could result in
significantly more stringent environmental laws and regulation as well as an
increase in citizens' suits under Montana's environmental laws. The effect on
PPL Montana of any such changes in laws or regulations or any such increase in
citizen suits is not now determinable, but could be significant.

General
-------

Due to the environmental issues discussed above or other environmental matters,
PPL Montana may be required to modify, replace or cease operating certain plants
to comply with statutes, regulations and actions by regulatory bodies or courts.
In this regard, PPL Montana also may incur capital expenditures, operating
expenses and other costs in amounts which are not now determinable, but which
could be significant.

4.  Sales to California Independent System Operator

PPL Montana has made approximately $18 million of sales to the California
Independent System Operator ("Cal ISO"), for which PPL Montana has not yet been
paid in full. Given the myriad of electricity supply problems presently faced by
the California electric utilities and the Cal ISO, PPL Montana cannot predict
when it will receive payment. As of March 31, 2001, PPL Montana has fully
reserved for possible underrecoveries of payments for these sales.

Litigation arising out of the California electricity supply situation has been
filed at the FERC and in California courts against sellers of energy to the Cal
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, and other relief, including treble damages and
attorney's fees.

Certain of PPL Montana's subsidiaries have intervened in the FERC proceedings in
order to protect their interests, but have not been named as a defendant in any
of the court actions. Attorneys general in several western states, including
California, have begun investigations related to the electricity supply
situation in California and other western states. PPL Montana cannot predict
whether it will eventually be the target of any governmental investigation or
named in these lawsuits or other lawsuits, the outcome of any such proceeding or
whether the ultimate impact on PPL Montana of the electricity supply situation
in California and other western states will be material.

5.  Pending Transactions

PPL Global, an indirect wholly-owned subsidiary of PPL and an affiliate, was
party to separate Asset Purchase Agreements with Portland General Electric
Company and Puget Sound Energy, Inc. to purchase their respective interests in
the Colstrip Units and certain related transmission assets and rights. The
interested parties mutually agreed to terminate these Asset Purchase Agreements.

The Montana Power Asset Purchase Agreement, previously assigned to PPL Montana
by PPL Global, provided that if neither the Puget Sound Energy, Inc. or Portland
General Electric Company acquisitions were consummated, PPL Montana would be
required to purchase a portion of Montana Power's interest in the 500 kilovolt
Colstrip Transmission System for $97 million, for which regulatory approval has
been received. PPL Montana is currently in discussions with Montana Power to
pursue alternatives to acquiring this entire interest in the Colstrip
Transmission System as contemplated by the Asset Purchase Agreement. These
discussions are ongoing; therefore, PPL Montana cannot predict whether it will
buy all, or less than all of Montana Power's entire interest in the Colstrip
Transmission System, or what the purchase price will be if a purchase occurs.

6.  Adoption of SFAS 133

PPL Montana adopted SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities", on January 1, 2001. SFAS 133 requires that derivative instruments
be recorded on the balance sheet as an asset or liability measured at its fair
value and that changes in the derivative's fair value be recognized

                                      44
<PAGE>

currently in earnings unless specific hedge accounting criteria are met. SFAS
133 requires that as of the date of initial adoption, the difference between the
fair market value of derivative instruments recorded on the balance sheet and
the previous carrying amount of those derivatives be reported in net income or
other comprehensive income, as appropriate.

In accordance with the transition provisions of SFAS 133, PPL Montana had no
recorded cumulative-effect adjustment in earnings to recognize the difference
between the carrying values and fair values of derivatives not designated as
hedging instruments as per SFAS 133.

PPL Montana did record a cumulative-effect adjustment charge of $156 million in
accumulated other comprehensive income to recognize the difference between the
carrying values and fair values of derivatives designated as cash flow hedging
instruments as per SFAS 133. PPL Montana expects to reclassify $120 million into
earnings from the transition adjustment that was recorded in other comprehensive
income during the twelve months ended December 31, 2001.

Accounting for Derivatives and Hedging Activities

All derivatives are recognized on the balance sheet at their fair value.
According to SFAS 133, fair value is defined as the amount at which an asset
(liability) could be bought (incurred) or sold (settled) in a current
transaction between willing parties, other than in a forced or liquidation sale.
On the date the derivative contract is executed, PPL Montana designates the
derivative as:

 .    A hedge of the fair value of a recognized asset or liability or of an
     unrecognized firm commitment ("fair value" hedge),

 .    A hedge of a forecasted transaction or of the variability of cash flows to
     be received or paid related to a recognized asset or liability ("cash flow"
     hedge),

 .    A foreign-currency fair-value or cash flow hedge ("foreign currency"
     hedge),

 .    A hedge of a net investment in a foreign operation, or

 .    A non-hedge derivative.

Changes in the fair value of a derivative that is highly effective as, and that
is designated and qualifies as, a fair value hedge, along with the loss or gain
on the hedged asset or liability that is attributable to the hedged risk, are
recorded in current period earnings. Changes in the fair value of a derivative
that is highly effective as, and that is designated as and qualifies as, a cash
flow hedge are recorded in other comprehensive income, until earnings are
affected by the variability of cash flows being hedged. Changes in the fair
value of derivatives that are designated as and qualifies as foreign currency
hedges are recorded in either current period earnings or other comprehensive
income, depending on whether the hedge transaction is a fair value hedge or a
cash flow hedge. If however, a derivative is used as a hedge of a net investment
in a foreign operation, its changes in fair value, to the extent effective as a
hedge, are recorded in the cumulative translation adjustments account within
equity. Changes in the fair value of derivatives that are not designated as
hedging instruments are reported in current-period earnings.

PPL Montana formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair value, cash flow or foreign currency
hedges to specific assets and liabilities on the balance sheet or to specific
firm commitments or forecasted transactions. PPL Montana formally assesses, both
at the hedge's inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows of hedged items. When it is determined that a
derivative is not highly effective as a hedge, or that it has ceased to be a
highly effective hedge, PPL Montana discontinues hedge accounting prospectively.

PPL Montana discontinues hedge accounting prospectively when it is determined
that the derivative is no longer effective in offsetting changes in the fair
value or cash flows of a hedged item; the derivative expires or is sold,
terminated or exercised; the derivative is de-designated as a hedge instrument
because it is unlikely that a forecasted transaction will occur or management
determines that designation of the derivative as a hedge instrument is no longer
appropriate.

When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair value hedge, the derivative
will continue to be carried on the balance sheet at its fair value, and the
hedged asset or liability will no longer be adjusted for changes in its fair
value. When hedge accounting is voluntarily discontinued so that the forecasted
transaction can be re-hedged with a new hedging instrument, the derivative will
continue to be carried on the balance sheet at its fair value, and gains and
losses that were accumulated in other comprehensive income will be recognized
immediately in earnings. In all other situations in which hedge accounting is
discontinued, the derivative will be carried at its fair value on the balance
sheet, with changes in its fair value recognized in current period earnings.

Derivative Instruments and Hedging Activities

PPL Montana's primary market risk exposures are associated with commodity
prices. PPL Montana actively manages the market risk inherent in its

                                      45
<PAGE>

commodity positions. The Board of Directors of PPL has adopted risk management
policies to manage the risk exposures related to energy prices. This policy
monitors and assists in controlling market risk and use of derivative
instruments to manage some associated commodity activities. As of March 31, 2001
PPL Montana held derivative instruments designated as cash flow hedging
instruments.

Market risk is the adverse effect on the value of a financial instrument that
results from a change in commodity prices. The market risk associated with
commodity prices is managed by the establishment and monitoring of parameters
that limit the types and degree of market risk that may be undertaken.

PPL Montana's derivative activities are subject to the management, direction and
control of the RMC. The RMC is composed of the chief financial officer and other
officers of PPL. The RMC reports to the Board of Directors of PPL on the scope
of its derivative activities. The RMC sets forth risk-management philosophy and
objectives through a corporate policy, provides guidelines for
derivative-instrument usage, and establishes procedures for control and
valuation, counterparty credit approval, and the monitoring and reporting of
derivative activity.

PPL Montana utilizes financial and physical contracts as part of its risk
management strategy to minimize unplanned fluctuations in earnings caused by
commodity price volatility.

PPL Montana maintains a commodity price risk management strategy that uses
derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by commodity price volatility. Fluctuations in electricity
commodities cause firm commitments for purchase or sale to develop unrealized
gains or losses when compared to current commodity prices. PPL Montana uses
swaps to hedge these risks.

By using derivative instruments to hedge exposures to changes in commodity rates
and interest rates PPL Montana exposes itself to credit risk and market risk.
Credit risk is the failure of the counterparty to perform under the terms of the
derivative contract. When the fair value of a derivative contract is positive,
the counter party owes PPL Montana, which creates repayment risk for PPL
Montana. When the fair value of the derivative contract is negative, PPL Montana
owes the counterparty and, therefore it does not possess repayment risk. PPL
Montana minimizes the credit (or repayment) risk in derivative instruments by
entering into transactions with high quality counterparties whose credit ratings
are BBB-/Baa3 or higher, limiting the amount of exposure to each counterparty,
and monitoring the financial condition of its counterparties. Additionally,
depending on the situation, PPL Montana obtains credit enhancements such as
contracts governed by the International Swaps and Derivatives Association Master
Agreement and / or bilateral collateral arrangements.

Fair Value Hedges

PPL Montana had no derivative instruments designated as fair value hedges for
the three months ended March 31, 2001.

Cash Flow Hedges

PPL Montana enters into financial swap contracts to hedge the price risk
associated with electric commodities. These contracts range in maturity through
2006. As of March 31, 2001, PPL Montana recorded a net-of-tax loss of $181.8
million (reported in accumulated other comprehensive income in the Members'
Equity section of the Consolidated Balance Sheet). PPL Montana has reserved and
stands ready to deliver energy from the planned output of its generating units.
In these cases, PPL Montana realized a margin that represents the difference
between the sales price and the average cost of generation.

PPL Montana had no discontinued or de-designated cash flow hedges for the three
months ended March 31, 2001. Additionally, these cash flows hedges had no
associated ineffectiveness to report during the period.

As of March 31, 2001, $130 million of deferred net losses on derivative
instruments accumulated in other comprehensive income are expected to be
reclassified into earnings during the next twelve months. The sale of associated
electricity that is expected to occur over the next twelve months will
necessitate reclassifying to earnings these derivative losses. PPL Montana
expects the majority of these losses to be largely offset by the inverse changes
in the market value of the underlying commodities, the electricity generated.
PPL Montana expects these offsetting gains to exceed the mark-to-market losses
on the associated derivative instruments when the transactions are recorded in
future earnings over the next twelve months.

Other Comprehensive Income
                                                                 For the Three
                                                                 Months Ended
                                                                March 31, 2001
                                                                --------------
                                                                 ($ Millions)
Unrealized losses on derivatives qualified as hedges:
    Unrealized holding losses arising during the
       period due to cumulative effect of a change in
       accounting principle at January 1, 2001................      $ (156)

    Other unrealized holding losses arising during
       the period.............................................         (26)
                                                                    ------

Net unrealized losses on qualifying derivatives
    at March 31, 2001.........................................      $ (182)
                                                                    ======

                                      46
<PAGE>

                       PPL MONTANA, 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 section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in PPL Montana's Form S-4 Registration Statement filed with the SEC
on March 2, 2001 for the year ended December 31, 2000. Terms and abbreviations
appearing in Management's Discussion and Analysis of Financial Condition and
Results of Operations are explained in the glossary.

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

In July 2000, PPL Montana completed a sale and leaseback of its interests in the
Colstrip Generating Station. The owner lessors paid an aggregate amount of
approximately  $410  million  for the leased  assets.  This amount was funded by
equity  contributions from the owner investor to the owner lessors in the amount
of $72 million,  and $338 million of the proceeds from the sale of  pass-through
trust certificates secured by lessor notes.

                             Results of Operations
                             ---------------------

The following discussion explains significant changes in principal items on the
Consolidated Statement of Income, comparing the three months ended March 31,
2001, to the comparable period in 2000.

PPL Montana has a limited operating history. Separate financial statements for
PPL Montana are available only for the period since acquisition. Prior to that,
the portfolio's operations were fully integrated with Montana Power's
operations. Therefore, the Montana portfolio's results of operations were
consolidated into the financial statements of Montana Power. In addition, the
energy generated by the Montana portfolio was sold based on rates set by
regulatory authorities.


Operating Revenues

PPL Montana's revenues were $183 million and $63 million for the quarters ended
March 31, 2001 and 2000, respectively. The increase in revenues was primarily
due to higher wholesale energy prices related to an energy supply shortage in
the western U.S.

PPL Montana has two transition agreements to supply wholesale electricity to
Montana Power. One agreement provides for the sale of 200 megawatts from the
leasehold interest in Colstrip Unit 3 until December 2001. The other agreement
covers Montana Power until the remaining load is zero, but in no event later
than June 2002. On April 20, 2001, PPL announced that PPL EnergyPlus has offered
to provide Montana Power with 500 megawatts of energy to be supplied by PPL
Montana. The term of the contract would be for five years beginning July 1,
2002, which is the day after the termination date of PPL Montana's current
contract to supply energy to Montana Power to serve its retail load not served
by other providers or provided by Montana Power's remaining generation.

Under the new contract, PPL Montana would be obligated to sell this energy to
Montana Power only to the extent that the energy is produced by certain
designated units of PPL Montana. The price under the contract would be fixed at
4 cents per kWh. However, if PPL Montana is subjected to significantly increased
costs or regulatory burdens by the Montana Public Service Commission or the
Montana Legislature or any other governmental authority during the contract
period, PPL Montana could pass the resulting costs through to Montana Power as
an addition to the contract price. Also, in that event PPL Montana could
terminate the contract. After PPL EnergyPlus and Montana Power prepare and agree
to a contract, it will be submitted to the Montana Public Service Commission and
the FERC for review and approval. At this time, PPL and PPL Montana cannot
predict if the parties will reach an agreement, whether any such agreement will
be approved by the Montana Public Service Commission on acceptable terms, what
actions the Montana Public Service Commission, the Montana Legislature or any
other governmental authority may take on these or related matters, or the
ultimate impact on PPL Montana of any of these matters.

As part of the purchase of generation assets from Montana Power, PPL Montana
agreed to supply electricity to the United States Government on behalf of
Flathead Irrigation Project. Under the agreement, which expires in December
2010, PPL Montana is required to supply approximately 7.5 megawatts of capacity
year

                                      47
<PAGE>

round, with an additional 3.7 megawatts during the months of April through
October.

Operation Expenses

Operation costs increased by $17 million for the three months ended March 31,
2001, compared to the same period in 2000. Operation costs consist mainly of
expenses for fuel, energy purchases, transmission tariffs, plant operations and
maintenance, lease rental payments and general and administrative expenses.

Energy purchases increased by $10 million for the three months ended March 31,
2001, compared to the same period in 2000. This change was primarily due to the
increased power costs in the western U. S.

As part of the purchase of generation assets from Montana Power, PPL Montana
assumed a power purchase agreement, which expires in April 2010, with Basin
Electric Power Cooperative. The agreement requires PPL Montana to purchase up to
98 megawatts of firm capacity from November through April of each year.

Other operations and maintenance expense increased by $8 million for the three
months ended March 31, 2001, compared to the same period in 2000. This increase
was primarily due to lease expense associated with the Colstrip plant sale and
leaseback.

Transmission expense decreased by $1 million for the three months ended March
31, 2001, compared to the same period in 2000. This decrease was due to lower
generation in the first quarter of 2001 and more in-state sales in 2001,
requiring less transmission usage.

Depreciation Expense

Depreciation expense decreased by $1 million for the three months ended March
31, 2001, compared to the same period in 2000. This decrease was mainly due to
the reduction of property, plant and equipment related to the sale and leaseback
of PPL Montana's interest in the Colstrip plant completed in July 2000.

Other Income

Other income increased by $1 million for the three months ended March 31, 2001,
compared to the same period in 2000. This change was due mainly to higher
interest income from increased cash and cash equivalents on hand during the
first quarter of 2001.

Interest Expense

Interest expense decreased by $7 million for the three months ended March 31,
2001, compared to the same period in 2000. Interest expense relates to interest
on the credit facility, amortization of related financing costs and interest
upon accretion of wholesale energy commitments. This decrease was mainly due to
the retirement of debt obligations in 2000.

Income Taxes

Income taxes increased by $45 million for the three months ended March 31, 2001,
compared to the same period in 2000. This change was due to the increase in
taxable income in 2001.

                             Financial Conditions
                             --------------------

PPL Montana is required to make semi-annual rent payments under the Colstrip
leases on each January 2 and July 2 during the terms of the leases. PPL
Montana's minimum rent obligations under the leases are approximately $21
million for 2001, $49 million for 2002, $47 million for 2003, $44 million for
2004, $38 million for 2005 and a total of $509 million for the remaining term of
the leases. As a result of these obligations, a substantial portion of PPL
Montana's cash flow from operations will be dedicated to payments of rent under
the leases.

PPL Montana expects to make continued capital expenditures for the Montana
portfolio. The average capital expenditures PPL Montana expects to make are
approximately $15 million per year for the next three years. Compliance with
environmental standards will continue to be reflected in PPL Montana's capital
expenditures and operating costs. PPL Montana believes that cash flow from its
operations will be sufficient to cover aggregate rent payments under the leases
and, together with borrowings under its working capital facility, to cover
expected capital expenditure requirements. If the cash flow from PPL Montana's
operations is not sufficient, any unanticipated capital expenditures could
adversely affect its cash flow from operations and operating income in the
period incurred.

Sales to California Independent System Operator

See Note 4 to the Financial Statements for information regarding sales to the
California ISO.

Market Risk Sensitive Instruments

Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------

PPL Montana actively manages the market risks inherent in its business. The
Board of Directors of PPL has adopted a risk management policy to manage risk
exposure. The policy establishes a risk management committee, comprised of
certain executive officers, which oversees the risk management function.
Nonetheless, adverse changes in commodity prices and interest rates may result
in losses in earnings, cash flows and/or fair

                                      48
<PAGE>

values. The forward-looking information presented below only provides estimates
of what may occur in the future, assuming certain adverse market conditions, due
to reliance on model assumptions. As a result, actual future results may differ
materially from those presented. These disclosures are not precise indicators of
expected future losses, but only indicators of reasonably possible losses.

Commodity Price Risk
--------------------

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

At March 31, 2001, PPL Montana estimated that a 10% adverse movement in market
prices across the markets PPL Montana operates in and across all time periods
could have decreased the value of the non-trading portfolio by approximately $47
million at March 31, 2001. However, this effect would have been offset by the
change in the value of the underlying commodity, the electricity generated. In
addition to commodity price risk, PPL Montana's commodity positions are also
subject to operational and event risks including, among others, increases in
load demand and forced outages at generating plants. As of March 31, 2001, PPL
Montana did not have a trading portfolio.

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

Interest Rate Risk
------------------

PPL Montana may use borrowings to provide funds for its operations. PPL Montana
utilizes various risk management instruments to reduce its exposure to adverse
interest rate movements through the use of financial derivative products to
adjust the mix of fixed and floating-rate interest rates in its debt portfolio.
PPL Montana has risk limits designed to balance risk exposure to volatility in
interest expense and losses in the fair value of the debt portfolio due to
changes in the absolute level of interest rates. PPL Montana had no borrowings
outstanding as of March 31, 2001.

Financing and Liquidity

Cash and cash equivalents increased by $6 million more during the three months
ended March 31, 2001, compared with the same period in 2000. The reasons for
this change were:

 .    A $109 million increase in cash provided by operating activities, primarily
     due to an increase in operating income,

 .    A $3 million increase in cash used in investing activities due to more
     expenditures for property, plant and equipment,

 .    A $100 million increase in cash used in financing activities due to a
     distribution to the member.

Environment Matters

See Note 3 to the financial statements for a discussion of environmental
matters.


      Item 3. Quantitative and Qualitative Disclosures About Market Risk
      ------------------------------------------------------------------

Reference is made to "Quantitative and Qualitative Disclosures About Market
Risk," in Management's Discussion and Analysis of Financial Condition and
Results of Operations.

                                      49
<PAGE>

                               PPL CORPORATION,
                               ----------------
                      PPL ELECTRIC UTILITIES CORPORATION,
                      -----------------------------------
                       PPL MONTANA, LLC AND SUBSIDIARIES
                       ---------------------------------

                          PART II. OTHER INFORMATION
                          --------------------------


Item 1.  Legal Proceedings
--------------------------

         Reference is made to "Legal Proceedings" in PPL's and PPL Electric's
         Annual Report to the SEC on Form 10-K for the year ended December 31,
         2000, "Legal Matter" in PPL Montana's Form S-4 and to the PPL, PPL
         Electric and PPL Montana Notes to Consolidated Financial Statements for
         additional information regarding various pending administrative and
         judicial proceedings involving regulatory, environmental and other
         matters.

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

         (a)      Exhibits

                           12a, 12b and 12c - Computation of Ratio of Earnings
                           to Fixed Charges

         (b)      Reports on Form 8-K

         Report dated January 24, 2001
         -----------------------------

         Item 5.  Other Events

                  Information regarding PPL's 2000 earnings and revised earnings
                  forecast for 2001 and 2002.

                                      50
<PAGE>

                                   SIGNATURE
                                   ---------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. 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 Electric Utilities Corporation
                                             ----------------------------------
                                                      (Registrant)





Date:  May 14, 2001                          /s/ John R. Biggar
                                             -----------------------------------
                                                      John R. Biggar
                                               Executive Vice President and
                                                 Chief Financial Officer
                                                    (PPL Corporation)
                                               (principal financial officer)




                                           /s/  Joseph J. McCabe
                                           -------------------------------------
                                                      Joseph J. McCabe
                                                Vice President and Controller
                                            (PPL Electric Utilities Corporation)
                                               (principal accounting officer)

                                      51
<PAGE>

                                   SIGNATURE
                                   ---------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                             PPL Montana, LLC
                                             ----------------
                                               (Registrant)


Date:  May 14, 2001                          /s/  Paul A. Farr
                                             -----------------------------------
                                                        Paul A. Farr
                                               Vice President, Chief Financial
                                               Officer and Assistant Secretary
                                                  (principal financial and
                                                     accounting officer)

                                      52