UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549



Form 10-Q







|[X]  | QUARTERLY REPORT PURSUANT TO SECTION
        13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
        ended September 30, 2004       
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | OR                                                                                                                                                              
|[  ] | TRANSITION REPORT PURSUANT TO SECTION
        13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition
        period from _________ to ___________





| | Commission FileNumber | Registrant; State of Incorporation;
        Address and Telephone Number                                                                                                                                        | IRS EmployerIdentification No.
| | --------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------
| |                       |                                                                                                                                                                                                                 |                               
| | 1-11459               | PPL Corporation
        (Exact name of Registrant as specified in its charter)
        (Pennsylvania)
        Two North Ninth Street
        Allentown, PA 18101-1179
        (610) 774-5151                    | 23-2758192                    
| |                       |                                                                                                                                                                                                                 |                               
| | 333-74794             | PPL Energy Supply, LLC
        (Exact name of Registrant as specified in its charter)
        (Delaware)
        Two North Ninth Street
        Allentown, PA 18101-1179
        (610) 774-5151                 | 23-3074920                    
| |                       |                                                                                                                                                                                                                 |                               
| | 1-905                 | PPL Electric Utilities Corporation
        (Exact name of Registrant as specified in its charter)
        (Pennsylvania)
        Two North Ninth Street
        Allentown, PA 18101-1179
        (610) 774-5151 | 23-0959590                    



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



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



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



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

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



| | PPL Corporation                    | Common stock, $.01 par value, 189,043,186
        shares outstanding at October 29, 2004, 
        excluding 31,035,063 shares held as treasury 
        stock                             
| | ---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                    |                                                                                                                                                                                            
| | PPL Energy Supply, LLC             | PPL Corporation indirectly holds all of the
        
        member interests in PPL Energy Supply, LLC.                                                                                   
| |                                    |                                                                                                                                                                                            
| | PPL Electric Utilities Corporation | Common stock, no par value, 78,029,863 
        shares outstanding and all held by PPL 
        Corporation at October 29, 2004, excluding
        79,270,519 shares held as treasury stock

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



---



FORM 10-Q
  FOR THE QUARTER ENDED SEPTEMBER 30, 2004



Table of Contents



|                                                                                                                                                      | Page                                                                                                 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------
|GLOSSARY OF TERMS AND
        ABBREVIATIONS                                                                                                           |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|FORWARD-LOOKING INFORMATION                                                                                                                           | 1                                                                                                    
|                                                                                                                                                      |                                                                                                      
|PART I. FINANCIAL INFORMATION                                                                                                                         |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      | Item 1. Financial Statements                                                                         
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      | Item 2. Management's
        Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      | Item
        3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      | Item
        4. Controls and Procedures                                                              
|                                                                                                                                                      |                                                                                                      
|PART II. OTHER INFORMATION                                                                                                                            |                                                                                                      
|                                                                                                                                                      | Item
        1. Legal Proceedings                                                                    
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      | Item
        6. Exhibits                                                                             
|                                                                                                                                                      |                                                                                                      
|SIGNATURES                                                                                                                                            | 68                                                                                                   
|                                                                                                                                                      |                                                                                                      
|COMPUTATION OF RATIO
        OF EARNINGS TO FIXED CHARGES                                                                                             |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|CERTIFICATES OF PRINCIPAL
        EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION
        302 OF THE SARBANES-OXLEY ACT OF 2002 |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|CERTIFICATES OF PRINCIPAL
        EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION
        906 OF THE SARBANES-OXLEY ACT OF 2002 |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      
|                                                                                                                                                      |                                                                                                      



---





GLOSSARY OF TERMS AND ABBREVIATIONS

£ - British pounds sterling.

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

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

APA - Asset Purchase Agreement.

ARB- Accounting Research Bulletin.

ARO - asset retirement obligation.

Bcf - billion cubic feet.

CEMAR - Companhia Energética do Maranhão, a Brazilian
  electric distribution company in which PPL Global had a majority ownership interest
  until the transfer of this interest in April 2004.

CGE-Compañia General de Electricidad, S.A., a
  distributor of electricity and natural gas with other industrial segments in
  Chile and Argentina in which PPL Global had an 8.7% direct and indirect minority
  ownership interest until the sale of this interest in March 2004.

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

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

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

DelSur-Distribuidora de Electricidad Del Sur,
  S.A. de C.V., an electric distribution company in El Salvador, a majority of
  which is owned by EC.

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

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

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

DIG- Derivatives Implementation Group.

EC - Electricidad de Centroamerica, S.A. de C.V., an El Salvadoran
  holding company and the majority owner of DelSur. EC was also the majority owner
  of El Salvador Telecom, S.A. de C.V. until the sale of this company in June
  2004. PPL Global has 100% ownership of EC.

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

EMF - electric and magnetic fields.

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

EPS - earnings per share.

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

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

FIN - FASB Interpretation.

FSP - FASB Staff Position.

GAAP - generally accepted accounting principles.

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

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

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

ISO - Independent System Operator.

LIBOR - London Interbank Offered Rate.

Mirant - Mirant Corporation, a diversified energy company based
  in Atlanta. PPL Global and Mirant jointly owned WPD from 1996 until September
  6, 2002.

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

MW - megawatt, one thousand kilowatts.

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

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

NPDES - National Pollutant Discharge Elimination System.

NRC - Nuclear Regulatory Commission, the 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, an additive to oil used in certain
  electrical equipment up to the late-1970s. Now classified as a hazardous chemical.

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

PEPS Units, Series B(Premium Equity Participating Security Units,
  or PEPSSM Units, Series B) - securities issued by PPL and PPL Capital
  Funding, that consisted of an undivided interest in a debt security issued by
  PPL Capital Funding and guaranteed by PPL, and a forward contract to purchase
  PPL common stock.

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

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

PP&E- property, plant and equipment.

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

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

PPL Capital Funding Trust I - a Delaware statutory business trust
  created to issue the Preferred Security component of the PEPS Units. This trust
  was terminated in June 2004.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PURTA - the Pennsylvania Public Utility Realty Tax Act.

SCR - selective catalytic reduction, a pollution control process.

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

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

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

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

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

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

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

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

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

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

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

---

Forward-looking Information

Statements contained in this Form 10-Q concerning expectations, beliefs, plans,
  objectives, goals, strategies, future events or performance and underlying assumptions
  and other statements which are other than statements of historical facts are
  "forward-looking statements" within the meaning of the federal securities laws.
  Although PPL, PPL Energy Supply and PPL Electric believe that the expectations
  and assumptions reflected in these statements are reasonable, there can be no
  assurance that these expectations will prove to be correct. These forward-looking
  statements involve a number of risks and uncertainties, and actual results may
  differ materially from the results discussed in the forward-looking statements.
  In addition to the specific factors discussed in the Management's Discussion
  and Analysis of 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 conditions affecting customer energy usage and operating costs;
- competition in retail and wholesale power markets;
- the outcome of pending rate cases in Pennsylvania and in the U.K.;
- the effect of any business or industry restructuring;
- the profitability and liquidity of PPL and its subsidiaries;
- new accounting requirements or new interpretations or applications of existing
    requirements;
- operation of existing facilities and operating costs;
- environmental conditions and requirements;
- transmission and distribution system conditions and operating costs;
- development of new projects, markets and technologies;
- performance of new ventures;
- asset acquisitions and dispositions;
- political, regulatory or economic conditions in states, regions or countries
    where PPL or its subsidiaries conduct business;
- receipt of necessary governmental permits, approvals and rate relief;
- impact of state or federal investigations applicable to PPL and its subsidiaries
    and the energy industry;
- the outcome of litigation against PPL and its subsidiaries;
- capital market conditions and decisions regarding capital structure;
- stock price performance;
- the market prices of equity securities and the impact on pension income and resultant cash funding requirements
    for defined benefit pension plans;
- securities and credit ratings;
- state and federal regulatory developments;
- foreign exchange rates;
- new state or federal legislation, including new tax legislation;
- national or regional economic conditions, including any potential effects
    arising from terrorist attacks in the U.S., the situation in Iraq and any
    consequential hostilities or other hostilities; and
- the commitments and liabilities of PPL and its subsidiaries.

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

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

---

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

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

---

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

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|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                                       
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Liabilities and Equity                                                                                                                 
|                                                                                                                                       
|Current Liabilities                                                                                                                    
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|Long-term Debt (Note 7)                                                                                                                
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|Long-term Debt with Affiliate
        Trusts (Note 7)                                                                                  
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|Deferred Credits and Other
        Noncurrent Liabilities                                                                              
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|Commitments and Contingent
        Liabilities                                                                                         
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|Minority Interest                                                                                                                      
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|Preferred Stock without Sinking
        Fund Requirements                                                                              
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|Shareowners' Common Equity                                                                                                             
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|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

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

---

|CONDENSED CONSOLIDATED
        STATEMENT OF CASH FLOWS                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by Operating
        Activities (Note 10)                                                                            
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows from Investing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows from Financing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Effect of Exchange Rates
        on Cash and Cash Equivalents                                                                          
|                                                                                                                                       
|Net Increase in Cash and
        Cash Equivalents                                                                                      
|Cash and Cash Equivalents at
        Beginning of Period                                                                               
|                                                                                                                                       
|Cash and Cash Equivalents at
        End of Period                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

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

---

|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Liabilities and Equity                                                                                                                 
|                                                                                                                                       
|Current Liabilities                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Long-term Debt                                                                                                                         
|                                                                                                                                       
|Note Payable to Affiliate                                                                                                              
|                                                                                                                                       
|Long-term Debt with Affiliate
        Trust                                                                                            
|                                                                                                                                       
|                                                                                                                                       
|Deferred Credits and Other
        Noncurrent Liabilities                                                                              
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Commitments and Contingent
        Liabilities                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Minority Interest                                                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity                                                                                                                        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

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

---

|CONDENSED
        CONSOLIDATED STATEMENT OF CASH FLOWS                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
        Subsidiaries                                                                            
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by Operating
        Activities (Note 10)                                                                            
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows from Investing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows from Financing
        Activities                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Increase (Decrease) in
        Cash and Cash Equivalents                                                                           
|Cash and Cash Equivalents at
        Beginning of Period                                                                               
|                                                                                                                                       
|Cash and Cash Equivalents at
        End of Period                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

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

---

|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
        Subsidiaries                                                                            
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Liabilities and Equity                                                                                                                 
|                                                                                                                                       
|Current Liabilities                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Long-term Debt                                                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Deferred Credits and Other
        Noncurrent Liabilities                                                                              
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Commitments and Contingent
        Liabilities                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|Preferred Stock without Sinking
        Fund Requirements                                                                              
|                                                                                                                                       
|                                                                                                                                       
|Shareowner's Common Equity                                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

Combined Notes to Condensed Consolidated
  Financial Statements

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

1. Interim Financial Statements
    (PPL, PPL Energy Supply and PPL Electric)
    The accompanying unaudited condensed consolidated financial statements
      have been prepared in accordance with accounting principles generally accepted
      in the U.S. for interim financial information and with the instructions
      to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include
      all of the information and footnotes required by accounting principles generally
      accepted in the U.S. for complete financial statements. In the opinion of
      management, all adjustments (including normal, recurring accruals) considered
      necessary for a fair presentation in accordance with accounting principles
      generally accepted in the U.S. are reflected in the condensed consolidated
      financial statements. The Balance Sheet as of December 31, 2003, is derived
      from each Registrant's 2003 audited Balance Sheet. The financial statements
      and notes thereto should be read in conjunction with the financial statements
      and notes contained in each Registrant's Annual Report to the SEC on Form
      10-K for the year ended December 31, 2003. The results of operations for
      the three and nine months ended September 30, 2004, are not necessarily
      indicative of the results to be expected for the full year ending December
      31, 2004, or other future periods, because results for interim periods can
      be disproportionately influenced by various factors and developments and
      seasonal variations.
    Certain amounts in the September 30, 2003, and December 31, 2003, financial
      statements have been reclassified to conform to the presentation in the
      September 30, 2004, financial statements.
2. Summary of Significant Accounting Policies
    The following accounting policy disclosures represent updates to the "Summary
      of Significant Accounting Policies" Note in each Registrant's Annual Report
      to the SEC on Form 10-K for the year ended December 31, 2003.
    Restricted Cash (PPL, PPL Energy Supply and PPL Electric)
    See Note 14 for a discussion of the types of restricted cash and the presentation
      on the Balance Sheet.
    Stock-Based Compensation
    (PPL and PPL Energy Supply)
    The following tables illustrate the pro forma effect on net income and
      EPS as if the fair value method had been used to account for all outstanding
      stock-based compensation awards in the periods shown:
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003PPLNet IncomeNet Income - as reported
        
        $
        196
        
        
        $
        171
        
        
        $
        521
        
        
        $
        526Add: Stock-based employee compensation
            expense included in reported net income, net of tax
        
        
        2
        
        
        
        1
        
        
        
        6
        
        
        
        4Deduct: Total stock-based compensation
            expense determined under the fair value method for all awards, net
            of tax
        
        
        3
        
        
        
        2
        
        
        
        7
        
        
        
        6Pro forma Net
            Income
        
        $
        195
        
        
        $
        170
        
        
        $
        520
        
        
        $
        524EPSBasic - as reported
        
        $
        1.04
        
        
        $
        0.97
        
        
        $
        2.85
        
        
        $
        3.07Basic - pro forma
        
        $
        1.04
        
        
        $
        0.97
        
        
        $
        2.84
        
        
        $
        3.05Diluted - as reported
        
        $
        1.03
        
        
        $
        0.97
        
        
        $
        2.84
        
        
        $
        3.06Diluted - pro forma
        
        $
        1.03
        
        
        $
        0.96
        
        
        $
        2.83
        
        
        $
        3.04PPL Energy SupplyNet Income - as reported
        
        $
        192
        
        
        $
        190
        
        
        $
        495
        
        
        $
        538Add: Stock-based employee compensation
            expense included in reported net income, net of tax
        
        
        1
        
        
        
        1
        
        
        
        4
        
        
        
        2Deduct: Total stock-based compensation
            expense determined under the fair value method for all awards, net
            of tax
        
        
        2
        
        
        
        1
        
        
        
        5
        
        
        
        4Pro forma Net
            Income
        
        $
        191
        
        
        $
        190
        
        
        $
        494
        
        
        $
        536(PPL Electric)
    Stock-based compensation expense, including awards granted to employees
      and an allocation of costs of awards granted to employees of PPL Services,
      was insignificant for PPL Electric under both the intrinsic value and fair
      value methods for the three and nine months ended September 30, 2004.
    New Accounting Standards(PPL, PPL Energy Supply and PPL Electric)
    See Note 18 for a discussion of new accounting standards adopted in 2004
      or pending adoption.
3. Segment and Related Information
    (PPL and PPL Energy Supply)
    See the "Segment and Related Information" Note in each Registrant's Annual
      Report to the SEC on Form 10-K for the year ended December 31, 2003, for
      a discussion of reportable segments.
    Financial data for the segments are as follows:
    PPL
        
        Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Income Statement DataRevenues from external customersSupply
        
        $
        527
        
        
        $
        546
        
        
        $
        1,384
        
        
        $
        1,457International
        
        
        252
        
        
        
        237
        
        
        
        817
        
        
        
        756Delivery
        
        
        686
        
        
        
        679
        
        
        
        2,146
        
        
        
        2,0841,465
        
        
        
        1,462
        
        
        
        4,347
        
        
        
        4,297Intersegment revenuesSupply
        
        
        373
        
        
        
        368
        
        
        
        1,129
        
        
        
        1,082Delivery
        
        
        40
        
        
        
        40
        
        
        
        118
        
        
        
        122Net IncomeSupply (a)
        
        
        145
        
        
        
        160
        
        
        
        314
        
        
        
        401International
        
        
        38
        
        
        
        19
        
        
        
        152
        
        
        
        96Delivery
        
        
        13
        
        
        
        (8
        )
        
        
        55
        
        
        
        29$
        196
        
        
        $
        171
        
        
        $
        521
        
        
        $
        526September
            30,
            2004
        
        
        December
            31,
            2003Balance Sheet DataTotal assetsSupply
        
        $
        6,745
        
        
        $
        6,491International
        
        
        5,059
        
        
        
        4,942Delivery
        
        
        5,769
        
        
        
        5,690$
        17,573
        
        
        $
        17,123PPL Energy Supply
        
        Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Income Statement DataRevenues from external customersSupply
        
        $
        895
        
        
        $
        909
        
        
        $
        2,500
        
        
        $
        2,525International
        
        
        252
        
        
        
        237
        
        
        
        817
        
        
        
        7561,147
        
        
        
        1,146
        
        
        
        3,317
        
        
        
        3,281Net IncomeSupply (a)
        
        
        154
        
        
        
        171
        
        
        
        343
        
        
        
        442International
        
        
        38
        
        
        
        19
        
        
        
        152
        
        
        
        96$
        192
        
        
        $
        190
        
        
        $
        495
        
        
        $
        538
    
    September
            30,2004
        
        
        December
            31,2003Balance Sheet DataTotal assetsSupply
        
        $
        7,250
        
        
        $
        6,308International
        
        
        5,059
        
        
        
        4,942$
        12,309
        
        
        $
        11,250(a)
        
        The nine months ended September 30,
            2003, includes the "Cumulative Effect of a Change in Accounting Principle"
            recorded in January 2003. See Note 16 for additional information.
4. Earnings Per Share
    (PPL)
    Basic EPS is calculated using the weighted-average number of common shares
      outstanding during the period. Diluted EPS is calculated using weighted
      average shares outstanding that are increased for additional shares that
      would be outstanding if potentially dilutive securities were converted to
      common stock. Potentially dilutive securities consist of:
    
        stock options, restricted stock and restricted
            stock units granted under the incentive compensation plans;
        stock units representing common stock
            granted under the directors compensation programs;
        common stock purchase contracts that
            were a component of the PEPS Units and PEPS Units, Series B; and
        convertible senior notes.The basic and diluted EPS calculations, and the reconciliation of the shares
      (in thousands) used in the calculations, are shown below:
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Income (Numerator)Income from Continuing Operations
        
        $
        196
        
        
        $
        171
        
        
        $
        523
        
        
        $
        464Loss from Discontinued Operations
            (net of tax)
        
        
        
        
        
        
        
        
        
        
        2
        
        
        
        1Cumulative Effect of a Change in Accounting
            Principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        63Net Income
        
        $
        196
        
        
        $
        171
        
        
        $
        521
        
        
        $
        526Shares (Denominator)Shares for Basic EPS
        
        
        188,586
        
        
        
        176,397
        
        
        
        182,889
        
        
        
        171,577Add: Incremental shares:Stock options and other share-based
            awards
        
        
        742
        
        
        
        654
        
        
        
        638
        
        
        
        604Shares for Diluted EPS
        
        
        189,328
        
        
        
        177,051
        
        
        
        183,527
        
        
        
        172,181
    
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Basic EPSIncome from Continuing Operations
        
        $
        1.04
        
        
        $
        0.97
        
        
        $
        2.86
        
        
        $
        2.71Loss from Discontinued Operations
            (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.01Cumulative Effect of a Change in Accounting
            Principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        0.36Net Income
        
        $
        1.04
        
        
        $
        0.97
        
        
        $
        2.85
        
        
        $
        3.07Diluted EPSIncome from Continuing Operations
        
        $
        1.03
        
        
        $
        0.97
        
        
        $
        2.85
        
        
        $
        2.70Loss from Discontinued Operations
            (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.01Cumulative Effect of a Change in Accounting
            Principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        0.36Net Income
        
        $
        1.03
        
        
        $
        0.97
        
        
        $
        2.84
        
        
        $
        3.06In May 2001, PPL and PPL Capital Funding Trust I issued 23 million PEPS
      Units that contained a purchase contract component for PPL's common stock.
      The purchase contracts were only dilutive if the average price of PPL's
      common stock exceeded a threshold appreciation price, which was adjusted
      for cash distributions on PPL common stock. The threshold appreciation price
      was initially set at $65.03 and was adjusted to $63.38 as of April 1, 2004,
      based on dividends paid on PPL's common stock since issuance. The purchase
      contracts were settled in May 2004. Since the average price did not exceed
      the threshold appreciation price, the purchase contracts were excluded from
      the diluted EPS calculations for the appropriate periods.
    In January 2004, PPL completed an exchange offer resulting in the exchange
      of approximately four million PEPS Units for PEPS Units, Series B. The primary
      difference in the units related to the debt component. The purchase contract
      components of both units, which were potentially dilutive, were identical.
      The threshold appreciation price for the purchase contract component of
      the PEPS Units, Series B was adjusted in the same manner as that of the
      PEPS Units and was $63.38 as a result of the adjustment as of April 1, 2004.
      These purchase contracts were settled in May 2004. Since the average price
      did not exceed the threshold appreciation price, the purchase contracts
      were excluded from the diluted EPS calculations for the nine months ended
      September 30, 2004. See Note 7 for a more detailed discussion of the exchange
      offer.
    In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible
      Senior Notes due 2023. The notes are guaranteed by PPL and can be converted
      into shares of PPL common stock if:
    
        during any fiscal quarter starting after
            June 30, 2003, the market price of PPL's common stock trades at or
            above $59.67 per share over a certain period during the preceding
            fiscal quarter;
        PPL calls the debt for redemption;
        the holder exercises its right to put
            the debt on any five-year anniversary of the offering;
        the long-term credit rating assigned
            to the notes by Moody's Investors Service, Inc. and Standard &
            Poor's Ratings Services falls below Ba2 and BB or the notes are not
            rated; or
        certain specified corporate transactions
            occur, e.g., change in control and certain distributions to the holders
            of PPL common stock.The initial conversion rate is 20.1106 shares per $1,000 principal amount
      of notes. It will be adjusted if certain specified distributions, whether
      in the form of cash, stock, other equity interests, evidence of indebtedness
      or assets, are made to holders of PPL common stock. Additionally, the conversion
      rate can be increased by PPL if its Board of Directors has made a determination
      that to do so would be in the best interests of either PPL or holders of
      PPL common stock.
    Depending upon which of the conversion events identified above occurs,
      the Convertible Senior Notes can be settled in cash or shares. As none of
      these events has occurred, the Convertible Senior Notes were excluded from
      the diluted EPS calculations. See Note 18 for a discussion of EITF Issue
      04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings
      per Share," and the potential impact of the Convertible Senior Notes on
      diluted EPS. Also, see Note 7 for a discussion of the consent solicitation
      related to the Convertible Senior Notes.
    The following number of stock options to purchase PPL common shares were
      excluded in the periods' computations of diluted EPS because the effect
      would have been antidilutive.
    Three
            Months Ended 
            September 30,
        
        
        
        Nine Months
            Ended
            September 30,(Thousands of Shares)
        
        2004
        
        
        
        2003
        
        
        
        2004
        
        
        
        2003Antidilutive stock options
        
        747
        
        
        
        1,673
        
        
        
        1,266
        
        
        
        1,687See Note 18 for a discussion of EITF Issue 03-6, "Participating Securities
      and the Two-Class Method under FASB Statement No. 128, 'Earnings Per Share'."
5. Income Taxes
    Reconciliations of effective income tax rates are as follows:
    (PPL)
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Reconciliation of 
            Income Tax ExpenseIndicated federal income tax on pre-tax
            income before extraordinary item at statutory tax rate - 35%
        
        $
        96
        
        
        $
        90
        
        
        $
        247
        
        
        $
        244Increase (decrease) due
            to:State income taxes
        
        
        10
        
        
        
        8
        
        
        
        10
        
        
        
        18Amortization of investment tax credit
        
        
        (3
        )
        
        
        (3
        )
        
        
        (8
        )
        
        
        (8
        )Difference related to income recognition
            of foreign affiliates (net of foreign income taxes)
        
        
        (8
        )
        
        
        (2
        )
        
        
        (26
        )
        
        
        (7
        )Federal income tax credits
        
        
        (21
        )
        
        
        (12
        )
        
        
        (50
        )
        
        
        (38
        )Other
        
        
        1
        
        
        
        2
        
        
        
        
        
        
        
        (8
        )(21
        )
        
        
        (7
        )
        
        
        (74
        )
        
        
        (43
        )Total income tax expense
        
        $
        75
        
        
        $
        83
        
        
        $
        173
        
        
        $
        201Effective income tax rate
        
        
        27.4%
        
        
        
        32.0%
        
        
        
        24.6%
        
        
        
        28.8%(PPL Energy Supply)
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Reconciliation of 
            Income Tax ExpenseIndicated federal income tax on pre-tax
            income before extraordinary item at statutory tax rate - 35%
        
        $
        93
        
        
        $
        101
        
        
        $
        231
        
        
        $
        240Increase (decrease) due
            to:State income taxes
        
        
        9
        
        
        
        8
        
        
        
        8
        
        
        
        11Amortization of investment tax credit
        
        
        (2
        )
        
        
        (2
        )
        
        
        (6
        )
        
        
        (6
        )Difference related to income recognition
            of foreign affiliates (net of foreign income taxes)
        
        
        (8
        )
        
        
        (2
        )
        
        
        (26
        )
        
        
        (7
        )Federal income tax credits
        
        
        (21
        )
        
        
        (12
        )
        
        
        (50
        )
        
        
        (38
        )Other
        
        
        
        
        
        
        1
        
        
        
        (1
        )(22
        )
        
        
        (7
        )
        
        
        (75
        )
        
        
        (40
        )Total income tax expense
        
        $
        71
        
        
        $
        94
        
        
        $
        156
        
        
        $
        200Effective income tax rate
        
        
        26.8%
        
        
        
        32.6%
        
        
        
        23.7%
        
        
        
        29.2%
    (PPL Electric)
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Reconciliation of 
            Income Tax ExpenseIndicated federal income tax on pre-tax
            income before extraordinary item at statutory tax rate - 35%
        
        $
        8
        
        
        $
        (4
        )
        
        $
        28
        
        
        $
        13Increase (decrease) due
            to:State income taxes
        
        
        (1
        )
        
        
        (1
        )
        
        
        1
        
        
        
        1Amortization of investment tax credit
        
        
        (1
        )
        
        
        (1
        )
        
        
        (2
        )
        
        
        (2
        )Other
        
        
        
        
        
        
        1(2
        )
        
        
        (1
        )
        
        
        (1
        )
        
        
        (1
        )Total income tax (benefit)
            expense
        
        $
        6
        
        
        $
        (5
        )
        
        $
        27
        
        
        $
        12Effective income tax rate
        
        
        27.3%
        
        
        
        50.0%
        
        
        
        33.8%
        
        
        
        31.6%
6. Comprehensive Income
    (PPL and PPL Energy Supply)
    The following tables show the after-tax components of comprehensive income:
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003PPLNet Income
        $
        196
        
        
        $
        171
        
        
        $
        521
        
        
        $
        526Other comprehensive income
            (loss):Foreign currency translation adjustments
        
        (11
        )
        
        
        (5
        )
        
        
        39
        
        
        
        12Sale of CEMAR - currency translation
            adjustment
        
        
        
        
        
        
        
        
        
        (4
        )Sale of CGE - currency translation
            adjustment
        
        
        
        
        
        
        
        
        
        10Unrealized gain (loss) on available-for-sale
            securities
        
        1
        
        
        
        (2
        )
        
        
        (3
        )
        
        
        7Unrealized loss on qualifying derivatives
        
        (8
        )
        
        
        (25
        )
        
        
        (37
        )
        
        
        (11
        )Total other comprehensive income (loss)
        
        (18
        )
        
        
        (32
        )
        
        
        5
        
        
        
        8Comprehensive Income
        $
        178
        
        
        $
        139
        
        
        $
        526
        
        
        $
        534PPL Energy SupplyNet Income
        $
        192
        
        
        $
        190
        
        
        $
        495
        
        
        $
        538Other comprehensive income
            (loss):Foreign currency translation adjustments
        
        (11
        )
        
        
        (5
        )
        
        
        39
        
        
        
        12Sale of CEMAR - currency translation
            adjustment
        
        
        
        
        
        
        
        
        
        (4
        )Sale of CGE - currency translation
            adjustment
        
        
        
        
        
        
        
        
        
        10Unrealized gain (loss) on available-for-sale
            securities
        
        (2
        )
        
        
        (3
        )
        
        
        (6
        )
        
        
        5Unrealized loss on qualifying derivatives
        
        (2
        )
        
        
        (29
        )
        
        
        (39
        )
        
        
        (5
        )Total other comprehensive income (loss)
        
        (15
        )
        
        
        (37
        )
        
        
        
        
        
        
        12Comprehensive Income
        $
        177
        
        
        $
        153
        
        
        $
        495
        
        
        $
        550(PPL Electric)
    PPL Electric's comprehensive income approximates net income.
7. Credit Arrangements and Financing Activities
    Credit Arrangements
    (PPL, PPL Energy Supply and PPL Electric)
    In February 2004, PPL Energy Supply reduced the size of its $500 million
      three-year credit facility expiring in June 2004 to $200 million. In June
      2004, PPL Energy Supply replaced this facility and its $300 million three-year
      facility expiring in June 2005 with an $800 million five-year facility expiring
      in June 2009. Also in June 2004, PPL Electric replaced its $200 million
      364-day facility expiring in June 2004 with a $200 million five-year facility
      expiring in June 2009. At September 30, 2004, no cash borrowings were
      outstanding under any credit facilities of PPL Electric or PPL Energy Supply.
      Both PPL Electric and PPL Energy Supply have the ability to cause the lenders
      under their respective facilities to issue letters of credit. At September 30,
      2004, PPL Electric had no letters of credit outstanding under its credit
      facilities, and PPL Energy Supply had $195 million of letters of credit
      outstanding under its credit facilities.
    (PPL and PPL Energy Supply)
    At September 30, 2004, WPD (South West) had £600 thousand ($1 million)
      outstanding borrowings under its credit facilities. In October 2004, WPD
      (South West) replaced its expiring £100 million 364-day credit facility
      expiring in October 2004 with a £100 million 364-day credit facility
      expiring in October 2005, extended its £150 million five-year credit
      facility to October 2009 and added a £150 million three-year credit
      facility expiring October 2007.
    (PPL, PPL Energy Supply and PPL Electric)
    The subsidiaries of PPL are separate legal entities. PPL's subsidiaries
      are not liable for the debts of PPL. Accordingly, creditors of PPL may not
      satisfy their debts from the assets of the subsidiaries absent a specific
      contractual undertaking by a subsidiary to pay PPL's creditors or as required
      by applicable law or regulation. Similarly, absent a specific contractual
      undertaking or as required by applicable law or regulation, PPL is not liable
      for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries
      may not satisfy their debts from the assets of PPL absent a specific contractual
      undertaking by PPL to pay the creditors of its subsidiaries or as required
      by applicable law or regulation.
    Similarly, the subsidiaries of PPL Energy Supply and PPL Electric are separate
      legal entities. These subsidiaries are not liable for the debts of PPL Energy
      Supply and PPL Electric. Accordingly, creditors of PPL Energy Supply and
      PPL Electric may not satisfy their debts from the assets of their subsidiaries
      absent a specific contractual undertaking by a subsidiary to pay the creditors
      or as required by applicable law or regulation. In addition, absent a specific
      contractual undertaking or as required by applicable law or regulation,
      PPL Energy Supply and PPL Electric are not liable for the debts of their
      subsidiaries. Accordingly, creditors of these subsidiaries may not satisfy
      their debts from the assets of PPL Energy Supply or PPL Electric absent
      a specific contractual undertaking by that parent to pay the creditors of
      its subsidiaries or as required by applicable law or regulation.
    Financing Activities
    PEPS Units Transactions
    (PPL)
    In November 2003, PPL initiated an offer to exchange up to $573 million
      of its outstanding PEPS Units for up to $573 million of its PEPS Units,
      Series B and a cash payment by PPL of $0.375 for each validly tendered and
      accepted outstanding PEPS Unit. The exchange offer, which closed in January
      2004, resulted in $99 million, or 17.28%, of the outstanding PEPS Units
      being exchanged.
    In February 2004, pursuant to the terms of the PEPS Units, PPL remarketed
      $257 million of the PPL Capital Funding Trust I trust preferred securities
      that were a component of the PEPS Units. The trust preferred securities
      were remarketed at a price of 107.284% of their aggregate stated liquidation
      amount, resulting in a yield to maturity of 3.912% based on the reset distribution
      rate of 7.29% per annum. Under the terms of the PEPS Units, holders were
      entitled to surrender their trust preferred securities for remarketing in
      order to settle the purchase contract component of the PEPS Units in May
      2004. Holders of an aggregate of $218 million of the trust preferred securities
      elected not to participate in the remarketing. Those holders retained their
      trust preferred securities at a distribution rate of 7.29% per annum.
    Additionally, in February 2004, PPL Capital Funding issued $201 million
      of senior unsecured notes guaranteed by PPL in exchange for $185 million
      of the trust preferred securities of PPL Capital Funding Trust I and a payment
      of $400,000 in cash. The senior notes bear interest at a rate of 4.33% per
      year that is payable semi-annually on March 1 and September 1 of each year,
      from September 1, 2004, through the maturity date of March 1, 2009. The
      senior notes are not redeemable by PPL or PPL Capital Funding, and the holders
      will not be entitled to require PPL or PPL Capital Funding to repurchase
      the senior notes before maturity. The senior notes were issued in an SEC
      Rule 144A private offering to qualified institutional buyers and were exchanged
      in full for senior notes registered with the SEC pursuant to an exchange
      offer completed by PPL and PPL Capital Funding in July 2004. The registered
      senior notes issued pursuant to the exchange offer have the same terms as
      the senior notes issued in the 144A private offering.
    The January and February 2004 exchanges resulted in the cancellation of
      an aggregate of $284 million of the trust preferred securities and an aggregate
      of $9 million of PPL Capital Funding Trust I's common securities held by
      PPL Capital Funding, as well as a corresponding cancellation of the $293
      million of PPL Capital Funding 7.29% subordinated notes due 2006 underlying
      these trust securities. The cancellation of the underlying PPL Capital Funding
      subordinated notes together with the issuance of the new PPL Capital Funding
      debt, as a result of the exchanges, resulted in a net decrease of $9 million
      of long-term debt, including "Long-term Debt with Affiliate Trusts," as
      reflected in the Balance Sheet. Following these exchanges, there remained
      outstanding $290 million of trust preferred securities and $9 million of
      trust common securities, as well as $299 million of underlying PPL Capital
      Funding 7.29% subordinated notes due 2006.
    In March 2004, PPL liquidated PPL Capital Funding Trust I, resulting in
      the cancellation of all of the outstanding trust preferred securities and
      the trust common securities. In exchange for the cancellation of the trust
      securities, PPL Capital Funding Trust I caused $290 million of underlying
      PPL Capital Funding 7.29% subordinated notes due 2006 to be distributed
      to the holders of the trust preferred securities and $9 million of PPL Capital
      Funding 7.29% subordinated notes due 2006, held by the trust, to be cancelled.
      The impact to PPL Capital Funding as a result of these cancellations was
      an additional net decrease of $9 million of long-term debt, including "Long-term
      Debt with Affiliate Trusts," as reflected in the Balance Sheet.
    In May 2004, pursuant to the terms of the PEPS Units, Series B, PPL remarketed
      approximately $99 million of the PPL Capital Funding notes due 2006 that
      were a component of the PEPS Units, Series B. The notes were remarketed
      at a price of 100.5% of their aggregate principal amount with a floating
      reset interest rate initially equal to 2.31%, which is three-month LIBOR
      plus a spread of 105 basis points, or 1.05%. Interest on the notes resets
      quarterly at three-month LIBOR plus a spread of 105 basis points, and is
      payable quarterly from May 18, 2004, through, but excluding, the maturity
      date of May 18, 2006. Under the terms of the PEPS Units, Series B, holders
      were entitled to surrender their PPL Capital Funding notes for remarketing
      in order to settle the purchase contract component of the PEPS Units, Series
      B in May 2004.
    (PPL and PPL Energy Supply)
    The purchase contract component of the PEPS Units and the PEPS Units, Series
      B settled in May 2004. Pursuant to the settlement of the purchase contracts,
      PPL issued an aggregate of approximately 11 million shares of its common
      stock and received aggregate proceeds of approximately $575 million. In
      June 2004, a subsidiary of PPL Energy Supply used these proceeds and cash
      on hand to purchase, for approximately $660 million, the Sundance and University
      Park generation assets that it had been leasing, through a synthetic lease
      arrangement, from a trust consolidated by PPL Energy Supply. Under the terms
      of the synthetic lease arrangement, the PPL Energy Supply subsidiary had
      the right at any time to purchase these assets for an amount sufficient
      to pay off the consolidated trust's related financing, including accrued
      and unpaid interest. Repayment of the consolidated trust's debt resulted
      in a loss of approximately $9 million pre-tax, which is reflected in "Interest
      Expense."
    Other Financing Activities
    (PPL)
    In April 2004, PPL Capital Funding repurchased $4 million of its 8-3/8%
      Medium-term Notes due 2007 at a market value of approximately $5 million.
      This repurchase resulted in a loss of approximately $1 million pre-tax,
      which is reflected in "Interest Expense."
    In September 2004, a subsidiary of PPL Gas Utilities repurchased all remaining
      $2 million of its outstanding 9.64% Notes due 2010 at an approximately
      equivalent market value.
    (PPL and PPL Energy Supply)
    During the nine months ended September 30, 2004, a Bolivian subsidiary
      of PPL Global issued $13 million of bonds with interest rates varying from
      6.8% to 7.4% and serial maturities from December 2005 to December 2008.
      In addition, the PPL Global subsidiary issued bonds denominated in UFVs
      (inflation-indexed bolivianos) totaling 72.3 million bolivianos (approximately
      $9 million at current exchange rates) with interest rates ranging from 8%
      to 9% and with maturities in December 2007 and May 2010. The proceeds of
      both issuances were used to repay intercompany loans, short-term bank borrowings,
      and $9 million of its multicurrency denominated Inter-American Development
      Bank note maturing in November 2009.
    In August 2004, PPL Energy Supply issued $300 million of 5.4% Senior Notes
      maturing in August 2014. These securities were issued under PPL Energy Supply's
      existing shelf registration statement on file with the SEC. The proceeds
      of the notes will be applied to the repayment at maturity of approximately
      $320 million of PPL Capital Funding's 7-3/4% Medium-term Notes that are
      due in April 2005. PPL EnergyPlus currently is using the proceeds to satisfy its collateral
      obligation under one of its PLR contracts with PPL Electric. See Note 10
      for a discussion of the collateral requirement under this PLR contract.
    During the nine months ended September 30, 2004, PPL Energy Supply distributed
      approximately $169 million to its parent company, PPL Energy Funding, and
      received capital contributions of $358 million.
    In May 2004, PPL Energy Supply issued a $495 million note payable to an
      affiliate. The note matures in May 2006 with interest payable monthly in
      arrears at LIBOR plus 1%.
    On October 26, 2004, PPL and PPL Energy Supply launched a solicitation
      of consents from the holders of PPL Energy Supply's outstanding $400 million
      2.625% Convertible Senior Notes due 2023 to amend certain provisions of
      the Indenture dated May 21, 2003, pursuant to which the Convertible Senior
      Notes were issued. PPL and PPL Energy Supply are seeking to modify the terms
      of the Convertible Senior Notes in response to changes to the calculation
      of diluted EPS that will result from EITF Issue 04-8, "The Effect of Contingently
      Convertible Instruments on Diluted Earnings per Share," as well as other
      anticipated rules relating to EPS. See Note 18 for a discussion of EITF
      Issue 04-8 and its anticipated impact on PPL's diluted EPS. If the consent solicitation is
      successful, the proposed modifications to the Convertible Senior Notes are expected to mitigate the
      dilutive EPS impact that would result from the inclusion of shares issuable
      under the Convertible Senior Notes in the calculation of diluted EPS. Unless
      extended by PPL and PPL Energy Supply, the consent solicitation will expire
      on November 9, 2004.
    (PPL and PPL Electric)
    In March 2004, PPL Electric retired approximately $25 million of its outstanding
      First Mortgage Bonds, 6.875% Series due March 2004, at par value. Also in
      March, PPL Electric redeemed approximately $6 million aggregate principal
      amount of its First Mortgage Bonds, 7.30% Series due 2024, at par value,
      through the application of cash deposited with the trustee to release certain
      transmission lines and other equipment from the lien of the 1945 First Mortgage
      Bond Indenture.
    In April 2004, PPL Electric completed an offer to repurchase its outstanding
      First Mortgage Bonds, 6-1/2% Series due 2005. Pursuant to the offer, PPL
      Electric repurchased approximately $41 million of the bonds at a market
      value of $43 million. PPL Electric also repurchased in the open market $45
      million of 5-7/8% Senior Secured Bonds and $14 million of 6-1/4% Senior
      Secured Bonds at market values of $48 million and $16 million, respectively.
      These repurchases resulted in a loss of approximately $7 million pre-tax,
      which is reflected in other noncurrent assets as an unamortized loss on
      reacquired debt. The purpose of the repurchases was to reduce future interest
      expense.
    In August 2004, PPL Electric began participating in an asset-backed commercial
      paper program through which PPL Electric obtains financing by selling and
      contributing its eligible accounts receivable and unbilled revenue to a
      special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary
      has pledged these assets to secure loans from a commercial paper conduit
      sponsored by a financial institution. PPL Electric expects to use the proceeds
      from the credit agreement for general corporate purposes and to cash collateralize
      letters of credit. The subsidiary's borrowing limit under this credit agreement
      is $150 million, and interest under the credit agreement varies based on
      the actual cost of the commercial paper conduit's cost to issue commercial
      paper that supports the debt. At September 30, 2004, $115 million of accounts
      receivable and $102 million of unbilled revenue were pledged under the credit
      agreement. At September 30, 2004, there was $88 million of short-term
      debt outstanding under the credit agreement at an interest rate of 1.81%,
      with $42 million of such debt being used to cash collateralize letters of
      credit issued on PPL Electric's behalf. At September 30, 2004, based on
      the accounts receivables and unbilled revenues pledged, an additional $47
      million was available for borrowing. The funds used to cash collateralize
      the letters of credit are reported in "Restricted cash" on the Balance Sheet.
      PPL Electric's sale to its subsidiary of the accounts receivable and unbilled
      revenue is an absolute sale of the assets, and PPL Electric does not retain
      an interest in these assets. However, for financial reporting purposes,
      the subsidiary's financial results are consolidated in PPL Electric's financial
      statements. PPL Electric will continue to perform certain record-keeping
      and cash collection functions with respect to the assets in return for a
      servicing fee from the subsidiary. PPL Electric expects the subsidiary to
      renew the credit agreement on an annual basis.
    During the nine months ended September 30, 2004, PPL Transition Bond Company
      made principal payments on transition bonds totaling $202 million.
    At September 30, 2004, PPL Electric had no commercial paper outstanding
      under its commercial paper program.
    Dividends(PPL)
    In February 2004, PPL announced an increase to its quarterly common stock
      dividend, effective April 1, 2004, from 38.5 cents per share to 41 cents
      per share (equivalent to $1.64 per annum). Future dividends, declared at
      the discretion of the Board of Directors, will be dependent upon future
      earnings, cash flows, financial requirements and other factors.
8. Acquisitions, Development and Divestitures
    Domestic Generation Projects(PPL and PPL Energy Supply)
    At December 31, 2003, PPL Generation had two remaining spare gas combustion
      turbine generators and related equipment, originally intended for use in
      a project that was subsequently cancelled. In February 2004, a subsidiary
      of PPL Generation sold one spare gas combustion turbine generator and related
      equipment for approximately $10 million. In June 2004, the subsidiary sold
      the other spare gas combustion turbine generator and related equipment for
      approximately $9 million. The net loss from these sales was insignificant.
    The turbine upgrade for PPL Susquehanna Unit 1 was completed in April 2004.
      This project provides a nominal power increase of 49 MW of generation capacity,
      of which PPL Susquehanna has a 90% undivided interest. Through September
      30, 2004, a total of approximately $81 million had been incurred on the
      Unit 1 upgrade.
    In May 2004, the 600 MW Lower Mt. Bethel plant in eastern Pennsylvania
      was placed in service. Construction of the natural gas-fired power plant
      began in December 2001. Through September 30, 2004, approximately $452 million
      had been incurred on the plant construction.
    In 2003, PPL Maine entered into an agreement in principle with a coalition
      of government agencies and private groups to sell three of its nine hydroelectric
      dams in Maine. The parties reached a final agreement in June 2004 and submitted
      the plan to the FERC for approval. Under the agreement, a non-profit organization
      designated by the coalition would have a five-year option to purchase the
      dams for approximately $25 million, and PPL Maine would receive rights to
      increase energy output at its other hydroelectric dams in Maine. The coalition
      has announced plans to remove or bypass the dams subject to the agreement
      in order to restore runs of Atlantic salmon and other migratory fish to
      the Penobscot River. The agreement requires several approvals by the FERC,
      and PPL cannot predict whether or when these regulatory approvals will be
      obtained.
    See Note 7 for a discussion of the June 2004 purchase of the Sundance and
      University Park generation assets from a consolidated trust.
    In June 2004, a subsidiary of PPL Generation agreed to sell the 450 MW
      Sundance power plant located in Pinal County, Arizona, to Arizona Public
      Service Company for approximately $190 million in cash, subject to the receipt
      of various state and federal regulatory approvals and customary closing
      conditions. If the necessary regulatory approvals can be obtained, the sale
      is expected to close in the first quarter of 2005. It is expected that the
      proceeds of the sale would be used to reduce PPL's outstanding debt. Either
      party may terminate the agreement if the required state regulatory approvals
      are not obtained by December 31, 2004. If it becomes likely that the required
      regulatory approvals will be obtained, PPL will reassess the Sundance assets
      for possible impairment. In September 2004, both the Arizona Residential
      Utility Consumer Office and the staff of the Arizona Corporation Commission
      filed testimony opposing most of the regulatory approvals requested by Arizona
      Public Service Company and PPL. PPL cannot predict whether or when the regulatory
      approvals for this transaction will be obtained, and whether or when this
      transaction will be consummated.
    International Energy Projects (PPL and PPL Energy Supply)
    Sale of CEMAR
    In 2001, PPL Global estimated that the long-term viability of its CEMAR
      investment was jeopardized and that there was minimal probability of positive
      future cash flows. At that time, PPL Global recorded an impairment loss
      in the carrying value of its net assets in CEMAR. In March 2002, PPL Global
      recorded a further impairment loss. In June 2002, PPL made a decision to
      exit the investment. At that time, PPL Global's remaining portion of its
      CEMAR investment was written-off.
    In August 2002, ANEEL authorized an administrative intervention in CEMAR
      and fully assumed operational and financial control of the company. The
      intervenor appointed by ANEEL initiated efforts to transfer the ownership
      interest in CEMAR to a new owner. Since PPL Global no longer controlled
      or managed CEMAR, it deconsolidated the assets and liabilities of CEMAR
      from its financial statements and stopped recording CEMAR's operating results
      at that time. In February 2003, due to the inability to discharge their
      obligations under the continuing intervention, PPL-related officers and
      directors of CEMAR resigned from their respective positions.
    In April 2004, PPL Global transferred its interest in CEMAR to two companies
      controlled by a private equity fund managed by GP Investimentos, a Brazilian
      private equity firm. The sale resulted in a credit of approximately $23
      million, and is included in "Other Income - net" on the Statement of Income.
      This credit is a result of the reversal of the negative carrying value and
      the associated cumulative translation adjustment.
    Discontinued Operations
    In December 2003, PPL Global's Board of Managers authorized PPL Global
      to sell its investment in a Latin American telecommunications company, and
      approved a plan of sale. It was determined that the viability of this non-strategic
      business was not economical. As a result, PPL Global recorded an $18 million
      write-down in the carrying value of the company's net assets to their estimated
      fair value of approximately $1 million as of December 31, 2003.
    In June 2004, PPL Global sold this investment to local management for a
      nominal amount. The operating results of the Latin American telecommunications
      company, as well as an insignificant write-down of its net assets in 2004,
      are recorded as "Loss from Discontinued Operations" on the Statement of
      Income, approximately $2 million and $1 million for the nine months ended
      September 30, 2004 and 2003.
    Other Sales
    In March 2004, PPL Global completed the sale of its minority interest in
      shares of CGE for approximately $123 million. The sale resulted in a charge
      of approximately $15 million pre-tax, which is included in operating expenses,
      as "Energy related businesses," on the Statement of Income. This charge
      was due primarily to the devaluation of the Chilean peso since the original
      acquisition in 2000.
    In June 2004, PPL Global completed the sale of its 50% ownership interest
      in nine small hydroelectric generating facilities in Spain for approximately
      $8 million. There was an insignificant loss on this transaction.
    DelSur Tender Offer
    In April 2004, EC launched a tender offer to acquire outstanding shares
      of DelSur for an aggregate purchase price of up to $17 million. The offer
      closed in May, with a purchase of 163,927 shares for approximately $5 million,
      increasing EC's ownership of DelSur by 5.34%. Additional shares are purchased
      as they become available. At September 30, 2004, EC owned approximately
      86.2% of DelSur.
    Other(PPL)
    In June 2004, a PPL subsidiary evaluated its investment in a technology
      supplier for impairment. As a result of the evaluation, the subsidiary recorded
      an impairment charge of approximately $10 million pre-tax, which is included
      in "Other Income - net" on the Statement of Income.
9. Commitments and Contingent Liabilities
    Energy Purchases and Sales Commitments
    Liability for Above Market NUG Contracts(PPL, PPL Energy
      Supply and PPL Electric)
    In 1998, PPL Electric recorded a loss accrual for above market contracts
      with NUGs of $854 million, due to its generation business being deregulated.
      Effective January 1999, PPL Electric began reducing this liability as an
      offset to "Energy purchases" on the Statement of Income. This reduction
      is based on the estimated timing of the purchases from the NUGs and projected
      market prices for this generation. The final existing NUG contract expires
      in 2014. In connection with the corporate realignment in 2000, the remaining
      balance of this liability was transferred to PPL EnergyPlus. At September
      30, 2004, the remaining liability associated with the above market NUG contracts
      was $297 million.
    Wholesale Energy Commitments (PPL and PPL Energy Supply)
    As part of the purchase of generation assets from Montana Power, PPL Montana
      assumed a power purchase agreement and a power sales agreement, which were
      still in effect at September 30, 2004. In accordance with purchase accounting
      guidelines, PPL Montana recorded liabilities of $65 million as the estimated
      fair value of these agreements at the acquisition date. These liabilities
      are being reduced over the terms of the agreements, through 2010, as adjustments
      to "Wholesale energy marketing" revenues and "Energy purchases" on the Statement
      of Income. The unamortized balance of the liability related to the power
      purchase agreement at September 30, 2004, was $55 million and is included
      in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance
      Sheet. The power sales agreement was re-evaluated under DIG Issue C20, "Scope
      Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related
      in Paragraph 10(b) Regarding Contracts With a Price Adjustment Feature,"
      and is now reflected at its fair value as a derivative instrument.
    On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate
      of 450 MW of energy to be supplied by PPL Montana. Under two five-year agreements,
      PPL EnergyPlus is supplying 300 MW of around-the-clock electricity and 150
      MW of unit-contingent on-peak electricity. PPL Montana also makes short-term
      energy sales to NorthWestern. Following NorthWestern's credit downgrades
      to below investment grade in late-2002, PPL Montana and NorthWestern agreed
      to modify the payment provisions of the energy contracts such that NorthWestern
      would pay PPL Montana on a weekly basis, in arrears.
    In September 2003, NorthWestern filed a voluntary petition for relief seeking
      to reorganize under Chapter 11 of the U.S. Bankruptcy Code. NorthWestern
      made its filing in federal bankruptcy court in Delaware. Between the time
      of NorthWestern's last weekly payment and the bankruptcy filing date, PPL
      Montana made approximately $1.6 million of energy sales to NorthWestern.
    Following the date that NorthWestern filed for bankruptcy, PPL Montana
      and NorthWestern agreed to amend the power supply agreements to, among other
      things, eliminate the weekly payment arrangements and resume more typical
      monthly invoicing and payment arrangements. The amendments were contingent
      on NorthWestern's assumption of the power supply agreements in its bankruptcy
      proceeding.
    In September 2003, NorthWestern filed a motion with the bankruptcy court
      seeking, among other things, to assume the two five-year power supply agreements
      (as amended) and to pay PPL Montana for the approximately $1.6 million of
      energy sales made immediately prior to the time of the bankruptcy filing.
      In October 2003, the bankruptcy court entered an order granting NorthWestern's
      motion. NorthWestern has, in accordance with the terms of the judge's order,
      paid PPL Montana for the pre-filing energy sales, and the parties have resumed
      monthly invoicing and payment arrangements. In October 2004, the federal
      district court in Delaware confirmed NorthWestern's plan of reorganization,
      and in November 2004, NorthWestern announced that it has officially emerged from bankruptcy protection.
    In April 2003, the Maryland Public Service Commission authorized the competitive
      provision of the Standard Offer Service (SOS) to allow utilities to procure
      SOS for customers through the competitive selection of wholesale supply.
      In March 2004, PPL EnergyPlus was awarded an 11-month fixed-price SOS contract
      for customer load (approximately 60 MW) for Potomac Electric Power Company.
      This contract commenced in July 2004.
    As a result of New Jersey's Electric Discount and Energy Competition Act,
      the New Jersey Board of Public Utilities authorized and made available to
      power suppliers, on a competitive basis, the opportunity to provide Basic
      Generation Service (BGS) to all non-shopping New Jersey customers. In February
      2003, PPL EnergyPlus was awarded a 34-month fixed-price BGS contract for
      a fixed percentage of customer load (approximately 1,000 MW) for Atlantic
      City Electric Company, Jersey Central Power & Light Company and Public
      Service Electric & Gas Company. In February 2003, PPL EnergyPlus was
      also awarded about 500 MW for a 10-month hourly energy price supply contract.
      These contracts commenced in August 2003. Additionally, in February 2004,
      PPL EnergyPlus was awarded a 12-month hourly energy price supply BGS contract
      for a fixed percentage of customer load (approximately 450 MW) for Atlantic
      City Electric Company, Jersey Central Power & Light Company and Public
      Service Electric & Gas Company. These contracts commenced in June 2004.
    In April 2003, PPL EnergyPlus entered into an agreement with Arizona Public
      Service Company to provide 112 MW of capacity and associated electricity
      from July through September of 2003 and 150 MW from June through September
      of 2004 and 2005. See Note 8 for information regarding the possible sale
      of the Sundance power plant to Arizona Public Service Company.
    In May 2003, PPL EnergyPlus entered into a 20-year agreement with Community
      Energy, Inc. to purchase energy from its Bear Creek wind power project in
      northeastern Pennsylvania. The project is expected to produce up to 20 MW
      and be completed in 2005.
    In January 2004, PPL EnergyPlus began supplying 12.5% of Connecticut Light
      & Power Company's Transitional Standard Offer load, under a three-year
      fixed-price contract. During peak hours, PPL EnergyPlus' obligation to supply
      the Transitional Standard Offer load may reach 625 MW.
    Legal Matters
    (PPL, PPL Energy Supply and PPL Electric)
    PPL and its subsidiaries are involved in numerous legal proceedings, claims
      and litigation in the ordinary course of business. PPL and its subsidiaries
      cannot predict the outcome of such matters, or whether such matters may
      result in material liabilities.
    Montana Power Shareholders' Litigation(PPL and PPL Energy
      Supply)
    In August 2001, a purported class-action lawsuit was filed by a group of
      shareholders of Montana Power against Montana Power, the directors of Montana
      Power, certain advisors and consultants of Montana Power and PPL Montana.
      The plaintiffs allege, among other things, that Montana Power was required
      to, and did not, obtain shareholder approval of the sale of Montana Power's
      generation assets to PPL Montana in 1999. Although most of the claims in
      the complaint are against Montana Power, its board of directors, and its
      consultants and advisors, two claims are asserted against PPL Montana. In
      the first claim, plaintiffs seek a declaration that because Montana Power
      shareholders did not vote on the 1999 sale of generating assets to PPL Montana,
      that sale "was null and void ab initio." The second claim alleges that PPL
      Montana was privy to and participated in a strategy whereby Montana Power
      would sell its generation assets to PPL Montana without first obtaining
      Montana Power shareholder approval, and that PPL Montana has made net profits
      in excess of $100 million as the result of this alleged illegal sale. In
      the second claim, plaintiffs request that the court impose a "resulting
      and/or constructive trust" on both the generation assets themselves and
      all profits, plus interest on the amounts subject to the trust. This lawsuit
      is currently pending in the U.S. District Court of Montana, Butte Division.
      In July 2004, the plaintiffs notified the District Court that the parties
      had reached a partial settlement of the case that would result in the dismissal
      of PPL Montana as a defendant. Under the terms of the proposed settlement,
      PPL Montana would not have to pay any amount to the plaintiffs. The settlement
      must still be reduced to writing and approved by the plaintiff class and
      the District Court. PPL and PPL Energy Supply cannot predict whether the
      settlement will be approved or the outcome of this matter if the settlement
      is not approved.
    NorthWestern Corporation Litigation(PPL and PPL Energy
      Supply)
    In connection with the acquisition of the Montana generation assets, the
      Montana Power APA, which was previously assigned to PPL Montana by PPL Global,
      includes a provision concerning the proposed purchase by PPL Montana of
      a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission
      System (CTS) for $97 million. During 2002, PPL Montana had been in discussions
      with NorthWestern regarding the proposed purchase of the CTS and the claims
      that PPL Montana believes it has against NorthWestern arising from the Montana
      Power APA and related agreements. Notwithstanding such discussions, in September
      2002, NorthWestern filed a lawsuit against PPL Montana in Montana state
      court seeking specific performance of PPL Montana's purchase of the CTS
      or, alternatively, damages for breach of contract. Pursuant to PPL Montana's
      application, the matter was removed to the U.S. District Court of Montana,
      Butte Division. Following removal, NorthWestern asserted additional claims
      for damages against PPL Montana, and PPL Montana filed defenses denying
      liability for NorthWestern's claims as well as counterclaims against NorthWestern
      seeking damages PPL Montana believes it has suffered under the Montana Power
      APA and related agreements.
    In October 2004, the federal district court in Delaware, where NorthWestern's
      bankruptcy proceeding had been pending, approved a joint stipulation between PPL
      Montana and NorthWestern under which NorthWestern will establish a segregated
      reserve that will be used for any distributions to be made to satisfy any
      final judgment that PPL Montana may be awarded pursuant to PPL Montana's
      counterclaims. This segregated reserve will be funded by shares of NorthWestern
      common stock equal to $50 million, valued as of the effective date of NorthWestern's
      plan of reorganization. Also in October, the federal district court in Delaware
      confirmed NorthWestern's plan of reorganization, and in November 2004, NorthWestern
      announced that it has officially emerged from bankruptcy protection.
    This matter currently is scheduled for trial in the Montana federal district
      court in mid-2005. PPL and PPL Energy Supply cannot predict the outcome
      of this litigation.
    Montana Hydroelectric Litigation (PPL and PPL Energy Supply)
    In October 2003, a lawsuit was filed against PPL Montana, PPL Services,
      Avista Corporation, PacifiCorp and nine John Doe defendants in the U.S.
      District Court of Montana, Missoula Division, by two residents allegedly
      acting in a representative capacity on behalf of the State of Montana. In
      January 2004, the complaint was amended to, among other things, include
      the Great Falls school districts as additional plaintiffs. In May 2004,
      the Montana Attorney General filed a motion to allow the State of Montana
      to intervene as an additional plaintiff in the litigation. This motion was
      granted without objection. Both the complaint of the individual plaintiffs
      and the school districts' and the State's complaint sought declaratory judgment,
      compensatory damages and attorneys fees and costs for use of state and/or
      "school trust" lands and to require the defendants to adequately compensate
      the state and/or the State School Trust fund for full market value of lands
      occupied. Generally, the suit is founded on allegations that the bed of
      navigable rivers became state-owned property upon admission to statehood,
      and that the use thereof for placement of dam structures, affiliated structures
      and reservoirs should, under an existing regulatory scheme, trigger lease
      payments for use of land underneath. Plaintiffs also sought relief on theories
      of unjust enrichment, trespass and negligence. The defendants filed separate
      motions to dismiss the complaint of the private and school district plaintiffs,
      as well as the complaint of the State of Montana. In September 2004, the
      federal court granted the motions to dismiss the individual plaintiffs'
      and school districts' complaint but denied the similar motions as to the
      State of Montana's complaint. No specific amount of damages or future rental
      value has been claimed. PPL Montana and PPL Services cannot predict the
      outcome of this litigation.
    Regulatory Issues
    California ISO and Western Markets (PPL and PPL Energy Supply)
    Through its subsidiaries, PPL has made approximately $18 million of sales
      to the California ISO, of which $17 million has not been paid to PPL subsidiaries.
      Given the myriad of electricity supply problems presently faced by the California
      electric utilities and the California ISO, PPL cannot predict whether or
      when it will receive payment. As of September 30, 2004, PPL has fully reserved
      for possible underrecoveries of payments for these sales.
    Regulatory proceedings arising out of the California electricity supply
      situation have been filed at the FERC. The FERC has determined that all
      sellers of energy into markets operated by the California ISO and the California
      Power Exchange, including PPL Montana, should be subject to refund liability
      for the period beginning October 2, 2000, through June 20, 2001, and initiated
      an evidentiary hearing concerning refund amounts. In April 2003, the FERC
      changed the manner in which this refund liability is to be computed and
      ordered further proceedings to determine the exact amounts that the sellers,
      including PPL Montana, would be required to refund. In September 2004, the
      U.S. Court of Appeals for the Ninth Circuit held that the FERC had the additional
      legal authority to order refunds for periods prior to October 2, 2000, and
      ordered the FERC to determine whether or not it would be appropriate to
      grant such additional refunds.
    In June 2003, the FERC took several actions as a result of a number of
      related investigations. The FERC terminated proceedings pursuant to which
      it had been considering whether to order refunds for spot market bilateral
      sales made in the Pacific Northwest, including sales made by PPL Montana,
      during the period December 2000 through June 2001. The FERC explained that
      the totality of the circumstances made refunds unfeasible and inequitable,
      and that it had provided adequate relief by adopting a price cap throughout
      the western U.S. The FERC also denied pending complaints against long-term
      contracts in the western U.S. In these complaints, various power buyers
      challenged selected long-term contracts that they entered into during 2000
      and 2001, complaining that the power prices were too high and reflected
      manipulation of those energy markets. The FERC found that the complainants
      had not met their burden of showing that changing or canceling the contracts
      was "in the public interest" and that the dysfunction in the California
      markets did not justify changing these long-term contracts. In two separate
      orders, the FERC also ordered 65 different companies, agencies or municipalities
      to show cause why they should not be ordered to disgorge profits for "gaming"
      or anomalous market behavior during 2000 and 2001. These orders to show
      cause address both unilateral and joint conduct identified as the "Enron
      trading strategies." Neither PPL EnergyPlus nor PPL Montana was included
      in these orders to show cause, and they previously have explained in responses
      to data requests from the FERC that they have not engaged in such trading
      strategies. Finally, the FERC issued a new investigation order directing
      its staff to investigate any bids made into the California markets in excess
      of $250/MWh during the period from May 2000 to October 2000, a period of
      time prior to the period examined in connection with most of the proceedings
      described above. To their knowledge, neither PPL EnergyPlus nor PPL Montana
      is being investigated by the FERC under this new order.
    Litigation arising out of the California electricity supply situation has
      been filed in California courts against sellers of energy to the California
      ISO. The plaintiffs and intervenors in these legal proceedings allege, among
      other things, abuse of market power, manipulation of market prices, unfair
      trade practices and violations of state antitrust laws, and seek other relief,
      including treble damages and attorneys' fees. While PPL's subsidiaries have
      not been named by the plaintiffs in these legal proceedings, PPL Montana
      was named by a defendant in its cross-complaint in a consolidated court
      proceeding, which combined into one master proceeding several of the lawsuits
      alleging antitrust violations and unfair trade practices. This generator
      denies that any unlawful, unfair or fraudulent conduct occurred but asserts
      that, if it is found liable, the other generators and power marketers, including
      PPL Montana, caused, contributed to and/or participated in the plaintiffs'
      alleged losses.
    In February 2004, the Montana Public Service Commission initiated a limited
      investigation of the Montana retail electricity market for the years 2000
      and 2001, focusing on how that market was affected by transactions involving
      the possible manipulation of the electricity grid in the western U.S. The
      investigation includes all public utilities and licensed electricity suppliers
      in Montana, as well as other entities that may possess relevant information.
      Through its subsidiaries, PPL is a licensed electricity supplier in Montana
      and a wholesale supplier in the western U.S. In June 2004, the Montana Attorney
      General served PPL Montana and more than 20 other companies with subpoenas
      requesting documents, and PPL Montana currently is providing responsive
      documents to the Montana Attorney General. As with the other investigations
      taking place as a result of the issues arising out of the electricity supply
      situation in California and other western states, PPL and its subsidiaries
      believe that they have not engaged in any improper trading or marketing
      practices affecting the Montana retail electricity market.
    While PPL and its subsidiaries believe that they have not engaged in any
      improper trading practices, they cannot predict whether, or the extent to
      which, any PPL subsidiaries will be the target of any additional governmental
      investigations or named in other lawsuits or refund proceedings, the outcome
      of any such lawsuits or proceedings or whether the ultimate impact on them
      of the electricity supply situation in California and other western states
      will be material.
    PJM Capacity Transactions(PPL, PPL Energy Supply and
      PPL Electric)
    In September 2002, PPL was served with a complaint filed by Utilimax.com,
      Inc., which was a member of PJM, in the U.S. District Court for the Eastern
      District of Pennsylvania against PPL and PPL EnergyPlus alleging, among
      other things, violations of the federal antitrust laws in connection with
      the pricing of installed capacity in the PJM daily market during the first
      quarter of 2001. The District Court dismissed the complaint with prejudice
      in July 2003, and the U.S. Court of Appeals for the Third Circuit has upheld
      the dismissal of the complaint.
    In December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus
      and PPL Electric filed in the U.S. District Court for the Eastern District
      of Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleges,
      in broad terms, similar violations of the federal antitrust laws. These
      boroughs were wholesale customers of PPL Electric. The claims of the boroughs
      are similar to those previously alleged by a single borough in litigation brought
      in the same court that is still pending. In addition, in November
      2003, PPL and PPL EnergyPlus were served with a complaint which was filed
      in the same court by Joseph Martorano, III (d/b/a ENERCO), that also alleges
      violations of the federal antitrust laws in early 2001. The complaint indicates
      that ENERCO provides consulting and energy procurement services to clients
      in Pennsylvania and New Jersey. In September 2004, this complaint was dismissed
      by the District Court and the plaintiff has appealed the dismissal to the
      U.S. Court of Appeals for the Third Circuit.
    Each of the U.S. Department of Justice - Antitrust Division, the FERC and
      the Pennsylvania Attorney General conducted investigations regarding PPL's
      PJM capacity market transactions in early 2001 and did not find any reason
      to take action against PPL.
    Although PPL, PPL Energy Supply and PPL Electric believe the claims in
      these complaints are without merit, they cannot predict the outcome of these
      matters.
    New England Investigation (PPL and PPL Energy Supply)
    In January 2004, PPL became aware of an investigation by the Connecticut
      Attorney General and the FERC's Office of Market Oversight and Investigation
      (OMOI) regarding allegations that natural gas-fired generators located in
      New England illegally sold natural gas instead of generating electricity
      during the week of January 12, 2004. Subsequently, PPL and other generators
      were served with a data request by OMOI. The data request indicated that
      PPL was not under suspicion of a regulatory violation, but that OMOI was
      conducting an initial investigation. PPL has responded to this data request.
      PPL also has responded to data requests of ISO - New England and data requests
      served by subpoena from the Connecticut Attorney General. Both OMOI and
      ISO - New England have issued preliminary reports finding no regulatory
      or other violations concerning these matters. While PPL does not believe
      that it committed any regulatory or other violations concerning the subject
      matter of these investigations, PPL cannot predict the outcome of these
      investigations.
    PJM Billing (PPL, PPL Energy Supply and PPL Electric)
    
    In March 2004, an Exelon Corporation subsidiary, PECO Energy, Inc. (PECO),
      alleged that PJM had overcharged PECO by approximately $45 million, exclusive
      of interest, from April 1998 through May 2003 as a result of an error by
      PJM in the State Estimator Program used in connection with billing all PJM
      customers for certain transmission, spot market energy and ancillary services
      charges. PECO further alleged that PPL Electric or other PPL subsidiaries
      should be responsible for all these overcharges, plus interest. PPL Electric
      and PPL Energy Supply do not believe that they or any PPL subsidiaries have
      any financial responsibility or liability to PJM or PECO as a result of
      PJM's alleged error. PJM has not taken a position on this matter. PPL Electric
      and PPL Energy Supply cannot predict whether any legal or FERC proceedings
      may result from these allegations, the outcome of such proceedings or the
      impact on any PPL subsidiary.
    FERC Market-Based Rate Authority (PPL and PPL Energy Supply)
    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to
      make wholesale sales of electric power and related products at market-based
      rates. In that order, the FERC directed PPL EnergyPlus to file an updated
      market analysis within three years of the date of the order, and every three
      years thereafter. PPL EnergyPlus filed its initial updated market analysis
      in December 2001. Several parties thereafter filed interventions and protests
      requesting that PPL EnergyPlus be required to provide additional information
      demonstrating that it has met the FERC's market power tests necessary for
      PPL EnergyPlus to continue its market-based rate authority. PPL EnergyPlus
      has responded that the FERC does not require the economic test suggested
      by the intervenors and that, in any event, it would meet such economic test
      if required by the FERC.
    In June 2004, FERC approved certain changes to its standards for granting
      market-based rate authority. As a result, PPL EnergyPlus will need to re-file
      for market-based rate authority under the new standards in November 2004.
      PPL EnergyPlus cannot predict the outcome of this filing.
    FERC Proposed Rules (PPL, PPL Energy Supply and PPL Electric)
    In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled
      "Remedying Undue Discrimination through Open Access Transmission Service
      and Standard Electricity Market Design." The proposed rule is currently
      available for public comment and contains a proposed implementation date
      of July 31, 2003. However, since the issuance of the proposed rule, the
      FERC has delayed the implementation date. This far-reaching proposed rule,
      in its current form, purports to establish uniform transmission rules and
      a standard market design by, among other things:
    
        enacting standard transmission tariffs
            and uniform market mechanisms,
        monitoring and mitigating "market power,"
        managing transmission congestion through
            pricing and tradable financial rights,
        requiring independent operational control
            over transmission facilities,
        forming state advisory committees on
            regional transmission organizations and resource adequacy, and
        exercising FERC jurisdiction over all
            transmission service.In April 2003, the FERC issued a white paper describing certain modifications
      to the proposed rule. The FERC has requested comments and is holding numerous
      public comment sessions concerning the white paper.
    If adopted, this proposed rule may have a significant impact on PPL and
      its subsidiaries, which cannot be predicted at this time.
    In November 2003, the FERC adopted a proposed rule to require all existing
      and new electric market-based tariffs and authorizations to include provisions
      prohibiting the seller from engaging in anticompetitive behavior or the
      exercise of market power. The FERC order adopts a list of market behavior
      rules that apply to all electric market-based rate tariffs and authorizations,
      including those of PPL EnergyPlus and any other PPL subsidiaries that hold
      market-based rate authority. PPL does not expect this rule to have a significant
      impact on its subsidiaries.
    Wallingford Deactivation (PPL and PPL Energy Supply)
    In January 2003, PPL negotiated an agreement with the ISO - New England
      that would declare that four of the five units at PPL's Wallingford, Connecticut
      facility are "reliability must run" units and put those units under cost-based
      rates. This agreement and the cost-based rates are subject to the FERC's
      approval, and PPL filed a request with the FERC for such approval. PPL requested
      authority for cost-based rates because the current and anticipated wholesale
      prices in New England are insufficient to cover the costs of keeping these
      units available for operation. In March 2003, PPL filed an application with
      the New England Power Pool to temporarily deactivate these four units. In
      May 2003, the FERC denied PPL's request for cost-based rates in light of
      the FERC's changes to the market and bid mitigation rules of ISO - New England
      made in a similar case involving generating units owned by NRG Energy, Inc.
      PPL subsequently has explained to the FERC that its changes to the market
      and bid mitigation rules of ISO - New England will not provide sufficient
      revenues to PPL, and PPL continues to seek approval of its cost-based rates.
      However, PPL has informed the New England Power Pool that it will not pursue
      its request to temporarily deactivate certain Wallingford units. In February
      2004, PPL appealed the FERC's denial of its request for cost-based rates
      to the U.S. Court of Appeals for the District of Columbia Circuit. PPL cannot
      predict the outcome of this matter.
    IRS Synthetic Fuels Tax Credits (PPL and PPL Energy Supply)
    PPL, through its subsidiaries, has interests in two synthetic fuel production
      facilities: the Somerset facility located in Pennsylvania and the Tyrone
      facility located in Kentucky. PPL receives tax credits pursuant to Section
      29 of the Internal Revenue Code based on the sale of synthetic fuel from
      these facilities to unaffiliatedthird-party purchasers. Section
      29 of the Internal Revenue Code provides tax credits for the production
      and sale of solid synthetic fuels produced from coal. Section 29 tax credits
      are currently scheduled to expire at the end of 2007.
    To qualify for the Section 29 tax credits, the synthetic fuel must meet
      three primary conditions: (i) there must be a significant chemical change
      in the coal feedstock, (ii) the product must be sold to an unaffiliated
      entity, and (iii) the production facility must have been placed in service
      before July 1, 1998. In addition, Section 29 provides for the phase-out
      of the synthetic fuel tax credit when the reference price for crude oil,
      as adjusted for inflation, exceeds a certain threshold. The reference price
      is the annual average wellhead price per barrel for all unregulated domestic
      crude oil. Accounting for inflation, PPL estimates that the 2004 tax credit
      phase-out would start at $50.64 per barrel and the tax credit would be totally
      eliminated at $63.57 per barrel. The average reference price for crude oil
      through August 31, 2004, is estimated at $34.36 per barrel. Accordingly,
      PPL does not expect the tax credit phase-out to impact its results in 2004.
    A PPL subsidiary owns and operates the Somerset facility. In November 2001,
      PPL received a private letter ruling from the IRS pursuant to which, among
      other things, the IRS concluded that the synthetic fuel produced at the
      Somerset facility qualifies for Section 29 tax credits. The Somerset facility
      uses the Covol technology to produce synthetic fuel, and the IRS issued
      the private letter ruling after its review and approval of that technology.
      In reliance on this private letter ruling, PPL has sold synthetic fuel produced
      at the Somerset facility resulting in an aggregate of approximately $190 million
      of tax credits as of September 30, 2004.
    PPL owns a limited partnership interest in the entity that owns and operates
      the Tyrone facility. In April 2004, this entity received a private letter
      ruling from the IRS. Similar to its conclusions relating to the Somerset
      facility, the IRS concluded that the synthetic fuel to be produced at the
      Tyrone facility qualifies for Section 29 tax credits. In reliance on this
      private letter ruling, this entity has sold synthetic fuel produced at the
      Tyrone facility resulting in an aggregate of approximately $5 million of
      tax credits as of September 30, 2004. The Tyrone facility commenced commercial
      operations in the third quarter of 2004 after being relocated to Kentucky
      from Pennsylvania.
    PPL also purchases synthetic fuel from unaffiliated third parties, at prices
      below the market price of coal, for use at its coal-fired power plants.
    In June 2003, the IRS announced that it had reason to question the scientific
      validity of certain test procedures and results that have been presented
      to it by taxpayers with interests in synthetic fuel operations as evidence
      that the required significant chemical change has occurred, and that it
      was reviewing information regarding these test procedures and practices.
      In October 2003, the IRS announced that it had completed its review and
      determined that the test procedures and results used by taxpayers are scientifically
      valid, if the procedures are applied in a consistent and unbiased manner.
      The IRS indicated that it would require taxpayers to comply with certain
      sampling and data/record retention practices to obtain or maintain a ruling
      on significant chemical change.
    PPL believes that the October IRS announcement and its receipt of the private
      letter ruling for the Tyrone facility following this announcement confirms
      that PPL is justified in its reliance on the private letter rulings for
      the Somerset and Tyrone facilities and that the test results that PPL presented
      to the IRS in connection with its private letter rulings are scientifically
      valid. In addition, PPL believes that it has operated the Somerset facility
      in compliance with the private letter ruling and Section 29 of the Internal
      Revenue Code.
    In October 2003, following the IRS announcement, it was reported that the
      U.S. Senate Permanent Subcommittee on Investigations, of the Committee on
      Governmental Affairs, had begun an investigation of the synthetic fuel industry
      and its producers. That investigation is ongoing. PPL cannot predict when
      the investigation will be completed or the potential results of the investigation.
    Certain other owners or operators of synthetic fuel facilities have recently
      reported that the IRS has questioned whether their facilities were placed
      in service before July 1, 1998. Whether or not a facility meets the "in
      service" requirement is based on the particular facts and circumstances
      relating to the operation of that facility. PPL is not aware of the facts
      and circumstances relating to the operation of the facilities being questioned
      by the IRS or the specific IRS position in these other matters. However,
      PPL believes that the Tyrone and Somerset facilities meet the in service
      requirement.
    U.K. Electricity Regulation(PPL and PPL Energy Supply)
    The principal legislation governing the structure of the electricity industry
      in Great Britain is the Electricity Act 1989, as amended by the Utilities
      Act 2000 and the Energy Act 2004.
    The provisions in the Utilities Act 2000 include the replacement of individual
      gas and electricity regulators with the Gas and Electricity Markets Authority
      (the "Regulator"). The principal objective of the Regulator is to protect
      the interests of consumers, wherever appropriate, by promoting effective
      competition in electricity generation and supply. There currently is no
      competition in electricity distribution, but recently a small operator has
      applied to the Regulator for a license to operate in Great Britain.
    Each distribution business constitutes a natural regional monopoly and
      is subject to control on the prices it can charge and the quality of supply
      it must provide. The operations of WPD are regulated under its distribution
      licenses, pursuant to which income generated is subject to an allowed revenue
      regulatory framework that provides economic incentives to minimize operating,
      capital and financing costs. Under the Electricity Act 1989, WPD is under
      a statutory duty to offer terms to connect any customer requiring electricity
      within its area and to maintain that connection. The allowed revenue that
      is recovered from electricity supply businesses through charges by the Distribution
      Network Operator (DNO) made for the use of the distribution network is regulated
      on the basis of the Retail Price Index (RPI) minus X formula. The allowed
      revenue is increased by RPI minus X during the tenure of each price control
      period. (RPI is a measure of inflation and equals the percentage change
      in the U.K. RPI between the six-month period of July to December in the
      previous year. The X factor is established by the Regulator following review
      and represents an annual efficiency factor.) The Regulator currently sets
      the Distribution Price Control Formula for five-year periods.
    The current Distribution Price Control Formula permits DNOs, within a review
      period, to partially retain additional revenues due to increased distribution
      of units and to retain all increases in operating profit due to efficient
      operations and the reduction of expenses (including financing costs). The
      Regulator may reduce this increase in operating profit through a one-off
      price reduction in the first year of the new pricing regime, if the Regulator
      determines that it is not a function of efficiency savings, or if genuine
      efficiency savings have been made and the Regulator determines that customers
      should benefit through lower prices.
    In December 1999, the Regulator published final price proposals for distribution
      price control for the 12 DNOs in England and Wales. These proposals represented
      a reduction to distribution prices of 20% for WPD (South West) and 26% for
      WPD (South Wales) effective April 2000, followed by a reduction in real
      terms (i.e., before inflation is taken into account) of 3% each year from
      April 2001. This price control is scheduled to operate until March 2005.
    Improvements in quality of supply form an important part of the final proposals.
      Revised targets for system performance, in terms of the security and availability
      of supply, were implemented with new targets for reductions in minutes lost
      and interruptions.
    The Regulator previously introduced a quality of service incentive plan
      for the period from April 2002 to March 2005. Companies may be penalized
      annually up to 2% of revenue for failing to meet their quality of supply
      targets for the incentive plan. The plan includes a mechanism for rewarding
      companies which exceed their targets based on their rate of improvement
      of performance during the period and a process for rewarding exceptional
      performance by specifying how the targets will be reset.
    Distribution businesses must also meet the Guaranteed and Overall Standards
      of Performance, which are set by the Regulator to ensure an appropriate
      level of quality of supply. If a company fails to provide the level of service
      specified, it must make a fixed payment to the retail customer affected.
    In July 2004, the Regulator published a report on the quality of supply
      from April 2002 through March 2003. The report confirms that WPD (South
      West) and WPD (South Wales) met or exceeded quality of service targets set
      by the Regulator.
    In September 2004, the Regulator published an update to its initial distribution
      price control proposal for the next five-year price control period, which
      will commence April 1, 2005. This is the latest step in the Regulator's
      ongoing price review of WPD and the other DNOs in England and Wales. The
      Regulator's review is expected to be completed in November 2004. The proposal
      acknowledged WPD's leading quality-of-service performance and provided an
      additional 1% in revenues because of WPD's reliability performance. PPL
      cannot predict the final outcome of the Regulator's review or how the Regulator's
      final decision will impact WPD's revenues.
    Environmental Matters - Domestic
    (PPL, PPL Energy Supply and PPL Electric)
    Due to the environmental issues discussed below or other environmental
      matters, PPL subsidiaries may be required to modify, replace or cease operating
      certain facilities to comply with statutes, regulations and actions by regulatory
      bodies or courts. In this regard, PPL subsidiaries also may incur capital
      expenditures or operating expenses in amounts which are not now determinable,
      but which could be significant.
    Air(PPL and PPL Energy Supply)
    The Clean Air Act deals, in part, with acid rain, attainment of federal
      ambient ozone standards and toxic air emissions in the U.S. PPL's subsidiaries
      are in substantial compliance with the Clean Air Act. The Bush administration
      and certain members of Congress have made proposals regarding possible amendments
      to the Clean Air Act. These amendments could require significant further
      reductions in nitrogen oxide, sulfur dioxide and mercury and could possibly
      require measures to limit carbon dioxide. The cost of these reductions could
      be substantial. The federal government is seeking commitments from many
      major industries to voluntarily reduce carbon dioxide emissions. In addition,
      several states have taken their own actions requiring mandatory carbon dioxide
      emission reductions. Pennsylvania and Montana have not, at this time, established
      any formal programs to address carbon dioxide and other greenhouse gases.
    The Pennsylvania DEP began requiring further seasonal (May-September) nitrogen
      oxide reductions to 80% from 1990 levels starting in 2003. This requirement
      is pursuant to the EPA's 1998 State Implementation Plan (SIP) call to 22
      eastern states, including Pennsylvania, to revise their state implementation
      plans. PPL achieved the 2003 nitrogen oxide reductions with the installation
      of SCR technology on the Montour units.
    The EPA has also developed new standards for ambient levels of ozone and
      fine particulates in the U.S. These standards have been upheld following
      court challenges. To facilitate attainment of these standards, the EPA has
      proposed a rule (now called the Clean Air Interstate Rule - CAIR) for 28
      midwestern and eastern states, including Pennsylvania, to reduce national
      sulfur dioxide emissions by 40% (about 50% in the CAIR region) and to extend
      the currently seasonal program for nitrogen oxide emission reductions to
      a year-round program (in the CAIR region) starting in 2010. Starting in
      2015, the proposed rule would require further reductions in sulfur dioxide
      and nitrogen oxide of 30% and 20%, respectively, from 2010 levels. The proposed
      rule would allow these reductions to be achieved through cap-and-trade programs,
      and is consistent with the Bush administration's proposed amendments to
      the Clean Air Act, except that it applies to only the 28 states. In order
      to continue meeting the acid rain requirements of the Clean Air Act, PPL
      will need to continue to use its banked sulfur dioxide allowances and to
      purchase allowances. In addition, in order to continue to meet these requirements
      and the additional reductions expected under the CAIR, PPL has been evaluating
      the installation of sulfur dioxide scrubbers at one or more of its Pennsylvania
      plants, as well as the installation of SCR technology at Brunner Island.
    The EPA has proposed mercury and nickel regulations and is expected to
      finalize these regulations in 2005. The proposed mercury regulations affect
      coal-fired plants. With respect to mercury, the EPA has proposed two alternative
      approaches: an emission trading program to take effect beginning January
      2010 or a requirement to take effect in March 2008 that every unit install
      maximum achievable control technology (MACT). The proposed nickel regulations
      impose MACT requirements on oil-fired units to take effect in 2008. The
      nickel regulations would affect Martins Creek Units 3 and 4. The cost of
      complying with these regulations is not now determinable, but could be significant.
    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. The future direction of the EPA's enforcement initiative is presently
      unclear. However, states and environmental groups have also been bringing
      enforcement actions alleging violations of "New Source" requirements by
      coal-fired plants. At this time, PPL is unable to predict whether such EPA,
      state or citizens enforcement actions will be brought with respect to any
      of its affiliates' plants. However, the EPA regional offices that regulate
      plants in Pennsylvania (Region III) and Montana (Region VIII) have indicated
      an intention to issue information requests to all utilities in their jurisdiction.
      The Region VIII office issued such a request to PPL Montana's Corette plant
      in 2000 and the Colstrip plant in 2003. The Region III office issued such
      a request to PPL Generation's Martins Creek plant in 2002. PPL and its subsidiaries
      have responded to the Corette and Martins Creek information requests and
      began responding to the Colstrip information request. The EPA has stayed
      further production of Colstrip documents pending discussion among the Colstrip
      owners and the EPA. The EPA has taken no further action following the Martins
      Creek and Corette submittals. PPL cannot presently predict what, if any,
      action the EPA might take in this regard. Should the EPA or any state or
      citizens group initiate one or more enforcement actions against PPL or its
      subsidiaries, compliance with any such enforcement actions could result
      in additional capital and operating expenses which are not now determinable,
      but could be significant.
    In 2003, the EPA issued changes to its "New Source" regulations that clarify
      what projects are exempt from "New Source" requirements as routine maintenance
      and repair. Under these clarifications, any project to replace existing
      equipment with functionally equivalent equipment would be considered routine
      maintenance and excluded from "New Source" review if the cost of the replaced
      equipment does not exceed 20% of the replacement cost of the entire process
      unit, the basic design is not changed and no permit limit is exceeded. These
      clarifications would substantially reduce the uncertainties under the prior
      "New Source" regulations; however, they have been stayed by the U.S. Court
      of Appeals for the District of Columbia Circuit. PPL is therefore continuing
      to operate under the "New Source" regulations as they existed prior to the
      EPA's clarifications.
    The New Jersey DEP and some New Jersey residents raised environmental concerns
      with respect to the Martins Creek plant, particularly with respect to sulfur
      dioxide emissions and the opacity of the plant's plume. These issues were
      raised in the context of an appeal by the New Jersey DEP of the Air Quality
      Plan Approval issued by the Pennsylvania DEP to the adjacent Lower Mt. Bethel
      facility. In October 2003, PPL finalized an agreement with the New Jersey
      DEP and the Pennsylvania DEP pursuant to which it will reduce sulfur dioxide
      emissions from its Martins Creek power plant. Under the agreement, PPL Martins
      Creek will shut down the plant's two coal-fired generating units by September
      2007 and may repower them any time after shutting them down so long as it
      follows all applicable state and federal requirements, including installing
      the best available pollution control technology. Pursuant to the agreement,
      PPL Martins Creek began reducing the fuel sulfur content for the coal units
      as well as the plant's two oil-fired units in June 2004. In addition, PPL
      will donate to a non-profit organization 70% of the excess emission allowances
      and emission reduction credits that result from shutting down or repowering
      the coal units. As a result of the agreement, the New Jersey DEP withdrew
      its challenge to the Air Quality Plan Approval for the Lower Mt. Bethel
      facility. The agreement will not result in material costs to PPL. The agreement
      does not address the issues raised by the New Jersey DEP regarding the visible
      opacity of emissions from the Martins Creek plant. If it is determined that
      actions must be taken to address the visible opacity of these emissions,
      such actions could result in costs that are not now determinable, but could
      be significant.
    In addition to the opacity concerns raised by the New Jersey DEP, the Pennsylvania
      DEP also has raised concerns about the opacity of emissions from the Martins
      Creek and Montour plants. PPL is discussing these concerns with the Pennsylvania
      DEP. If it is determined that actions must be taken to address the Pennsylvania
      DEP's concerns, such actions could result in costs that are not now determinable,
      but could be significant.
    
    In December 2003, PPL Montana, as operator of the Colstrip facility, received
      an Administrative Compliance Order (ACO) from the EPA pursuant to the Clean
      Air Act. The ACO alleges that Units 3 and 4 of the facility have been in
      violation of the Clean Air Act permit at Colstrip since 1980. The permit
      required Colstrip to submit for review and approval by the EPA an analysis
      and proposal for reducing emissions of nitrogen oxide to address visibility
      concerns if and when the EPA promulgates Best Available Retrofit Technology
      requirements for nitrogen oxide. The EPA is asserting that regulations it
      promulgated in 1980 triggered this requirement. PPL believes that the ACO
      is unfounded and is discussing the matter with the EPA. The ACO does not
      expressly seek penalties, and it is unclear at this time what, if any, additional
      control technology the EPA may consider to be required. Accordingly, the
      costs to install any additional controls for nitrogen oxide, if required,
      are not now determinable, but could be significant. In addition, the Montana
      Department of Environmental Quality (DEQ) is questioning whether the permit
      limits for sulfur dioxide emissions from Colstrip Units 3 and 4 are too
      high under provisions of the Clean Air Act that limit allowable emissions
      from sources built after 1978. PPL is engaged in settlement negotiations
      on these matters with the EPA, the Montana DEQ and the Northern Cheyenne
      Tribe. PPL cannot predict the outcome of this matter.
    Water/Waste(PPL and PPL Energy Supply)
    Seepages have been detected at one of the wastewater basins at the Montour
      station, and PPL Montour is working with the Pennsylvania DEP to assess
      the seepage and develop an abatement plan. PPL plans to comprehensively
      address issues related to wastewater basins at all of its plants as part
      of the process to renew the permits for these basins which expire within
      the next five years. The cost of addressing seepages at PPL's Pennsylvania
      plants is not now determinable, but could be significant.
    In conjunction with its 1999 acquisition of generating assets from Montana
      Power, PPL Montana required Montana Power to prepare a Phase I and Phase
      II Environmental Site Assessment. The assessment identified various seepages
      from the freshwater pond and wastewater ponds at the Colstrip plant. Based
      upon that assessment and subsequent assessments by PPL Montana, certain
      groundwater remediation measures have been implemented. However, additional
      investigations are ongoing and additional remediation measures could be
      required at costs which are not now determinable, but could be significant.
    In May 2003, approximately 50 plaintiffs brought an action in the Montana
      Second Judicial District Court, Butte-Silver Bow County, against PPL Montana
      and the other owners of the Colstrip plant alleging property damage from
      the seepage noted above. This action has been moved to the Montana Sixteenth
      Judicial District Court, Rosebud County. This action could result in PPL
      Montana and the other Colstrip owners being liable for damages and being
      required to take additional remedial measures beyond those noted above.
      The cost to PPL Montana of any such damages and remedial measures is not
      now determinable, but could be significant. PPL is negotiating settlement
      with some plaintiffs, the cost of which is not expected to be significant.
    Brunner Island's NPDES permit contains a provision requiring further studies
      on the thermal impact of the cooling water discharge from the plant. These
      studies are underway and are expected to be completed in 2006. The Pennsylvania
      DEP has stated that it believes the studies to date show that the temperature
      of the discharge must be lowered. The Pennsylvania DEP has also stated that
      it believes the plant is in violation of a permit condition prohibiting
      the discharge from changing the river temperature by more than two degrees
      per hour. PPL is discussing these matters with the agency. Depending on
      the outcome of these discussions, the plant could be subject to additional
      capital and operating costs that are not now determinable, but could be
      significant.
    The Pennsylvania DEP has issued a water quality certification and NPDES
      permit to PPL Holtwood, LLC in the FERC license renewal proceeding for its
      Lake Wallenpaupack hydroelectric facility. PPL appealed both the certification
      and the NPDES permit. The parties have reached agreement on the issues.
      No significant additional costs will be incurred by PPL under the agreed-upon
      terms.
    The EPA has significantly tightened the water quality standard for arsenic.
      The revised standard becomes effective in 2006. The revised standard may
      result in action by individual states that could require several PPL subsidiaries
      to either further treat wastewater or take abatement action at their power
      plants, or both. The cost of complying with any such requirements is not
      now determinable, but could be significant.
    The EPA recently finalized requirements for new or modified water intake
      structures. These requirements affect where generating facilities are built,
      establish intake design standards, and could lead to requirements for cooling
      towers at new and modified power plants. Another new rule that was finalized
      in July 2004 addresses existing structures. PPL does not believe that either
      of these rules will impose material costs on PPL subsidiaries. However,
      six northeastern states have challenged the new rules for existing structures
      as being inadequate. If this challenge is successful, it could result in
      the EPA establishing stricter standards for existing structures that could
      impose material costs on PPL subsidiaries.
    Superfund and Other Remediation
    (PPL, PPL Energy Supply and PPL Electric)
    In 1995, PPL Electric and PPL Generation entered into a consent order with
      the Pennsylvania DEP to address a number of sites that were not being addressed
      under another regulatory program such as Superfund, but for which PPL Electric
      or PPL Generation may be liable for remediation. This may include potential
      PCB contamination at certain PPL Electric substations and pole sites; potential
      contamination at a number of coal gas manufacturing facilities formerly
      owned or operated by PPL Electric; oil or other contamination which may
      exist at some of PPL Electric's former generating facilities; and potential
      contamination at abandoned power plant sites owned by PPL Generation. As
      of September 30, 2004, work has been completed for 97% of the sites included
      in the consent order. Additional sites formerly owned or operated by PPL
      Electric are added to the consent order on a case-by-case basis.
    In 1996, PPL Gas Utilities entered into a similar consent order with the
      Pennsylvania DEP to address a number of sites where subsidiaries of PPL
      Gas Utilities may be liable for remediation. The sites primarily include
      former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities
      are also investigating the potential for any mercury contamination from
      gas meters and regulators. Accordingly, PPL Gas Utilities and the Pennsylvania
      DEP have agreed to add 72 meter/regulation sites to the consent order. As
      of September 30, 2004, PPL Gas Utilities had addressed 34% of the sites
      under its consent order.
    At September 30, 2004, PPL Electric and PPL Gas Utilities had accrued approximately
      $3 million and $8 million, representing the estimated amounts each will
      have to spend for site remediation, including those sites covered by each
      company's consent orders mentioned above. Depending on the outcome of investigations
      at sites where investigations have not begun or have not been completed,
      the costs of remediation and other liabilities could be substantial. PPL
      also could face other non-remediation liabilities at sites included in the
      consent order or other contaminated sites, the costs of which are not now
      determinable, but could be significant.
    (PPL and PPL Energy Supply)
    Under the Pennsylvania Clean Streams Law, subsidiaries of PPL Generation
      are obligated to remediate acid mine drainage at former mine sites and may
      be required to take additional measures to prevent potential acid mine drainage
      at previously capped refuse piles. One PPL Generation subsidiary is pumping
      and treating mine water at two mine sites. Another PPL Generation subsidiary
      is installing passive wetlands treatment at a third site, and the Pennsylvania
      DEP has suggested that it may require that PPL Generation subsidiary to
      pump and treat the mine water at that third site. At September 30, 2004,
      a PPL Energy Supply subsidiary had accrued $29 million to cover the costs
      of pumping and treating groundwater at the two mine sites for 50 years and
      for installing passive wetlands treatment at the third site.
    In 1999, the Montana Supreme Court held in favor of several citizens' groups
      that the right to a clean and healthful environment is a fundamental right
      guaranteed by the Montana Constitution. The court's ruling could result
      in significantly more stringent environmental laws and regulations, as well
      as an increase in citizens' suits under Montana's environmental laws. The
      effect on PPL Montana of any such changes in laws or regulations or any
      such increase in legal actions is not currently determinable, but could
      be significant.
    (PPL, PPL Energy Supply and PPL Electric)
    Future cleanup or remediation work at sites currently under review, or
      at sites not currently identified, may result in material additional operating
      costs for PPL subsidiaries that cannot be estimated at this time.
    Asbestos (PPL and PPL Energy Supply)
    There have been increasing litigation claims throughout the U.S. based
      on exposure to asbestos against companies that manufacture or distribute
      asbestos products or that have these products on their premises. Certain
      of PPL's generation subsidiaries and certain of its energy services subsidiaries,
      such as those that have supplied, may have supplied or installed asbestos
      material in connection with the repair or installation of process piping
      and heating, ventilating and air conditioning systems, have been named as
      defendants in asbestos-related lawsuits. PPL cannot predict the outcome
      of these lawsuits or whether additional claims may be asserted against its
      subsidiaries in the future. PPL does not expect that the resolution of the
      current lawsuits will have a material adverse effect on its results of operations.
    Electric and Magnetic Fields (PPL, PPL Energy Supply and PPL
      Electric)
    Concerns have been expressed by some members of the public regarding the
      potential health effects of EMFs. These fields are emitted by all devices
      carrying electricity, including electric transmission and distribution lines
      and substation equipment. Government officials in the U.S. and the U.K.
      have focused attention on this issue. PPL and its subsidiaries support the
      current efforts to determine whether EMFs cause any human health problems
      and are taking steps to reduce EMFs, where practical, in the design of new
      transmission and distribution facilities. PPL is unable to predict what
      effect, if any, the EMF issue might have on its operations and facilities
      either in the U.S. or abroad, and the associated cost, or what, if any,
      liabilities it might incur related to the EMF issue.
    Lower Mt. Bethel (PPL and PPL Energy Supply)
    In August 2002, the Northampton County Court of Common Pleas issued a decision
      concerning the permissible noise levels from the Lower Mt. Bethel facility
      when it becomes operational. Specifically, the court's decision sets certain
      permissible noise levels required for plant operation. PPL appealed the
      court's decision to the Commonwealth Court, and an intervenor in the lawsuit
      cross-appealed the court's decision. In May 2003, the Commonwealth Court
      remanded the case to the Court of Common Pleas for further findings of fact
      concerning the zoning application relating to the construction of the facility.
      In September 2003, the Court of Common Pleas ruled in PPL's favor while
      also reaffirming its decision on the noise levels, and the intervenor appealed
      this ruling to the Commonwealth Court. In April 2004, the Commonwealth Court
      affirmed the decision of the Court of Common Pleas. The intervenor has pending
      before the Supreme Court of Pennsylvania a Petition for Allowance of Appeal.
    The certificate of occupancy for the Lower Mt. Bethel facility was issued
      by the local township zoning officer in April 2004 and the facility was
      placed in service in May 2004. In May 2004, the intervenor in the legal
      proceedings regarding the facility's permissible noise levels filed an appeal
      with the township board regarding the issuance of the certificate of occupancy.
      The hearing for this appeal is scheduled for December 2004.
    Environmental Matters - International(PPL and PPL Energy Supply)
    U.K.
    WPD's distribution businesses are subject to numerous regulatory and statutory
      requirements with respect to environmental matters. PPL believes that WPD
      has taken and continues to take measures to comply with the applicable laws
      and governmental regulations for the protection of the environment. There
      are no material legal or administrative proceedings pending against WPD
      with respect to environmental matters. See "Environmental Matters - Domestic
      - Electric and Magnetic Fields" for a discussion of EMFs.
    Latin America
    Certain of PPL's affiliates have electric distribution operations in Latin
      America. PPL believes that these affiliates have taken and continue to take
      measures to comply with the applicable laws and governmental regulations
      for the protection of the environment. There are no material legal or administrative
      proceedings pending against PPL's affiliates in Latin America with respect
      to environmental matters.
    Other
    Nuclear Insurance(PPL and PPL Energy Supply)
    PPL Susquehanna is a member of certain insurance programs which provide
      coverage for property damage to members' nuclear generating stations. Facilities
      at the Susquehanna station are insured against property damage losses up
      to $2.75 billion under these programs. PPL Susquehanna is also a member
      of an insurance program which provides insurance coverage for the cost of
      replacement power during prolonged outages of nuclear units caused by certain
      specified conditions. Under the property and replacement power insurance
      programs, PPL Susquehanna could be assessed retroactive premiums in the
      event of the insurers' adverse loss experience. At September 30, 2004, this
      maximum assessment was about $40 million.
    PPL Susquehanna's public liability for claims resulting from a nuclear
      incident at the Susquehanna station is limited to about $10.8 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 $201 million per incident, payable
      at $20 million per year.
    
    Guarantees and Other Assurances
    (PPL)
    PPL fully and unconditionally guarantees all of the debt securities of
      PPL Capital Funding, a wholly owned financing subsidiary of PPL.
    (PPL, PPL Energy Supply and PPL Electric)
    The table below provides an update to those guarantees specifically disclosed
      in Note 14 to the Financial Statements contained in each Registrant's Annual
      Report to the SEC on Form 10-K for the year ended December 31, 2003. Not
      reflected in the table below is the guarantee by PPL of all of the obligations
      of PPL Capital Funding Trust I under its trust preferred securities that
      were a component of the PEPS Units. PPL was released from this guarantee
      upon cancellation of the trust preferred securities, as discussed in Note
      7.
    Recorded
            Liability at
        
        Exposure
            atSeptember 30,
            2004
        
        December
            31,
            2003
        
        September
            30,
                  2004 (a)
        
        Expiration
            
            DatePPLResidual value guarantees of leased
            equipment
        
        
        
        
        
        
        
        $   4
        
        
        2005
        (b)PPL Energy Supply (c)WPD LLP guarantee of obligations under
            SIUK Capital Trust I preferred securities
        
        
        
        
        
        
        
        82
        (d)
        2027Letters of credit issued on behalf
            of affiliates
        
        
        
        
        
        
        
        8
        (e)
        2005Support agreements to guarantee partnerships'
            obligations for the sale of coal
        
        
        
        
        
        
        
        9
        
        
        2007Potential retroactive premiums under
            nuclear insurance programs
        
        
        
        
        
        
        
        40Nuclear claims under The Price Anderson
            Amendments Act of 1988
        
        
        
        
        
        
        
        201
        (f)Contingent purchase price payments
            to former owners of synfuel projects
        
        $   7
        
        
        $   4
        
        
        61
        
        2007Residual value guarantees of leased
            equipment
        
        
        
        
        
        
        
        4
        
        2005
        (b)WPD guarantee related to a contract
            assigned as part of a sale of one of its businesses
        
        
        
        
        
        
        
        19
        
        2005Guarantee of an unconsolidated entity's
            lease obligations (g)
        
        
        
        
        
        
        
        1
        
        2008PPL Electric(c)Guarantee of a portion of an unconsolidated
            entity's debt
        
        
        
        
        
        
        
        7
        (d)
        2008Residual value guarantees of leased
            equipment
        
        11
        
        
        16
        
        
        82
        
        
        2005
        (b)(a)
        
        Represents the estimated maximum potential
            amount of future payments that could be required to be made under
            the guarantee.(b)
        
        Although the expiration date noted is
            2005, equipment of similar value is generally leased and guaranteed
            on an on-going basis.(c)
        
        Other than the exceptions noted in (e)
            below, all guarantees of PPL Energy Supply and PPL Electric also apply
            to PPL on a consolidated basis.(d)
        
        Reflects principal payments only.(e)
        
        Represents letters of credit issued at
            the direction of PPL Energy Supply for the benefit of third parties
            for assurance against nonperformance by PPL and PPL Gas Utilities.
            This is not a guarantee by PPL on a consolidated basis.(f)
        
        Amount is per incident.(g)
        
        This guarantee was entered into in 2004.
            The maximum amount of potential payments is not explicitly stated
            in the related agreements.
10. Related Party Transactions
    Affiliate Trust(PPL)
    See Note 7 for a discussion of various transactions involving PPL Capital
      Funding subordinated notes that were held by PPL Capital Funding Trust I.
    PLR Contracts(PPL Energy Supply and PPL Electric)
    PPL Electric has power sales agreements with PPL EnergyPlus, effective
      January 1, 2002, to supply all of PPL Electric's PLR load through 2009.
      Under these contracts, PPL EnergyPlus provides electricity at the pre-determined
      capped prices that PPL Electric is authorized to charge its PLR customers.
      For the three months ended September 30, 2004 and 2003, these purchases
      totaled $373 million and $368 million. For the nine months ended September
      30, 2004 and 2003, these purchases totaled $1.1 billion for both periods.
      These purchases include nuclear decommissioning recovery and amortization
      of an up-front contract payment, and are included in the Statement of Income
      as "Energy purchases from affiliate" by PPL Electric, and as "Wholesale
      energy marketing to affiliates" revenues by PPL Energy Supply.
    Under one of the PLR contracts, PPL Electric is required to make performance
      assurance deposits with PPL EnergyPlus when the market price of electricity
      is less than the contract price by more than its contract collateral threshold.
      Conversely, PPL EnergyPlus is required to make performance assurance deposits
      with PPL Electric when the market price of electricity is greater than the
      contract price by more than its contract collateral threshold. At September
      30, 2004, PPL Energy Supply was required to provide PPL Electric with performance
      assurance of $300 million, the maximum amount required under the contract.
      PPL Energy Supply's deposit with PPL Electric was $300 million at September
      30, 2004. This deposit is shown on the Balance Sheet as "Collateral on PLR
      energy supply to/from affiliate," a current asset of PPL Energy Supply and
      a current liability of PPL Electric. On their Statements of Cash Flows,
      PPL Electric treats the collateral as cash provided by operating activities,
      and PPL Energy Supply treats it as cash used in operating activities. PPL Electric pays interest equal to the one-month LIBOR plus 0.5% on
      this deposit.
    In 2001, PPL Electric made a $90 million up-front payment to PPL EnergyPlus
      in connection with the PLR contracts. The up-front payment is being amortized
      by both parties over the term of the PLR contracts. The unamortized balance
      of this payment and other payments under the contract was $61 million at
      September 30, 2004, and $70 million at December 31, 2003. This balance
      is reported on the Balance Sheet as "Prepayment on PLR energy supply from
      affiliate" by PPL Electric, and as "Deferred revenue on PLR energy supply
      to affiliate" by PPL Energy Supply.
    NUG Purchases(PPL Energy Supply and PPL Electric)
    PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity
      purchased under contracts with NUGs. PPL Electric purchases electricity
      from the NUGs at contractual rates and then sells the electricity at the
      same price to PPL EnergyPlus. For the three months ended September 30, 2004
      and 2003, these NUG purchases totaled $40 million and $39 million. For the
      nine months ended September 30, 2004 and 2003, these NUG purchases totaled
      $116 million and $115 million. These amounts are included in the Statement
      of Income as "Wholesale electric to affiliate" revenues by PPL Electric,
      and as "Energy purchases from affiliate" by PPL Energy Supply.
    Allocations of Corporate Service Costs(PPL Energy Supply and
      PPL Electric)
    PPL Services provides corporate functions such as financial, legal, human
      resources and information services. PPL Services bills the respective PPL
      subsidiaries for the cost of such services when they can be specifically
      identified. The cost of these services that is not directly charged to PPL
      subsidiaries is allocated to certain of the subsidiaries based on an average
      of the subsidiaries' relative invested capital, operation and maintenance
      expenses, and number of employees. PPL Services allocated the following
      charges to PPL Energy Supply and PPL Electric:
    Three
            Months Ended 
            September 30,
        
        Nine Months
            Ended 
            September 30,2004
        
        2003
        
        2004
        
        2003Direct expensesPPL Energy Supply
        $
        25
        
        $
        23
        
        $
        73
        
        $
        68PPL Electric
        
        20
        
        
        14
        
        
        60
        
        
        45Overhead costsPPL Energy Supply
        
        15
        
        
        12
        
        
        47
        
        
        40PPL Electric
        
        6
        
        
        6
        
        
        19
        
        
        19Intercompany Borrowings
    (PPL Energy Supply)
    A PPL Energy Supply subsidiary had a $1 million note receivable from an
      affiliate at September 30, 2004, with interest equal to the one-month LIBOR
      plus 3%. Interest earned on loans to affiliates, included in "Other Income
      - net" on the Statement of Income, was $1 million and $2 million for the
      three months ended September 30, 2004 and 2003, and was $2 million
      and $14 million for the nine months ended September 30, 2004 and 2003.
    In May 2004, PPL Energy Supply issued a $495 million note payable to an
      affiliate. The note matures in May 2006 with interest payable monthly in
      arrears at LIBOR plus 1%. Interest expense with affiliate, as shown on the
      Statement of Income, was $4 million and $5 million for the three and nine
      months ended September 30, 2004, and was insignificant in 2003.
    (PPL Electric)
    In August 2004, a PPL Electric subsidiary made a $300 million demand loan
      to an affiliate, with interest due quarterly at a rate equal to the 3-month
      LIBOR plus 1.25%. Interest earned on loans to affiliates, included in "Other
      Income - net" on the Statement of Income, was $1 million for both the three
      months ended September 30, 2004 and 2003, and was $1 million and $3 million
      for the nine months ended September 30, 2004 and 2003.
    Trademark Royalties(PPL Energy Supply)
    In the fourth quarter of 2002, a PPL subsidiary that owns PPL trademarks
      began billing certain affiliates which use these trademarks. PPL Energy
      Supply was allocated $9 million and $10 million of this license fee for
      the three months ended September 30, 2004 and 2003, and $25 million
      and $30 million for the nine months ended September 30, 2004 and 2003. The
      allocation of this license fee is primarily included in "Other operation
      and maintenance" on the Statement of Income.
11. Other Income - Net
    (PPL)
    The breakdown of PPL's "Other Income - net" was as follows:
    
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Other IncomeInterest income - IRS settlement
        
        $
        23
        
        
        
        
        
        
        $
        23Other interest income
        
        
        5
        
        
        $
        2
        
        
        
        11
        
        
        $
        9Sale of CEMAR (Note 8)
        
        
        
        
        
        
        
        
        
        
        23Realized earnings on nuclear decommissioning
            trust (a)
        
        
        2
        
        
        
        10
        
        
        
        6
        
        
        
        18Hyder-related activity
        
        
        
        
        
        
        2
        
        
        
        2
        
        
        
        6Gain by WPD on the disposition of
            property
        
        
        
        
        
        
        
        
        
        
        1
        
        
        
        3Rental income
        
        
        
        
        
        
        2
        
        
        
        
        
        
        
        5Legal claims
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        3Equity earnings (loss)
        
        
        1
        
        
        
        (1
        )
        
        
        3
        
        
        
        (1
        )Amortization on closed out fair value
            swaps
        
        
        4
        
        
        
        1
        
        
        
        6
        
        
        
        2Miscellaneous - Domestic
        
        
        1
        
        
        
        2
        
        
        
        7
        
        
        
        3Miscellaneous - International
        
        
        (2
        )
        
        
        (1
        )
        
        
        3
        
        
        
        10Total
        
        
        34
        
        
        
        17
        
        
        
        85
        
        
        
        58Other DeductionsImpairment of investment in technology
            supplier (Note 8)
        
        
        
        
        
        
        
        
        
        
        10Realized loss on available-for-sale
            investment
        
        
        6
        
        
        
        
        
        
        
        6Taxes, other than income
        
        
        
        
        
        
        
        
        
        
        1
        
        
        
        1Charitable contributions
        
        
        1
        
        
        
        
        
        
        
        3
        
        
        
        2Miscellaneous - Domestic
        
        
        2
        
        
        
        1
        
        
        
        6
        
        
        
        2Miscellaneous - International
        
        
        2
        
        
        
        1
        
        
        
        5
        
        
        
        7Total
        
        
        11
        
        
        
        2
        
        
        
        31
        
        
        
        12Other Income - net
        
        $
        23
        
        
        $
        15
        
        
        $
        54
        
        
        $
        46(a)

PPL has identified an error in recording gains and losses on the investment in the nuclear decommissioning trust since January 1,
2003.  PPL is working with the trustee to determine the final amount of the required adjustment, which will be recorded in the fourth
quarter.  Based on estimates of the maximum amount of the error, the amount is not expected to be material to the financial
statements in the fourth quarter of 2004 or affected prior periods.(PPL Energy Supply)
    The breakdown of PPL Energy Supply's "Other Income - net" was as follows:
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Other IncomeAffiliated interest income
        
        $
        1
        
        
        $
        2
        
        
        $
        2
        
        
        $
        14Interest income - IRS settlement
        
        
        15
        
        
        
        
        
        
        
        15Sale of CEMAR (Note 8)
        
        
        
        
        
        
        
        
        
        
        23Realized earnings on nuclear decommissioning
            trust (a)
        
        
        2
        
        
        
        10
        
        
        
        6
        
        
        
        18Hyder-related activity
        
        
        
        
        
        
        2
        
        
        
        2
        
        
        
        6Gain by WPD on the disposition of
            property
        
        
        
        
        
        
        
        
        
        
        1
        
        
        
        3Other interest income
        
        
        3
        
        
        
        2
        
        
        
        7
        
        
        
        6Rental income
        
        
        
        
        
        
        2
        
        
        
        
        
        
        
        5Legal claims
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        3Equity earnings
        
        
        1
        
        
        
        
        
        
        
        3
        
        
        
        2Miscellaneous - Domestic
        
        
        (2
        )
        
        
        1
        
        
        
        1Miscellaneous - International
        
        
        (2
        )
        
        
        (1
        )
        
        
        3
        
        
        
        10Total
        
        
        18
        
        
        
        18
        
        
        
        63
        
        
        
        67Other DeductionsTaxes, other than income
        
        
        
        
        
        
        
        
        
        
        1
        
        
        
        1Miscellaneous - Domestic
        
        
        (1
        )
        
        
        
        
        
        
        1Miscellaneous - International
        
        
        2
        
        
        
        1
        
        
        
        5
        
        
        
        7Total
        
        
        1
        
        
        
        1
        
        
        
        7
        
        
        
        8Other Income - net
        
        $
        17
        
        
        $
        17
        
        
        $
        56
        
        
        $
        59(a)

PPL Energy Supply has identified an error in recording gains and losses on the investment in the nuclear decommissioning trust since January 1,
2003.  PPL Energy Supply is working with the trustee to determine the final amount of the required adjustment, which will be recorded in the fourth
quarter.  Based on estimates of the maximum amount of the error, the amount is not expected to be material to the financial
statements in the fourth quarter of 2004 or affected prior periods.(PPL Electric)
    The breakdown of PPL Electric's "Other Income - net" was as follows:
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Other IncomeAffiliated interest income
        
        $
        1
        
        
        $
        1
        
        
        $
        1
        
        
        $
        3Interest income - IRS settlement
        
        
        8
        
        
        
        
        
        
        
        8Other interest income
        
        
        2
        
        
        
        
        
        
        
        4
        
        
        
        3Total
        
        
        11
        
        
        
        1
        
        
        
        13
        
        
        
        6Other DeductionsMiscellaneous
        
        
        
        
        
        
        
        
        
        
        1
        
        
        
        1Other Income - net
        
        $
        11
        
        
        $
        1
        
        
        $
        12
        
        
        $
        5
12. Derivative Instruments and Hedging Activities
    Fair Value Hedges(PPL and PPL Energy Supply)
    PPL and PPL Energy Supply enter into financial or physical contracts to
      hedge a portion of the fair value of firm commitments of forward electricity
      sales. These contracts range in maturity through 2006. Additionally, PPL
      and PPL Energy Supply enter into financial contracts to hedge fluctuations
      in the market value of existing debt issuances. These contracts range in
      maturity through 2029.
    PPL and PPL Energy Supply did not recognize any gains or losses resulting
      from hedges of firm commitments that no longer qualified as fair value hedges
      for the three and nine months ended September 30, 2004. As a result of settling
      certain transactions with a counterparty that exited its energy marketing
      function, PPL and PPL Energy Supply recognized a $1 million net gain for
      the nine months ended September 30, 2003. No gains or losses were recognized
      for these transactions for the three months ended September 30, 2003.
    PPL and PPL Energy Supply did not recognize any gains or losses resulting
      from the ineffective portion of fair value hedges for the three and nine
      months ended September 30, 2004 or 2003.
    Cash Flow Hedges (PPL and PPL Energy Supply)
    PPL and PPL Energy Supply enter into financial and physical contracts,
      including forwards, futures and swaps, to hedge the price risk associated
      with electric, gas and oil commodities. These contracts range in maturity
      through 2010. Additionally, PPL and PPL Energy Supply enter into financial
      interest rate swap contracts to hedge interest expense associated with both
      existing and anticipated debt issuances. These swaps range in maturity through
      2014 for PPL. PPL Energy Supply did not enter into any financial interest
      rate swap contracts as of September 30, 2004. PPL and PPL Energy Supply
      also enter into foreign currency forward contracts to hedge exchange rates
      associated with firm commitments denominated in foreign currencies and to
      hedge the net investment of foreign operations. These forward contracts
      range in maturity through 2028.
    Cash flow hedges may be discontinued if it is probable that the original
      forecasted transaction will not occur by the end of the originally specified
      time period. Due to the extinguishment of a consolidated trust's debt related
      to the Sundance and University Park generating facilities in June 2004,
      interest rate swaps that hedged the interest payments on the debt were terminated.
      Therefore, PPL and PPL Energy Supply reclassified a $3 million pre-tax loss
      from other comprehensive income to "Interest Expense" on the Statement of
      Income. PPL and PPL Energy Supply did not discontinue any other cash flow
      hedges during the three and nine months ended September 30, 2004. For the
      nine months ended September 30, 2003, PPL and PPL Energy Supply discontinued
      certain cash flow hedges that resulted in a pre-tax loss of $11 million
      being reclassified from other comprehensive income into earnings (reported
      in "Interest Expense" on the Statement of Income). There was no such reclassification
      for the three months ended September 30, 2003.
    Due to hedge ineffectiveness, PPL and PPL Energy Supply reclassified amounts
      that were not significant from other comprehensive income (reported in "Wholesale
      energy marketing" revenues, "Energy purchases" and "Interest Expense" on
      the Statement of Income) for the three and nine months ended September 30,
      2004. PPL and PPL Energy Supply recorded a net loss of $1 million in earnings
      for the three and nine months ended September 30, 2003.
    As of September 30, 2004, the deferred net loss, after tax, on derivative
      instruments in "Accumulated other comprehensive loss" expected to be reclassified
      into earnings during the next twelve months was $18 million and $13 million
      for PPL and PPL Energy Supply.
    The following table shows the change in accumulated unrealized gains or
      losses on derivatives in other comprehensive income for the following periods:
    
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003PPLBeginning accumulated derivative gain
        $
        7
        
        
        $
        21
        
        
        $
        36
        
        
        $
        7Net change associated with current
            period hedging activities and other
        
        8
        
        
        
        7
        
        
        
        (81
        )
        
        
        (14
        )Net change associated with hedges
            of net investments
        
        
        
        
        
        (1
        )
        
        
        1
        
        
        
        (3
        )Net change from reclassification into
            earnings
        
        (16
        )
        
        
        (31
        )
        
        
        43
        
        
        
        6Ending accumulated derivative loss
        $
        (1
        )
        
        $
        (4
        )
        
        $
        (1
        )
        
        $
        (4
        )PPL Energy SupplyBeginning accumulated derivative gain
        $
        18
        
        
        $
        47
        
        
        $
        55
        
        
        $
        23Net change associated with current
            period hedging activities and other
        
        15
        
        
        
        6
        
        
        
        (78
        )
        
        
        (11
        )Net change associated with hedges
            of net investments
        
        
        
        
        
        (1
        )
        
        
        1
        
        
        
        (3
        )Net change from reclassification into
            earnings
        
        (17
        )
        
        
        (34
        )
        
        
        38
        
        
        
        9Ending accumulated derivative gain
        $
        16
        
        
        $
        18
        
        
        $
        16
        
        
        $
        18Related Implementation Issues(PPL and PPL Energy Supply)
    
    In June 2001, the FASB issued definitive guidance on DIG Issue C15, "Scope
      Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type
      Contracts and Forward Contracts in Electricity." DIG Issue C15 provides
      additional guidance on the classification and application of derivative
      accounting rules relating to purchases and sales of electricity utilizing
      forward and option contracts. This guidance became effective as of July
      1, 2001. In December 2001, the FASB revised the guidance in DIG Issue C15,
      principally related to the eligibility of options for the normal purchases
      and normal sales exception. The revised guidance was effective April 1,
      2002. In November 2003, the FASB again revised the guidance in DIG Issue
      C15 to clarify the application of derivative accounting rules for contracts
      that may involve capacity. The guidance was effective January 1, 2004 for
      PPL. PPL had no financial statement impact from this revised guidance.
    PPL Energy Supply adopted the final provisions of EITF Issue 03-11, "Reporting
      Realized Gains and Losses on Derivative Instruments That Are Subject to
      FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in
      Issue No. 02-3," prospectively as of October 1, 2003. As a result of the
      adoption, non-trading bilateral sales of electricity at major market delivery
      points are netted with purchases that offset the sales at those same delivery
      points. A major market delivery point is any delivery point with liquid
      pricing available. The impact on PPL and PPL Energy Supply of applying EITF
      Issue 03-11 was a reduction of $67 million in "Wholesale energy marketing"
      revenues and "Energy purchases" for the three months ended September 30,
      2004, and a reduction of $209 million in "Wholesale energy marketing" revenues
      and "Energy purchases" for the nine months ended September 30, 2004.
    Credit Concentration
    (PPL and PPL Energy Supply)
    PPL and PPL Energy Supply enter into contracts with many entities for the
      purchase and sale of energy. Many of these contracts are considered a normal
      part of doing business and, as such, the mark-to-market value of these contracts
      is not reflected in the financial statements. However, the mark-to-market
      value of these contracts is considered when committing to new business from
      a credit perspective.
    PPL and PPL Energy Supply have credit exposures to energy trading partners.
      The majority of these exposures are the mark-to-market value of multi-year
      contracts for energy sales and purchases. Therefore, if these counterparties
      fail to perform their obligations under such contracts, PPL and PPL Energy
      Supply would not experience an immediate financial loss, but would experience
      lower revenues or higher costs in future years to the extent that replacement
      sales or purchases could not be made at the same prices as those under the
      defaulted contracts.
    At September 30, 2004, PPL had a credit exposure of $288 million to energy
      trading partners. Ten counterparties accounted for 70% of this exposure.
      No other individual counterparty accounted for more than 3% of the exposure.
      Eight of the ten counterparties had an investment grade credit rating from
      Standard & Poor's Ratings Services (S&P). One non-investment grade
      counterparty of PPL Montana, NorthWestern, recently announced that it has
      emerged from Chapter 11 bankruptcy
      protection. NorthWestern had assumed
      the power supply agreements in its bankruptcy proceeding, and NorthWestern
      has remained current on all post-bankruptcy obligations with PPL Montana.
      See Note 9 under "Wholesale Energy Commitments" for additional information
      regarding the NorthWestern bankruptcy proceeding. The other non-investment
      grade counterparty is also current on its obligations under the existing
      contract.
    At September 30, 2004, PPL Energy Supply had a credit exposure of $280
      million to energy trading partners. Ten counterparties accounted for 72%
      of this exposure. No other individual counterparty accounted for more than
      3% of the exposure. Eight of the ten counterparties had an investment grade
      credit rating from S&P. One non-investment grade counterparty, NorthWestern,
      recently announced that it has emerged from Chapter 11 bankruptcy protection, as discussed above. The
      other non-investment grade counterparty is also current on its obligations
      under the existing contract.
    PPL and PPL Energy Supply have the right to request collateral from each
      of these counterparties, except for one government agency, in the event
      their credit ratings fall below investment grade. It is also the policy of PPL
      and PPL Energy Supply to enter into netting agreements with all of their
      counterparties to minimize credit exposure.
    (PPL Energy Supply and PPL Electric)
    In past years, PPL Energy Supply has had an exposure to PPL Electric under
      the long-term contract to provide PPL Electric's PLR load. However, increases
      in electricity prices during 2004 have reversed this position. At September
      30, 2004, PPL Electric had a mark-to-market exposure to PPL Energy Supply
      of $1.3 billion. In accordance with the terms of one of the PLR contracts,
      PPL Energy Supply provided PPL Electric with cash collateral in the amount
      of $300 million, the maximum amount required under the contract. This is
      the only credit exposure for PPL Electric that has a mark-to-market element.
      No other counterparty accounts for more than 1% of PPL Electric's total
      exposure.
13. Pension and Other Postretirement Benefits
    (PPL and PPL Energy Supply)
    The components of net pension and other postretirement benefit costs (credits)
      were as follows:
    Pension
            BenefitsThree
            Months Ended
            September 30,
        
        
        Nine
            Months Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003Domestic
        
        
        International
        
        
        Domestic
        
        
        International
        
        
        Domestic
        
        
        International
        
        
        Domestic
        
        
        InternationalPPLService cost
        
        $
        12
        
        
        $
        4
        
        
        $
        10
        
        
        $
        3
        
        
        $
        36
        
        
        $
        11
        
        
        $
        31
        
        
        $
        10Interest cost
        
        
        28
        
        
        
        35
        
        
        
        26
        
        
        
        31
        
        
        
        84
        
        
        
        107
        
        
        
        78
        
        
        
        93Expected return on
            plan assets
        
        
        (38
        )
        
        
        (53
        )
        
        
        (35
        )
        
        
        (46
        )
        
        
        (113
        )
        
        
        (158
        )
        
        
        (107
        )
        
        
        (140
        )Amortization
            of transition obligation
        
        
        (1
        )
        
        
        
        
        
        
        (1
        )
        
        
        
        
        
        
        (3
        )
        
        
        
        
        
        
        (3
        )Amortization
            of prior service cost
        
        
        4
        
        
        
        2
        
        
        
        4
        
        
        
        1
        
        
        
        11
        
        
        
        4
        
        
        
        11
        
        
        
        3Amortization
            of (gain)/loss
        
        
        (2
        )
        
        
        2
        
        
        
        (4
        )
        
        
        
        
        
        
        (5
        )
        
        
        5
        
        
        
        (12
        )Net periodic pension
            cost (credit)
        
        $
        3
        
        
        $
        (10
        )
        
        $
        
        
        
        $
        (11
        )
        
        $
        10
        
        
        $
        (31
        )
        
        $
        (2
        )
        
        $
        (34
        )PPL Energy SupplyService cost
        
        $
        1
        
        
        $
        4
        
        
        $
        1
        
        
        $
        3
        
        
        $
        3
        
        
        $
        11
        
        
        $
        2
        
        
        $
        10Interest cost
        
        
        1
        
        
        
        35
        
        
        
        1
        
        
        
        31
        
        
        
        3
        
        
        
        107
        
        
        
        3
        
        
        
        93Expected return on
            plan assets
        
        
        (2
        )
        
        
        (53
        )
        
        
        (1
        )
        
        
        (46
        )
        
        
        (4
        )
        
        
        (158
        )
        
        
        (3
        )
        
        
        (140
        )Amortization
            of prior service cost
        
        
        1
        
        
        
        2
        
        
        
        
        
        
        
        1
        
        
        
        1
        
        
        
        4
        
        
        
        
        
        
        
        3Amortization
            of loss
        
        
        
        
        
        
        2
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        5
        
        
        
        1Net periodic pension
            cost (credit)
        
        $
        1
        
        
        $
        (10
        )
        
        $
        1
        
        
        $
        (11
        )
        
        $
        3
        
        
        $
        (31
        )
        
        $
        3
        
        
        $
        (34
        )
    Other
            Postretirement BenefitsThree
            Months Ended
            September 30,
        
        
        Nine Months
            Ended
            September 30,2004
        
        
        2003
        
        
        2004
        
        
        2003PPLService cost
        
        $
        2
        
        
        $
        2
        
        
        $
        5
        
        
        $
        5Interest cost
        
        
        7
        
        
        
        8
        
        
        
        21
        
        
        
        22Expected return on plan assets
        
        
        (4
        )
        
        
        (4
        )
        
        
        (13
        )
        
        
        (10
        )Amortization of transition
            obligation
        
        
        3
        
        
        
        2
        
        
        
        7
        
        
        
        6Amortization of prior service
            cost
        
        
        
        
        
        
        2
        
        
        
        2
        
        
        
        6Amortization of loss
        
        
        1
        
        
        
        1
        
        
        
        5
        
        
        
        4Net other postretirement benefit cost
        
        $
        9
        
        
        $
        11
        
        
        $
        27
        
        
        $
        33Medicare Prescription Drug, Improvement and Modernization Act of 2003(PPL, PPL Energy Supply and PPL Electric)
    In December 2003, the Medicare Prescription Drug, Improvement and Modernization
      Act of 2003 (the Act) was signed into law. The Act introduces a prescription
      drug benefit under Medicare Part D and also provides for a tax-free federal
      subsidy to sponsors of retiree health care benefit plans that provide an
      actuarially equivalent level of prescription drug benefits. The subsidy
      would be 28% of eligible drug costs for retirees that are over age 65 and
      covered under PPL's other postretirement benefit plans.
    In January 2004, the FASB issued FSP FAS 106-1, "Accounting and Disclosure
      Requirements Related to the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003." FSP FAS 106-1 permitted companies to defer accounting
      for the effects of the Act, as the impact of the Act on the provisions of
      SFAS 106, "Employers' Accounting for Postretirement Benefits Other than
      Pensions," had not been determined as of such time. PPL elected to defer
      recognizing the effects of the Act in accounting for its other postretirement
      benefit plans until authoritative guidance on the accounting for the federal
      subsidy was issued.
    In May 2004, the FASB issued FSP FAS 106-2, "Accounting and Disclosure
      Requirements Related to the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003," which supersedes FSP FAS 106-1. FSP FAS 106-2
      details the accounting for the effects of the Act under SFAS 106 and requires
      certain disclosures. FSP FAS 106-2 is effective for the first interim or
      annual period beginning after June 15, 2004.
    PPL has consulted with its independent actuary and determined that portions
      of certain of its other postretirement benefit plans provide benefits that
      may be actuarially equivalent to Medicare Part D benefits, pending final
      detailed guidance from the U.S. Department of Health and Human Services.
      For those plans that provide benefits that are at least actuarially equivalent
      to Medicare Part D, PPL remeasured its plan assets and accumulated benefit
      obligation as of July 1, 2004, under the prospective method of adoption
      of FSP FAS 106-2. The prospective method of adoption allows for measuring
      the effects of the Act as of the date of adoption of FSP FAS 106-2. As a result,
      PPL's accumulated postretirement benefit obligation was reduced by approximately
      $12 million and resulted in an unrecognized actuarial gain of a similar
      amount. PPL's postretirement benefit cost to be recorded for 2004 was reduced
      by approximately $1 million. The impact for the three and nine months ended
      September 30, 2004, was not significant.
14. Restricted Cash
    (PPL, PPL Energy Supply and PPL Electric)
    Bank deposits that are restricted by agreement or have been designated
      for a specific purpose are classified as restricted cash. The change in
      restricted cash is reported as an investing activity in the Statement of
      Cash Flows. On the Balance Sheet, the current portion of restricted cash
      is shown as "Restricted cash" within current assets, while the noncurrent
      portion is included in "Other" within other noncurrent assets. The following
      table details the components of restricted cash by reporting entity and
      by type:
    September
            30, 2004PPL
        
        
        PPL Energy
            Supply
        
        
        PPL ElectricCurrent:Collateral for letters of
            credit (a)
        $
        42
        
        
        
        
        
        
        $
        42Miscellaneous
        
        11
        
        
        $
        2Restricted cash - current
        
        53
        
        
        
        2
        
        
        
        42Noncurrent:Insurance subsidiary required
            reserves (b)
        
        37
        
        
        
        37PPL Transition Bond Company
            Indenture reserves (c)
        
        22
        
        
        
        
        
        
        
        22Restricted cash - noncurrent
        
        59
        
        
        
        37
        
        
        
        22Total restricted cash
        $
        112
        
        
        $
        39
        
        
        $
        64
    December
            31, 2003PPL
        
        
        PPL Energy
            Supply
        
        
        PPL ElectricCurrent:Miscellaneous
        $
        10
        
        
        $
        3Restricted cash - current
        
        10
        
        
        
        3Noncurrent:Insurance subsidiary required
            reserves (b)
        
        19
        
        
        
        19PPL Transition Bond Company
            Indenture reserves (c)
        
        29
        
        
        
        
        
        
        $
        29Restricted cash - noncurrent
        
        48
        
        
        
        19
        
        
        
        29Total restricted cash
        $
        58
        
        
        $
        22
        
        
        $
        29
    (a)
        
        A deposit with a financial institution of funds from the
            asset-backed commercial paper program to fully collateralize $42 million of letters of
            credit.  See Note 7 for more discussion on the asset-backed commercial paper program.(b)
        
        Funds that WPD's insurance subsidiary is required
            to keep on deposit.(c)
        
        Credit enhancement for PPL Transition
            Bond Company's $2.4 billion Series 1999-1 Bonds to protect against
            losses or delays in scheduled payments.
15. Goodwill
    (PPL and PPL Energy Supply)
    The changes in the carrying amounts of goodwill by segment were as follows:
    PPL Energy
            Supply
        
        
        
        
        
        PPLSupply
        
        
        International
        
        
        Total
        
        
        Delivery(a)
        
        
        TotalBalance at December 31, 2003
        
        $
        93
        
        
        $
        920
        
        
        $
        1,013
        
        
        $
        55
        
        
        $
        1,068Effect of foreign currency exchange
            rates
        
        
        
        
        
        
        34
        
        
        
        34
        
        
        
        
        
        
        
        34Purchase accounting adjustments
        
        
        1
        
        
        
        (38
        )
        (b)
        
        (37
        )
        
        
        
        
        
        
        (37
        )Balance at September 30, 2004
        
        $
        94
        
        
        $
        916
        
        
        $
        1,010
        
        
        $
        55
        
        
        $
        1,065(a)
        
        The Delivery segment is not part of PPL
            Energy Supply.(b)
        
        Includes ($37) million of adjustments
            pursuant to EITF Issue 97-3, "Uncertainties Related to Income Taxes
            in a Purchase Business Combination."
16. Asset Retirement Obligations
    (PPL and PPL Energy Supply)
    PPL and PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement
      Obligations," effective January 1, 2003. SFAS 143 addresses the accounting
      for obligations associated with the retirement of tangible long-lived assets.
      In connection with the adoption of SFAS 143, PPL and PPL Energy Supply recorded
      a cumulative effect of adoption that increased net income by $63 million.
    PPL and PPL Energy Supply's AROs are included in "Deferred Credits and
      Other Noncurrent Liabilities - Other" on the Balance Sheet. The changes
      in the carrying amounts of the AROs were as follows:
    ARO at December 31, 2003
        
        $
        242Accretion expense
        
        
        14Settlement
        
        
        (4
        )ARO at September 30, 2004
        
        $
        252Funds in the nuclear decommissioning trust are legally restricted for purposes
      of settling PPL's and PPL Energy Supply's ARO related to the decommissioning
      of the Susquehanna station. PPL Electric collects authorized nuclear decommissioning
      costs through the CTC. These revenues are passed on to PPL EnergyPlus under
      the power supply agreements between PPL Electric and PPL EnergyPlus. Similarly,
      these revenues are passed on to PPL Susquehanna under a power supply agreement
      between PPL EnergyPlus and PPL Susquehanna. These revenues, less applicable
      taxes, are used to fund the nuclear decommissioning trust and can only be
      used for future decommissioning costs. The fair value of the nuclear decommissioning
      trust was $378 million as of September 30, 2004, and $357 million as of
      December 31, 2003.
17. Workforce Reduction
    (PPL, PPL Energy Supply and PPL Electric)
    In an effort to improve operational efficiency and reduce costs, PPL and
      its subsidiaries commenced a workforce reduction assessment in June 2002.
      The program was broad-based and impacted all employee groups except certain
      positions that are key to providing high-quality service to PPL's electricity
      delivery customers.
    During 2002 and 2003, PPL recorded total charges of $84 million, $9 million
      of which was recorded in the quarter ended September 30, 2003. PPL Energy
      Supply recorded charges of $41 million in 2002. During 2002 and 2003, PPL
      Electric recorded total charges of $42 million, $9 million of which was
      recorded in the quarter ended September 30, 2003. These charges included
      employee terminations associated with implementation of the Automated Meter
      Reading project. There was no impact to earnings for the nine months ended
      September 30, 2004.
    As of September 30, 2004, 575 employees of PPL subsidiaries were terminated.
      An additional 16 positions, which are primarily bargaining unit, are being
      evaluated for termination by the end of the year, due to the timing of PPL
      Electric's Automated Meter Reading project and the displacement program
      under the bargaining unit contract. The program provides primarily for enhanced
      early retirement benefits and/or one-time special pension separation allowances
      based on an employee's age and years of service. These features of the program
      are paid from the PPL Retirement Plan pension trust and increased PPL's
      pension liabilities in 2002 and 2003 when recorded. Substantially all of
      the accrued non-pension benefits have been paid.
18. New Accounting Standards
    FIN 46(R)(PPL, PPL Energy Supply and PPL Electric)
    In December 2003, the FASB issued Interpretation No. 46 (revised December
      2003), "Consolidation of Variable Interest Entities, an Interpretation of
      ARB No. 51," which is known as FIN 46(R) and replaces FIN 46, "Consolidation
      of Variable Interest Entities, an Interpretation of ARB No. 51." See Note
      22 to the Financial Statements contained in each Registrants' Annual Report
      to the SEC on Form 10-K for the year ended December 31, 2003, for a discussion
      of FIN 46 and the impact of its adoption for certain entities. FIN 46(R)
      does not change the general consolidation concepts of FIN 46. Among other
      things, FIN 46(R) clarifies certain provisions of FIN 46 and provides additional
      scope exceptions for certain types of businesses. FIN 46(R) provides that
      a public entity that is not a small business issuer should apply the provisions
      of FIN 46(R) to all entities no later than the end of the first reporting
      period that ends after March 15, 2004. PPL and its subsidiaries adopted
      FIN 46(R) for all entities effective March 31, 2004. This adoption did not
      have a material impact on the results of PPL and its subsidiaries.
    EITF Issue 03-1
    (PPL, PPL Energy Supply and PPL Electric)
    In March 2004, the FASB ratified certain consensus in EITF Issue 03-1,
      "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments." EITF Issue 03-1 provides guidance for determining when
      an investment in certain debt and equity securities is considered impaired,
      whether that impairment is other than temporary and the measurement of an
      impairment loss. EITF Issue 03-1 also contains disclosure requirements related
      to information about impairments that have not been recognized as other
      than temporary as well as disclosure requirements for investments accounted
      for under the cost method. The recognition and measurement provisions of
      EITF Issue 03-1 were originally required to be applied to other-than-temporary
      impairment evaluations as of the balance sheet date in reporting periods
      beginning after June 15, 2004. However, in September 2004, the FASB
      issued FSP EITF Issue 03-1-1, "Effective Date of Paragraphs 10-20 of EITF
      Issue No. 03-1, 'The Meaning of Other-Than-Temporary Impairment and Its
      Application to Certain Investments'," which temporarily delayed the effective
      date for applying the recognition and measurement provisions. The disclosure
      provisions related to cost method investments are effective for annual financial
      statements for fiscal years ending after June 15, 2004, while all other
      disclosure provisions were effective for annual financial statements for
      fiscal years ending after December 15, 2003.
    The EITF is currently considering issuing additional guidance on assessing
      other-than-temporary impairments under EITF Issue 03-1. The potential impact
      of adopting the recognition and measurement provisions of EITF Issue 03-1
      is not yet determinable, but could be material.
    (PPL and PPL Energy Supply)
    As of September 30, 2004, PPL Energy Supply's nuclear decommissioning trust
      fund contained investments with an aggregate unrealized loss position of
      approximately $4 million attributable to investments that have been in a
      continuous unrealized loss position for less than 12 months. The aggregate
      fair value of these investments at September 30, 2004, was approximately
      $61 million. PPL Energy Supply considers this decline in value to be due
      to normal market volatility and currently believes that it is reasonable
      to expect these securities to recover from this temporary impairment.
    EITF Issue 03-6(PPL)
    In March 2004, the FASB ratified EITF Issue 03-6, "Participating Securities
      and the Two-Class Method under FASB Statement No. 128, 'Earnings per Share'."
      EITF Issue 03-6 addresses a number of issues regarding the calculation of
      basic EPS by companies that have issued securities other than common stock
      that participate in dividends and earnings, which are known as participating
      securities. EITF Issue 03-6 requires participating securities to be included
      in the calculation of basic EPS using the two-class method and provides
      guidance in applying the two-class method. EITF Issue 03-6 is effective
      for reporting periods beginning after March 31, 2004, and it requires restatement
      of prior periods. PPL adopted EITF Issue 03-6 during the second quarter
      of 2004. The initial adoption did not have an impact on PPL.
    EITF Issue 03-16(PPL, PPL Energy Supply and PPL Electric)
    In March 2004, the FASB ratified EITF Issue 03-16, "Accounting for Investments
      in Limited Liability Companies." EITF Issue 03-16 provides that an investment
      in a limited liability company (LLC) that maintains a specific ownership
      account for each investor should be viewed similarly to an investment in
      a limited partnership for purposes of determining whether a noncontrolling
      interest in the LLC should be accounted for using the cost or equity method.
      EITF Issue 03-16 is effective for reporting periods beginning after June
      15, 2004, and is required to be applied as a change in accounting principle
      with a cumulative effect adjustment reflected in the period of adoption.
      PPL and its subsidiaries adopted EITF Issue 03-16 effective July 1, 2004.
      The adoption did not have a material impact on the results of PPL and its
      subsidiaries.
    EITF Issue 04-8(PPL)
    
    In October 2004, the FASB ratified the consensus in EITF Issue 04-8, "The
      Effect of Contingently Convertible Instruments on Diluted Earnings per Share."
      EITF Issue 04-8 requires contingently convertible instruments to be included
      in diluted EPS, if dilutive, regardless of whether the market price trigger
      for conversion has been met. EITF Issue 04-8 is expected to be effective
      for reporting periods ending after December 15, 2004, and it requires restatement
      of prior periods in certain circumstances.
    EITF Issue 04-8 will require PPL to include an additional eight million
      shares of common stock associated with PPL Energy Supply's 2.625% Convertible
      Senior Notes due 2023 in its calculation of diluted EPS as if the securities
      were converted as of the date of issuance (May 2003). PPL currently estimates
      that the inclusion of the additional shares would decrease its diluted EPS
      by $0.11 for 2004 and $0.10 for 2003. PPL and PPL Energy Supply recently
      initiated a consent solicitation to modify certain terms of the Convertible
      Senior Notes. If the consent solicitation is successful, the proposed modifications
      are expected to significantly mitigate the 2004 dilutive impact and fully mitigate
      the 2003 dilutive impact.   See
      Note 7 for a discussion of the consent solicitation.
    FSP FAS 106-1 and FSP FAS 106-2(PPL, PPL Energy Supply and PPL
      Electric)
    See Note 13 for a discussion of FSP FAS 106-1 and FSP FAS 106-2, "Accounting
      and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
      and Modernization Act of 2003."





---

PPL CORPORATION AND SUBSIDIARIES



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



Overview

PPL is an energy and utility holding company with headquarters in Allentown,
  PA. See Item 1, "Business - Background" in PPL's Annual Report to the SEC on
  Form 10-K for the year ended December 31, 2003, for descriptions of PPL's major
  segments. See Exhibit 99 in Item 15 in PPL's Form 10-K for the current corporate
  organization structure. Through its subsidiaries, PPL is primarily engaged in
  the generation and marketing of electricity in two key markets - the northeastern
  and western U.S. - and in the delivery of electricity in Pennsylvania, the U.K.
  and Latin America. See Item 7, "Management's Discussion and Analysis of Financial
  Condition and Results of Operations," in PPL's Annual Report to the SEC on Form
  10-K for the year ended December 31, 2003, for an overview of PPL's strategy
  and the risks and challenges that it faces in its business.

The information provided in this "Management's Discussion and Analysis of Financial
  Condition and Results of Operations" should be read in conjunction with PPL's
  Condensed Consolidated Financial Statements and the accompanying Notes.

Terms and abbreviations are explained in the glossary. Dollars are in millions,
  except per share data, unless otherwise noted.

Results of Operations

The following discussion, which explains significant changes in principal items
  on the Statement of Income, compares the three and nine months ended September
  30, 2004, with the comparable periods in 2003.

WPD's results, as consolidated in PPL's Statement of Income, are impacted by
  changes in foreign currency exchange rates. For the three and nine months ended
  September 30, 2004, as compared with the same periods in 2003, changes in foreign
  exchange rates increased WPD's portion of revenue and expense line items by
  about 13% for both periods.

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

Earnings

Net income and the related EPS were as follows:

|              |  | Three Months
        Ended 
        September 30, |      |  | Nine Months
        Ended
        September 30, |  
|------------- |  | ------------------------------------------------- | ---- |  | ----------------------------------------------- | -
|              |  |                                                   |      |  |                                                 |  
|              |  | 2004                                              |      |  | 2003                                            |  
|              |  |                                                   |      |  |                                                 |  
|Net income    |  | $                                                 | 196  |  |                                                 | $
|              |  |                                                   |      |  |                                                 |  
|EPS - basic   |  | $                                                 | 1.04 |  |                                                 | $
|              |  |                                                   |      |  |                                                 |  
|EPS - diluted |  | $                                                 | 1.03 |  |                                                 | $

The after-tax changes in net income were primarily due to:

|               |                                                                                                                     | September
        30, 2004 vs. September 30, 2003            |   
|-------------- | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | --
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | Three Months
        Ended                                   |   
|               |                                                                                                                     |                                                              |   
|Domestic:      |                                                                                                                     |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Eastern U.S. margins                                                                                                |                                                              | $ 
|               |                                                                                                                     |                                                              |   
|               | Net energy trading margins                                                                                          |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Northwestern U.S. margins                                                                                           |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Southwestern U.S. margins                                                                                           |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Interest income on IRS tax settlement                                                                               |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Delivery revenues (net of CTC/ITC
        amortization, interest expense on transition bonds and ancillary charges) |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Operation and maintenance expenses                                                                                  |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Depreciation                                                                                                        |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Energy related businesses                                                                                           |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Taxes, other than income (excluding
        gross receipts tax)                                                     |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Interest expense and preferred
        distributions                                                                |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Realized earnings on nuclear
        decommissioning trust                                                          |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Realized loss on available-for-sale
        investment                                                              |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Other                                                                                                               |                                                              |   
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | Total Domestic                                               |   
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     |                                                              |   
|International: |                                                                                                                     |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | U.K.                                                                                                                |                                                              |   
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | Impact of changes in foreign currency
        exchange rates |   
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | Distribution margins                                         |   
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | Interest expense                                             |   
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | Other                                                        |   
|               |                                                                                                                     |                                                              |   
|               | Latin America                                                                                                       |                                                              |   
|               |                                                                                                                     |                                                              |   
|               | Other                                                                                                               |                                                              |   
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | Total International                                          |   
|               |                                                                                                                     |                                                              |   
|Unusual items  |                                                                                                                     |                                                              | 5 
|               |                                                                                                                     |                                                              |   
|               |                                                                                                                     | $                                                            | 25
|               |                                                                                                                     |                                                              |   

The changes in net income from period-to-period were, in part, attributable
  to several unusual items with significant earnings impacts, including accounting
  changes, discontinued operations and infrequently occurring items. The after-tax
  impacts of these unusual items are:

|                                                                 |               | Three Months
        Ended 
        September 30, |  |  | Nine Months
        Ended
        September 30, |  
|---------------------------------------------------------------- | ------------- | ------------------------------------------------- |  |  | ----------------------------------------------- | -
|                                                                 |               |                                                   |  |  |                                                 |  
|                                                                 |               | 2004                                              |  |  | 2003                                            |  
|                                                                 |               |                                                   |  |  |                                                 |  
|Accounting change:                                               |               |                                                   |  |  |                                                 |  
|                                                                 |               |                                                   |  |  |                                                 |  
|                                                                 | ARO (Note 16) |                                                   |  |  |                                                 |  
|                                                                 |               |                                                   |  |  |                                                 |  
|Sale of CGE (Note 8)                                             |               |                                                   |  |  |                                                 |  
|                                                                 |               |                                                   |  |  |                                                 |  
|Sale of CEMAR (Note 8)                                           |               |                                                   |  |  |                                                 |  
|                                                                 |               |                                                   |  |  |                                                 |  
|Discontinued operations (Note
        8)                         |               |                                                   |  |  |                                                 |  
|                                                                 |               |                                                   |  |  |                                                 |  
|Impairment of investment in
        technology supplier (Note 8) |               |                                                   |  |  |                                                 |  
|                                                                 |               |                                                   |  |  |                                                 |  
|Workforce reduction (Note 17)                                    |               |                                                   |  |  |                                                 | $
|                                                                 |               |                                                   |  |  |                                                 |  
|Total                                                            |               |                                                   |  |  |                                                 | $
|                                                                 |               |                                                   |  |  |                                                 |  

The period-to-period changes in earnings components, including domestic gross
  energy margins by region and income statement line items, are discussed in the
  balance of "Results of Operations."

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

- Market prices for electricity and fuel may negatively impact energy margins
    and earnings.

- Due to current electricity and natural gas price levels, there is a risk
    that PPL may be unable to recover its investment in new gas-fired generation
    facilities. Under GAAP, PPL does not believe that there is an impairment charge
    to be recorded for these facilities at this time. PPL is unable to predict
    the earnings impact of this issue, based upon future energy price levels,
    applicable accounting rules and other factors, but such impact may be material.
    In June 2004, a subsidiary of PPL Generation agreed to sell the 450 MW Sundance
    power plant to Arizona Public Service Company. If the necessary state regulatory
    approvals can be obtained, the sale is expected to close in the first quarter
    of 2005. If it becomes likely that the required regulatory approvals will
    be obtained, PPL will reassess the Sundance assets for possible impairment.
    PPL estimates that an impairment charge of about $47 million after-tax, or
    $0.25 per share, could be recorded in 2004 or 2005 depending on the timing
    of regulatory approvals. See Note 8 to the Financial Statements for additional
    information on the potential Sundance sale.

- PPL is unable to predict whether future impairments of goodwill may be required
    for its domestic and international investments. While no goodwill impairments
    were required based on the annual review performed in the fourth quarter of
    2003, future impairments may occur due to determinations of carrying value
    exceeding the fair value of these investments.

- Earnings in 2005 are expected to continue to be adversely affected by lower
    pension income. See "Other Operation and Maintenance" for the impact on earnings
    in 2004.

- PPL Electric has filed a proposal with the PUC to increase distribution
    rates by approximately $164 million (subsequently amended to $160 million)
    and has notified the PUC that it plans to pass through to customers approximately
    $57 million in increased transmission charges that PPL Electric pays to PJM
    for transmission services. Transmission services are provided under the PJM
    Open Access Transmission Tariff, a rate schedule filed with and approved by
    the FERC. Under the federal "filed rate doctrine," such FERC-approved rates
    may be recovered from retail customers without a review of those rates by
    a state agency such as the PUC. In addition, PPL Electric's PUC-approved retail
    tariff permits the automatic pass-through of transmission charges. PPL Electric
    agreed to a cap on both of these charges until December 31, 2004, as
    part of its 1998 settlement under the PUC Final Order. Generation charges
    for customers who do not select an alternative energy supplier are fixed through
    2009 and are not affected by these changes. The combination of the proposed
    distribution rate increase and transmission charge pass-through would result
    in an 8.1% increase over PPL Electric's present total rates effective January
    1, 2005.
    In October 2004, the PUC administrative law judge assigned to the rate
      proceeding recommended that the PUC commissioners increase PPL Electric's
      distribution rates by approximately $130 million. The judge also recommended
      that the PUC commissioners approve a Transmission Service Charge as the
      mechanism for PPL Electric to collect the increased transmission charges
      of approximately $57 million. PPL Electric and the other parties have until
      November 12 to file exceptions to the recommendation. The PUC is expected
      to act on this recommendation by the end of 2004 when it enters its final
      order in the rate proceeding. PPL Electric cannot predict the outcome of
      this proceeding.

- Earnings in 2005 and beyond are expected to be impacted by a rate review
    of the delivery business of WPD (South West) and WPD (South Wales). PPL cannot
    predict the outcome of the rate review. See Note 9 to the Financial Statements
    for additional information.

- In October 2004, the FASB ratified the consensus in EITF Issue 04-8, "The
    Effect of Contingently Convertible Instruments on Diluted Earnings per Share,"
    regarding the inclusion of contingently convertible instruments in diluted
    EPS calculations. See Note 18 to the Financial Statements for a discussion
    of EITF Issue 04-8. The consensus will require PPL to include an additional
    eight million shares of common stock associated with PPL Energy Supply's 2.625%
    Convertible Senior Notes due 2023 in its calculation of diluted EPS as if
    the securities were converted as of the date of issuance (May 2003), despite
    the fact that the securities contain a market price trigger for conversion
    that has not yet been attained. PPL currently estimates that the inclusion
    of the additional shares would decrease its diluted EPS by $0.11 for 2004
    and $0.10 for 2003. See Note 4 to the Financial Statements for a discussion
    of the Convertible Senior Notes. See Note 7 to the Financial Statements for
    a discussion of the consent solicitation undertaken to modify certain terms
    of the Convertible Senior Notes. If the consent solicitation is successful,
    the proposed modifications are expected to significantly mitigate the 2004
    dilutive impact and fully mitigate the 2003 dilutive impact.

- PPL has interests in two synthetic fuel facilities and receives tax credits
    pursuant to Section 29 of the Internal Revenue Code based on its sale of synthetic
    fuel to unaffiliated third-party purchasers. PPL has estimated that these
    facilities will contribute approximately $0.15 to EPS in 2004, approximately
    $0.16 to EPS in 2005 and 2006, and approximately $0.17 to EPS in 2007. See
    Note 9 to the Financial Statements for a discussion of the requirements to
    receive the Section 29 tax credits, the IRS review of synthetic fuel production
    procedures and the impact of higher oil prices on the Section 29 tax credits.

- In October 2004, President Bush signed into law the American Jobs Creation
    Act of 2004. The new law includes a number of provisions that affect the taxation
    of domestic and international investments. PPL is studying the legislation
    to determine its potential impact on PPL.

- See Note 18 to the Financial Statements for new accounting standards, which
    have been issued but not yet adopted by PPL, that may impact future earnings.

- See Note 9 to the Financial Statements for potential commitments and contingent
    liabilities that may impact future earnings.

Domestic Gross Energy Margins

The following table provides changes in the income statement line items that
  comprise domestic gross energy margins:



|                                                     |                     | September
        30, 2004 vs. September 30, 2003 |    
|---------------------------------------------------- | ------------------- | ------------------------------------------------- | ---
|                                                     |                     |                                                   |    
|                                                     |                     | Three Months
        Ended                        |    
|                                                     |                     |                                                   |    
|Utility revenues                                     |                     | $                                                 | 26 
|                                                     |                     |                                                   |    
|Unregulated retail electric
        and gas revenues |                     |                                                   | (4 
|                                                     |                     |                                                   |    
|Wholesale energy marketing revenues                  |                     |                                                   | (36
|                                                     |                     |                                                   |    
|Net energy trading margins                           |                     |                                                   | 3  
|                                                     |                     |                                                   |    
|Other revenue adjustments (a)                        |                     |                                                   | (18
|                                                     |                     |                                                   |    
|                                                     | Total revenues      |                                                   |    
|                                                     |                     |                                                   |    
|Fuel                                                 |                     |                                                   | 33 
|                                                     |                     |                                                   |    
|Energy purchases                                     |                     |                                                   | (71
|                                                     |                     |                                                   |    
|Other cost adjustments (a)                           |                     |                                                   | (7 
|                                                     |                     |                                                   |    
|                                                     | Total cost of sales |                                                   |    
|                                                     |                     |                                                   |    
|                                                     |                     | Domestic gross energy margins                     |    
|                                                     |                     |                                                   |    

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

Changes in Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL's normal and hedge
  activities (non-trading), as well as trading activities. Non-trading margins
  are now discussed on a geographic basis rather than on an activity basis, as
  reported prior to 2004. A regional perspective more closely matches the internal
  view of how PPL's energy business is managed.

|                   |                               | September
        30, 2004 vs. September 30, 2003 |   
|------------------ | ----------------------------- | ------------------------------------------------- | --
|                   |                               |                                                   |   
|                   |                               | Three Months
        Ended                        |   
|                   |                               |                                                   |   
|Eastern U.S.       |                               | $                                                 | 14
|                   |                               |                                                   |   
|Northwestern U.S.  |                               |                                                   | 3 
|                   |                               |                                                   |   
|Southwestern U.S.  |                               |                                                   | (4
|                   |                               |                                                   |   
|Net energy trading |                               |                                                   | 3 
|                   |                               |                                                   |   
|                   | Domestic gross energy margins |                                                   | $ 
|                   |                               |                                                   |   

Eastern U.S.

Eastern U.S. non-trading margins were higher for the three and nine months
  ended September 30, 2004, compared with the same periods in 2003, despite higher
  fuel prices. Increases in fuel costs were more than offset by 5% and 4% higher
  output for those periods from the diverse mix of low-cost coal-fired, nuclear
  and hydroelectric plants as well as favorable transmission congestion positions.
  In addition, for both periods, retail energy prices increased about 1% in accordance
  with the schedule established by the PUC Final Order.

Margins for the nine months ended September 30, 2004, were also higher due
  to retail volumes increasing 3%.

Northwestern U.S.

Northwestern U.S. non-trading margins were higher for the three months ended
  September 30, 2004, compared with the same period in 2003, primarily due to
  improved hydro generation output, resulting in less reliance on higher-cost
  purchased power.

Margins were slightly higher for the nine months ended September 30, 2004,
  despite higher fuel costs due to a retroactive coal price adjustment caused
  by an unfavorable arbitration ruling. Incremental expense of $6 million was
  recorded as a result of the ruling, most of which related to years 2001 to 2003.
  This negative impact was offset by a 2% increase in realized sales prices, which
  when combined with a slight improvement in generation production, contributed
  to lowering supply costs.

Southwestern U.S.

Southwestern U.S. non-trading margins were lower for the three and nine months
  ended September 30, 2004, compared with the same periods in 2003, due to wholesale
  sales volumes decreasing 31% and 16% caused by market conditions lowering the
  number of sales.

Net Energy Trading

PPL enters into certain energy contracts that meet the criteria of trading
  derivatives as defined by EITF Issue 02-3, "Issues Involved in Accounting for
  Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy
  Trading and Risk Management Activities." These physical and financial contracts
  cover trading activity associated with electricity, gas and oil. The $3 million
  increase for the three months ended September 30, 2004, compared with the same
  periods in 2003, was primarily due to an increase in realized gains on electricity
  positions. The $10 million increase for the nine months ended September 30,
  2004, compared with the same period in 2003, was due to a $6 million increase
  in electricity positions and a $4 million increase in gas and oil positions.
  The physical volumes associated with energy trading for the three months ended
  September 30, 2004, were 1,616 GWh and 3.3 Bcf, compared with 1,761 GWh and
  3.8 Bcf for the three months ended September 30, 2003. Energy trading physical
  volumes for the nine months ended September 30, 2004, were 3,796 GWh and
  7.6 Bcf, compared with 4,030 GWh and 11.0 Bcf for the nine months ended September
  30, 2003.

Utility Revenues

The increases in utility revenues were attributable to the following:



|               |                                                   | September
        30, 2004 vs. September 30, 2003 |   
|-------------- | ------------------------------------------------- | ------------------------------------------------- | --
|               |                                                   |                                                   |   
|               |                                                   | Three Months
        Ended                        |   
|               |                                                   |                                                   |   
|Domestic:      |                                                   |                                                   |   
|               |                                                   |                                                   |   
|               | Retail electric revenue (PPL
        Electric)    |                                                   |   
|               |                                                   |                                                   |   
|               |                                                   | PLR electric generation supply                    |   
|               |                                                   |                                                   |   
|               |                                                   | Electric delivery                                 |   
|               |                                                   |                                                   |   
|               |                                                   | Other                                             |   
|               |                                                   |                                                   |   
|               | Wholesale electric revenue (PPL
        Electric) |                                                   |   
|               |                                                   |                                                   |   
|               | Gas revenue (PPL Gas Utilities)                   |                                                   |   
|               |                                                   |                                                   |   
|International: |                                                   |                                                   |   
|               |                                                   |                                                   |   
|               | Retail electric delivery (PPL
        Global)     |                                                   |   
|               |                                                   |                                                   |   
|               |                                                   | U.K.                                              |   
|               |                                                   |                                                   |   
|               |                                                   | Chile                                             |   
|               |                                                   |                                                   |   
|               |                                                   | El Salvador                                       |   
|               |                                                   |                                                   |   
|               |                                                   | $                                                 | 26
|               |                                                   |                                                   |   

The increases in utility revenues for the three and nine months ended September
  30, 2004, compared with the same periods in 2003, were primarily due to:

- higher PLR revenues due to higher energy and capacity rates in 2004 compared
    with 2003;
- higher PPL Gas Utilities revenues, primarily due to the increase in natural
    gas prices which are a pass-through to customer rates, partially offset by
    a decrease in volumes; and
- higher WPD revenues in the U.K., primarily due to the change in foreign
    currency exchange rates; partially offset by
- lower electric delivery revenues due to a decrease in ITC and CTC revenue
    as a result of lower ITC rates in 2004 than 2003, and several rate groups
    reaching their rate cap; and
- lower wholesale electric revenues due to the expiration of all PPL Electric
    municipal purchase power agreements at the end of January 2004.

Additionally, the nine months ended September 30, 2004, compared with the same
  period in 2003, was impacted by:

- higher PLR revenues due to a 3% increase in volumes, in part due to the
    return of customers previously served by alternate suppliers; and
- higher revenues in Chile due to higher energy prices, which are a pass-through
    to customer rates, the change in foreign currency exchange rates, and a 7%
    increase in sales volumes.

Energy Related Businesses

Energy related businesses contributed $27 million less to operating income
  for the nine months ended September 30, 2004, compared with the same period
  in 2003. The decrease was attributable to the following:

- a $15 million pre-tax loss on the sale of CGE (see Note 8 to the Financial
    Statements);
- a $4 million decrease from mechanical contracting and engineering subsidiaries
    due to the continued decline in capital spending in commercial and industrial
    markets, lower margins experienced in those markets, and cost overruns at
    two major projects;
- a $4 million decrease from Latin American subsidiaries due primarily to
    lower dividends received and lower construction sales; and
- a $5 million higher pre-tax operating loss from synfuel projects; partially
    offset by
- a $5 million operating loss on some Hyder properties in the first quarter
    of 2003, which were subsequently sold in April 2003.

Other Operation and Maintenance

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

|                                                                                                                                                                                                                                              |  | September
        30, 2004 vs. September 30, 2003 |    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ---
|                                                                                                                                                                                                                                              |  |                                                   |    
|                                                                                                                                                                                                                                              |  | Three Months
        Ended                        |    
|                                                                                                                                                                                                                                              |  |                                                   |    
|Property damage and environmental
        insurance settlements which were 
        recorded in 2003                                                                                                                                          |  | $                                                 | 23 
|                                                                                                                                                                                                                                              |  |                                                   |    
|Decrease in domestic and international
        pension income                                                                                                                                                                                 |  |                                                   | 6  
|                                                                                                                                                                                                                                              |  |                                                   |    
|Increase in foreign currency
        exchange rates                                                                                                                                                                                           |  |                                                   | 4  
|                                                                                                                                                                                                                                              |  |                                                   |    
|Decrease in the Clean Air Act
        contingency relating to generating facilities recorded in 2003                                                                                                                                          |  |                                                   |    
|                                                                                                                                                                                                                                              |  |                                                   |    
|Outage costs associated with
        planned maintenance at the Montour and Conemaugh plants                                                                                                                                                  |  |                                                   |    
|                                                                                                                                                                                                                                              |  |                                                   |    
|Timing and extent of outage
        costs associated with the planned refueling and inspection at the Susquehanna
        station and of other nuclear-related expenses                                                                       |  |                                                   | (3 
|                                                                                                                                                                                                                                              |  |                                                   |    
|Decrease in lease expense due
        to the consolidation of the Sundance and University Park generation facilities                                                                                                                          |  |                                                   | (5 
|                                                                                                                                                                                                                                              |  |                                                   |    
|Incremental storm restoration
        costs associated with Hurricane Isabel recorded in 2003. In December 2003,
        these costs were reclassified and deferred in accordance with the PUC
        declaratory order of January 16, 2004. |  |                                                   | (13
|                                                                                                                                                                                                                                              |  |                                                   |    
|WPD capitalization                                                                                                                                                                                                                            |  |                                                   | (2 
|                                                                                                                                                                                                                                              |  |                                                   |    
|Other                                                                                                                                                                                                                                         |  |                                                   | (3 
|                                                                                                                                                                                                                                              |  |                                                   |    
|                                                                                                                                                                                                                                              |  | $                                                 | 7  
|                                                                                                                                                                                                                                              |  |                                                   |    

The decreases in net pension income for the three and nine months ended September
  30, 2004, compared with the same periods in 2003, were attributable to a reduction
  in the discount rate assumptions for PPL's domestic and international pension
  plans. The reduction in the discount rate assumption has a significant impact
  on the measurement of plan obligations and net pension costs, which have and
  will continue to result in PPL's recognition of lower levels of net pension
  income in 2004. See Note 13 to the Financial Statements for details of the costs
  of PPL's pension plans.

Depreciation

The increases in depreciation expense were primarily due to:

|                                                                                 |  | September
        30, 2004 vs. September 30, 2003 |   
|-------------------------------------------------------------------------------- |  | ------------------------------------------------- | --
|                                                                                 |  |                                                   |   
|                                                                                 |  | Three Months
        Ended                        |   
|                                                                                 |  |                                                   |   
|Additions to PP&E                                                                |  | $                                                 | 2 
|                                                                                 |  |                                                   |   
|Sundance, University Park and
        Lower Mt. Bethel generation facilities (a) |  |                                                   | 7 
|                                                                                 |  |                                                   |   
|Foreign currency exchange rates                                                  |  |                                                   | 5 
|                                                                                 |  |                                                   |   
|2003 purchase accounting adjustments
        to WPD assets                       |  |                                                   | (7
|                                                                                 |  |                                                   |   
|                                                                                 |  | $                                                 | 7 
|                                                                                 |  |                                                   |   

|(a) | The lessors of these facilities were consolidated
        under FIN 46 effective December 31, 2003. See Note 22 to the Financial
        Statements in PPL's Annual Report to the SEC on Form 10-K for the year
        ended December 31, 2003, for additional information. In June 2004, a subsidiary
        of PPL Energy Supply purchased the Sundance and University Park generation
        assets from the lessor that was consolidated by PPL Energy Supply under
        FIN 46.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Taxes, Other Than Income

Taxes, other than income, decreased by $2 million during the nine months ended
  September 30, 2004, compared with the same period in 2003. In the first quarter
  of 2004, PPL Electric reversed a $14 million accrued liability for 1998 and
  1999 PURTA taxes that had been accrued based on potential exposure in the proceedings
  regarding the Susquehanna nuclear station tax assessment. The rights of the
  third party intervenors to further appeal expired in 2004. This decrease was
  partially offset by an increase of $8 million in WPD's property taxes, primarily
  related to the impact of changes in foreign currency exchange rates, adjustments
  recorded in 2003 and an increase in property tax rates. In addition, domestic
  gross receipts tax and capital stock tax expenses have increased.

Workforce Reduction

See Note 17 to the Financial Statements for information regarding the $9 million
  charge recorded in 2003.

Other Income - net

See Note 11 to the Financial Statements for details of other income.

Financing Costs

The increases in financing costs, which include "Interest Expense" and "Distributions
  on Preferred Securities," were primarily due to:

|                                                                                                                                                                                        |  | September
        30, 2004 vs. September 30, 2003 |   
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | --
|                                                                                                                                                                                        |  |                                                   |   
|                                                                                                                                                                                        |  | Three Months
        Ended                        |   
|                                                                                                                                                                                        |  |                                                   |   
|Increase in interest expense
        due to consolidation of the lessors of the Sundance, University Park and
        Lower Mt. Bethel generation facilities, in accordance with FIN 46 |  | $                                                 | 7 
|                                                                                                                                                                                        |  |                                                   |   
|Financing costs associated with
        the repayment of the consolidated trust's debt for the Sundance and University
        Park generation facilities                               |  |                                                   |   
|                                                                                                                                                                                        |  |                                                   |   
|Increase in long-term debt interest
        expense due to debt issuances                                                                                                               |  |                                                   | 9 
|                                                                                                                                                                                        |  |                                                   |   
|Increase in foreign currency
        exchange rates                                                                                                                                     |  |                                                   | 4 
|                                                                                                                                                                                        |  |                                                   |   
|Decrease in interest expense
        due to hedging activities accounted for under SFAS 133, "Accounting for
        Derivative Instruments and Hedging Activities"                     |  |                                                   | (1
|                                                                                                                                                                                        |  |                                                   |   
|Decrease in amortization expense                                                                                                                                                        |  |                                                   |   
|                                                                                                                                                                                        |  |                                                   |   
|Decrease in short-term debt
        interest expense                                                                                                                                    |  |                                                   |   
|                                                                                                                                                                                        |  |                                                   |   
|Decrease in long-term
        debt interest expense due to net long-term debt retirements                                                                                               |  |                                                   | (8
|                                                                                                                                                                                        |  |                                                   |   
|Write-off of unamortized
        swap costs on WPD debt restructuring                                                                                                                   |  |                                                   |   
|                                                                                                                                                                                        |  |                                                   |   
|                                                                                                                                                                                        |  | $                                                 | 11
|                                                                                                                                                                                        |  |                                                   |   

Income Taxes

Income taxes decreased by $8 million and $28 million for the three and nine
  months ended September 30, 2004, compared with the same periods in 2003. The
  decreases were due to:

- differences in income recognition for tax purposes related to foreign affiliates,
    resulting in $6 million and $19 million reductions in income taxes for the
    three and nine months ended September 30, 2004; and
- additional nonconventional fuel tax credits recognized, resulting in $9
    million and $12 million reductions in income taxes for the three and nine
    months ended September 30, 2004; offset by
- higher pre-tax book income, resulting in $7 million and $3 million increases
    in income taxes for the three and nine months ended September 30, 2004.

See Note 5 to the Financial Statements for details on effective income tax
  rates.

Discontinued Operations

See "Discontinued Operations" in Note 8 to the Financial Statements for information
  regarding the losses recorded related to the sale of PPL Global's investment
  in a Latin American telecommunications company.

Cumulative Effect of a Change in Accounting Principle

PPL adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective
  January 1, 2003. SFAS 143 addresses the accounting for obligations associated
  with the retirement of tangible long-lived assets. Application of the new rules
  resulted in a cumulative effect of adoption that increased net income by $63
  million in 2003. See Note 21 to the Financial Statements in PPL's Annual Report
  to the SEC on Form 10-K for the year ended December 31, 2003, for additional
  information.

Financial Condition

Liquidity

At September 30, 2004, PPL had $778 million of cash and cash equivalents and
  $88 million of short-term debt. At December 31, 2003, PPL had $476 million of
  cash and cash equivalents and $56 million of short-term debt. The increase in
  PPL's cash position was primarily the net result of:

- $1.053 billion of cash provided by operating activities;
- the issuance of $595 million of common stock, of which $575 million related
    to the settlement of the purchase contract component of the PEPS Units and
    PEPS Units, Series B;
- the issuance of $322 million of long-term debt;
- an increase of $31 million in short-term debt; and
- proceeds of $123 million from the sale of CGE; partially offset by
- the retirement of $1.008 billion of long-term debt;
- $533 million of capital expenditures;
- the payment of $220 million of common and preferred dividends; and
- a $54 million increase in restricted cash.

Rating Agency Decisions

Standard & Poor's Ratings Services (S&P), Moody's Investors Service,
  Inc. (Moody's) and Fitch Ratings (Fitch) periodically review the credit ratings
  on the debt and preferred securities of PPL and its subsidiaries. Based on their
  respective reviews, the rating agencies may make certain ratings revisions.

The ratings of S&P, Moody's and Fitch are not a recommendation to buy,
  sell or hold any securities of PPL or its subsidiaries. Such ratings may be
  subject to revisions or withdrawal by the agencies at any time and should be
  evaluated independently of each other and any other rating that may be assigned
  to their securities.

During the second quarter of 2004, S&P affirmed its BBB ratings on both
  PPL and PPL Energy Supply and revised its outlook on both entities from negative
  to stable. S&P also affirmed its BBB- rating on PPL Montana's Pass-Through
  Certificates due 2020 and revised its outlook from negative to stable. At the
  same time, S&P affirmed its A-/A2 rating and negative outlook on PPL Electric.
  Also, S&P indicated that the following ratings would remain unchanged following
  the aforementioned revision to PPL's outlook:

- WPDH Limited of BBB-/Negative/A-3;
- WPD (South West) of BBB+/Negative/A-2; and
- WPD (South Wales) of BBB+/Negative/A-2.

Asset-Backed Commercial Paper Program

In August 2004, PPL Electric began participating in an asset-backed commercial
  paper program through which PPL Electric obtains financing by selling and contributing
  its eligible accounts receivable and unbilled revenue to a special purpose,
  wholly owned subsidiary on an ongoing basis. The subsidiary pledges these assets
  to secure loans of up to an aggregate of $150 million from a commercial paper
  conduit sponsored by a financial institution. PPL Electric expects to use the
  proceeds from the program for general corporate purposes and to cash collateralize
  letters of credit. At September 30, 2004, the loan balance outstanding was $88
  million, of which $42 million was being used to cash collateralize letters of
  credit. See Note 7 to the Financial Statements for additional information.

Other

The pension plans of WPD are subject to formal actuarial valuations every three
  years, which are used to determine funding requirements. WPD's two principal
  plans were the subject of a formal actuarial valuation as of March 31, 2004.
  Current valuations show an actuarial deficit of approximately £270 million
  (approximately $489 million based on current exchange rates) that may need to
  be funded over a period of up to approximately 14 years if markets and asset
  values do not recover. WPD expects to conclude the formal valuation process
  and agree on deficit contribution schedules with the Trustees of the plans by
  March 31, 2005.

WPD believes that its internally generated cash flow, combined with its bank
  credit facilities, provides sufficient resources to finance its cash requirements
  and to maintain appropriate available liquidity.

For additional information on PPL's liquidity, see Item 7, "Management's Discussion
  and Analysis of Financial Condition and Results of Operations," in PPL's Annual
  Report to the SEC on Form 10-K for the year ended December 31, 2003.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

PPL's commodity derivative contracts that qualify for hedge accounting treatment
  mature at various times through 2010. The following chart sets forth PPL's net
  fair market value of these contracts:

|                                                                           |  | Three Months
        Ended 
        September 30, |     |   | Nine Months
        Ended
        September 30, |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------- | --- | - | ----------------------------------------------- | -
|                                                                           |  |                                                   |     |   |                                                 |  
|                                                                           |  | 2004                                              |     |   | 2003                                            |  
|                                                                           |  |                                                   |     |   |                                                 |  
|Fair value of contracts outstanding at
        the beginning of the period |  | $                                                 | 88  |   |                                                 | $
|                                                                           |  |                                                   |     |   |                                                 |  
|Contracts realized or otherwise settled
        during the period          |  |                                                   | (11 | ) |                                                 |  
|                                                                           |  |                                                   |     |   |                                                 |  
|Fair value of new contracts at inception                                   |  |                                                   |     |   |                                                 |  
|                                                                           |  |                                                   |     |   |                                                 |  
|Other changes in fair values                                               |  |                                                   | (15 | ) |                                                 |  
|                                                                           |  |                                                   |     |   |                                                 |  
|Fair value of contracts outstanding at
        the end of the period       |  | $                                                 | 62  |   |                                                 | $
|                                                                           |  |                                                   |     |   |                                                 |  

"Contracts realized or otherwise settled during the period" relate to contracts
  entered into prior to July 1 for the three months ended September 30 and contracts
  entered into prior to January 1 for the nine months ended September 30.

"Other changes in fair values" represents changes in the market value that
  have occurred for contracts that were outstanding at the end of each period.

The following chart segregates estimated fair values of PPL's commodity derivative
  contracts that qualify for hedge accounting treatment at September 30, 2004,
  based on whether the fair values are determined by quoted market prices or other
  more subjective means.

|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains (Losses) |   
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | --
|                                                                     |  |                                                                      |   
|                                                                     |  | Maturity
        Less
        Than
        1 Year                    |   
|                                                                     |  |                                                                      |   
|Source of Fair Value                                                 |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices actively quoted                                               |  | $                                                                    | 8 
|                                                                     |  |                                                                      |   
|Prices provided by other external sources                            |  |                                                                      | 41
|                                                                     |  |                                                                      |   
|Prices based on models and other valuation
        methods           |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | 49
|                                                                     |  |                                                                      |   

The "Prices actively quoted" category includes the fair value of exchange-traded
  natural gas futures contracts quoted on the New York Mercantile Exchange (NYMEX).
  The NYMEX has currently quoted prices through 2010.

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

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

As of September 30, 2004, PPL estimated that a 10% adverse movement in market
  prices across all geographic areas and time periods would have decreased the
  value of the commodity contracts in its non-trading portfolio by approximately
  $167 million. However, the change in the value of the non-trading portfolio
  would have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL's unsold generation would be improved. Because PPL's electricity
  portfolio is generally in a net sales position, the adverse movement in prices
  is usually an increase in prices. Conversely, because PPL's commodity fuels
  portfolio is generally in a net purchase position, the adverse movement in prices
  is usually a decrease in prices. If both of these scenarios happened, the implied
  margins for the unsold generation would increase.

In accordance with its marketing strategy, PPL is significantly hedged in its
  generation output and fuel requirements. PPL estimates that for its entire portfolio,
  including all generation and physical and financial energy positions, a 10%
  adverse change in power prices across all geographic zones and time periods
  would decrease expected 2004 gross margins by about $2 million. A 10% adverse
  movement in all fossil fuel prices would have an immaterial impact on expected
  2004 gross margins.

Commodity Price Risk (Trading)

PPL's trading contracts mature at various times through 2006. The following
  chart sets forth PPL's net fair market value of trading contracts:

|                                                                           |  | Three Months
        Ended 
        September 30, |    |   | Nine Months
        Ended
        September 30, |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------- | -- | - | ----------------------------------------------- | -
|                                                                           |  |                                                   |    |   |                                                 |  
|                                                                           |  | 2004                                              |    |   | 2003                                            |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Fair value of contracts outstanding
        at the beginning of the period |  | $                                                 | 12 |   |                                                 | $
|                                                                           |  |                                                   |    |   |                                                 |  
|Contracts realized or otherwise
        settled during the period          |  |                                                   | (3 | ) |                                                 |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Fair value of new contracts
        at inception                           |  |                                                   |    |   |                                                 |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Other changes in fair values                                               |  |                                                   | 3  |   |                                                 |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Fair value of contracts outstanding
        at the end of the period       |  | $                                                 | 12 |   |                                                 | $
|                                                                           |  |                                                   |    |   |                                                 |  

"Contracts realized or otherwise settled during the period" relate to trading
  contracts entered into prior to July 1 for the three months ended September
  30 and contracts entered into prior to January 1 for the nine months ended September
  30. These amounts do not reflect intra-period contracts that were entered into
  and settled during the periods.

The "Fair value of new contracts at inception" is usually zero, because they
  are entered into at current market prices. However, when PPL enters into an
  option contract, a premium is paid or received.

"Other changes in fair values" represents changes in the market value that
  have occurred for contracts that were outstanding at the end of each period.

As of September 30, 2004, the net loss on PPL's trading activities expected
  to be recognized in earnings during the next three months is $1 million.

The following chart segregates estimated fair values of PPL's trading portfolio
  at September 30, 2004, based on whether the fair values are determined by quoted
  market prices or other more subjective means.



|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains (Losses) |  
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | -
|                                                                     |  |                                                                      |  
|                                                                     |  | Maturity
        Less
        Than
        1 Year                    |  
|                                                                     |  |                                                                      |  
|Source of Fair Value                                                 |  |                                                                      |  
|                                                                     |  |                                                                      |  
|Prices actively quoted                                               |  | $                                                                    | 3
|                                                                     |  |                                                                      |  
|Prices provided by other external sources                            |  |                                                                      | 4
|                                                                     |  |                                                                      |  
|Prices based on models and other valuation
        methods           |  |                                                                      | 1
|                                                                     |  |                                                                      |  
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | 8
|                                                                     |  |                                                                      |  

As of September 30, 2004, PPL estimated that a 10% adverse movement in market
  prices across all geographic areas and time periods would have decreased the
  value of the commodity contracts in its trading portfolio by $8 million.

Interest Rate Risk

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

At September 30, 2004, PPL's potential annual exposure to increased interest
  expense, based on a 10% increase in interest rates, was estimated at $5 million.

PPL is also exposed to changes in the fair value of its domestic and international
  debt portfolios. At September 30, 2004, 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 approximately $195 million.

PPL utilizes various risk management instruments to reduce its exposure to
  adverse interest rate movements for future anticipated financing. While PPL
  is exposed to changes in the fair value of these instruments, they are designed
  such that any economic loss in value should generally be offset by interest
  rate savings at the time the future anticipated financing is completed. At September
  30, 2004, PPL estimated that its potential exposure to a change in the fair
  value of these instruments, through a 10% adverse movement in interest rates,
  was approximately $3 million.

Foreign Currency Risk

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

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

PPL executed net forward sale transactions for £17.7 million to hedge
  a portion of its net investment in WPDH Limited. The estimated value of these
  agreements as of September 30, 2004, was $5 million, being the amount PPL would
  pay to terminate the transactions.

To protect expected income in British pounds sterling, PPL entered into average
  rate forward sales contracts for £29 million. In conjunction with these
  forward contracts, PPL executed average rate purchase options of £20 million
  to mitigate the liquidity risk inherent in the average rate forwards. At September
  30, 2004, the market value of these positions, representing the amount PPL would
  receive to terminate them, was insignificant.

To protect expected income in Chilean pesos, PPL entered into average rate
  forward sales contracts for 5.5 billion Chilean pesos. At September 30, 2004,
  the market value of these positions, representing the amount PPL would receive
  to terminate them, was insignificant.

WPDH Limited held a net position in cross-currency swaps totaling $1.3 billion
  to hedge the interest payments and value of its U.S. dollar-denominated bonds.
  The estimated value of this position at September 30, 2004, being the amount
  PPL would pay to terminate it, including accrued interest, was $170 million.

On the Statement of Income, gains and losses associated with hedges of interest
  payments denominated in foreign currencies are reflected in "Interest Expense."
  Gains and losses associated with the purchase of equipment are reflected in
  "Depreciation." Gains and losses associated with net investment hedges remain
  in "Accumulated other comprehensive loss" on the Balance Sheet until the investment
  is disposed.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust
  funds to fund certain costs of decommissioning the Susquehanna station. As of
  September 30, 2004, these funds were invested primarily in domestic equity
  securities and fixed-rate, fixed-income securities and are reflected at fair
  value on PPL's Balance Sheet. The mix of securities is designed to provide returns
  to be used to fund Susquehanna's decommissioning and to compensate for inflationary
  increases in decommissioning costs. However, the equity securities included
  in the trusts are exposed to price fluctuation in equity markets, and the values
  of fixed-rate, fixed-income securities are exposed to changes in interest rates.
  PPL Susquehanna actively monitors the investment performance and periodically
  reviews asset allocation in accordance with its nuclear decommissioning trust
  policy statement. At September 30, 2004, a hypothetical 10% increase in interest
  rates and a 10% decrease in equity prices would have resulted in an estimated
  $27 million reduction in the fair value of the trust assets.

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

Credit Risk

Credit risk relates to the risk of loss that PPL would incur as a result of
  non-performance by counterparties of their contractual obligations. PPL maintains
  credit policies and procedures with respect to counterparties (including requirements
  that counterparties maintain certain credit ratings criteria) and requires other
  assurances in the form of credit support or collateral in certain circumstances
  in order to limit counterparty credit risk. However, PPL has concentrations
  of suppliers and customers among electric utilities, natural gas distribution
  companies and other energy marketing and trading companies. These concentrations
  of counterparties may impact PPL's overall exposure to credit risk, either positively
  or negatively, in that counterparties may be similarly affected by changes in
  economic, regulatory or other conditions. PPL records certain non-performance
  reserves to reflect the probability that a counterparty with contracts that
  are out of the money (from the counterparty's standpoint) will default in its
  performance, in which case PPL would have to sell into a lower-priced market
  or purchase from a higher-priced market. These reserves are reflected in the
  fair value of assets recorded in "Price risk management assets" on the Balance
  Sheet. PPL also records reserves to reflect the probability that a counterparty
  will not make payments for deliveries PPL has made but not yet billed. These
  reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL has
  also established a reserve with respect to certain sales to the California ISO
  for which PPL has not yet been paid, as well as a reserve related to PPL's exposure
  as a result of the Enron bankruptcy, which are reflected in "Accounts receivable"
  on the Balance Sheet. See Note 9 to the Financial Statements for additional
  information on the sales to the California ISO.

Related Party Transactions

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

Acquisitions, Development and Divestitures

From time to time, PPL and its subsidiaries are involved in negotiations with
  third parties regarding acquisitions, joint ventures and other arrangements
  which may or may not result in definitive agreements. See Note 8 to the Financial
  Statements for information regarding recent acquisitions and development activities.

PPL is currently evaluating incremental capacity increases of about 200 MW
  at several existing domestic generating facilities.

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

Environmental Matters

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

New Accounting Standards

See Note 18 to the Financial Statements for information on new accounting standards
  adopted in 2004 or pending adoption.

Application of Critical Accounting Policies

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

See Item 7, "Management's Discussion and Analysis of Financial Condition and
  Results of Operations," in PPL's Annual Report to the SEC on Form 10-K for the
  year ended December 31, 2003, for a discussion of each critical accounting policy.
  PPL's senior management has reviewed these critical accounting policies, and
  the estimates and assumptions regarding them, with its Audit Committee. In addition,
  PPL's senior management reviewed the Form 10-K disclosures regarding the application
  of these critical accounting policies with the Audit Committee.

---

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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





Overview

PPL Energy Supply is an energy company with headquarters in Allentown, PA.
  See Item 1, "Business - Background" in PPL Energy Supply's Annual Report to
  the SEC on Form 10-K for the year ended December 31, 2003, for a description
  of PPL Energy Supply's domestic and international businesses. See Exhibit 99
  in Item 15 in PPL Energy Supply's Form 10-K for a listing of its principal subsidiaries.
  Through its subsidiaries, PPL Energy Supply is primarily engaged in the generation
  and marketing of electricity in two key markets - the northeastern and western
  U.S. - and in the delivery of electricity in the U.K. and Latin America. See
  Item 7, "Management's Discussion and Analysis of Financial Condition and Results
  of Operations," in PPL Energy Supply's Annual Report to the SEC on Form 10-K
  for the year ended December 31, 2003, for an overview of PPL Energy Supply's
  strategy and the risks and challenges that it faces in its business.

The information provided in this "Management's Discussion and Analysis of Financial
  Condition and Results of Operations" should be read in conjunction with PPL
  Energy Supply's Condensed Consolidated Financial Statements and the accompanying
  Notes.

Terms and abbreviations are explained in the glossary. Dollars are in millions
  unless otherwise noted.

Results of Operations

The following discussion, which explains significant changes in principal items
  on the Statement of Income, compares the three and nine months ended September
  30, 2004, with the comparable periods in 2003.

WPD's results, as consolidated in PPL Energy Supply's Statement of Income,
  are impacted by changes in foreign currency exchange rates. For the three and
  nine months ended September 30, 2004, as compared with the same periods in 2003,
  changes in foreign exchange rates increased WPD's portion of revenue and expense
  line items by about 13% for both periods.

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



Earnings

Net income was as follows:

| | Three Months
        Ended 
        September 30, |     |  | Nine Months
        Ended
        September 30, |  
| | ------------------------------------------------- | --- |  | ----------------------------------------------- | -
| |                                                   |     |  |                                                 |  
| | 2004                                              |     |  | 2003                                            |  
| |                                                   |     |  |                                                 |  
| | $                                                 | 192 |  |                                                 | $

The after-tax changes in net income were primarily due to:

|               |                                                            | September
        30, 2004 vs. September 30, 2003            |  
|-------------- | ---------------------------------------------------------- | ------------------------------------------------------------ | -
|               |                                                            |                                                              |  
|               |                                                            | Three Months
        Ended                                   |  
|               |                                                            |                                                              |  
|Domestic:      |                                                            |                                                              |  
|               |                                                            |                                                              |  
|               | Eastern U.S. margins                                       |                                                              | $
|               |                                                            |                                                              |  
|               | Net energy trading margins                                 |                                                              |  
|               |                                                            |                                                              |  
|               | Northwestern U.S. margins                                  |                                                              |  
|               |                                                            |                                                              |  
|               | Southwestern U.S. margins                                  |                                                              |  
|               |                                                            |                                                              |  
|               | Interest income on IRS tax settlement                      |                                                              |  
|               |                                                            |                                                              |  
|               | Depreciation                                               |                                                              |  
|               |                                                            |                                                              |  
|               | Interest expense                                           |                                                              |  
|               |                                                            |                                                              |  
|               | Operation and maintenance expenses                         |                                                              |  
|               |                                                            |                                                              |  
|               | Other income - affiliated interest                         |                                                              |  
|               |                                                            |                                                              |  
|               | Energy related businesses                                  |                                                              |  
|               |                                                            |                                                              |  
|               | Realized earnings on nuclear
        decommissioning trust |                                                              |  
|               |                                                            |                                                              |  
|               | Other                                                      |                                                              |  
|               |                                                            |                                                              |  
|               |                                                            | Total Domestic                                               |  
|               |                                                            |                                                              |  
|               |                                                            |                                                              |  
|International: |                                                            |                                                              |  
|               |                                                            |                                                              |  
|               | U.K.                                                       |                                                              |  
|               |                                                            |                                                              |  
|               |                                                            | Impact of changes in foreign currency
        exchange rates |  
|               |                                                            |                                                              |  
|               |                                                            | Distribution margins                                         |  
|               |                                                            |                                                              |  
|               |                                                            | Interest expense                                             |  
|               |                                                            |                                                              |  
|               |                                                            | Other                                                        |  
|               |                                                            |                                                              |  
|               | Latin America                                              |                                                              |  
|               |                                                            |                                                              |  
|               | Other                                                      |                                                              |  
|               |                                                            |                                                              |  
|               |                                                            | Total International                                          |  
|               |                                                            |                                                              |  
|Unusual items  |                                                            |                                                              |  
|               |                                                            |                                                              |  
|               |                                                            | $                                                            | 2
|               |                                                            |                                                              |  

The change in net income for the nine months ended September 30, 2004, compared
  to the same period in 2003, was, in part, attributable to several unusual items
  with significant earnings impacts, including accounting changes, discontinued
  operations and infrequently occurring items. The after-tax impacts of these
  unusual items are:

|                                         |               | Nine Months
        Ended 
        September 30, |    |   |      |  
|---------------------------------------- | ------------- | ------------------------------------------------ | -- | - | ---- | -
|                                         |               |                                                  |    |   |      |  
|                                         |               | 2004                                             |    |   | 2003 |  
|                                         |               |                                                  |    |   |      |  
|Accounting change:                       |               |                                                  |    |   |      |  
|                                         |               |                                                  |    |   |      |  
|                                         | ARO (Note 16) |                                                  |    |   |      |  
|                                         |               |                                                  |    |   |      |  
|Sale of CGE (Note 8)                     |               | $                                                | (7 | ) |      |  
|                                         |               |                                                  |    |   |      |  
|Sale of CEMAR (Note 8)                   |               |                                                  | 23 |   |      |  
|                                         |               |                                                  |    |   |      |  
|Discontinued operations (Note
        8) |               |                                                  | (2 | ) |      |  
|                                         |               |                                                  |    |   |      |  
|Total                                    |               | $                                                | 14 |   |      | $
|                                         |               |                                                  |    |   |      |  

The period-to-period changes in earnings components, including domestic gross
  energy margins by region and income statement line items, are discussed in the
  balance of "Results of Operations."

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

- Market prices for electricity and fuel may negatively impact energy margins
    and earnings.

- Due to current electricity and natural gas price levels, there is a risk
    that PPL Energy Supply may be unable to recover its investment in new gas-fired
    generation facilities. Under GAAP, PPL Energy Supply does not believe that
    there is an impairment charge to be recorded for these facilities at this
    time. PPL Energy Supply is unable to predict the earnings impact of this issue,
    based upon future energy price levels, applicable accounting rules and other
    factors, but such impact may be material. In June 2004, a subsidiary of PPL
    Generation agreed to sell the 450 MW Sundance power plant to Arizona Public
    Service Company. If the necessary state regulatory approvals can be obtained,
    the sale is expected to close in the first quarter of 2005. If it becomes
    likely that the required regulatory approvals will be obtained, PPL Energy
    Supply will reassess the Sundance assets for possible impairment. PPL Energy
    Supply estimates that an impairment charge of about $47 million after-tax
    could be recorded in 2004 or 2005 depending on the timing of regulatory approvals.
    See Note 8 to the Financial Statements for additional information on the potential
    Sundance sale.

- PPL Energy Supply is unable to predict whether future impairments of goodwill
    may be required for its domestic and international investments. While no goodwill
    impairments were required based on the annual review performed in the fourth
    quarter of 2003, future impairments may occur due to determinations of carrying
    value exceeding the fair value of these investments.

- Earnings in 2005 and beyond are expected to be impacted by a rate review
    of the delivery business of WPD (South West) and WPD (South Wales). PPL Energy
    Supply cannot predict the outcome of the rate review. See Note 9 to the Financial
    Statements for additional information.

- Earnings in 2005 are expected to continue to be adversely affected by lower
    pension income. See "Other Operation and Maintenance" for the impact on earnings
    in 2004.

- PPL Energy Supply has interests in two synthetic fuel facilities and receives
    tax credits pursuant to Section 29 of the Internal Revenue Code based on its
    sale of synthetic fuel to unaffiliated third-party purchasers. PPL Energy
    Supply has estimated that these facilities will contribute approximately $28
    million to earnings in 2004, approximately $30 million to earnings in 2005
    and 2006, and approximately $32 million to earnings in 2007. See Note 9 to
    the Financial Statements for a discussion of the requirements to receive the
    Section 29 tax credits, the IRS review of synthetic fuel production procedures
    and the impact of higher oil prices on the Section 29 tax credits.

- In October 2004, President Bush signed into law the American Jobs Creation
    Act of 2004. The new law includes a number of provisions that affect the taxation
    of domestic and international investments. PPL Energy Supply is studying the
    legislation to determine its potential impact on PPL Energy Supply.

- See Note 18 to the Financial Statements for new accounting standards, which
    have been issued but not yet adopted by PPL Energy Supply, that may impact
    future earnings.

- See Note 9 to the Financial Statements for potential commitments and contingent
    liabilities that may impact future earnings.

Domestic Gross Energy Margins

The following table provides changes in the income statement line items that
  comprise domestic gross energy margins:

|                                                          |                | September
        30, 2004 vs. September 30, 2003 |    
|--------------------------------------------------------- | -------------- | ------------------------------------------------- | ---
|                                                          |                |                                                   |    
|                                                          |                | Three Months
        Ended                        |    
|                                                          |                |                                                   |    
|Wholesale energy marketing revenues                       |                | $                                                 | (36
|                                                          |                |                                                   |    
|Wholesale energy marketing to
        affiliates revenues |                |                                                   | 5  
|                                                          |                |                                                   |    
|Unregulated retail electric
        and gas revenues      |                |                                                   | (4 
|                                                          |                |                                                   |    
|Net energy trading margins                                |                |                                                   | 3  
|                                                          |                |                                                   |    
|Other revenue adjustments (a)                             |                |                                                   | 3  
|                                                          |                |                                                   |    
|                                                          | Total revenues |                                                   |    
|                                                          |                |                                                   |    

|                                 |                     | September
        30, 2004 vs. September 30, 2003 |    
|-------------------------------- | ------------------- | ------------------------------------------------- | ---
|                                 |                     |                                                   |    
|                                 |                     | Three Months
        Ended                        |    
|                                 |                     |                                                   |    
|Fuel                             |                     |                                                   | 31 
|                                 |                     |                                                   |    
|Energy purchases                 |                     |                                                   | (76
|                                 |                     |                                                   |    
|Energy purchases from affiliates |                     |                                                   | 1  
|                                 |                     |                                                   |    
|Other cost adjustments (a)       |                     |                                                   | (1 
|                                 |                     |                                                   |    
|                                 | Total cost of sales |                                                   |    
|                                 |                     |                                                   |    
|                                 |                     | Domestic gross energy margins                     |    
|                                 |                     |                                                   |    

|(a) |  | Adjusted to exclude the impact of any revenues
        and costs not associated with domestic gross energy margins, in particular,
        revenues and energy costs related to the international operations of PPL
        Global. Also adjusted to include gains or losses on sales of emission
        allowances, which are included in "Other operation and maintenance" expenses
        on the Statement of Income.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL Energy Supply's normal
  and hedge activities (non-trading), as well as trading activities. Non-trading
  margins are now discussed on a geographic basis rather than on an activity basis,
  as reported prior to 2004. A regional perspective more closely matches the internal
  view of how PPL Energy Supply's energy business is managed.

|                   |                               | September
        30, 2004 vs. September 30, 2003 |   
|------------------ | ----------------------------- | ------------------------------------------------- | --
|                   |                               |                                                   |   
|                   |                               | Three Months
        Ended                        |   
|                   |                               |                                                   |   
|Eastern U.S.       |                               | $                                                 | 14
|                   |                               |                                                   |   
|Northwestern U.S.  |                               |                                                   | 3 
|                   |                               |                                                   |   
|Southwestern U.S.  |                               |                                                   | (4
|                   |                               |                                                   |   
|Net energy trading |                               |                                                   | 3 
|                   |                               |                                                   |   
|                   | Domestic gross energy margins |                                                   | $ 
|                   |                               |                                                   |   

Eastern U.S.

Eastern U.S. non-trading margins were higher for the three and nine months
  ended September 30, 2004, compared with the same periods in 2003, despite higher
  fuel prices. Increases in fuel costs were more than offset by 5% and 4% higher
  output for those periods from the diverse mix of low-cost coal-fired, nuclear
  and hydroelectric plants as well as favorable transmission congestion positions.
  In addition, for both periods, retail energy prices increased about 1% in accordance
  with the schedule established by the PUC Final Order.

Margins for the nine months ended September 30, 2004, were also higher due
  to retail volumes increasing 3%.

Northwestern U.S.

Northwestern U.S. non-trading margins were higher for the three months ended
  September 30, 2004, compared with the same period in 2003, primarily due to
  improved hydro generation output, resulting in less reliance on higher-cost
  purchased power.

Margins were slightly higher for the nine months ended September 30, 2004,
  despite higher fuel costs due to a retroactive coal price adjustment caused
  by an unfavorable arbitration ruling. Incremental expense of $6 million was
  recorded as a result of the ruling, most of which related to years 2001 to 2003.
  This negative impact was offset by a 2% increase in realized sales prices, which
  when combined with a slight improvement in generation production, contributed
  to lowering supply costs.

Southwestern U.S.

Southwestern U.S. non-trading margins were lower for the three and nine months
  ended September 30, 2004, compared with the same periods in 2003, due to wholesale
  sales volumes decreasing 31% and 16% caused by market conditions lowering the
  number of sales.

Net Energy Trading

PPL Energy Supply enters into certain energy contracts that meet the criteria
  of trading derivatives as defined by EITF Issue 02-3, "Issues Involved in Accounting
  for Derivative Contracts Held for Trading Purposes and Contracts Involved in
  Energy Trading and Risk Management Activities." These physical and financial
  contracts cover trading activity associated with electricity, gas and oil. The
  $3 million increase for the three months ended September 30, 2004, compared
  with the same periods in 2003, was primarily due to an increase in realized
  gains on electricity positions. The $10 million increase for the nine months
  ended September 30, 2004, compared with the same period in 2003, was due to
  a $6 million increase in electricity positions and a $4 million increase in
  gas and oil positions. The physical volumes associated with energy trading for
  the three months ended September 30, 2004, were 1,616 GWh and 3.3 Bcf, compared
  with 1,761 GWh and 3.8 Bcf for the three months ended September 30, 2003.
  Energy trading physical volumes for the nine months ended September 30, 2004,
  were 3,796 GWh and 7.6 Bcf, compared with 4,030 GWh and 11.0 Bcf for the nine
  months ended September 30, 2003.

Utility Revenues

The increases in utility revenues were attributable to the following:



|               |                                               | September
        30, 2004 vs. September 30, 2003 |  
|-------------- | --------------------------------------------- | ------------------------------------------------- | -
|               |                                               |                                                   |  
|               |                                               | Three Months
        Ended                        |  
|               |                                               |                                                   |  
|               |                                               |                                                   |  
|International: |                                               |                                                   |  
|               |                                               |                                                   |  
|               | Retail electric delivery (PPL
        Global) |                                                   |  
|               |                                               |                                                   |  
|               |                                               | U.K.                                              |  
|               |                                               |                                                   |  
|               |                                               | Chile                                             |  
|               |                                               |                                                   |  
|               |                                               | El Salvador                                       |  
|               |                                               |                                                   |  
|               |                                               |                                                   | $
|               |                                               |                                                   |  

The increases for both periods were primarily due to:

- higher WPD revenues in the U.K., primarily due to the change in foreign
    currency exchange rates; and
- higher revenues in Chile due to higher energy prices, which are a pass-through
    to customer rates, the change in foreign currency exchange rates, and increases
    in sales volumes of 6% and 7% for the three and nine months ended September
    30, 2004, compared with the same periods in 2003.

Energy Related Businesses

Energy related businesses contributed $5 million less to operating income for
  the three months ended September 30, 2004, compared with the same period in
  2003. The decrease was primarily due to $3 million of higher pre-tax operating
  losses from synfuel projects.

Energy related businesses contributed $28 million less to operating income
  for the nine months ended September 30, 2004, compared with the same period
  in 2003. The decrease was attributable to the following:

- a $15 million pre-tax loss on the sale of CGE (see Note 8 to the Financial
    Statements);
- a $4 million decrease from mechanical contracting and engineering subsidiaries
    due to the continued decline in capital spending in commercial and industrial
    markets, lower margins experienced in those markets, and cost overruns at
    two major projects;
- a $4 million decrease from Latin American subsidiaries due primarily to
    lower dividends received and lower construction sales; and
- a $5 million higher pre-tax operating loss from synfuel projects; partially
    offset by
- a $5 million operating loss on some Hyder properties in the first quarter
    of 2003, which were subsequently sold in April 2003.

Other Operation and Maintenance

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



|                                                                                                                                                                        |  | September
        30, 2004 vs. September 30, 2003 |   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | --
|                                                                                                                                                                        |  |                                                   |   
|                                                                                                                                                                        |  | Three Months
        Ended                        |   
|                                                                                                                                                                        |  |                                                   |   
|Property damage and environmental
        insurance settlements which were recorded in 2003                                                                             |  | $                                                 | 22
|                                                                                                                                                                        |  |                                                   |   
|Increase in foreign currency
        exchange rates                                                                                                                     |  |                                                   | 4 
|                                                                                                                                                                        |  |                                                   |   
|Decrease in the Clean Air Act
        contingency relating to generating facilities recorded in 2003                                                                    |  |                                                   |   
|                                                                                                                                                                        |  |                                                   |   
|Outage costs associated with
        planned maintenance at the Montour and Conemaugh plants                                                                            |  |                                                   |   
|                                                                                                                                                                        |  |                                                   |   
|Decrease in domestic and international
        pension income                                                                                                           |  |                                                   | 3 
|                                                                                                                                                                        |  |                                                   |   
|Timing and extent of outage
        costs associated with the planned refueling and inspection at the Susquehanna
        station and of other nuclear-related expenses |  |                                                   | (3
|                                                                                                                                                                        |  |                                                   |   
|Decrease in lease expense due
        to the consolidation of the Sundance and University Park generation facilities                                                    |  |                                                   | (5
|                                                                                                                                                                        |  |                                                   |   
|WPD capitalization                                                                                                                                                      |  |                                                   | (2
|                                                                                                                                                                        |  |                                                   |   
|Lower trademark license fees
        from a PPL subsidiary (Note 10)                                                                                                    |  |                                                   | (1
|                                                                                                                                                                        |  |                                                   |   
|Other                                                                                                                                                                   |  |                                                   | (3
|                                                                                                                                                                        |  |                                                   |   
|                                                                                                                                                                        |  | $                                                 | 15
|                                                                                                                                                                        |  |                                                   |   

The decreases in net pension income for the three and nine months ended September
  30, 2004, compared with the same periods in 2003, were attributable to a reduction
  in the discount rate assumptions for PPL Energy Supply's domestic and international
  pension plans. The reduction in the discount rate assumption has a significant
  impact on the measurement of plan obligations and net pension costs, which have
  and will continue to result in PPL Energy Supply's recognition of lower levels
  of net pension income in 2004. See Note 13 to the Financial Statements for details
  of the costs of PPL Energy Supply's pension plans.

Depreciation

The increases in depreciation expense were primarily due to:



|                                                                                 |  | September
        30, 2004 vs. September 30, 2003 |   
|-------------------------------------------------------------------------------- |  | ------------------------------------------------- | --
|                                                                                 |  |                                                   |   
|                                                                                 |  | Three Months
        Ended                        |   
|                                                                                 |  |                                                   |   
|Additions to PP&E                                                                |  |                                                   |   
|                                                                                 |  |                                                   |   
|Sundance, University Park and
        Lower Mt. Bethel generation facilities (a) |  | $                                                 | 7 
|                                                                                 |  |                                                   |   
|Foreign currency exchange rates                                                  |  |                                                   | 5 
|                                                                                 |  |                                                   |   
|2003 purchase accounting adjustments
        to WPD assets                       |  |                                                   | (7
|                                                                                 |  |                                                   |   
|                                                                                 |  | $                                                 | 5 
|                                                                                 |  |                                                   |   
|                                                                                 |  |                                                   |   

|(a) |  | The lessors of these facilities were consolidated under
        FIN 46 effective December 31, 2003. See Note 22 to the Financial Statements
        in PPL's Annual Report to the SEC on Form 10-K for the year ended December
        31, 2003, for additional information. In June 2004, a subsidiary of PPL
        Energy Supply purchased the Sundance and University Park generation assets
        from the lessor that was consolidated by PPL Energy Supply under FIN 46.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Taxes, Other Than Income

Taxes, other than income, increased by $3 million during the three months ended
  September 30, 2004, compared with the same period in 2003. The increase was
  primarily due to higher WPD property taxes, primarily related to the impact
  of changes in foreign currency exchange rates and an increase in property tax
  rates, as well as an increase in domestic capital stock tax.

Taxes, other than income, increased by $11 million during the nine months ended
  September 30, 2004, compared with the same period in 2003. The increase was
  primarily due to an increase in domestic capital stock tax of $4 million and
  an increase in WPD's property taxes of $8 million, primarily related to the
  impact of changes of foreign currency exchange rates, adjustments recorded in
  2003 and an increase in property tax rates.

Other Income - net

See Note 11 to the Financial Statements for details of other income.

Financing Costs

The increases in financing costs, which include "Interest Expense," "Interest
  Expense with Affiliate" and "Distributions on Preferred Securities," were primarily
  due to:



|                                                                                                                                                                                                |  | September
        30, 2004 vs. September 30, 2003 |   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | --
|                                                                                                                                                                                                |  |                                                   |   
|                                                                                                                                                                                                |  | Three Months
        Ended                        |   
|                                                                                                                                                                                                |  |                                                   |   
|Increase in interest
        expense due to consolidation of the lessors of the Sundance, University
        Park and Lower Mt. Bethel generation facilities, in accordance with FIN
        46 |  | $                                                 | 7 
|                                                                                                                                                                                                |  |                                                   |   
|Financing costs associated with
        the repayment of the consolidated trust's debt for the Sundance and University
        Park generation facilities                                       |  |                                                   |   
|                                                                                                                                                                                                |  |                                                   |   
|Increase in long-term debt interest
        expense due to debt issuances                                                                                                                       |  |                                                   | 9 
|                                                                                                                                                                                                |  |                                                   |   
|Increase in foreign currency
        exchange rates                                                                                                                                             |  |                                                   | 4 
|                                                                                                                                                                                                |  |                                                   |   
|Increase in other long-term
        debt interest expense                                                                                                                                       |  |                                                   | 2 
|                                                                                                                                                                                                |  |                                                   |   
|Decrease in amortization expense                                                                                                                                                                |  |                                                   | (1
|                                                                                                                                                                                                |  |                                                   |   
|Decrease in short-term debt
        interest expense                                                                                                                                            |  |                                                   |   
|                                                                                                                                                                                                |  |                                                   |   
|Write-off of unamortized swap
        costs on WPD debt restructuring                                                                                                                           |  |                                                   |   
|                                                                                                                                                                                                |  |                                                   |   
|Increase in interest expense
        with affiliate                                                                                                                                             |  |                                                   | 4 
|                                                                                                                                                                                                |  |                                                   |   
|                                                                                                                                                                                                |  | $                                                 | 25
|                                                                                                                                                                                                |  |                                                   |   

Income Taxes

Income taxes decreased by $23 million and $44 million for the three and nine
  months ended September 30, 2004, compared with the same periods in 2003. The
  decreases were due to:

- lower pre-tax book income, resulting in $8 million and $12 million decreases
    in income taxes for the three and nine months ended September 30, 2004;
- differences in income recognition for tax purposes related to foreign affiliates,
    resulting in $6 million and $19 million reductions in income taxes for the
    three and nine months ended September 30, 2004; and
- additional nonconventional fuel tax credits recognized, resulting in $9
    million and $12 million reductions in income taxes for the three and nine
    months ended September 30, 2004.

See Note 5 to the Financial Statements for details on effective income tax
  rates.

Discontinued Operations

See "Discontinued Operations" in Note 8 to the Financial Statements for information
  regarding the losses recorded related to the sale of PPL Global's investment
  in a Latin American telecommunications company.



Cumulative Effect of a Change in Accounting Principle

PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement Obligations,"
  effective January 1, 2003. SFAS 143 addresses the accounting for obligations
  associated with the retirement of tangible long-lived assets. Application of
  the new rules resulted in a cumulative effect of adoption that increased net
  income by $63 million in 2003. See Note 21 to the Financial Statements in PPL
  Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31,
  2003, for additional information.

Financial Condition

Liquidity

At September 30, 2004, PPL Energy Supply had $669 million of cash and cash
  equivalents and no short-term debt. At December 31, 2003, PPL Energy Supply
  had $227 million of cash and cash equivalents and $56 million of short-term
  debt. The increase in PPL Energy Supply's cash position was primarily the net
  result of:

- $427 million of cash provided by operating activities;
- proceeds of $495 million from a note payable to an affiliate;
- proceeds of $123 million from the sale of CGE;
- contributions from Member of $358 million; and
- the issuance of $322 million of long-term debt; partially offset by
- the retirement of $669 million of long-term debt;
- $368 million of capital expenditures;
- distributions to Member of $169 million;
- a decrease of $57 million in short-term debt; and
- an increase of $17 million in restricted cash.

Rating Agency Decisions

Standard & Poor's Ratings Services (S&P), Moody's Investors Service,
  Inc. (Moody's) and Fitch Ratings (Fitch) periodically review the credit ratings
  on the debt and preferred securities of PPL Energy Supply and its subsidiaries.
  Based on their respective reviews, the rating agencies may make certain ratings
  revisions.

The ratings of S&P, Moody's and Fitch are not a recommendation to buy,
  sell or hold any securities of PPL Energy Supply or its subsidiaries. Such ratings
  may be subject to revisions or withdrawal by the agencies at any time and should
  be evaluated independently of each other and any other rating that may be assigned
  to their securities.

During the second quarter of 2004, S&P affirmed its BBB ratings on both
  PPL and PPL Energy Supply and revised its outlook on both entities from negative
  to stable. S&P also affirmed its BBB- rating on PPL Montana's Pass-Through
  Certificates due 2020 and revised its outlook from negative to stable. Also,
  S&P indicated that the following ratings would remain unchanged following
  the aforementioned revision to PPL Energy Supply's outlook:

- WPDH Limited of BBB-/Negative/A-3;
- WPD (South West) of BBB+/Negative/A-2; and
- WPD (South Wales) of BBB+/Negative/A-2.

Other

The pension plans of WPD are subject to formal actuarial valuations every three
  years, which are used to determine funding requirements. WPD's two principal
  plans were the subject of a formal actuarial valuation as of March 31, 2004.
  Current valuations show an actuarial deficit of approximately £270 million
  (approximately $489 million based on current exchange rates) that may need to
  be funded over a period of up to approximately 14 years if markets and asset
  values do not recover. WPD expects to conclude the formal valuation process
  and agree on deficit contribution schedules with the Trustees of the plans by
  March 31, 2005.

WPD believes that its internally generated cash flow, combined with its bank
  credit facilities, provides sufficient resources to finance its cash requirements
  and to maintain appropriate available liquidity.

For additional information on PPL Energy Supply's liquidity, see Item 7, "Management's
  Discussion and Analysis of Financial Condition and Results of Operations," in
  PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended
  December 31, 2003.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

PPL Energy Supply's commodity derivative contracts that qualify for hedge accounting
  treatment mature at various times through 2010. The following chart sets forth
  PPL Energy Supply's net fair market value of these contracts:

|                                                                           |  | Three Months
        Ended 
        September 30, |      |   | Nine Months
        Ended
        September 30, |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------- | ---- | - | ----------------------------------------------- | -
|                                                                           |  |                                                   |      |   |                                                 |  
|                                                                           |  | 2004                                              |      |   | 2003                                            |  
|                                                                           |  |                                                   |      |   |                                                 |  
|Fair value of contracts outstanding
        at the beginning of the period |  | $                                                 | 85   |   |                                                 | $
|                                                                           |  |                                                   |      |   |                                                 |  
|Contracts realized or otherwise
        settled during the period          |  |                                                   | (11  | ) |                                                 |  
|                                                                           |  |                                                   |      |   |                                                 |  
|Fair value of new contracts
        at inception                           |  |                                                   |      |   |                                                 |  
|                                                                           |  |                                                   |      |   |                                                 |  
|Other changes in fair values                                               |  |                                                   | (12) |   |                                                 |  
|                                                                           |  |                                                   |      |   |                                                 |  
|Fair value of contracts outstanding
        at the end of the period       |  | $                                                 | 62   |   |                                                 | $
|                                                                           |  |                                                   |      |   |                                                 |  

"Contracts realized or otherwise settled during the period" relate to contracts
  entered into prior to July 1 for the three months ended September 30 and contracts
  entered into prior to January 1 for the nine months ended September 30.

"Other changes in fair values" represents changes in the market value that
  have occurred for contracts that were outstanding at the end of each period.

The following chart segregates estimated fair values of PPL Energy Supply's
  commodity derivative contracts that qualify for hedge accounting treatment at
  September 30, 2004, based on whether the fair values are determined by quoted
  market prices or other more subjective means.

|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains (Losses) |   
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | --
|                                                                     |  |                                                                      |   
|                                                                     |  | Maturity
        Less
        Than
        1 Year                    |   
|                                                                     |  |                                                                      |   
|Source of Fair Value                                                 |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices actively quoted                                               |  | $                                                                    | 8 
|                                                                     |  |                                                                      |   
|Prices provided by other external sources                            |  |                                                                      | 43
|                                                                     |  |                                                                      |   
|Prices based on models and other valuation
        methods           |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | 51
|                                                                     |  |                                                                      |   

The "Prices actively quoted" category includes the fair value of exchange-traded
  natural gas futures contracts quoted on the New York Mercantile Exchange (NYMEX).
  The NYMEX has currently quoted prices through 2010.

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

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

As of September 30, 2004, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its non-trading portfolio by approximately
  $167 million. However, the change in the value of the non-trading portfolio
  would have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL Energy Supply's unsold generation would be improved. Because PPL
  Energy Supply's electricity portfolio is generally in a net sales position,
  the adverse movement in prices is usually an increase in prices. Conversely,
  because PPL Energy Supply's commodity fuels portfolio is generally in a net
  purchase position, the adverse movement in prices is usually a decrease in prices.
  If both of these scenarios happened, the implied margins for the unsold generation
  would increase.

In accordance with its marketing strategy, PPL Energy Supply is significantly
  hedged in its generation output and fuel requirements. PPL Energy Supply estimates
  that for its entire portfolio, including all generation and physical and financial
  energy positions, a 10% adverse change in power prices across all geographic
  zones and time periods would decrease expected 2004 gross margins by about $2
  million. A 10% adverse movement in all fossil fuel prices would have an immaterial
  impact on expected 2004 gross margins.

Commodity Price Risk (Trading)

PPL Energy Supply's trading contracts mature at various times through 2006.
  The following chart sets forth PPL Energy Supply's net fair market value of
  trading contracts:

|                                                                           |  | Three Months
        Ended 
        September 30, |    |   | Nine Months
        Ended
        September 30, |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------- | -- | - | ----------------------------------------------- | -
|                                                                           |  |                                                   |    |   |                                                 |  
|                                                                           |  | 2004                                              |    |   | 2003                                            |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Fair value of contracts outstanding
        at the beginning of the period |  | $                                                 | 12 |   |                                                 | $
|                                                                           |  |                                                   |    |   |                                                 |  
|Contracts realized or otherwise
        settled during the period          |  |                                                   | (3 | ) |                                                 |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Fair value of new contracts
        at inception                           |  |                                                   |    |   |                                                 |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Other changes in fair values                                               |  |                                                   | 3  |   |                                                 |  
|                                                                           |  |                                                   |    |   |                                                 |  
|Fair value of contracts outstanding
        at the end of the period       |  | $                                                 | 12 |   |                                                 | $
|                                                                           |  |                                                   |    |   |                                                 |  

"Contracts realized or otherwise settled during the period" relate to trading
  contracts entered into prior to July 1 for the three months ended September
  30 and contracts entered into prior to January 1 for the nine months ended September
  30. These amounts do not reflect intra-period contracts that were entered into
  and settled during the periods.

The "Fair value of new contracts at inception" is usually zero, because they
  are entered into at current market prices. However, when PPL Energy Supply enters
  into an option contract, a premium is paid or received.

"Other changes in fair values" represents changes in the market value that
  have occurred for contracts that were outstanding at the end of each period.

As of September 30, 2004, the net loss on PPL Energy Supply's trading activities
  expected to be recognized in earnings during the next three months is $3 million.

The following chart segregates estimated fair values of PPL Energy Supply's
  trading portfolio at September 30, 2004, based on whether the fair values are
  determined by quoted market prices or other more subjective means.

|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains (Losses) |  
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | -
|                                                                     |  |                                                                      |  
|                                                                     |  | Maturity
        Less
        Than
        1 Year                    |  
|                                                                     |  |                                                                      |  
|Source of Fair Value                                                 |  |                                                                      |  
|                                                                     |  |                                                                      |  
|Prices actively quoted                                               |  | $                                                                    | 3
|                                                                     |  |                                                                      |  
|Prices provided by other external sources                            |  |                                                                      | 4
|                                                                     |  |                                                                      |  
|Prices based on models and other valuation
        methods           |  |                                                                      | 1
|                                                                     |  |                                                                      |  
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | 8
|                                                                     |  |                                                                      |  

As of September 30, 2004, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its trading portfolio by $8 million.

Interest Rate Risk

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

At September 30, 2004, PPL Energy Supply's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Energy Supply is also exposed to changes in the fair value of its domestic
  and international debt portfolio. At September 30, 2004, PPL Energy Supply
  estimated that its potential exposure to a change in the fair value of its debt
  portfolio, through a 10% adverse movement in interest rates, was approximately
  $146 million.

PPL and PPL Energy Supply utilize various risk management instruments to reduce
  PPL Energy Supply's exposure to adverse interest rate movements for future anticipated
  financings. While PPL Energy Supply is exposed to changes in the fair value
  of these instruments, they are designed such that any economic loss in value
  should generally be offset by interest rate savings at the time the future anticipated
  financing is completed. At September 30, 2004, PPL Energy Supply had none of
  these instruments outstanding.

Foreign Currency Risk

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

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

PPL executed net forward sale transactions for £17.7 million to hedge
  a portion of its net investment in WPDH Limited. The estimated value of these
  agreements as of September 30, 2004, was $5 million, being the amount PPL would
  pay to terminate the transactions.

To protect expected income in British pounds sterling, PPL entered into average
  rate forward sales contracts for £29 million. In conjunction with these
  forward contracts, PPL executed average rate purchase options of £20 million
  to mitigate the liquidity risk inherent in the average rate forwards. At September
  30, 2004, the market value of these positions, representing the amount PPL would
  receive to terminate them, was insignificant.

To protect expected income in Chilean pesos, PPL entered into average rate
  forward sales contracts for 5.5 billion Chilean pesos. At September 30, 2004,
  the market value of these positions, representing the amount PPL would receive
  to terminate them, was insignificant.

WPDH Limited held a net position in cross-currency swaps totaling $1.3 billion
  to hedge the interest payments and value of its U.S. dollar-denominated bonds.
  The estimated value of this position at September 30, 2004, being the amount
  PPL would pay to terminate it, including accrued interest, was $170 million.

On the Statement of Income, gains and losses associated with hedges of interest
  payments denominated in foreign currencies are reflected in "Interest Expense."
  Gains and losses associated with the purchase of equipment are reflected in
  "Depreciation." Gains and losses associated with net investment hedges remain
  in accumulated other comprehensive loss on the Balance Sheet until the investment
  is disposed.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust
  funds to fund certain costs of decommissioning the Susquehanna station. As of
  September 30, 2004, these funds were invested primarily in domestic equity
  securities and fixed-rate, fixed-income securities and are reflected at fair
  value on PPL Energy Supply's Balance Sheet. The mix of securities is designed
  to provide returns to be used to fund Susquehanna's decommissioning and to compensate
  for inflationary increases in decommissioning costs. However, the equity securities
  included in the trusts are exposed to price fluctuation in equity markets, and
  the values of fixed-rate, fixed-income securities are exposed to changes in
  interest rates. PPL Susquehanna actively monitors the investment performance
  and periodically reviews asset allocation in accordance with its nuclear decommissioning
  trust policy statement. At September 30, 2004, a hypothetical 10% increase in
  interest rates and a 10% decrease in equity prices would have resulted in an
  estimated $27 million reduction in the fair value of the trust assets.

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

Credit Risk

Credit risk relates to the risk of loss that PPL Energy Supply would incur
  as a result of non-performance by counterparties of their contractual obligations.
  PPL Energy Supply maintains credit policies and procedures with respect to counterparties
  (including requirements that counterparties maintain certain credit ratings
  criteria) and requires other assurances in the form of credit support or collateral
  in certain circumstances in order to limit counterparty credit risk. However,
  PPL Energy Supply has concentrations of suppliers and customers among electric
  utilities, natural gas distribution companies and other energy marketing and
  trading companies. These concentrations of counterparties may impact PPL Energy
  Supply's overall exposure to credit risk, either positively or negatively, in
  that counterparties may be similarly affected by changes in economic, regulatory
  or other conditions. PPL Energy Supply records certain non-performance reserves
  to reflect the probability that a counterparty with contracts that are out of
  the money (from the counterparty's standpoint) will default in its performance,
  in which case PPL Energy Supply would have to sell into a lower-priced market
  or purchase from a higher-priced market. These reserves are reflected in the
  fair value of assets recorded in "Price risk management assets" on the Balance
  Sheet. PPL Energy Supply also records reserves to reflect the probability that
  a counterparty will not make payments for deliveries PPL Energy Supply has made
  but not yet billed. These reserves are reflected in "Unbilled revenues" on the
  Balance Sheet. PPL Energy Supply has also established a reserve with respect
  to certain sales to the California ISO for which PPL Energy Supply has not yet
  been paid, as well as a reserve related to PPL Energy Supply's exposure as a
  result of the Enron bankruptcy, which are reflected in "Accounts receivable"
  on the Balance Sheet. See Note 9 to the Financial Statements for additional
  information on the sales to the California ISO.

Related Party Transactions

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

For additional information on related party transactions, see Note 10 to the
  Financial Statements.

Acquisitions, Development and Divestitures

From time to time, PPL Energy Supply and its subsidiaries are involved in negotiations
  with third parties regarding acquisitions, joint ventures and other arrangements
  which may or may not result in definitive agreements. See Note 8 to the Financial
  Statements for information regarding recent acquisitions and development activities.

PPL Energy Supply is currently evaluating incremental capacity increases of
  about 200 MW at several existing domestic generating facilities.

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

Environmental Matters

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



New Accounting Standards

See Note 18 to the Financial Statements for information on new accounting standards
  adopted in 2004 or pending adoption.

Application of Critical Accounting Policies

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



See Item 7, "Management's Discussion and Analysis of Financial Condition and
  Results of Operations," in PPL Energy Supply's Annual Report to the SEC on Form
  10-K for the year ended December 31, 2003, for a discussion of each critical
  accounting policy. PPL's senior management has reviewed these critical accounting
  policies, and the estimates and assumptions regarding them, with its Audit Committee.
  In addition, PPL's senior management reviewed the Form 10-K disclosures regarding
  the application of these critical accounting policies with the Audit Committee.

---

PPL ELECTRIC UTILITIES CORPORATION
  AND SUBSIDIARIES



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

Overview

PPL Electric provides electricity delivery service in eastern and central Pennsylvania.
  Its headquarters are in Allentown, PA. See Item 1, "Business - Background" in
  PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December
  31, 2003, for a description of PPL Electric's business. See Item 7, "Management's
  Discussion and Analysis of 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, 2003, for an overview of PPL Electric's strategy and the risks and challenges
  that it faces in its business.

The information provided in this "Management's Discussion and Analysis of Financial
  Condition and Results of Operations" should be read in conjunction with PPL
  Electric's Condensed Consolidated Financial Statements and the accompanying
  Notes.

Terms and abbreviations are explained in the glossary. Dollars are in millions
  unless otherwise noted.

Results of Operations

The following discussion, which explains significant changes in principal items
  on the Statement of Income, compares the three and nine months ended September
  30, 2004, with the comparable periods in 2003.

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

Earnings

Income (loss) available to PPL was as follows:

| | Three Months
        Ended 
        September 30, |    |  | Nine Months
        Ended
        September 30, |  
| | ------------------------------------------------- | -- |  | ----------------------------------------------- | -
| |                                                   |    |  |                                                 |  
| | 2004                                              |    |  | 2003                                            |  
| |                                                   |    |  |                                                 |  
| | $                                                 | 15 |  |                                                 | $



The after-tax changes in income (loss) available to PPL were primarily due
  to:

|                                                                                                                    |  | September
        30, 2004 vs. September 30, 2003 |   
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | --
|                                                                                                                    |  |                                                   |   
|                                                                                                                    |  | Three Months
        Ended                        |   
|                                                                                                                    |  |                                                   |   
|Delivery revenues (net of CTC/ITC amortization,
        interest expense on transition bonds and ancillary charges) |  |                                                   |   
|                                                                                                                    |  |                                                   |   
|Operation and maintenance expenses                                                                                  |  | $                                                 | 7 
|                                                                                                                    |  |                                                   |   
|Taxes, other than income                                                                                            |  |                                                   |   
|                                                                                                                    |  |                                                   |   
|Interest income on IRS tax settlement                                                                               |  |                                                   | 5 
|                                                                                                                    |  |                                                   |   
|Depreciation                                                                                                        |  |                                                   |   
|                                                                                                                    |  |                                                   |   
|Financing costs (excluding transition
        bond interest expense)                                                |  |                                                   |   
|                                                                                                                    |  |                                                   |   
|Workforce reduction (Note 17)                                                                                       |  |                                                   | 5 
|                                                                                                                    |  |                                                   |   
|Other                                                                                                               |  |                                                   | 4 
|                                                                                                                    |  |                                                   |   
|                                                                                                                    |  | $                                                 | 21
|                                                                                                                    |  |                                                   |   

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

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

- PPL Electric has filed a proposal with the PUC to increase distribution
    rates by approximately $164 million (subsequently amended to $160 million)
    and has notified the PUC that it plans to pass through to customers approximately
    $57 million in increased transmission charges that PPL Electric pays to PJM
    for transmission services. Transmission services are provided under the PJM
    Open Access Transmission Tariff, a rate schedule filed with and approved by
    the FERC. Under the federal "filed rate doctrine," such FERC-approved rates
    may be recovered from retail customers without a review of those rates by
    a state agency such as the PUC. In addition, PPL Electric's PUC-approved retail
    tariff permits the automatic pass-through of transmission charges. PPL Electric
    agreed to a cap on both of these charges until December 31, 2004, as
    part of its 1998 settlement under the PUC Final Order. Generation charges
    for customers who do not select an alternative energy supplier are fixed through
    2009 and are not affected by these changes. The combination of the proposed
    distribution rate increase and transmission charge pass-through would result
    in an 8.1% increase over PPL Electric's present total rates effective January
    1, 2005.
    In October 2004, the PUC administrative law judge assigned to the rate
      proceeding recommended that the PUC commissioners increase PPL Electric's
      distribution rates by approximately $130 million. The judge also recommended
      that the PUC commissioners approve a Transmission Service Charge as the
      mechanism for PPL Electric to collect the increased transmission charges
      of approximately $57 million. PPL Electric and the other parties have until
      November 12 to file exceptions to the recommendation. The PUC is expected
      to act on this recommendation by the end of 2004 when it enters its final
      order in the rate proceeding. PPL Electric cannot predict the outcome of
      this proceeding.

- PPL Electric had been using CashPoint Network Services, Inc. (CashPoint)
    to manage customer bill payment centers. In April 2004, PPL Electric terminated
    the use of CashPoint to collect bill payments because of CashPoint's financial
    uncertainties and processing irregularities. CashPoint's largest creditors
    forced it into involuntary bankruptcy. As of September 30, 2004, PPL Electric
    recorded a reserve of $1 million, representing the estimated amount of funds
    owed by CashPoint that will not be recovered.

- See Note 18 to the Financial Statements for new accounting standards, which
    have been issued but not yet adopted by PPL Electric, that may impact future
    earnings.

- See Note 9 to the Financial Statements for potential commitments and contingent
    liabilities that may impact future earnings.

Operating Revenues

Retail Electric

The increases in revenues from retail electric operations were attributable
  to the following:

|                                          |  | September
        30, 2004 vs. September 30, 2003 |    
|----------------------------------------- |  | ------------------------------------------------- | ---
|                                          |  |                                                   |    
|                                          |  | Three Months
        Ended                        |    
|                                          |  |                                                   |    
|PLR electric generation supply            |  | $                                                 | 15 
|                                          |  |                                                   |    
|Electric delivery                         |  |                                                   | (10
|                                          |  |                                                   |    
|Delivery and PLR supply to PPL Generation |  |                                                   |    
|                                          |  |                                                   |    
|Other                                     |  |                                                   |    
|                                          |  |                                                   |    
|                                          |  | $                                                 | 5  
|                                          |  |                                                   |    

The increases for both periods were primarily due to higher PLR revenues due
  to higher energy and capacity rates in 2004 compared with 2003, and a 3% increase
  in volumes for the nine months ended September 30, 2004, in part due to the
  return of customers previously served by alternate suppliers. These increases
  were partially offset by lower electric delivery revenues due to a decrease
  in ITC and CTC revenue as a result of lower ITC rates in 2004 than 2003, and
  several rate groups reaching their rate cap.

Wholesale Electric

PPL Electric wholesale revenues were primarily derived from sales to municipalities.
  The $6 million and $17 million decreases in wholesale electric revenues for
  the three and nine months ended September 30, 2004, compared with the same periods
  in 2003, were due to the expiration of all municipal purchase power agreements
  at the end of January 2004.

Energy Purchases from Affiliate

Energy purchases from affiliate increased by $5 million and $47 million for
  the three and nine months ended September 30, 2004, compared with the same
  periods in 2003. The increases reflect higher PLR load for both periods in 2004,
  as well as higher prices for energy purchased under the power supply contracts
  with PPL EnergyPlus needed to support that load.

Other Operation and Maintenance

Other operation and maintenance expenses decreased by $12 million for the three
  months ended September 30, 2004, compared with the same period in 2003. The
  decrease was primarily due to $13 million of incremental storm restoration costs
  associated with Hurricane Isabel, which were recorded in 2003. At December 31,
  2003, these costs were reclassified from other operation and maintenance expenses
  and deferred in accordance with the PUC declaratory order of January 16, 2004.

Other operation and maintenance expenses decreased by $8 million for the nine
  months ended September 30, 2004, compared with the same period in 2003. The
  decrease was primarily due to the storm restoration costs mentioned above and
  a $3 million decrease in postretirement medical expense. These decreases were
  partially offset by $3 million in lower rent allocations to other PPL affiliates
  in 2004 and a $3 million decrease in pension income.

Depreciation

Depreciation increased by $4 million for the nine months ended September 30,
  2004, compared with the same period in 2003, primarily due to plant additions,
  including the Automated Meter Reading project.

Taxes, Other Than Income

In the first quarter of 2004, PPL Electric reversed a $14 million accrued liability
  for 1998 and 1999 PURTA taxes that had been accrued based on potential exposure
  in the proceedings regarding the Susquehanna nuclear station tax assessment.
  The rights of the third party intervenors to further appeal expired in 2004.
  The reversal is the primary reason for the $12 million decrease in taxes, other
  than income, for the nine months ended September 30, 2004, compared with the
  same period in 2003. The decrease was partially offset by higher gross receipts
  tax expense.

Workforce Reduction

See Note 17 to the Financial Statements for information regarding the $9 million
  charge recorded in 2003.

Interest Expense

Interest expense decreased by $5 million for the three months ended September
  30, 2004, compared with the same period in 2003, primarily due to retirements
  of First Mortgage Bonds, Senior Secured Bonds and Transition Bonds in 2003 and
  2004.

Interest expense decreased by $18 million for the nine months ended September
  30, 2004, compared with the same period in 2003. This decrease was the net impact
  of retirements of First Mortgage Bonds, Pollution Control Bonds, Senior Secured
  Bonds and Transition Bonds in 2003 and 2004, partially offset by the issuance
  of $100 million of Senior Secured Bonds and $90 million of Pollution Control
  Bonds in 2003.

Income Taxes

Income taxes increased by $11 million and $15 million for the three and nine
  months ended September 30, 2004, compared with the same periods in 2003, as
  a result of higher pre-tax book income.

See Note 5 to the Financial Statements for details on effective income tax
  rates.

Financial Condition

Liquidity

At September 30, 2004, PPL Electric had $60 million of cash and cash equivalents
  and $88 million of short-term debt. At December 31, 2003, PPL Electric had $162
  million of cash and cash equivalents and no short-term debt. The decrease in
  PPL Electric's cash position was primarily the net result of:

- a $300 million increase in notes receivable from affiliates;
- the retirement of $333 million of long-term debt;
- $140 million of capital expenditures;
- payment of $25 million of common and preferred dividends; and
- a $35 million increase in restricted cash; partially offset by
- $650 million of cash provided by operating activities; and
- an increase of $88 million in short-term debt.

Asset-Backed Commercial Paper Program

In August 2004, PPL Electric began participating in an asset-backed commercial
  paper program through which PPL Electric obtains financing by selling and contributing
  its eligible accounts receivable and unbilled revenue to a special purpose,
  wholly owned subsidiary on an ongoing basis. The subsidiary pledges these assets
  to secure loans of up to an aggregate of $150 million from a commercial paper
  conduit sponsored by a financial institution. PPL Electric expects to use the
  proceeds from the program for general corporate purposes and to cash collateralize
  letters of credit. At September 30, 2004, the loan balance outstanding was $88
  million, of which $42 million was being used to cash collateralize letters of
  credit. See Note 7 to the Financial Statements for additional information.

For additional information on PPL Electric's liquidity, see Item 7, "Management's
  Discussion and Analysis of 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, 2003.

Risk Management

Market Risk

Commodity Price Risk - PLR Contracts

PPL Electric and PPL EnergyPlus have power supply agreements under which PPL
  EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement)
  energy and capacity to fulfill PPL Electric's PLR obligation through 2009. As
  a result, PPL Electric has shifted any electric price risk relating to its PLR
  obligation to PPL EnergyPlus through 2009. See Note 10 to the Financial Statements
  for information on the PLR contracts.

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which increases its
  interest rate risk. At September 30, 2004, PPL Electric's potential annual exposure
  to increased interest expense, based on a 10% increase in interest rates, was
  insignificant.

PPL Electric is also exposed to changes in the fair value of its debt portfolio.
  At September 30, 2004, 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 $19 million.

Related Party Transactions

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

For additional information on related party transactions, see Note 10 to the
  Financial Statements.

Environmental Matters

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

New Accounting Standards

See Note 18 to the Financial Statements for information on new accounting standards
  adopted in 2004 or pending adoption.

Application of Critical Accounting Policies

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

See Item 7, "Management's Discussion and Analysis of 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, 2003, for a discussion of each critical accounting
  policy. PPL's senior management has reviewed these critical accounting policies,
  and the estimates and assumptions regarding them, with its Audit Committee.
  In addition, PPL's senior management reviewed the Form 10-K disclosures regarding
  the application of these critical accounting policies with the Audit Committee.

---

PPL CORPORATIONPPL ENERGY SUPPLY, LLCPPL ELECTRIC UTILITIES CORPORATION

Item 3. Quantitative and Qualitative Disclosures
  About Market Risk



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

|Item
        4. Controls and Procedures
|---------------------------------------
|                                       
|(a)                                    
|                                       
|                                       
|                                       
|(b)                                    
|                                       
|                                       

---

PART II. OTHER INFORMATION

|Item
        1. Legal Proceedings                                                                                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                  
|For additional information regarding various
        pending administrative and judicial proceedings involving regulatory,
        environmental and other matters, which information is incorporated by
        reference into this Part II, see:
|                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                  

|Item 6. Exhibits                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                             
|10(a)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|10(b)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|12(a)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|12(b)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|Certifications pursuant to Section 302 of
        the Sarbanes-Oxley Act of 2002, for the quarterly period ended September
        30, 2004, filed by the following officers for the following companies:    
|                                                                                                                                                                                                             
|31(a)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|31(b)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|31(c)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|31(d)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|31(e)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|31(f)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|Certifications pursuant to Section 906 of
        the Sarbanes-Oxley Act of 2002, for the quarterly period ended September
        30, 2004, furnished by the following officers for the following companies:
|                                                                                                                                                                                                             
|32(a)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|32(b)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|32(c)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|32(d)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|32(e)                                                                                                                                                                                                        
|                                                                                                                                                                                                             
|32(f)                                                                                                                                                                                                        
|                                                                                                                                                                                                             

---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants
  have duly caused this report to be signed on their behalf by the undersigned
  thereunto duly authorized. The signature for each undersigned company shall
  be deemed to relate only to matters having reference to such company or its
  subsidiaries.

|                       | PPL Corporation                             
|---------------------- | --------------------------------------------
|                       | (Registrant)                                
|                       |                                             
|                       | PPL Energy Supply, LLC                      
|                       | (Registrant)                                
|                       |                                             
|                       | PPL Electric Utilities
        Corporation  
|                       | (Registrant)                                
|                       |                                             
|                       |                                             
|Date: November 9, 2004 | /s/  John R. Biggar                         
|                       |                                             
|                       | John R. Biggar                              
|                       | Executive Vice President
        and        
|                       | Chief Financial Officer                     
|                       | (PPL Corporation)                           
|                       | (principal financial officer)               
|                       |                                             
|                       |                                             
|                       | /s/  James E. Abel                          
|                       |                                             
|                       | James E. Abel                               
|                       | Vice President and Treasurer                
|                       | (PPL Energy Supply, LLC)                    
|                       | (principal financial officer)               
|                       |                                             
|                       |                                             
|                       | /s/  Paul A. Farr                           
|                       |                                             
|                       | Paul A. Farr                                
|                       | Vice President and Controller               
|                       | (PPL Electric Utilities
        Corporation)
|                       | (principal accounting officer)