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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549



Form 10-Q

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|[X] | QUARTERLY REPORT PURSUANT TO SECTION
        13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the period ended
        June 30, 2002
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



OR



|[  ] | TRANSITION REPORT PURSUANT TO SECTION
        13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition
        period from _________ to ___________
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------







|Commission FileNumber | Registrant; State of Incorporation;
        Address and Telephone Number                                                                                                                                        | IRS EmployerIdentification No.
|--------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------
|                      |                                                                                                                                                                                                                 |                               
|1-11459               | PPL Corporation
        (Exact name of Registrant as specified in its charter)
        (Pennsylvania)
        Two North Ninth Street
        Allentown, PA 18101-1179
        (610) 774-5151                    | 23-2758192                    
|                      |                                                                                                                                                                                                                 |                               
|333-74794             | PPL Energy Supply, LLC
        (Exact name of Registrant as specified in its charter)
        (Delaware)
        Two North Ninth Street
        Allentown, PA 18101-1179
        (610) 774-5151                 | 23-3074920                    
|                      |                                                                                                                                                                                                                 |                               
|1-905                 | PPL Electric Utilities Corporation
        (Exact name of Registrant as specified in its charter)
        (Pennsylvania)
        Two North Ninth Street
        Allentown, PA 18101-1179
        (610) 774-5151 | 23-0959590                    
|                      |                                                                                                                                                                                                                 |                               
|333-50350             | PPL Montana, LLC
        (Exact name of Registrant as specified in its charter)
        (Delaware)
        303 North Broadway - Suite 400
        Billings, MT 59101
        (406) 237-6900                     | 54-1928759                    





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



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







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, 147,468,950
        
        shares outstanding at July 31, 2002, excluding
        30,993,637 shares held as treasury stock                              
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                                                                         
|PPL Energy Supply, LLC             | PPL Corporation indirectly holds all of the
        
        member interests in PPL Energy Supply, LLC.                                                                                
|                                   |                                                                                                                                                                                         
|PPL Electric Utilities Corporation | Common stock, no par value, 78,029,863 
        shares outstanding and all held by PPL 
        Corporation at July 31, 2002, excluding
        79,270,519 shares held as treasury stock
|                                   |                                                                                                                                                                                         
|PPL Montana, LLC                   | PPL Corporation indirectly holds all of the
        
        member interests in PPL Montana, LLC.                                                                                      



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



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



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

FORM 10-Q
  FOR THE QUARTER ENDED JUNE 30, 2002Table of Contents



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|------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
|GLOSSARY OF TERMS AND ABBREVIATIONS                                                                                                                     |                                                                                                                             
|                                                                                                                                                        |                                                                                                                             
|FORWARD-LOOKING INFORMATION                                                                                                                             | 1                                                                                                                           
|                                                                                                                                                        |                                                                                                                             
|PART I. FINANCIAL INFORMATION                                                                                                                           |                                                                                                                             
|                                                                                                                                                        |                                                                                                                             
|                                                                                                                                                        | Item 1. Financial Statements                                                                                                
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|                                                                                                                                                        |                                                                                                                             
|                                                                                                                                                        | Item 2. Management's Discussion and
        Analysis of Financial Condition and 
                      Results of Operations
|                                                                                                                                                        |                                                                                                                             
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|                                                                                                                                                        |                                                                                                                             
|                                                                                                                                                        | Item 3. Quantitative and Qualitative
        Disclosures About Market Risk                                                  
|                                                                                                                                                        |                                                                                                                             
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|                                                                                                                                                        |                                                                                                                             
|PART II. OTHER INFORMATION                                                                                                                              |                                                                                                                             
|                                                                                                                                                        |                                                                                                                             
|                                                                                                                                                        | Item 1. Legal Proceedings                                                                                                   
|                                                                                                                                                        | Item 4. Submission of Matters to a
        Vote of Security Holders                                                         
|                                                                                                                                                        | Item 6. Exhibits and Reports on Form
        8-K                                                                            
|                                                                                                                                                        |                                                                                                                             
|SIGNATURES                                                                                                                                              | 68                                                                                                                          
|                                                                                                                                                        |                                                                                                                             
|COMPUTATION OF RATIO OF EARNINGS TO
        FIXED CHARGES                                                                                               |                                                                                                                             
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|                                                                                                                                                        |                                                                                                                             
|                                                                                                                                                        |                                                                                                                             
|CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER
         AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
         ACT OF 2002 |                                                                                                                             
|                                                                                                                                                        |                                                                                                                             
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|                                                                                                                                                        |                                                                                                                             
|                                                                                                                                                        |                                                                                                                             
|                                                                                                                                                        |                                                                                                                             

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GLOSSARY OF TERMS AND ABBREVIATIONS



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



APA - Asset Purchase Agreement.



APB - Accounting Principles Board.



BG&E - Baltimore Gas & Electric Company.



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



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



CO2 - carbon dioxide.



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



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



DEP - 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. If it is an option-based contract, it has an initial net
      investment equal to the fair value of the option component. If it is not
      an option-based contract, it requires an initial net investment that is
      less than five percent of the fully prepaid amount.
3. Its terms require or permit net settlement, it can readily
      be settled net by a means outside the contract, or it provides for delivery
      of an asset that puts the recipient in a position not substantially different
      from net settlement.



DIG - Derivatives Implementation Group.



DRIP - Dividend Reinvestment Plan.



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

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



EPS - earnings (loss) per share.



ESOP - Employee Stock Ownership Plan.



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



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



Griffith Energy - Griffith Energy LLC, a 600
  MW gas-fired station in Kingman, Arizona, which is jointly owned by subsidiaries
  of PPL Generation and Duke Energy Corporation.



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



ICP - Incentive Compensation Plan.



ICPKE - Incentive Compensation Plan for Key Employees.



IRS - Internal Revenue Service, in the U.S. Department
  of Treasury.



ISO - Independent System Operator.



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



kWh - kilowatthour, basic unit of electrical
  energy.



LIBOR - London Interbank Offered Rate.



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



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
  Energy.



MPSC - Montana Public Service Commission.



MW - megawatt.



MWh - megawatthour.



NorthWestern Energy - NorthWestern Energy, L.L.C.,
  a Montana limited liability company that acquired Montana Power's electricity
  delivery business in the first quarter of 2002, including Montana Power's rights
  and obligations under existing contracts with PPL Montana.



NOx - nitrogen oxide.



NPDES - National Pollutant Discharge Elimination
  System.



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



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



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



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



PJM (PJM Interconnection, LLC) - 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.



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



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



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



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



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



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



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

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



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



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



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



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



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



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



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



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



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



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



PPL Wallingford -PPL Wallingford LLC,
  a 225 MW gas-fired station in Wallingford, Connecticut, and a subsidiary of
  PPL Generation.



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



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



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



PURTA - Public Utility Realty Tax Act.



RMC - Risk Management Committee.



SCR - selective catalytic reduction, a pollution
  control process.



SEC - Securities and Exchange Commission.



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



SO2 - sulfur dioxide.



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 synfuel products.



Tolling agreement - agreement whereby PPL, as
  owner of an electric generating facility, agrees to use that facility to convert
  ("toll") fuel provided by a third party into electric energy for delivery
  back to the third party.



WPD (South Wales) - Western Power Distribution
  (South Wales) plc, a Welsh 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, formerly WPD 1953 Limited, a jointly-owned subsidiary of PPL Global
  and Mirant. WPDH Limited owns WPD Holdings U.K., which owns WPD (South West)
  and WPD (South Wales).



WPDL - Western Power Distribution Limited, a
  wholly-owned subsidiary of WPD Investment Holdings Limited, which is a jointly-owned
  subsidiary of PPL Global and Mirant. WPDL owns 100% of the common shares of
  Hyder.

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Forward-looking Information



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



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



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



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



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|PPL
      CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Part I. FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Item 1. Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|In the opinion of PPL, the unaudited financial
      statements that follow reflect all adjustments necessary to present fairly
      the Condensed Consolidated Balance Sheet as of June 30, 2002 and December
      31, 2001, and the Condensed Consolidated Statement of Income, the Condensed
      Consolidated Statement of Cash Flows and the Condensed Consolidated Statement
      of Shareowners' Common Equity and Comprehensive Income for the periods ended
      June 30, 2002 and 2001.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|CONDENSED CONSOLIDATED STATEMENT OF INCOME                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|PPL Corporation and Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(Millions of Dollars, except per share
      data)                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Operating Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Operating Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Operating Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Other Income - net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Interest Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Income (Loss) Before Income Taxes and 
         Minority Interest                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Minority Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Income (Loss) Before Cumulative Effect ofa Change in Accounting Principle                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Cumulative Effect of a Change in
       Accounting Principle                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Income (Loss) Before Dividends andDistributions on Preferred Securities                                                                                                                                                                                                                                                                                                                                                                                                                               
|Dividends and Distributions - Preferred Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Earnings (Loss) Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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)                                                                                                                  
|                                                                                                                                        |                                                                                          
|                                                                                                                                        |                                                                                          
|                                                                                                                                        |                                                                                          
|Net Cash Provided by Operating Activities                                                                                               |                                                                                          
|                                                                                                                                        |                                                                                          
|Cash Flows From Investing Activities                                                                                                    |                                                                                          
|                                                                                                                                        | Expenditures for property, plant and equipment                                           
|                                                                                                                                        | Investment in generating assets and electric energy
      projects                       
|                                                                                                                                        | Decrease in notes receivable from affiliates                                             
|                                                                                                                                        | Other investing activities - net                                                         
|                                                                                                                                        |                                                                                          
|                                                                                                                                        |                                                                                          
|                                                                                                                                        |                                                                                          
|Cash Flows From Financing Activities                                                                                                    |                                                                                          
|                                                                                                                                        | Issuance of company-obligated mandatorily redeemable
      preferred securities          
|                                                                                                                                        | Retirement of company-obligated mandatorily redeemable
      preferred
        securities
|                                                                                                                                        | Issuance of common stock                                                                 
|                                                                                                                                        | Retirement of long-term debt                                                             
|                                                                                                                                        | Payment of common and preferred dividends                                                
|                                                                                                                                        | Net increase (decrease) in short-term debt                                               
|                                                                                                                                        | Other financing activities - net                                                         
|                                                                                                                                        |                                                                                          
|                                                                                                                                        |                                                                                          
|                                                                                                                                        |                                                                                          
|Net Decrease In Cash and Cash Equivalents                                                                                               |                                                                                          
|Cash and Cash Equivalents at Beginning of Period                                                                                        |                                                                                          
|                                                                                                                                        |                                                                                          
|Cash and Cash Equivalents at End of Period                                                                                              |                                                                                          
|                                                                                                                                        |                                                                                          
|The accompanying Notes to Condensed
        Consolidated Financial Statements are an integral part of the financial
        statements.

---

|CONDENSED
      CONSOLIDATED BALANCE SHEET                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                                       
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Assets                                                                                                                                 
|                                                                                                                                       
|Current Assets                                                                                                                         
|Cash and
      cash equivalents                                                                                                        
|Accounts
      receivable (less reserve: 2002, $124; 2001, $121)                                                                       
|Unbilled
      revenues                                                                                                                
|Fuel, materials
      and supplies - at average cost                                                                                   
|Prepayments                                                                                                                            
|Deferred
      income taxes                                                                                                            
|Price risk
      management assets                                                                                                     
|Other                                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Investments                                                                                                                            
|Investment
      in unconsolidated affiliates - at equity                                                                              
|Investment
      in unconsolidated affiliates - at cost                                                                                
|Nuclear
      plant decommissioning trust fund                                                                                         
|Other                                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Property, Plant and Equipment
      - net                                                                                              
|Electric
      plant in service                                                                                                        
|Transmission
      and distribution                                                                                                    
|Generation                                                                                                                             
|General                                                                                                                                
|                                                                                                                                       
|                                                                                                                                       
|Construction
      work in progress                                                                                                    
|Nuclear
      fuel                                                                                                                     
|                                                                                                                                       
|Electric
      plant                                                                                                                   
|Gas and
      oil plant                                                                                                                
|Other property                                                                                                                         
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Regulatory and Other Noncurrent
      Assets                                                                                           
|Recoverable
      transition costs                                                                                                     
|Other                                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|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)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Liabilities and Equity                                                                                                                 
|                                                                                                                                       
|Current Liabilities                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Long-term Debt                                                                                                                         
|                                                                                                                                       
|Deferred Credits and Other Noncurrent Liabilities                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Commitments and Contingent Liabilities                                                                                                 
|                                                                                                                                       
|Minority Interest                                                                                                                      
|                                                                                                                                       
|Company-obligated Mandatorily RedeemablePreferred Securities of Subsidiary Trusts Holding SolelyCompany Debentures                     
|                                                                                                                                       
|Preferred Stock                                                                                                                        
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Shareowners' Common Equity                                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|The accompanying Notes to Condensed
        Consolidated Financial Statements are an integral part of the financial
        statements.

---

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

---

(THIS PAGE LEFT BLANK INTENTIONALLY.)

---

|PPL
      ENERGY SUPPLY, LLC AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Part I. FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Item 1. Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|In the opinion of PPL Energy Supply, the unaudited
      financial statements that follow reflect all adjustments necessary to present
      fairly the Condensed Consolidated Balance Sheet as of June 30, 2002 and
      December 31, 2001, and the Condensed Consolidated Statement of Income, the
      Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated
      Statement of Member's Equity and Comprehensive Income for the periods ended
      June 30, 2002 and 2001.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|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 Before Income Taxes and
      Minority
          Interest                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Minority Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Income Before Cumulative Effect
      of a Changein Accounting Principle                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Cumulative Effect of a Change in
      Accounting
          Principle                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Net Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|The accompanying Notes to Condensed
        Consolidated Financial Statements are an integral part of the financial
        statements.                                                                                                                                                                                                                                                                                                                                                                  

---

|CONDENSED CONSOLIDATED
      STATEMENT OF CASH FLOWS                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by (Used in) Operating Activities                                                                                    
|                                                                                                                                       
|Cash Flows From Investing Activities                                                                                                   
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Financing Activities                                                                                                   
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Decrease In Cash and Cash Equivalents                                                                                              
|Cash and Cash Equivalents at Beginning of Period                                                                                       
|                                                                                                                                       
|Cash and Cash Equivalents at End of Period                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|Non-cash contributions from Member:                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|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                                                                                                                    
|Short-term debt                                                                                                                        
|Long-term debt                                                                                                                         
|Accounts payable                                                                                                                       
|Accounts payable to affiliates                                                                                                         
|Above market NUG contracts                                                                                                             
|Taxes                                                                                                                                  
|Collateral on PLR energy supply to
      affiliate                                                                                     
|Deferred revenue on PLR energy supply
      to affiliate                                                                               
|Price risk management liabilities                                                                                                      
|Other                                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Long-term Debt                                                                                                                         
|                                                                                                                                       
|Deferred Credits and Other Noncurrent Liabilities                                                                                      
|Deferred income taxes and investment
      tax credits                                                                                 
|Above market NUG contracts                                                                                                             
|Nuclear plant decommissioning                                                                                                          
|Deferred revenue on PLR energy supply
      to affiliate                                                                               
|Other                                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|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 MEMBER'S EQUITY ANDCOMPREHENSIVE INCOME                                                      
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity at beginning of
      period                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity at end of period                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|(a)                                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|(b)                                                                                                                                    
|(c)                                                                                                                                    
|                                                                                                                                       
|The accompanying Notes to Condensed
        Consolidated Financial Statements are an integral part of the financial
        statements.

---

(THIS PAGE LEFT BLANK INTENTIONALLY.)

---

|PPL
      ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Part I. FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Item 1. Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|In the opinion of PPL Electric, the unaudited
      financial statements that follow reflect all adjustments necessary to present
      fairly the Condensed Consolidated Balance Sheet as of June 30, 2002 and
      December 31, 2001, and the Condensed Consolidated Statement of Income, the
      Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated
      Statement of Shareowner's Common Equity and Comprehensive Income for the
      periods ended June 30, 2002 and 2001.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|CONDENSED CONSOLIDATED STATEMENT OF INCOME                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|PPL Electric Utilities Corporation and
      Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(Millions of Dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Operating Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Operating Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Operating Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Other Income - net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Interest Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Income (Loss) Before Income
      Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Income Taxes (Benefit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Income (Loss) Before Dividends
      on Preferred
         Securities                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Dividends - Preferred Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The accompanying Notes to Condensed
        Consolidated Financial Statements are an integral part of the financial
        statements.                                                                                                                                                                                                                                                                                                                                                                        

---

|CONDENSED CONSOLIDATED
      STATEMENT OF CASH FLOWS                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
      Subsidiaries                                                                              
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net Cash Provided by Operating
      Activities                                                                                        
|                                                                                                                                       
|Cash Flows From Investing Activities                                                                                                   
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Cash Flows From Financing Activities                                                                                                   
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Net 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                                                                                                      
|                                                                                                                                            
|Company-obligated Mandatorily Redeemable
      Preferred
         Securities of Subsidiary Trusts Holding Solely
         Company Debentures
|                                                                                                                                            
|Preferred Stock                                                                                                                             
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|Shareowner's Common Equity                                                                                                                  
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|The accompanying Notes to Condensed
        Consolidated Financial Statements are an integral part of the financial
        statements.     

---

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

---

|PPL
      MONTANA, LLC AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Part I. FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Item 1. Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|In the opinion of PPL Montana, the unaudited
      financial statements that follow reflect all adjustments necessary to present
      fairly the Condensed Consolidated Balance Sheet as of June 30, 2002 and
      December 31, 2001, and the Condensed Consolidated Statement of Income, the
      Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated
      Statement of Member's Equity and Comprehensive Income for the periods ended
      June 30, 2002 and 2001.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|CONDENSED CONSOLIDATED STATEMENT OF INCOME                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|PPL Montana, LLC and Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(Millions of Dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Operating Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Operating Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Operating Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Other Income - net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Interest Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Income Before Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Net Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The accompanying Notes to Condensed
        Consolidated Financial Statements are an integral part of the financial
        statements.                                                                                                                                                                                                                                                                                                                                                            

---

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

---

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

---

|CONDENSED
      CONSOLIDATED STATEMENT OF MEMBER'S EQUITY ANDCOMPREHENSIVE INCOME                                                      
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                                      
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity at beginning of
      period                                                                                           
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Member's Equity at end of period                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|(a)                                                                                                                                    
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|(b)                                                                                                                                    
|                                                                                                                                       
|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.

1. Interim Financial Statements
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    Certain information in footnote disclosures, normally included
      in financial statements prepared in accordance with accounting principles
      generally accepted in the U.S., has been condensed or omitted in this Form
      10-Q under the rules and regulations of the SEC. These financial statements
      should be read in conjunction with the financial statements and notes included
      in each company's Annual Report to the SEC on Form 10-K for the year ended
      December 31, 2001.
    
    Certain amounts in the June 30, 2001 and December 31, 2001
      financial statements have been reclassified to conform to the presentation
      in the June 30, 2002 financial statements.
2. Summary of Significant Accounting Policies
    
    The following accounting policy disclosures represent updates
      to the "Summary of Significant Accounting Policies" footnote in
      each company's Annual Report to the SEC on Form 10-K for the year ended
      December 31, 2001.
    
    Utility Revenue
    
    (PPL and PPL Energy Supply)

    The Statement of Income "Operating Revenues - Utility"
      line item contains operating revenues from domestic and international rate
      regulated delivery operations. This revenue was previously reported as "Retail
      electric and gas" and "Wholesale energy marketing and trading"
      by PPL and as "Retail electric and gas" by PPL Energy Supply.
    
    Independent System Operator
    
    (PPL, PPL Energy Supply and PPL Electric)
    
    Certain PPL subsidiaries participate in the PJM in several
      roles. Certain PPL subsidiaries also participate in the New England Power
      Pool (NEPOOL) and the New York ISO (NYISO) in a less significant way. In
      PJM, PPL EnergyPlus is a marketer, a load-serving entity to its customer-choice
      customers, and a buyer for PPL's Pennsylvania generation subsidiaries. PPL
      Electric is a transmission owner and provider of last resort load in PJM.
      In NEPOOL, PPL EnergyPlus is a marketer and a buyer for PPL's New England
      generating assets. In the NYISO, PPL EnergyPlus acts as a marketer. PPL
      Electric does not participate in NEPOOL or NYISO.
    
    A function of interchange accounting is to "match"
      participants' MWh entitlements (generation plus scheduled bilateral purchases)
      against their MWh obligations (load plus scheduled bilateral sales) during
      every hour of every day. If the net result during any given hour is an entitlement,
      the participant is credited with a spot market sale to the ISO at the respective
      market price for that hour; if the net result is an obligation, the participant
      is charged with a spot market purchase from the ISO at the respective market
      price for that hour. ISO purchases and sales are not allocated to individual
      customers.
    
    PPL records the hourly net sales and purchases in its financial
      statements as sales to and purchases from the respective ISOs, in accordance
      with FERC and industry accounting.
3. Segment and Related Information
    (PPL and PPL Energy Supply)
    
    PPL's reportable segments are Supply, Delivery and International.
      The Supply segment primarily consists of the domestic energy marketing,
      domestic generation and domestic development operations of PPL Energy Supply.
      The Delivery segment includes the regulated electric and gas delivery operations
      of PPL Electric and PPL Gas Utilities. The International segment includes
      PPL Global's responsibility for the acquisition, development, ownership
      and operation of international energy projects. The majority of PPL Global's
      international investments are located in the U.K., Chile and El Salvador.
    
    PPL Energy Supply's reportable segments are Supply and
      International. The International segment at the PPL Energy Supply level
      is consistent with the International segment at the PPL level. The Supply
      segment information reported at the PPL Energy Supply level will not agree
      with the Supply segment information reported at the PPL level. Additional
      Supply segment functions, including telecommunications, exist at PPL that
      are outside of PPL Energy Supply. Furthermore, certain income items, including
      PLR revenue and certain interest income, exist at the PPL Energy Supply
      level, but are eliminated in consolidation at the PPL level. Finally, certain
      expense items are fully allocated to the segments at the PPL level only.
    
    Segments include direct charges, as well as an allocation
      of indirect corporate costs, for services provided by PPL Services. These
      service costs include functions such as financial, legal, human resources
      and information services.
    
    See Note 9 for a discussion of the PLR contracts between
      PPL Electric and PPL EnergyPlus. PPL EnergyPlus' sales to PPL Electric,
      to meet PPL Electric's PLR load, are included in the Supply segment of PPL
      Energy Supply. PPL Electric's sales of this electricity to its PLR customers
      are included in the Delivery segment of PPL. There are no intersegment revenues
      for PPL or PPL Energy Supply.
    
    Previously reported information has been reclassified to
      conform to the current presentation. Changes from previous reports include
      the allocation of interest expense to segments, and the reporting of PLR
      revenues at PPL in the Delivery segment rather than in the Supply segment.
      Financial data for the segments are as follows (millions of dollars):
    
    (PPL)
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001Income Statement DataRevenues from external customersSupply
        $
        514
        
        
        $
        607
        
        
        $
        943
        
        
        $
        1,239International
        
        153
        
        
        
        140
        
        
        
        294
        
        
        
        303Delivery
        
        634
        
        
        
        664
        
        
        
        1,339
        
        
        
        1,4351,301
        
        
        
        1,411
        
        
        
        2,576
        
        
        
        2,977Net Income (Loss)Supply
        
        58
        
        
        
        78
        
        
        
        174
        
        
        
        239International (a)
        
        (77
        )
        
        
        18
        
        
        
        (222
        )
        
        
        38Delivery
        
        (8
        )
        
        
        21
        
        
        
        18
        
        
        
        62$
        (27
        )
        
        $
        117
        
        
        $
        (30
        )
        
        $
        339
    June 30,2002
        
        
        December 31,2001Balance Sheet DataTotal assetsSupply
        
        $
        4,687
        
        
        $
        4,720International
        
        
        1,736
        
        
        
        1,749Delivery
        
        
        5,771
        
        
        
        6,097$
        12,194
        
        
        $
        12,566
    (a)
        The International segment includes the "Cumulative
          Effect of a Change in Accounting Principle" recorded in March 2002.
          See Note 12 for additional information. The international segment also
          includes the write-downs of the CEMAR investment described in Note 14.
    (PPL Energy Supply)
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001Income Statement DataRevenues from external customersSupply
        $
        853
        
        
        $
        972
        
        
        $
        1,652
        
        
        $
        1,986International
        
        153
        
        
        
        140
        
        
        
        294
        
        
        
        3031,006
        
        
        
        1,112
        
        
        
        1,946
        
        
        
        2,289Net IncomeSupply
        
        86
        
        
        
        106
        
        
        
        226
        
        
        
        287International (a)
        
        (77
        )
        
        
        18
        
        
        
        (222
        )
        
        
        38$
        9
        
        
        $
        124
        
        
        $
        4
        
        
        $
        325

    June 30,2002
        
        
        December 31,2001Balance Sheet DataTotal assetsSupply
        
        $
        5,003
        
        
        $
        5,412International
        
        
        1,736
        
        
        
        1,749$
        6,739
        
        
        $
        7,161
    (a)
        The International segment includes the "Cumulative
          Effect of a Change in Accounting Principle" recorded in March 2002.
          See Note 12 for additional information. The international segment also
          includes the write-downs of the CEMAR investment described in Note 14.
4. Investment in Unconsolidated Affiliates - at Equity



(PPL and PPL Energy Supply)

Investments in unconsolidated affiliates accounted for under
  the equity method by both PPL and PPL Energy Supply were $646 million and $586
  million at June 30, 2002 and December 31, 2001. The most significant investment
  was PPL Global's investment in WPDH Limited, which was $406 million at June
  30, 2002 and $328 million at December 31, 2001. At June 30, 2002, PPL Global
  had a 51% equity ownership interest in WPDH Limited, but shared joint control
  with Mirant. The respective Shareholders' Agreements provide for PPL Global
  and Mirant each to elect four directors to the Board, with majority Board approval
  generally required for significant operating and financial decisions, including
  but not limited to:

- issuance, purchase, redemption, reorganization or reduction
      of share capital or any equity security;
- alteration of any of the provisions of the articles of
      association;
- petition for the appointment of an administrator or liquidator
      or invite any person to appoint an administrative receiver;
- fundamentally change the nature of the business;
- make any election in respect of UK Corporation Tax which
      would have a material adverse effect on one shareholder but not on the other;
- declare dividends; and
- incur additional indebtedness if to do so would result
      in a reduction of the company's credit rating to below that of investment
      grade.



Accordingly, PPL Global accounts for its investment in WPDH
  Limited (and other investments where it has majority ownership but lacks voting
  control) under the equity method of accounting.

Summarized below is information from the financial statements
  of unconsolidated affiliates accounted for under the equity method, underlying
  the amounts included in PPL's and PPL Energy Supply's consolidated financial
  statements (millions of dollars):

|                      | Three MonthsEnded June 30, |     |  | Six MonthsEnded June 30, |  
|--------------------- | -------------------------- | --- |  | ------------------------ | -
|                      | 2002                       |     |  | 2001                     |  
|                      |                            |     |  |                          |  
|Income Statement Data |                            |     |  |                          |  
|Revenues              | $                          | 172 |  |                          | $
|Operating Income      |                            | 114 |  |                          |  
|Net Income            |                            | 52  |  |                          |  
|                      |                            |     |  |                          |  



|                       |  | June 30,2002 |       |  | December 31,2001 |  
|---------------------- |  | ------------ | ----- |  | ---------------- | -
|                       |  |              |       |  |                  |  
|Balance Sheet Data     |  |              |       |  |                  |  
|Current Assets         |  | $            | 1,235 |  |                  | $
|Noncurrent Assets      |  |              | 4,792 |  |                  |  
|Current Liabilities    |  |              | 423   |  |                  |  
|Noncurrent Liabilities |  |              | 3,974 |  |                  |  



1. Earnings Per Share
    
    (PPL)

    Basic EPS is calculated by dividing "Net Income (Loss)"
      on the Statement of Income by the weighted average number of common shares
      outstanding during the period. In the calculation of diluted EPS, weighted
      average shares outstanding are increased for additional shares that would
      be outstanding if potentially dilutive securities were converted to common
      stock. Potentially dilutive securities consist of stock options granted
      under the incentive compensation plans, stock units representing common
      stock granted  under  directors  compensation  programs
      and PEPS Units.
    
    Preferred dividends are included in net income in the computation
      of basic and diluted EPS.
    
    The basic and diluted EPS calculations, and the reconciliation
      of the shares used in the calculations, are shown below:
    
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        2001
        
        
        2002
        
        
        2001(Millions of Dollars
          or Thousands of Shares)Income (Numerator)Net Income (Loss) - before
            cumulative effect of a
            change in accounting 
            principle
        $
        (27
        )
        
        $
        117
        
        
        $
        120
        
        
        $
        339Cumulative effect of
            a change in 
            accounting 
            principle
        
        
        
        
        
        
        
        
        
        (150
        )Net Income (Loss)
        $
        (27
        )
        
        $
        117
        
        
        $
        (30
        )
        
        $
        339Shares (Denominator)Shares for Basic EPS
        
        147,149
        
        
        
        145,901
        
        
        
        146,927
        
        
        
        145,608Add: Incremental shares:Stock options
        
        
        
        
        
        730
        
        
        
        275
        
        
        
        794Stock units
        
        
        
        
        
        69
        
        
        
        73
        
        
        
        69Shares for Diluted EPS
        
        147,149
        
        
        
        146,700
        
        
        
        147,275
        
        
        
        146,471
    
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        2001
        
        
        2002
        
        
        2001(Millions of Dollars
          or Thousands of Shares)Basic EPSNet Income (Loss) - before
            cumulative effect of a
            change in accounting
            principle
        $
        (0.18
        )
        
        $
        0.80
        
        
        $
        0.82
        
        
        $
        2.33Cumulative effect
            of a change in 
            accounting 
            principle
        
        
        
        
        
        
        
        
        
        (1.02
        )Net Income (Loss)
        $
        (0.18
        )
        
        $
        0.80
        
        
        $
        (0.20
        )
        
        $
        2.33Diluted EPSNet Income (Loss) - before
            cumulative effect of a
            change in accounting
            principle
        $
        (0.18
        )
        
        $
        0.80
        
        
        $
        .82
        
        
        $
        2.31Cumulative effect
            of a change in 
            accounting 
            principle
        
        
        
        
        
        
        
        
        
        (1.02
        )Net Income (Loss)
        $
        (0.18
        )
        
        $
        0.80
        
        
        $
        (0.20
        )
        
        $
        2.31
    In May 2001, PPL issued 23 million PEPS Units that contain
      a purchase contract component for PPL's common stock. The PEPS Units will
      only be dilutive if the average price of PPL's common stock exceeds $65.03
      for any period. Therefore, they were excluded from the diluted EPS calculations
      for the three and six months ended June 30, 2002 and June 30, 2001.
    
    Stock options to purchase 3,058,000 PPL common shares and
      67,000 directors stock units for the three months ended June 30, 2002 were
      not included in that period's computation of diluted EPS. Since PPL had
      a loss before the cumulative effect of a change in accounting principle,
      the effect would have been antidilutive.
    
    Stock options to purchase 879,000 PPL common shares for
      the six months ended June 30, 2002 were not included in that period's computation
      of diluted EPS because the exercise price of the options was greater than
      the average market price of the common shares. Therefore, the effect would
      have been antidilutive.
2. Credit Arrangements, Financing Activities and Leases
    
    Credit Arrangements
    
    (PPL, PPL Energy Supply and PPL Electric)
    
    In order to enhance liquidity, and as a credit back-stop
      to their respective commercial paper programs, PPL Electric maintains a
      $400 million 364-day credit facility maturing in June 2003 (replacing a
      similar facility that had expired in June 2002) and PPL Energy Supply maintains
      three credit facilities: a $300 million 364-day credit facility maturing
      in June 2003, a $500 million three-year credit facility maturing in June
      2004, and a $300 million three-year credit facility maturing in June 2005
      (the two $300 million credit facilities replace a $600 million 364-day credit
      facility which expired in June 2002). At June 30, 2002, no borrowings were
      outstanding under any of these facilities. Both PPL Electric and PPL Energy
      Supply have the ability to cause lenders to issue letters of credit under
      their respective facilities. At June 30, 2002, PPL Electric had no letters
      of credit outstanding under its facility and PPL Energy Supply had $17 million
      of letters of credit outstanding under its $500 million facility.
    
    (PPL, PPL Energy Supply and PPL Montana)
    
    PPL Montana maintains a $100 million three-year credit
      facility maturing in November 2002 to meet its liquidity needs and to provide
      for the issuance of up to $75 million in letters of credit. At June 30,
      2002, PPL Montana had outstanding borrowings of $40 million and had outstanding
      letters of credit of $35 million under this facility. Additionally, PPL
      Montana had maintained a $150 million credit facility which matured in April
      2002, designed for the sole purpose of issuing letters of credit. This facility
      was not renewed.
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    The subsidiaries of PPL are separate legal entities. PPL's
      subsidiaries are not liable for the debts of PPL. Accordingly, creditors
      of PPL may not satisfy their debts from the assets of the subsidiaries absent
      a specific contractual undertaking by a subsidiary to pay PPL's creditors
      or as required by applicable law or regulation. Similarly, absent a specific
      contractual undertaking or as required by applicable law or regulation,
      PPL is not liable for the debts of its subsidiaries. Accordingly, creditors
      of PPL's subsidiaries may not satisfy their debts from the assets of PPL
      absent a specific contractual undertaking by PPL to pay the creditors of
      its subsidiaries or as required by applicable law or regulation.
    
    Similarly, the subsidiaries of PPL Energy Supply, PPL Electric
      and PPL Montana are separate legal entities. These subsidiaries are not
      liable for the debts of PPL Energy Supply, PPL Electric and PPL Montana.
      Accordingly, creditors of PPL Energy Supply, PPL Electric and PPL Montana
      may not satisfy their debts from the assets of their subsidiaries absent
      a specific contractual undertaking by a subsidiary to pay the creditors
      or as required by applicable law or regulation. In addition, absent a specific
      contractual undertaking or as required by applicable law or regulation,
      PPL Energy Supply, PPL Electric and PPL Montana are not liable for the debts
      of their subsidiaries. Accordingly, creditors of these subsidiaries may
      not satisfy their debts from the assets of PPL Energy Supply, PPL Electric
      or PPL Montana absent a specific contractual undertaking by that parent
      to pay the creditors of its subsidiaries or as required by applicable law
      or regulation.
    Financing Activities
    
    (PPL)
    
    In February 2002, PPL Capital Funding repurchased $10 million,
      par value, of its medium-term notes, 7.75% Series due 2005, at a market
      value of $11 million.
    
    During the first quarter of 2002, PPL issued $13 million
      of common stock in small amounts on a periodic basis under its Structured
      Equity Shelf Program.
    
    (PPL and PPL Energy Supply)
    
    At June 30, 2002, PPL Energy Supply had $155 million of
      commercial paper outstanding. As of June 30, 2002, some foreign subsidiaries
      of PPL Energy Supply had short-term borrowings from banks of $86 million
      that are non-recourse to PPL Energy Supply.
    
    (PPL and PPL Electric)
    
    In May 2002, PPL Electric:

- retired $11 million of its outstanding First Mortgage Bonds,
      8-1/2% Series due 2022, at par value, through the maintenance and replacement
      fund provisions of the 1945 First Mortgage Bond Indenture;
- retired $28 million of its outstanding First Mortgage Bonds,
      7-3/4% Series due May 2002, at par value; and
- instructed the property trustee of PPL Capital Trust to
      redeem, at par value, all of the $100 million of outstanding 8.20% Preferred
      Securities due 2027 that were previously issued by PPL Capital Trust.



1. Acquisitions, Development and Divestitures
    
    (PPL and PPL Energy Supply)
    
    Domestic Generation Projects
    
    PPL Global is currently completing the negotiation of a
      Project Coordination Agreement with the Village of Freeport, New York, which
      allows for the development and construction of a single LM-6000 simple-cycle
      facility at a site adjacent to the Village of Freeport's existing Power
      Plant No. 2. The facility is projected to begin commercial operation in
      the summer of 2003. The cost of PPL's unit is estimated to be approximately
      $50 - $55 million. Negotiations are also proceeding with respect to a Site
      Lease, a Project Interconnection Agreement and a Shared Facilities Agreement.
      In addition, negotiations for the sale of power from the facility to the
      Long Island Power Authority under a ten-year Power Purchase Agreement are
      proceeding. These agreements are subject to approval of the respective governing
      boards, various regulatory approvals, and agreement on satisfactory definitive
      documentation.
    
    In addition, in December 2001, PPL Global made a decision
      to cancel approximately 2,100 MW of previously planned generation development
      in Pennsylvania and Washington state. These projects were in the early stage
      of development and would have had an estimated capital cost of approximately
      $1.3 billion. The charge for cancellation of these generation projects,
      which was primarily due to cancellation fees under turbine purchase contracts,
      was approximately $150 million, and was reported on the 2001 Statement of
      Income as "Cancellation of generation projects," a component of
      "Other Charges." At June 30, 2002, PPL Global had completed payment
      of the cancellation fees.
2. Commitments and Contingent Liabilities
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    PPL and its subsidiaries are involved in numerous legal
      proceedings, claims and litigation in the ordinary course of business. PPL
      and its subsidiaries cannot predict the ultimate outcome of such matters,
      or whether such matters may result in material liabilities.
    
    Wholesale Energy Commitments(PPL, PPL Energy
      Supply and PPL Montana)
    
    As part of the purchase of generation assets from Montana
      Power, PPL Montana agreed to supply electricity under two wholesale transition
      service agreements with Montana Power to serve its retail load not served
      by other providers or provided by Montana Power's remaining generation.
      The first agreement expired in December 2001, and the second agreement expired
      in June 2002. In addition, as part of its purchase of the generation assets
      from Montana Power, PPL Montana assumed a power purchase agreement and another
      power sales agreement. In accordance with purchase accounting guidelines,
       PPL  Montana recorded a liability of  $118  million
      as  the estimated fair value of these agreements at the acquisition
      date. The liability is being amortized over the terms of the agreements
      as adjustments to "Wholesale energy marketing and trading" revenues
      and "Energy purchases" on the Statement of Income. The unamortized
      balance of the liability at June 30, 2002 was $65 million and is included
      on the Balance Sheet in "Deferred Credits and Other Noncurrent Liabilities
      - Other" for PPL, in "Current Liabilities - Other" and "Deferred
      Credits and Other Noncurrent Liabilities - Other" for PPL Energy Supply
      and in "Wholesale energy commitments" for PPL Montana.
    
    On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern
      Energy an aggregate of 450 MW of energy to be supplied by PPL Montana. Under
      this five-year agreement, PPL EnergyPlus will supply 300 MW of around-the-clock
      electricity and 150 MW of on-peak electricity.
    
    Liability for Above Market NUG Contracts(PPL,
      PPL Energy Supply and PPL Electric)
    
    In 1998, PPL Electric recorded a loss accrual for above
      market contracts with NUGs of $854 million, due to its generation business
      being deregulated. Effective January 1999, PPL Electric began reducing this
      liability as an offset to "Energy purchases" on the Statement
      of Income. This reduction is based on the estimated timing of the purchases
      from the NUGs and projected market prices for this generation. The final
      existing NUG contract expires in 2014. In connection with the corporate
      realignment, effective July 1, 2000, the remaining balance of this liability
      was transferred to PPL EnergyPlus. At June 30, 2002, the remaining liability
      associated with the above market NUG contracts was $466 million.
    
    In the first quarter of 2002, PPL Energy Supply paid $50
      million to terminate the liability outstanding under an energy contract
      with one of the NUGs. The liability associated with this NUG contract was
      $75 million. The excess of the liability over the payment resulted in a
      $25 million credit to "Energy purchases" on the Statement of Income.
    
    Commitments - Acquisitions and Development Activities(PPL and PPL Energy Supply)
    
    PPL Global and its subsidiaries have outstanding purchase
      commitments with respect to domestic construction projects. At June 30,
      2002, PPL Global and its subsidiaries had approximately $89 million of such
      commitments.
    
    Commitments - Leases(PPL and PPL Energy Supply)
    
    See "Leases" in Note 6 for additional information
      on residual value guarantees under operating lease arrangements.
    
    Sales to California Independent System Operator and
      to Other Pacific Northwest Purchasers(PPL, PPL Energy Supply and
      PPL Montana)
    
    Through its subsidiaries, PPL has made approximately $18
      million of sales to the California ISO, of which $17 million has not been
      paid to PPL subsidiaries. Given the myriad of electricity supply problems
      presently faced by the California electric utilities and the California
      ISO, PPL cannot predict whether or when it will receive payment. As of June
      30, 2002, PPL has fully reserved for possible underrecoveries of payments
      for these sales.
    
    Litigation arising out of the California electricity supply
      situation has been filed at the FERC and in California courts against sellers
      of energy to the California ISO. The plaintiffs and intervenors in these
      proceedings allege abuses of market power, manipulation of market prices,
      unfair trade practices and violations of state antitrust laws, among other
      things, and seek price caps on wholesale sales in California and other western
      power markets, refunds of excess profits allegedly earned on these sales
      of energy, and other relief, including treble damages and attorneys' fees.
      Certain of PPL's subsidiaries have intervened in the FERC proceedings in
      order to protect their interests, but have not been named by any plaintiffs
      in any of the court actions alleging abuses of market power, manipulation
      of market prices, unfair trade practices and violations of state antitrust
      laws. However, in April 2002, PPL Montana was named by a defendant in a
      consolidated court proceeding, which combined into one master proceeding
      several of the lawsuits alleging antitrust violations and unfair trade practices.
      Specifically, one of the original generators being sued by the various plaintiffs
      in the consolidated court proceeding filed a cross-complaint against 30
      other generators and power marketers, including PPL Montana. This generator
      denies that any unlawful, unfair or fraudulent conduct occurred or caused
      any harm to the plaintiffs, and explains that the plaintiffs' claims are
      completely barred by federal law. Nonetheless, this generator alleges that
      it filed its complaint against the other generators and power marketers
      in order to assist the court in resolving the proceeding and asserts that
      if it is found liable, the other generators and power marketers, including
      PPL Montana, caused, contributed to and/or participated in the plaintiffs'
      alleged losses. This litigation, originally brought in state court in California,
      has been removed to federal court in California.
    
    In addition, PPL Montana has been named as a defendant
      in a declaratory judgment action initiated by the State of California to
      prevent certain members of the California Power Exchange from seeking compensation
      for the state's seizure of certain energy contracts. PPL Montana is a member
      of the California Power Exchange, but it has no energy contracts with or
      through the California Power Exchange and has not sought compensation in
      connection with the state's seizure.
    
    Attorneys general in several western states, including
      California, have begun investigations related to the electricity supply
      situation in California and other western states. The FERC has determined
      that all sellers of energy into markets operated by the California ISO and
      the California Power Exchange, including PPL Montana, should be subject
      to refund liability for the period beginning October 2, 2000 through June
      20, 2001 and has initiated an evidentiary hearing concerning refund amounts.
      The FERC also is considering whether to order refunds for spot market bilateral
      sales made in the Pacific Northwest, including sales made by PPL Montana
      during the period December 2000 through June 2001. The FERC Administrative
      Law Judge assigned to the Pacific Northwest proceeding has recommended that
      no refunds be ordered for such sales into the Pacific Northwest. The FERC
      presently is considering this recommendation. The FERC has been conducting
      an additional investigation of alleged price manipulation in power markets
      in California and the western U.S. In connection with this investigation,
      the FERC has served several sets of data requests on sellers of energy in
      those markets, including PPL Montana. PPL Montana sold only a small amount
      of electricity into the California market during 2000 and 2001 and currently
      is not selling into that market. In its response to a FERC data request
      concerning PPL Montana's California trading strategies, PPL Montana explained
      that it did not engage in the type of California trading strategies that
      have been attributed to Enron. In responses to FERC data requests concerning
      whether PPL Montana and PPL EnergyPlus engaged in so-called "wash trades"
      in the western U.S., PPL Montana and PPL EnergyPlus explained that they
      have not, and do not, engage in such trades.
    
    While PPL believes that it has not engaged in any improper
      trading practices, PPL cannot predict whether, or the extent to which, any
      of its subsidiaries will be the target of any additional governmental investigations
      or named in other lawsuits or refund proceedings, the outcome of any such
      lawsuits or proceedings or whether the ultimate impact on PPL of the electricity
      supply situation in California and other western states will be material.
    
    MPSC Order(PPL, PPL Energy Supply and PPL Montana)
    
    In June 2001, the MPSC issued an order (MPSC Order) in
      which it found that Montana Power must continue to provide electric service
      to its customers at tariffed rates until its transition plan under the Montana
      Electricity Utility Industry Restructuring and Customer Choice Act is finally
      approved, and that purchasers of generating assets from Montana Power must
      provide electricity to meet Montana Power's full load requirements at prices
      to Montana Power that reflect costs calculated as if the generating assets
      had not been sold. PPL Montana purchased Montana Power's interests in two
      coal-fired plants and 11 hydroelectric units in 1999, and NorthWestern Energy
      purchased Montana Power's electricity delivery business in the first quarter
      of 2002.
    
    In July 2001, PPL Montana filed a complaint against the
      MPSC with the U.S. District Court in Helena, Montana, challenging the MPSC
      Order. In its complaint, PPL Montana asserted, among other things, that
      the Federal Power Act preempts states from exercising regulatory authority
      over the sale of electricity in wholesale markets, and requested the court
      to declare the MPSC action preempted, unconstitutional and void. In addition,
      the complaint requested that the MPSC be enjoined from seeking to exercise
      any authority, control or regulation of wholesale sales from PPL Montana's
      generating assets. In March 2002, the District Court dismissed PPL Montana's
      lawsuit on procedural grounds, ruling that the Eleventh Amendment to the
      U.S. Constitution prevented PPL Montana from bringing the action in federal
      court. The District Court noted that the action could be filed in a state
      court in Montana. PPL Montana has appealed the District Court's ruling to
      the United States Court of Appeals for the Ninth Circuit. In July 2002,
      the MPSC filed an unopposed motion for summary disposition of the appeal,
      requesting the Ninth Circuit to reverse the District Court's ruling and
      send the case back to the District Court in light of a recent Eleventh Amendment
      decision by the U.S. Supreme Court. The Ninth Circuit has not yet acted
      on the MPSC's unopposed motion.
    
    At this time, PPL Montana cannot predict the outcome of
      the proceedings related to the MPSC Order, what actions the MPSC, the Montana
      Legislature or any other governmental authority may take on these or related
      matters, or the ultimate impact on PPL, PPL Energy Supply and PPL Montana
      of any of these matters.
    
    Montana Power Shareholders' Litigation(PPL,
      PPL Energy Supply and PPL Montana)
    
    In August 2001, a purported class-action lawsuit was filed by a group
      of shareholders of Montana Power against Montana Power, the directors of
      Montana Power, certain unnamed advisors and consultants of Montana Power
      and PPL Montana. The plaintiffs allege, among other things, that Montana
      Power was required to, and did not, obtain shareholder approval of the sale
      of Montana Power's generation assets to PPL Montana in 1999. Although most
      of the claims in the complaint are against Montana Power, its board of directors,
      and its consultants and advisors, two claims are asserted against PPL Montana.
      In the first claim, plaintiffs seek a declaration that because Montana Power
      shareholders did not vote on the 1999 sale of generating assets to PPL Montana,
      that sale "was null and void ab initio." The second claim alleges
      that PPL Montana was privy to and participated in a strategy whereby Montana
      Power would sell its generation assets to PPL Montana without first obtaining
      Montana Power shareholder approval, and that PPL Montana has made net profits
      in excess of $100 million as the result of this alleged illegal sale. In
      the second claim, plaintiffs request that the court impose a "resulting
      and/or constructive trust" on both the generation assets themselves
      and all profits, plus interest on the amounts subject to the trust. In November 2001,
      PPL Montana and the other defendants filed a motion to dismiss the plaintiffs'
      complaint on the basis that it fails to state a claim upon which relief may be
      granted, and the plaintiffs filed a motion for the lawsuit to be certified
      by the court as a class-action.  In August 2002, the court denied this motion
      to dismiss, except as to certain matters not relating to PPL Montana, and
      granted the plaintiffs' motion for certification of the lawsuit as a class-action.
      PPL Montana cannot predict the outcome of this matter.
    
    Employee Litigation(PPL Energy Supply and PPL
      Montana)
    
    In April 2000, three employees at PPL Montana's Colstrip
      facility were burned when an equipment fault in Colstrip Unit 1 caused electrical
      arcing. In May 2000, the injured employees and their spouses filed litigation
      for their injuries in Montana district court against Montana Power. PPL
      Montana was subsequently named as a party defendant to the litigation. In
      April 2002, PPL Montana filed a pleading, naming Montana Power, seeking
      indemnification for any damages assessed against PPL Montana. In June 2002,
      PPL Montana settled this litigation and its indemnification claims against
      Montana Power pursuant to a settlement agreement with the plaintiffs and
      Montana Power.
    
    PJM Market Monitor Report(PPL, PPL Energy Supply
      and PPL Electric)
    
    In November 2001, the PJM Market Monitor publicly released
      a report prepared for the PUC entitled "Capacity Market Questions"
      relating to the pricing of installed capacity in the PJM daily market during
      the first quarter of 2001. The report concludes that PPL EnergyPlus (identified
      in the report as "Entity 1") was able to exercise market power
      to raise the market-clearing price above the competitive level during that
      period. PPL EnergyPlus does not agree with the Market Monitor's conclusions
      that it exercised market power; in addition, the Market Monitor acknowledged
      in his report that PJM's standards and rules did not prohibit PPL EnergyPlus'
      conduct. In November 2001, the PUC issued an Investigation Order directing
      its Law Bureau to conduct an investigation into the PJM capacity market
      and the allegations in the Market Monitor's report. In June 2002, the PUC
      issued an investigation report alleging, among other things, that PPL had
      "unfairly manipulated electricity markets in early 2001," and
      that "there was an unlawful exercise of market power and market rules
      gaming by PPL" that was damaging to wholesale and retail electricity
      markets in Pennsylvania. The PUC stated that it was not authorized to, and
      was not attempting to, adjudicate the merits of PPL's defenses to these
      charges, but has referred the matter to the U.S. Department of Justice --
      Antitrust Division, or DOJ, the FERC and the Pennsylvania Attorney General.
      PPL had previously responded to certain information requests of the DOJ
      in connection with a civil investigative demand regarding capacity transactions
      in the PJM, and PPL has agreed to provide the Office of the Pennsylvania
      Attorney General with any information that it provided to the DOJ. In addition,
      in July 2002, PPL appealed the PUC order to the Commonwealth Court of Pennsylvania.
      Although PPL believes that the PUC's report is inaccurate, that its conclusions
      are groundless, and that PPL acted ethically and legally, in compliance
      with all applicable laws and regulations, PPL cannot predict the outcome
      or extent of any investigations, litigation or other proceedings related
      to this matter.
    
    FERC Market-based Rates(PPL and PPL Energy Supply)
    
    In December 1998, the FERC issued an order authorizing
      PPL EnergyPlus to make wholesale sales of electric power and related products
      at market-based rates. In that order, the FERC directed PPL EnergyPlus to
      file an updated market analysis within three years of the date of the order,
      and every three years thereafter. PPL EnergyPlus filed its initial updated
      market analysis in December 2001. Several parties thereafter filed interventions
      and protests requesting that, in light of the PJM Market Monitor's report
      described above, PPL EnergyPlus be required to provide additional information
      demonstrating that it has met the FERC's market power tests necessary for
      PPL EnergyPlus to continue its market-based rate authority. PPL EnergyPlus
      has responded that the FERC does not require the economic test suggested
      by the intervenors and that, in any event, it would meet such economic test
      if required by the FERC. PPL EnergyPlus cannot predict the outcome of this
      matter.
    
    FERC Notice of Proposed Rulemaking(PPL, PPL
      Energy Supply, PPL Electric and PPL Montana)
    
    On July 31, 2002, the FERC issued a Notice of Proposed
      Rulemaking entitled "Remedying Undue Discrimination through Open Access
      Transmission Service and Standard Electricity Market Design." The proposed
      rule is currently available for public comment, with a final rule expected
      in late 2002. The FERC plans to begin implementing the final rule by July
      31, 2003. This far-reaching proposed rule purports to establish uniform
      transmission rules and establish a standard market design by, among other
      things:

- enacting standard transmission tariffs and uniform market
      mechanisms,
- monitoring and mitigating "market power,"
- managing transmission congestion through pricing and tradable
      financial rights,
- requiring independent operational control over transmission
      facilities,
- forming state advisory committees on regional transmission
      organizations and resource adequacy, and
- exercising FERC jurisdiction over all transmission service.



1. Related Party Transactions
    
    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 will provide electricity at
      the pre-determined capped prices that PPL Electric is authorized to charge
      its PLR customers. For the three and six months ended June 30, 2002, these
      sales totaled $339 million and $708 million, including nuclear decommissioning
      recovery and amortization of an up-front contract payment. For the three
      and six months ended June 30, 2001, these sales totaled $300 million and
      $634 million, including nuclear decommissioning recovery, under the previous
      PLR contract. These sales are included in the Statement of Income as "Energy
      purchases from affiliate" by PPL Electric and as "Wholesale energy
      marketing to affiliates" revenues by PPL Energy Supply.
    
    Under the current PLR contracts, PPL Electric is required
      to make performance assurance deposits with PPL EnergyPlus when the market
      price of electricity is less than the contract price by more than its contract
      collateral threshold. Conversely, PPL EnergyPlus is required to make performance
      assurance deposits with PPL Electric when the market price of electricity
      is greater than the contract price by more than its contract collateral
      threshold. PPL Electric's deposit with PPL EnergyPlus was $68 million at
      June 30, 2002. This deposit is shown on the Balance Sheets as "Collateral
      on PLR energy supply to/from affiliate," a current asset of PPL Electric
      and a current liability of PPL Energy Supply. PPL Energy Supply pays interest
      equal to the three-month LIBOR plus 3% on this deposit, which is included
      in the Statement of Income as "Interest Expense with Affiliate."
    
    NUG Purchases(PPL Energy Supply and PPL Electric)
    
    PPL Electric has a reciprocal contract with PPL EnergyPlus
      to sell electricity purchased under contracts with NUGs. PPL Electric purchases
      electricity from the NUGs at contractual rates and then sells the electricity
      at the same price to PPL EnergyPlus. For the three months ended June 30,
      2002 and 2001, these NUG purchases totaled $40 million and $43 million and
      for the six months ended June 30, 2002 and 2001 were $82 million and $88
      million. These amounts are included in the Statement of Income as "Wholesale
      electric to affiliate" revenues by PPL Electric, and as "Energy
      purchases from affiliates" by PPL Energy Supply.
    
    Montana Retail Supply(PPL Montana)
    
    PPL Montana has a memorandum of understanding (MOU) with
      PPL EnergyPlus regarding the supply of energy to satisfy PPL EnergyPlus'
      obligations under its retail contracts, which expires on December 31, 2002.
      Under the MOU, energy sales to PPL EnergyPlus for the three months ended
      June 30, 2002 and 2001 were $13 million and $23 million and for the six
      months ended June 30, 2002 and 2001 were $30 million and $55 million. These
      amounts are included in "Wholesale energy marketing to affiliate"
      revenues on the Statement of Income.
    
    Brokering and Contract Management Agreement(PPL
      Montana)
    
    Under a wholesale sales brokering and contract management
      agreement between PPL Montana and PPL EnergyPlus, PPL Montana paid PPL EnergyPlus
      $2 million and $1 million for the three months ended June 30, 2002 and 2001.
      For the six months ended June 30, 2002 and 2001, the payments were $4 million
      and $2 million. PPL Montana records this expense as "Other operation
      and maintenance" on the Statement of Income.
    
    Allocations of Corporate Service Costs(PPL Energy
      Supply, PPL Electric and PPL Montana)
    
    Corporate functions such as financial, legal, human resources
      and information services were transferred to PPL Services in the corporate
      realignment. PPL Services bills the respective PPL subsidiaries for the
      cost of such services when they can be specifically identified. The cost
      of these services that is not directly charged to PPL subsidiaries is allocated
      to certain of the subsidiaries based on the relative capital invested by
      PPL in these subsidiaries. PPL Services allocated the following charges
      to PPL Energy Supply, PPL Electric and PPL Montana (in millions):
    
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001Direct expensesPPL Energy Supply
        $
        23
        
        
        $
        20
        
        
        $
        43
        
        
        $
        36PPL Electric
        
        14
        
        
        
        17
        
        
        
        28
        
        
        
        33PPL Montana
        
        3
        
        
        
        1
        
        
        
        4
        
        
        
        2Overhead costsPPL Energy Supply
        
        6
        
        
        
        3
        
        
        
        13
        
        
        
        12PPL Electric
        
        7
        
        
        
        6
        
        
        
        13
        
        
        
        11PPL Montana
        
        3
        
        
        
        1
        
        
        
        5
        
        
        
        2
    Intercompany Borrowings
    
    (PPL Energy Supply)
    
    PPL, through PPL Capital Funding and other subsidiaries,
      provides certain funding and credit support for PPL Energy Supply and its
      subsidiaries. Such funding includes loans that are due on demand with interest
      charged at a rate based on PPL Capital Funding's short-term borrowing rate.
      PPL Energy Supply had no notes payable to affiliates at June 30, 2002 or
      December 31, 2001 and consequently had no intercompany interest expense
      in 2002 related to intercompany borrowings.
    
    PPL Energy Supply, through its financing subsidiary PPL
      Investment Corporation, had notes receivable from affiliates of PPL totaling
      $243 million and $395 million at June 30, 2002 and December 31, 2001. Interest
      earned on loans to affiliates was $6 million and $11 million for the three
      months ended June 30, 2002 and 2001, and was $11 million and $19 million
      for the six months ended June 30, 2002 and 2001.
    
    (PPL Electric)
    
    In December 2001, PPL Electric made two loans from excess
      cash to PPL Energy Funding in the aggregate principal amount of $350 million.
      One loan was a demand promissory note in the original principal amount of
      $150 million requiring interest to be paid monthly at an annual interest
      rate of 4.0%. The other loan was a one-year term promissory note in the
      original principal amount of $200 million requiring interest to be paid
      monthly at an annual interest rate of 6.5%. The outstanding balance of these
      loans at June 30, 2002 was $80 million. Intercompany interest income was
      $1 million for the three months ended June 30, 2002 and 2001, and was $5
      million for the six months ended June 30, 2002 and 2001.
2. Derivative Instruments and Hedging Activities
    
    (PPL, PPL Energy Supply and PPL Montana)
    
    Fair Value Hedges
    
    PPL Energy Supply and PPL Montana enter into financial
      or physical contracts to hedge a portion of the fair value of firm commitments
      of forward electricity sales. These contracts range in maturity through
      2007. Additionally, PPL and PPL Energy Supply enter into financial contracts
      to hedge fluctuations in the market value of existing debt issuances. For
      the three and six months ended June 30, 2002, PPL and PPL Energy Supply
      recognized an immaterial amount from the ineffective portion of fair value
      hedges and did not recognize any gains or losses from firm commitments that
      no longer qualified as fair value hedges. For these same periods PPL Montana
      did not recognize any gains or losses from the ineffective portion of fair
      value hedges or from firm commitments that no longer qualified as fair value
      hedges. For the three and six months ended June 30, 2001, PPL, PPL Energy
      Supply and PPL Montana did not recognize any gains or losses from the ineffective
      portion of fair value hedges or from firm commitments that no longer qualified
      as fair value hedges.
    
    Cash Flow Hedges
    
    PPL Energy Supply and PPL Montana enter into financial
      and physical contracts, including forwards, futures and swaps, to hedge
      the price risk associated with electric, gas and oil commodities. Additionally,
      PPL enters into financial interest rate swap contracts to hedge interest
      expense associated with both existing and anticipated debt issuances. These
      contracts and swaps, excluding those forecasted transactions related to
      the payment of variable interest on existing financial instruments, range
      in maturity through 2022. PPL also enters 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 2003.
    
    The after-tax impact on the financial statements of PPL
      and PPL Energy Supply resulting from cash flow hedge ineffectiveness was
      insignificant for the three and six months ended June 30, 2002, and was
      an after-tax gain of $3 million for the three and six months ended June
      30, 2001.
    
    Cash flow hedges may be discontinued because it is probable
      that the original forecasted transaction will not occur by the end of the
      originally specified time period. Reclassifications for the three and six
      months ended June 30, 2002 were insignificant. As a result of an unplanned
      outage in 2001 and changes in economic conditions, PPL Energy Supply and
      PPL Montana discontinued certain cash flow hedges, resulting in the following
      gain/(loss) reclassifications (millions of dollars):
    
    Three MonthsEnded June 30,2001
        
        Six MonthsEnded June 30,2001PPL
        
        $
        7
        
        
        $
        (10
        )PPL Energy Supply
        
        
        7
        
        
        
        (10
        )PPL Montana
        
        
        7
        
        
        
        7
    As of June 30, 2002, the deferred net gain, after-tax,
      on derivative instruments in accumulated other comprehensive income expected
      to be reclassified into earnings during the next twelve months (excluding
      derivative activities of equity investments) was $5 million, $7 million,
      and $6 million for PPL, PPL Energy Supply and PPL Montana, respectively.
    
    The following table shows the change in accumulated unrealized
      gains or losses on derivatives in other comprehensive income for the following
      periods (millions of dollars):
    
    Three MonthsEnded June 30,2002
        
        Six MonthsEnded June 30,2002PPLBeginning accumulated 
            derivative gain
        
        $
        12
        
        
        $
        23Net change associated with 
            current period hedging 
            activities and other
        
        
        
        
        
        
        (8
        )Net change associated with C15
            accounting change (a)
        
        
        (3
        )
        
        
        (6
        )Net change from reclassification
            into earnings
        
        
        3
        
        
        
        3Ending accumulated derivative
            gain
        
        $
        12
        
        
        $
        12
    PPL Energy SupplyBeginning accumulated 
            derivative gain
        
        $
        34
        
        
        $
        47Net change associated with 
            current period hedging 
            activities and other
        
        
        (2
        )
        
        
        (11
        )Net change associated with C15
            accounting change (a)
        
        
        (3
        )
        
        
        (6
        )Net change from reclassification
            into earnings
        
        
        4
        
        
        
        3Ending accumulated derivative
            gain
        
        $
        33
        
        
        $
        33
    PPL MontanaBeginning accumulated 
            derivative gain
        
        $
        19
        
        
        $
        33Net change associated with
          
            current period hedging 
            activities and other
        
        
        (2
        )
        
        
        (13
        )Net change from reclassification
            into earnings
        
        
        3Ending accumulated derivative
            gain
        
        $
        20
        
        
        $
        20
          (a)
        On June 27, 2001, the FASB cleared
          DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales
          Exception for Option-Type Contracts and Forward Contracts in Electricity,"
          which extends the normal purchases and normal sales exception to electricity
          purchase and sale agreements meeting certain criteria. The mark-to-market
          value recorded in accumulated other comprehensive income as of June
          30, 2001 is being amortized through the original delivery term of the
          contracts.
    Implementation Issues
    
    In December 2001, the FASB revised guidance on DIG Issue
      C16, "Scope Exceptions: Applying the Normal Purchases and Normal Sales
      Exception to Contracts that Combine a Forward Contract and a Purchased Option
      Contract." Issue C16 provides additional guidance on the classification
      and application of SFAS 133 relating to purchases and sales of electricity
      utilizing forward contracts and options, as well as the eligibility of fuel
      contracts for the normal purchases and normal sales exception. The revised
      guidance was effective April 1, 2002. PPL had no financial statement impact
      from the revised guidance on fuel contracts classified as normal.
    
    EITF 02-3, Accounting for Contracts Involved in Trading
      and Risk Management Activities
    
    In June 2002, the FASB's EITF adopted the position that
      revenues from energy trading contracts must be reported "net"
      in financial statements for periods ending after June 30, 2002. The EITF
      requires that all comparative financial statements for interim periods or
      years should be restated (reclassified) to conform to this consensus. Although
      this new accounting guidance will require changes to certain line items
      in the financial statements, it will not impact PPL's overall financial
      position or earnings. Rather, the portion of PPL's revenues from wholesale
      energy marketing and trading will be netted against expenses from energy
      purchases that represent energy trading activities. PPL has not yet quantified
      the financial statement impact from this revised guidance.
    
    Credit Concentration
    
    PPL, PPL Energy Supply and PPL Montana enter into contracts
      with many entities for the purchase and sale of energy. Most of these contracts
      are considered a normal part of doing business and, as such, the mark-to-market
      value of these contracts is not reflected in the financial statements. However,
      the mark-to-market value of these contracts is considered when committing
      to a new business from a credit perspective.
    
    PPL, PPL Energy Supply and PPL Montana have credit exposures
      to energy trading partners. The majority of these exposures were the mark-to-market
      value of multi-year contracts for energy sales. Therefore, if these counterparties
      fail to perform their obligations under such contracts, the companies would
      not experience an immediate financial loss, but would experience lower revenues
      in future years to the extent that replacement sales could not be made at
      the same prices as sales under the defaulted contracts.
    
    At June 30, 2002, PPL had a credit exposure of $332 million
      to energy trading partners. Four counterparties accounted for 63% of this
      exposure. No other individual counterparty accounted for more than 2% of
      the exposure. Each of the four primary counterparties has an investment
      grade credit rating from Standard & Poor's.
    
    At June 30, 2002, PPL Energy Supply had a credit exposure
      of $550 million to energy trading partners. Five counterparties accounted
      for 78% of this exposure. No other individual counterparty accounted for
      more than 1% of the exposure. The largest exposure, $218 million, was to
      PPL Electric, under the long-term contract to provide PPL Electric's PLR
      load. PPL Electric has posted collateral in an amount of $68 million related
      to this exposure in accordance with its contract with PPL Energy Supply.
      The other four counterparties have an investment grade credit rating from
      Standard & Poor's.
    
    At June 30, 2002, PPL Montana had a credit exposure of
      $164 million to energy trading partners. Three counterparties accounted
      for 95% of this exposure. No other individual counterparty accounted for
      more than 2% of the exposure. Each of the three primary counterparties has
      an investment grade credit rating from Standard & Poor's.
    
    With the exception of one counterparty, a government agency,
      PPL, PPL Energy Supply and PPL Montana have the right to request collateral
      from each of these counterparties in the event their credit rating falls
      below investment grade. It is also the policy of PPL, PPL Energy Supply
      and PPL Montana to enter into netting agreements with all of its counterparties
      to minimize credit exposure.
3. Other Income - Net
    
    (PPL)
    
    The breakdown of PPL's Other Income was as follows (millions
      of dollars):
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001Other IncomeInterest income
        $
        4
        
        
        $
        2
        
        
        $
        9
        
        
        $
        6Equity earnings
        
        
        
        
        
        
        
        
        
        1
        
        
        
        (1
        )Misc. other income
        
        4
        
        
        
        8
        
        
        
        8
        
        
        
        17Total
        
        8
        
        
        
        10
        
        
        
        18
        
        
        
        22Other DeductionsMisc. other deductions
        
        2
        
        
        
        4
        
        
        
        7
        
        
        
        10Other Income - net
        $
        6
        
        
        $
        6
        
        
        $
        11
        
        
        $
        12
    (PPL Energy Supply)
    
    The breakdown of PPL Energy Supply's Other Income was as
      follows (millions of dollars):
    
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001Other IncomeAffiliated interest income
        $
        6
        
        
        $
        11
        
        
        $
        11
        
        
        $
        19Interest income
        
        3
        
        
        
        1
        
        
        
        5
        
        
        
        3Equity earnings
        
        1
        
        
        
        1
        
        
        
        2
        
        
        
        2Misc. other income
        
        4
        
        
        
        7
        
        
        
        6
        
        
        
        14Total
        
        14
        
        
        
        20
        
        
        
        24
        
        
        
        38Other DeductionsMisc. other deductions
        
        2
        
        
        
        2
        
        
        
        3
        
        
        
        6Other Income - net
        $
        12
        
        
        $
        18
        
        
        $
        21
        
        
        $
        32(PPL Electric)
    
    The breakdown of PPL Electric's Other Income was as follows
      (millions of dollars):
    
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001Other IncomeAffiliated interest income
        $
        1
        
        
        $
        1
        
        
        $
        5
        
        
        $
        5Interest income
        
        1
        
        
        
        1
        
        
        
        2
        
        
        
        2Misc. other income
        
        
        
        
        
        
        
        
        
        1Total
        
        2
        
        
        
        2
        
        
        
        8
        
        
        
        7Other DeductionsMisc. other deductions
        
        
        
        
        
        1
        
        
        
        1
        
        
        
        2Other Income - net
        $
        2
        
        
        $
        1
        
        
        $
        7
        
        
        $
        5
4. Goodwill and Other Intangible Assets
    
    In June 2001, the FASB issued SFAS 142, "Goodwill
      and Other Intangible Assets," which eliminates the amortization of
      goodwill and other acquired intangible assets with indefinite economic useful
      lives. SFAS 142 requires an annual impairment test of goodwill at the reporting
      unit level. A reporting unit is a segment or one level below a segment (referred
      to as a component). Intangible assets other than goodwill that are not subject
      to amortization are also required to undergo an annual impairment test.
      PPL and its subsidiaries adopted SFAS 142 on January 1, 2002. Previously
      reported information has been restated to conform to the current presentation.
      The following information is disclosed in accordance with SFAS 142.
    
    Acquired Intangible Assets
    
    (PPL)
    
    The carrying amount and the accumulated amortization of
      acquired intangible assets were as follows (millions of dollars):
    
    June 30, 2002
        
        
        December 31, 2001CarryingAmount
        
        AccumulatedAmortization
        
        
        CarryingAmount
        
        AccumulatedAmortizationEmission allowances
        $
        50
        
        
        
        
        
        
        $
        36Land and
            transmission rights
        
        241
        
        
        $
        88
        
        
        
        247
        
        
        $
        86Licenses and other
        
        32
        
        
        
        4
        
        
        
        31
        
        
        
        4$
        323
        
        
        $
        92
        
        
        $
        314
        
        
        $
        90
    Current intangible assets are included in "Current
      Assets - Other," and long-term intangible assets are included in "Regulatory
      and Other Noncurrent Assets - Other" on the Balance Sheet.
    
    Amortization expense was approximately $1 million and $2
      million for the three and six months ended June 30, 2002. Estimated amortization
      expense for the years 2003 through 2007 is $5 million per year.
    
    (PPL Energy Supply)
    
    The carrying amount and the accumulated amortization of
      acquired intangible assets were as follows (millions of dollars):
    
    June 30, 2002
        
        
        December 31, 2001CarryingAmount
        
        AccumulatedAmortization
        
        
        CarryingAmount
        
        AccumulatedAmortizationEmission allowances
        $
        50
        
        
        
        
        
        
        $
        36Land and
            transmission rights
        
        49
        
        
        $
        14
        
        
        
        49
        
        
        $
        13Licenses and other
        
        32
        
        
        
        4
        
        
        
        31
        
        
        
        4$
        131
        
        
        $
        18
        
        
        $
        116
        
        
        $
        17
    Current intangible assets are included in "Current
      Assets - Other," and long-term intangible assets are included in "Other
      Noncurrent Assets" on the Balance Sheet.
    
    Amortization expense was approximately $1 million for the
      three and six months ended June 30, 2002. Estimated amortization expense
      for the years 2003 through 2007 is $2 million per year.
    
    (PPL Electric)
    
    The carrying amount and the accumulated amortization of
      acquired intangible assets were as follows (millions of dollars):
    
    June 30, 2002
        
        
        December 31, 2001CarryingAmount
        
        AccumulatedAmortization
        
        
        CarryingAmount
        
        AccumulatedAmortizationLand and
            transmission rights
        $
        191
        
        
        $
        73
        
        
        $
        197
        
        
        $
        72
    Intangible assets are included in "Regulatory and
      Other Noncurrent Assets - Other" on the Balance Sheet.
    
    Amortization expense was approximately $1 million for the
      three and six months ended June 30, 2002. Estimated amortization expense
      for the years 2003 through 2007 is $2 million per year.
    
    (PPL Montana)
    
    The carrying amount and the accumulated amortization of
      acquired intangible assets were as follows (millions of dollars):
    June 30, 2002
        
        
        December 31, 2001CarryingAmount
        
        AccumulatedAmortization
        
        
        CarryingAmount
        
        AccumulatedAmortizationEmission allowances
        $
        19
        
        
        
        
        
        
        $
        19Licenses and other
        
        15
        
        
        
        
        
        
        
        15$
        34
        
        
        
        
        
        
        $
        34
    Current intangible assets are included in "Prepayments
      and other," and long-term intangible assets are included in "Noncurrent
      Assets - Other" on the Balance Sheet.
    
    Amortization expense was immaterial for the three and six
      months ended June 30, 2002. Estimated amortization expense is immaterial
      for each of the years 2003 through 2007.
    Goodwill
    
    (PPL and PPL Energy Supply)
    
    The changes in the carrying amounts of goodwill by segment
      were as follows (millions of dollars):
    
    PPL Energy Supply
        
        
        
        
        
        PPLSupply
        
        
        International
        
        
        Total
        
        
        Delivery(a)
        
        
        TotalBalance as of 
            January 1, 2002
        
        $
        72
        
        
        $
        257
        
        
        $
        329
        
        
        $
        55
        
        
        $
        384Goodwill acquired
        
        
        12
        
        
        
        5
        
        
        
        17
        
        
        
        
        
        
        
        17Effect of foreign 
            exchange rates
        
        
        
        
        
        
        7
        
        
        
        7
        
        
        
        
        
        
        
        7Impairment losses
        
        
        
        
        
        
        (150
        )
        
        
        (150
        )
        
        
        
        
        
        
        (150
        )Balance as of 
            June 30, 2002
        
        $
        84
        
        
        $
        119
        
        
        $
        203
        
        
        $
        55
        
        
        $
        258(a)
        The Delivery segment is not
          part of PPL Energy Supply.
    Goodwill is included in other noncurrent assets on the
      Balance Sheet.
    
    The reporting units of the Supply, Delivery and International
      segments completed the transition impairment test in the first quarter of
      2002. A transition goodwill impairment loss of $150 million was recognized
      in the Latin American reporting unit within the International segment, and
      is reported as a "Cumulative Effect of a Change in Accounting Principle"
      on the Statement of Income. The fair value of the reporting unit was estimated
      using the expected present value of future cash flows.
    
    The following table reconciles reported earnings from prior
      periods to earnings adjusted to exclude the amortization expense related
      to goodwill and equity method goodwill that will no longer be recorded in
      accordance with SFAS 142.
    
    (PPL)
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001(Millions of Dollars, except per share
          data)Reported net income (loss)
        $
        (27
        )
        
        $
        117
        
        
        $
        (30
        )
        
        $
        339Add back: Goodwill amortization
        
        
        
        
        
        3
        
        
        
        
        
        
        
        7Add back: Equity method 
            goodwill amortization
        
        
        
        
        
        1
        
        
        
        
        
        
        
        2Adjusted net income (loss)
        $
        (27
        )
        
        $
        121
        
        
        $
        (30
        )
        
        $
        348Basic EPS:Reported net income (loss)
        $
        (0.18
        )
        
        $
        0.80
        
        
        $
        (0.20
        )
        
        $
        2.33Goodwill amortization
        
        
        
        
        
        0.02
        
        
        
        
        
        
        
        0.05Equity method goodwill 
            amortization
        
        
        
        
        
        0.01
        
        
        
        
        
        
        
        0.01Adjusted net income (loss)
        $
        (0.18
        )
        
        $
        0.83
        
        
        $
        (0.20
        )
        
        $
        2.39Diluted EPS:Reported net income (loss)
        $
        (0.18
        )
        
        $
        0.80
        
        
        $
        (0.20
        )
        
        $
        2.31Goodwill amortization
        
        
        
        
        
        0.02
        
        
        
        
        
        
        
        0.05Equity method goodwill 
            amortization
        
        
        
        
        
        0.01
        
        
        
        
        
        
        
        0.01Adjusted net income (loss)
        $
        (0.18
        )
        
        $
        0.83
        
        
        $
        (0.20
        )
        
        $
        2.37
    (PPL Energy Supply)
    
    Three MonthsEnded June 30,
        
        
        Six MonthsEnded June 30,2002
        
        
        2001
        
        
        2002
        
        
        2001(Millions of Dollars)Reported net income
        $
        9
        
        
        $
        124
        
        
        $
        4
        
        
        $
        325Add back: Goodwill amortization
        
        
        
        
        
        3
        
        
        
        
        
        
        
        6Add back: Equity method 
            goodwill amortization
        
        
        
        
        
        1
        
        
        
        
        
        
        
        2Adjusted net income
        $
        9
        
        
        $
        128
        
        
        $
        4
        
        
        $
        333
    (PPL Electric and PPL Montana)
    
    PPL Electric and PPL Montana had no goodwill at June 30,
      2002 and December 31, 2001. The adoption of SFAS 142 would not have affected
      prior period earnings of PPL Electric and PPL Montana.
    
    Reconciliation of Prior Annual Periods to Exclude Amortization
    
    (PPL and PPL Energy Supply)
    
    The following table reconciles reported earnings from prior
      annual periods to earnings adjusted to exclude the amortization expense
      related to goodwill and equity method goodwill that will no longer be recorded
      in accordance with SFAS 142. PPL and PPL Energy Supply were not affected
      by changes in amortization periods for other intangible assets.
    
    PPLFor the Years EndedDecember 31,2001
        
        2000
        
        1999Reported net income before
          
            extraordinary items and cumulative 
            effect of a change in accounting 
            principle
        $
        169
        
        $
        487
        
        $
        478Add back: Goodwill amortization
        
        13
        
        
        11
        
        
        8Add back: Equity method goodwill
          
            amortization
        
        3
        
        
        3
        
        
        5Adjusted net income before
          
            extraordinary items and cumulative
            effect of a change in accounting 
            principle
        $
        185
        
        $
        501
        
        $
        491Reported net income
        $
        179
        
        $
        498
        
        $
        432Add back: Goodwill amortization
        
        13
        
        
        11
        
        
        8Add back: Equity method goodwill
          
            amortization
        
        3
        
        
        3
        
        
        5Adjusted net income
        $
        195
        
        $
        512
        
        $
        445

    PPLFor the Years EndedDecember 31,2001
        
        2000
        
        1999Basic EPS:Reported net income before
            extraordinary items and cumulative 
            effect of a change in accounting
            principle
        $
        1.16
        
        $
        3.38
        
        $
        3.14Goodwill amortization
        
        0.09
        
        
        0.07
        
        
        0.06Equity method goodwill amortization
        
        0.02
        
        
        0.02
        
        
        0.03Adjusted net income before
            extraordinary items and cumulative 
            effect of a change in accounting 
            principle
        $
        1.27
        
        $
        3.47
        
        $
        3.23Reported net income
        $
        1.23
        
        $
        3.45
        
        $
        2.84Goodwill amortization
        
        0.09
        
        
        0.07
        
        
        0.06Equity method goodwill amortization
        
        0.02
        
        
        0.02
        
        
        0.03Adjusted net income
        $
        1.34
        
        $
        3.54
        
        $
        2.93Diluted EPS:Reported net income before
            extraordinary items and cumulative 
            effect of a change in accounting
            principle
        $
        1.15
        
        $
        3.37
        
        $
        3.14Goodwill amortization
        
        0.09
        
        
        0.07
        
        
        0.06Equity method goodwill amortization
        
        0.02
        
        
        0.02
        
        
        0.03Adjusted net income before
            extraordinary items and cumulative   effect of
          a change in accounting
            principle
        $
        1.26
        
        $
        3.46
        
        $
        3.23Reported net income
        $
        1.22
        
        $
        3.44
        
        $
        2.84Goodwill amortization
        
        0.09
        
        
        0.07
        
        
        0.06Equity method goodwill amortization
        
        0.02
        
        
        0.02
        
        
        0.03Adjusted net income
        $
        1.33
        
        $
        3.53
        
        $
        2.93
    PPL Energy SupplyFor the Years EndedDecember 31,2001
        
        2000
        
        1999Reported net income (loss)
          before 
            extraordinary items and cumulative 
            effect of a change in accounting 
            principle
        $
        171
        
        $
        242
        
        $
        (35
        )Add back: Goodwill amortization
        
        12
        
        
        9
        
        
        7Add back: Equity method goodwill
          
            amortization
        
        3
        
        
        3
        
        
        5Adjusted net income (loss)
          before 
            extraordinary items and cumulative 
            effect of a change in accounting
            principle
        $
        186
        
        $
        254
        
        $
        (23
        )Reported net income (loss)
        $
        174
        
        $
        242
        
        $
        (35
        )Add back: Goodwill amortization
        
        12
        
        
        9
        
        
        7Add back: Equity method goodwill
          
            amortization
        
        3
        
        
        3
        
        
        5Adjusted net income (loss)
        $
        189
        
        $
        254
        
        $
        (23
        )

    (PPL Electric and PPL Montana)

    
    PPL Electric and PPL Montana had no goodwill at December
      31, 2001, 2000 and 1999. The adoption of SFAS 142 would not have affected
      prior period earnings of PPL Electric and PPL Montana.
5. New Accounting Standards
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    SFAS 143
    
    In June 2001, the FASB issued SFAS 143, "Accounting
      for Asset Retirement Obligations," on the accounting for obligations
      associated with the retirement of long-lived assets. SFAS 143 requires a
      liability to be recognized in the financial statements for retirement obligations
      meeting specific criteria. Measurement of the initial obligation is to approximate
      fair value, with an equivalent amount recorded as an increase in the value
      of the capitalized asset. The asset will be depreciated in accordance with
      normal depreciation policy and the liability will be increased, with a charge
      to the income statement, until the obligation is settled. SFAS 143 is effective
      for fiscal years beginning after June 15, 2002. PPL and its subsidiaries
      are currently in the process of identifying asset retirement obligations.
      The potential impact of adopting SFAS 143 is not yet determinable, but may
      be material.
    
    SFAS 144
    
    In August 2001, the FASB issued SFAS 144, "Accounting
      for the Impairment or Disposal of Long-Lived Assets," that replaces
      SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
      Long-Lived Assets to Be Disposed Of." For long-lived assets to be held
      and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize
      an impairment loss only if the carrying amount is not recoverable from undiscounted
      cash flows and (b) measure an impairment loss as the difference between
      the carrying amount and fair value of the asset. For long-lived assets to
      be disposed of, SFAS 144 establishes a single accounting model based on
      the framework established in SFAS 121. The accounting model for long-lived
      assets to be disposed of by sale applies to all long-lived assets, including
      discontinued operations, and replaces the provisions of APB Opinion No.
      30, "Reporting the Results of Operations - Reporting the Effects of
      Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
      Occurring Events and Transactions," for the disposal of segments of
      a business. SFAS 144 also broadens the reporting of discontinued operations.
      PPL and its subsidiaries adopted SFAS 144 on January 1, 2002, with no material
      impact on the financial statements.
    
    SFAS 145
    
    In April 2002, the FASB issued SFAS 145, "Rescission
      of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
      and Technical Corrections." The most relevant provision of SFAS 145
      is the rescission of SFAS 4, "Reporting Gains and Losses from Extinguishment
      of Debt - An Amendment of APB Opinion No. 30," which required all gains
      and losses from extinguishment of debt to be aggregated and, if material,
      classified as an extraordinary item, net of related income tax effect. As
      a result of the rescission, the criteria in APB Opinion No. 30 will now
      be used to classify those gains and losses. The provisions of SFAS 145 related
      to the rescission of SFAS 4 shall be applied in fiscal years beginning after
      May 15, 2002, with early application encouraged. The adoption of SFAS 145
      will not have a material impact on PPL or its subsidiaries.
    
    SFAS 146
    
    In June 2002, the FASB issued SFAS 146, "Accounting
      for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses
      financial accounting and reporting for costs associated with exit or disposal
      activities and replaces EITF 94-3, "Liability Recognition for Certain
      Employee Termination Benefits and Other Costs to Exit an Activity (including
      Certain Costs Incurred in a Restructuring)." SFAS 146 requires the
      recognition of costs associated with exit or disposal activities when they
      are incurred rather than at the date of a commitment to an exit or disposal
      plan. The provisions of SFAS 146 are effective for exit or disposal activities
      initiated after December 31, 2002, with earlier application encouraged.
      The adoption of SFAS 146 will not have a material impact on PPL or its subsidiaries,
      but may impact future disposal or exit activities.
    
    EITF 02-3
    
    See Note 10 for a discussion of EITF 02-3 and the potential
      impact of adoption.
6. Write-down of International Energy Projects
    
    (PPL and PPL Energy Supply)

    At December 31, 2001, PPL Global estimated that the long-term
      viability of its CEMAR investment was jeopardized and that there was minimal
      probability of positive future cash flows. See PPL's Note 22 and PPL Energy
      Supply's Note 21 to the Financial Statements included in each company's
      Annual Report to the SEC on Form 10-K for the year ended December 31, 2001
      for additional information. At that time, PPL Global recorded an impairment
      loss in the carrying value of its net assets in CEMAR, an increase in its
      valuation allowance in deferred tax assets, and a credit to "Minority
      Interest" on the Statement of Income. The net result of these transactions
      was a $217 million charge to earnings.
    
    At March 31, 2002, PPL Global recorded a further impairment
      loss in the carrying value of its net assets in CEMAR of approximately $4
      million, after-tax. The pre-tax charge was $6 million, and was recorded
      as a charge to "Write-down of international energy projects" on
      the Statement of Income.
    
    PPL had been working with governmental authorities in Brazil
      and CEMAR's creditors on a plan to return the company to financial stability.
      That plan included CEMAR's request for a rate-increase review, which Brazilian
      regulators denied in June 2002. PPL viewed the rate-increase review as a
      critical step in restoring CEMAR to financial stability. While CEMAR has
      the capability to appeal the regulator's denial, PPL puts a low probability
      on the chances of any appeal succeeding. Given the regulator's denial of
      the rate-increase review and the current financial condition of CEMAR, PPL
      has made a decision to exit the investment. PPL Global's remaining portion
      of its CEMAR investment, primarily related to its foreign currency translation
      adjustments balance, was written-off as of June 30, 2002. The $94 million
      charge was recorded in "Write-down of international energy projects"
      on the Statement of Income.
    
    In July 2002, PPL announced a proposal to sell all of its
      90% equity interest in CEMAR to Franklin Park Energy, LLC. The sale is subject
      to regulatory approval of Brazil's National Electric Energy Agency and other
      customary conditions. The purchase and sale agreement may be terminated
      by either party if closing on the sale does not occur by August 15, 2002.
      If the sale is not consummated, PPL expects that CEMAR would consider filing
      for bankruptcy under Brazilian law. PPL cannot predict what position the
      Brazilian regulator, CEMAR's creditors or others may take in connection
      with these matters or the ultimate outcome of these matters.
    
    As a result of its financial difficulties, CEMAR has failed
      to pay certain of its creditors for obligations when due. In addition, CEMAR
      is not in compliance with the financial covenants in its 150 million Brazilian
      reals (approximately $56 million) debenture indenture for the year ended
      December 31, 2001, and for the quarter ended March 31, 2002. CEMAR has reached
      agreement with the required majority of debenture holders on a waiver for
      the failure to meet certain financial covenants through measurement periods
      ending September 30, 2002.
7. Workforce Reduction


    (PPL, PPL Energy Supply and PPL Electric)

In an effort to improve operational efficiency and reduce costs,
  PPL announced a workforce reduction in June 2002 that eliminated 598 employees,
  or about 7% of PPL's U.S. workforce, at a cost of $74 million. The program was
  broad-based and impacted virtually all employee groups except certain positions
  that are key to providing high-quality service to PPL's electricity delivery
  customers. Linemen, electricians and line foremen, for example, were not affected
  by the reductions.

PPL recorded the cost of the program as a one-time charge of
  $74 million included in the Statement of Income as "Workforce reduction."
  This charge reduced net income by $43 million after taxes, or 29 cents per share
  of common stock. Annual savings in operating expenses associated with the workforce
  reduction are estimated to be approximately $50 million. The program provides
  for enhanced early retirement benefits and/or one-time special pension separation
  allowances based on an employee's age and years of service. These features of
  the program will be paid primarily from the PPL Retirement Plan pension trust
  and increased PPL's pension liability by $65 million. The remaining $9 million
  of costs relate primarily to severance payments and outplacement costs which
  will be paid by PPL, and are included on the Balance Sheet in "Current
  Liabilities."

PPL Energy Supply eliminated 195 employees and recorded a one-time
  charge of $40 million, which after taxes reduced net income by $23 million.
  Included in the charge was a $10 million allocation of the costs associated
  with the elimination of employees of PPL Services.

PPL Electric eliminated 260 employees and recorded a one-time
  charge of $33 million, which after taxes reduced net income by $19 million.
  Included in the charge was a $6 million allocation of the costs associated with
  the elimination of employees of PPL Services.

---

PPL CORPORATION AND SUBSIDIARIES



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



This discussion should be read in conjunction with the Financial
  Statements and Combined Notes to Condensed Consolidated Financial Statements
  included in Item 1 above, and with the section entitled "Review of the
  Financial Condition and Results of Operations" in PPL's Annual Report to
  the SEC on Form 10-K for the year ended December 31, 2001. Terms and abbreviations
  appearing in Management's Discussion and Analysis of Financial Condition and
  Results of Operations are explained in the glossary.



Results of Operations



The following discussion explains significant changes in principal
  items on the Statement of Income, comparing the three and six months ended June
  30, 2002, to the comparable periods in 2001.



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



Earnings



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



|                      | Three MonthsEnded June 30, |       |   | Six MonthsEnded June 30, |  
|--------------------- | -------------------------- | ----- | - | ------------------------ | -
|                      | 2002                       |       |   | 2001                     |  
|                      |                            |       |   |                          |  
|Net income (loss)     |                            |       |   |                          |  
|(millions of dollars) | $                          | (27   | ) |                          | $
|EPS - basic           | $                          | (0.18 | ) |                          | $
|EPS - diluted         | $                          | (0.18 | ) |                          | $



Net income in 2002 was impacted by three unusual items as shown
  below. Refer to specific notes to the Financial Statements for discussion of
  these items.





|                                        | Three MonthsEnded June 30,                                    |     |     | Six MonthsEnded June 30, |  
|--------------------------------------- | ------------------------------------------------------------- | --- | --- | ------------------------ | -
|                                        | 2002                                                          |     |     | 2001                     |  
|                                        |                                                               |     |     |                          |  
|(Millions of dollars)                   |                                                               |     |     |                          |  
|Net income (loss) -
        actual      | $                                                             | (27 | )   |                          | $
|Unusual items (net of
        tax):     |                                                               |     |     |                          |  
|                                        | SFAS 142 goodwill
        impairment (Note   12)              |     |     |                          |  
|                                        | Write-down of 
        investment in 
        CEMAR (Note 14) |     | (94 | )                        |  
|                                        | Workforce reduction
        (Note 15)                         |     | (43 | )                        |  
|                                        |                                                               |     |     |                          |  
|Net income from core
        operations | $                                                             | 110 |     |                          | $
|                                        |                                                               |     |     |                          |  



Core earnings declined by $7 million and $78 million for the
  three and six months ended June 30, 2002, compared to the same periods in 2001.
  These decreases were primarily due to (after-tax earnings impacts noted in millions
  of dollars):



|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | June 30, 2002 vs. June 30, 2001 |    
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------- | ---
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Three MonthsEnded               |    
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|Lower wholesale energy margins                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $                               | (26
|Lower unregulated retail energy
      
        margins        |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | (11
|Lower delivery revenues (net of
        CTC/ITC amortization) |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | (2 
|PPL Global earnings (a)                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 4  
|Earnings from synfuel
        projects (b)                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | (3 
|Higher regulated retail energy
        margins                |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 30 
|Other - net                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 1  
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $                               | (7 
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(a)                                                           | The increase for the three months
      ended was due to the discontinuance of goodwill amortization and lower development
      spending. The decrease for the six months ended was due to higher interest
      on Latin American debt and lower operating results at equity affiliates,
      offset by the discontinuance of goodwill amortization and a favorable termination
      settlement on a cancelled domestic development project.
|(b)                                                           | The decrease for the three months
      ended was due to $4 million less in tax credits. (The second quarter of
      2001 included additional tax credits which had been deferred pending the
      receipt of a private letter ruling from the IRS.) The increase for the six
      months ended was due to higher sales volumes.                                                                                                             



PPL expects that the current low level of wholesale energy
  prices will adversely impact margins for the remainder of this year, and could
  continue to do so beyond 2002. Based upon current energy price levels, there
  is a risk that PPL may be unable to recover its investment in new gas-fired
  generation facilities. Under generally accepted accounting principles, PPL does
  not believe that there is an impairment charge to be recorded at this time.
  PPL is unable to predict the ultimate earnings impact of this issue, based upon
  energy price levels, applicable accounting rules and other factors, but such
  impact may be material.



PPL also expects that it will incur quarterly operating losses
  from CEMAR until such time as it exits its investment in CEMAR. See Note 14
  to the Financial Statements for information on PPL Global's investment in CEMAR.
  See "Financial Condition - Liquidity" for a discussion of a possible charge
  related to PPL Capital Funding's 7.70% Reset Put Securities due 2007.



Domestic Energy Margins



The following tables provide summary data regarding changes
  in domestic gross margins of wholesale and retail energy for the three and six
  months ended June 30, 2002, compared with the same periods in 2001 (millions
  of dollars):



|                                                            |                                                                                                                                                                                                                                                                                             | June 30, 2002 vs. June 30, 2001        |    
|----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---
|                                                            |                                                                                                                                                                                                                                                                                             | Three MonthsEnded                      |    
|                                                            |                                                                                                                                                                                                                                                                                             |                                        |    
|Utility revenues                                            |                                                                                                                                                                                                                                                                                             | $                                      | 47 
|Unregulated retail electric and
      
        gas revenues |                                                                                                                                                                                                                                                                                             |                                        | (62
|Wholesale energy marketing and
        trading revenues     |                                                                                                                                                                                                                                                                                             |                                        | (79
|Other revenue adjustments (a)                               |                                                                                                                                                                                                                                                                                             |                                        | (1 
|                                                            |                                                                                                                                                                                                                                                                                             |                                        |    
|                                                            | Total revenues                                                                                                                                                                                                                                                                              |                                        |    
|                                                            |                                                                                                                                                                                                                                                                                             |                                        |    
|Fuel                                                        |                                                                                                                                                                                                                                                                                             |                                        | 1  
|Purchased power                                             |                                                                                                                                                                                                                                                                                             |                                        | (84
|Other cost adjustments (a)                                  |                                                                                                                                                                                                                                                                                             |                                        |    
|                                                            |                                                                                                                                                                                                                                                                                             |                                        |    
|                                                            | Total cost of sales                                                                                                                                                                                                                                                                         |                                        |    
|                                                            |                                                                                                                                                                                                                                                                                             |                                        |    
|                                                            |                                                                                                                                                                                                                                                                                             | Domestic gross energy 
        margins |    
|                                                            |                                                                                                                                                                                                                                                                                             |                                        |    
|(a)                                                         | Adjusted to exclude the impact of
      any revenues and costs not associated with domestic energy margins, in particular,
      revenues and costs related to the international operations of PPL Global
      and the domestic delivery operations of PPL Electric and PPL Gas Utilities.



Changes in Gross Domestic Energy Margins By Customer:



|                         |                               | June 30, 2002 vs. June 30, 2001 |    
|------------------------ | ----------------------------- | ------------------------------- | ---
|                         |                               | Three MonthsEnded               |    
|                         |                               |                                 |    
|                         |                               |                                 |    
|Wholesale - Eastern U.S. |                               | $                               | (24
|Wholesale - Western U.S. |                               |                                 | (20
|Unregulated retail       |                               |                                 | (19
|Regulated retail         |                               |                                 | 51 
|                         |                               |                                 |    
|                         | Domestic gross energy margins |                                 | $  
|                         |                               |                                 |    



Gross margin calculations are dependent on the allocation of
  fuel and purchased power costs to the customer segments. That allocation is
  based on hourly MWh consumption levels compared to hourly MWh supply costs.
  Any costs specific to a customer segment are charged to that customer segment.



Wholesale - Eastern U.S.



East wholesale margins were lower for the three and six months
  ended June 30, 2002, compared to the same periods in 2001, primarily due to
  lower wholesale prices. Average wholesale prices for the three months ended
  June 30, 2002 were $16/MWh lower than those realized in the same period in 2001.
  As a result, wholesale revenues were lower by $17 million, despite a 36% increase
  in wholesale sales. Because of the higher levels of sales, costs were $7 million
  higher. Average wholesale prices for the year-to-date June 30, 2002 were $12/MWh
  lower than those realized for the same period in 2001, thereby providing $106
  million less in revenues. Partially offsetting this decline were higher volumes
  of sales, which added $36 million to revenues and a buyout of a NUG contract,
  which reduced power purchases by $25 million.



Wholesale - Western U.S.



West wholesale margins were lower for the three and six months
  ended June 30, 2002, compared to the same periods in 2001, primarily due to
  significantly lower wholesale prices. Average wholesale prices for the three
  and six months ended June 30, 2002, were $43/MWh and $85/MWh lower than those
  realized for the same periods in 2001. Lower wholesale prices for the three
  and six months ended June 30, 2002 account for $76 million and $248 million
  of margin reductions. These reductions were offset by higher volumes of $56
  million and $142 million, due in part to the commercial operations of Griffith
  Energy.



Unregulated Retail



Unregulated retail margins were lower for the three and six
  months ended June 30, 2002, compared to the same periods in 2001. These declines
  were primarily due to lower revenues resulting from the expiration of contracts
  which were not renewed in the East and to significantly lower retail prices
  in the West. However, the declines were partially offset by an increase in the
  number of customers. For the three and six months ended June 30, 2002, lower
  prices account for $18 million and $57 million of margin reductions.



Regulated Retail



Regulated retail margins in the East were higher for the three
  and six months ended June 30, 2002, compared to the same periods in 2001. For
  the three months ended June 30, 2002, increased sales volumes improved margins
  by $11 million. Higher average sales prices, caused by changes in usage among
  customer classes, improved margins by $13 million. Finally, lower supply costs
  in 2002, due to lower purchased power costs, lower fuel costs and increased
  generating unit availability, improved margins by $27 million. For the six months
  ended June 30, 2002, increased sales volumes improved margins by $25 million.
  Higher average prices, caused by changes in usage among customer classes, improved
  margins by $25 million. Finally, lower supply costs in 2002, due to lower purchased
  power costs, lower fuel costs and increased generating unit availability, improved
  margins by $52 million.



Operating Revenues



Utility



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



|                 |                   | June 30, 2002 vs. June 30, 2001 |   
|---------------- | ----------------- | ------------------------------- | --
|                 |                   | Three MonthsEnded               |   
|                 |                   |                                 |   
|Electric Revenue |                   |                                 |   
|                 | PPL Electric:     |                                 |   
|                 |                   | Electric delivery               |   
|                 |                   | PLR electric generation supply  |   
|                 |                   | Other                           |   
|                 | PPL Global:       |                                 |   
|                 |                   | Electric delivery               |   
|                 | Other             |                                 |   
|                 |                   |                                 |   
|                 |                   |                                 | 47
|                 |                   |                                 |   
|Gas Revenue      |                   |                                 |   
|                 | PPL Gas Utilities |                                 |   
|                 |                   |                                 |   
|                 |                   | $                               | 47
|                 |                   |                                 |   



The increase in utility operating revenues in both periods
  was primarily due to PPL Electric's higher revenues from providing electric
  generation supply as a PLR. During the past 12 months, about 80% to 90% of kWh
  in PPL Electric's service territory that had been served by alternate suppliers
  under the Customer Choice Act have returned to PPL Electric as the supplier.
  Because the bulk of the shoppers returned to PPL Electric as their supplier
  in July 2001, there should not be similar levels of increase for the remainder
  of the year.



The $8 million increase in PPL Global's revenue in the three
  months ended June 30, 2002, compared to the same period in 2001 was due to an
  increase in the volume of deliveries in Brazil, Chile and El Salvador.



Both PPL Gas Utilities' revenues and PPL Electric's delivery
  revenues were lower in the six months ended June 30, 2002, compared with the
  same period in 2001. The PPL Electric delivery revenue decrease was primarily
  due to lower sales volume of 3.3%, due to mild winter weather in the first quarter
  of 2002 and adverse economic conditions. The PPL Gas Utilities' decrease was
  primarily due to lower sales volumes of 1.3 million dekatherms, or 17%. This
  was also due to mild winter weather.



Unregulated Retail Electric and Gas



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





|                |                 | June 30, 2002 vs. June 30, 2001 |  
|--------------- | --------------- | ------------------------------- | -
|                |                 | Three MonthsEnded               |  
|                |                 |                                 |  
|PPL EnergyPlus: |                 |                                 |  
|                | Retail electric |                                 | $
|                | Retail gas      |                                 |  
|                |                 |                                 |  
|                |                 |                                 | $
|                |                 |                                 |  



The decrease in electric generation supply in both periods
  was primarily due to lower sales volumes, reflecting the expiration of certain
  PPL EnergyPlus contracts with existing customers and an increased emphasis on
  competing in wholesale markets.



Wholesale Energy Marketing and Trading



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



|                     |                       | June 30, 2002 vs. June 30, 2001 |    
|-------------------- | --------------------- | ------------------------------- | ---
|                     |                       | Three MonthsEnded               |    
|                     |                       |                                 |    
|Eastern U.S. markets |                       |                                 |    
|                     | Bilateral/Spot market |                                 | $  
|                     | Cost-based            |                                 |    
|                     | Gas & oil             |                                 |    
|                     |                       |                                 |    
|                     |                       |                                 |    
|Western U.S. markets |                       |                                 | (4 
|                     |                       |                                 |    
|                     |                       | $                               | (79
|                     |                       |                                 |    



The decrease in eastern U.S. markets in both periods was attributable
  to lower bilateral/spot market revenues primarily due to lower prices, partially
  offset by higher volumes. A decline in prices adversely impacted revenues by
  $138 million and $167 million for the three and six months ended June 30, 2002,
  compared to the same periods in 2001. Partially offsetting the price decline
  were increased volumes which had a positive effect on revenues of $70 million
  and $60 million for the three and six months ended June 30, 2002, compared to
  the same periods in 2001. This was the result of PPL EnergyPlus' increasing
  emphasis on competing in the wholesale markets. Also, contributing to the decrease
  was the expiration of capacity and energy agreements (cost-based) with BG&E.



Gas and oil revenues decreased for the six months ended June
  30, 2002, compared to the same period in 2001. This decrease was primarily due
  to significantly lower prices in the first quarter of 2002, which impacted revenues
  by $28 million, and lower volumes with a revenue impact of $17 million.



The decrease in western U.S. markets in both periods was due
  to a decline in wholesale energy prices from the high prices experienced during
  the energy supply shortage in the western U.S. in the first half of 2001. In
  June 2001, the FERC instituted a series of price controls designed to mitigate
  (or cap) prices in the entire western U.S. as a result of the California energy
  crisis. These price controls have had the effect of significantly lowering spot
  and forward energy prices in the western U.S. See Note 8 to the Financial Statements
  for further discussion on the California situation.



Fuel



Fuel costs decreased by $40 million for the six months ended
  June 30, 2002, compared with the same period in 2001.



Electric fuel costs decreased by $24 million for the six months
  ended June 30, 2002, compared with the same period in 2001. After eliminating
  $3 million for PPL Wallingford, which began operations at the end of December
  2001 and $4 million for Griffith Energy, which began operations in January 2002,
  electric fuel costs decreased by $31 million in the first half of 2002. The
  decrease was attributed to $30 million in lower generation in the east's oil/gas
  fired stations due to reduced plant usage due to more favorable energy prices
  on the open market.



The cost of natural gas and propane decreased by $16 million
  for the six months ended June 30, 2002, compared with the same period in 2001.
  The decrease reflects $18 million in lower gas purchases due to milder weather
  and $8 million in lower off-system purchases due to a decrease in per unit gas
  prices, which was offset by $10 million in higher purchased gas costs.



PPL subsidiaries have entered into new coal supply agreements
  in 2002 that will provide a large percentage of coal requirements of their coal-fired
  generating plants. For PPL's eastern U.S. coal-fired generating plants, the
  new agreements, together with the existing agreements, secure 95%, 79%, 54%,
  34% and 20% of the expected coal requirements for 2002 through 2006. For PPL's
  western U.S. coal-fired generating plants, the new agreements, together with
  the existing agreements, secure 100% of the 2002 and 2003 requirements and 92%
  of the 2004 through 2006 expected coal requirements.



Energy Purchases



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



|              |                      | June 30, 2002 vs. June 30, 2001 |    
|------------- | -------------------- | ------------------------------- | ---
|              |                      | Three MonthsEnded               |    
|              |                      |                                 |    
|Domestic      |                      |                                 |    
|              | Eastern U.S. markets |                                 | $  
|              | Western U.S. markets |                                 |    
|International |                      |                                 | 2  
|              |                      |                                 |    
|              |                      | $                               | (84
|              |                      |                                 |    



The decreases in the eastern U.S. markets were primarily due
  to the following (millions of dollars):





|                                                |  | June 30, 2002 vs. June 30, 2001 |    
|----------------------------------------------- |  | ------------------------------- | ---
|                                                |  | Three MonthsEnded               |    
|                                                |  |                                 |    
|Gains on long-term forward
        transactions |  | $                               | (60
|Lower wholesale electricity prices              |  |                                 | (7 
|Lower wholesale electricity 
        volumes    |  |                                 | (19
|Gain on NUG contract buy-out                    |  |                                 |    
|Lower gas purchases for trading                 |  |                                 |    
|Lower gas purchases for retail                  |  |                                 |    
|Other - net                                     |  |                                 | (1 
|                                                |  |                                 |    
|                                                |  | $                               | (87
|                                                |  |                                 |    



Other Operation Expenses



Other operation expenses decreased by $6 million for the three
  months ended June 30, 2002, compared to the same period in 2001. This decrease
  was primarily due to a $6 million delay in outage related activities at the
  Susquehanna generating station and $3 million of pension income in 2002 due
  to the adoption of double corridor accounting.



During the second quarter of 2002, the workforce reduction
  (see "Workforce Reduction" discussion below) and union-negotiated
  benefit enhancements had a significant impact on PPL's primary pension plan,
  increasing the benefit obligation by $140 million. As a result of these changes,
  PPL remeasured its net periodic pension cost for that plan, which included recognition
  of asset losses totaling $153 million as of June 30, 2002 due to weakened financial
  markets. These combined events decreased the funded status of PPL's pension
  plan by approximately $290 million.



Through June 30, 2002, PPL recorded approximately $20 million
  of pension income. As a result of the events and remeasurements previously discussed,
  PPL expects to record approximately $9 million of pension income in the second
  half of 2002 for a full year total of $29 million. PPL expects to continue to
  record pension income in 2003, but at lower levels due to the above events and
  continued weakness in the financial markets.



Maintenance



Maintenance expenses decreased by $12 million for the three
  months ended June 30, 2002, compared to the same period in 2001. This decrease
  was primarily due to $13 million of higher costs incurred in the second quarter
  of 2001 for the Susquehanna generating station refueling outage and additional
  overtime and contractor costs to improve plant equipment reliability.



Amortization of Recoverable Transition Costs



Amortization of recoverable transition costs decreased by $23
  million for the six months ended June 30, 2002, compared with the same period
  in 2001. This decrease was primarily due to $19 million of lower ITC amortization
  in 2002 as a result of lower billed ITC revenues. Billed ITC revenues were lower
  as a result of the decrease in electricity delivery sales and lower ITC rates.



Taxes, Other Than Income



Taxes, other than income, increased by $8 million and $18 million
  during the three and six months ended June 30, 2002, compared with the same
  periods in 2001. These changes were primarily due to an increase in the revenue-neutral
  reconciliation (RNR) tax component of the effective Pennsylvania gross receipts
  tax rate in January 2002. The RNR, which adjusts the base gross receipts tax
  rate of 4.4%, was enacted as part of the Customer Choice Act as a tax revenue
  replacement component to recoup losses to the Commonwealth of Pennsylvania that
  may result from the restructuring of the electric industry. Changes in gross
  receipts tax do not significantly affect earnings as they are substantially
  recovered through customer rate revenues.



Write-down of International Energy Projects



See Note 14 to the Financial Statements for additional information
  on a $6 million charge in the three months ended March 31, 2002 and a $94 million
  charge in the three months ended June 30, 2002 to reflect additional write-downs
  of PPL Global's investment in CEMAR.



Workforce Reduction



See Note 15 to the Financial Statements for information regarding
  the $74 million charge recorded in June 2002.



Financing Costs



Interest expense increased by $12 million for the three months
  ended June 30, 2002, compared with the same period in 2001. This increase was
  primarily the net effect of an $18 million increase in interest on long-term
  debt, partially offset by a $7 million decrease in interest on short-term debt.
  The increase in interest on long-term debt reflects the issuance of $800 million
  of senior secured bonds by PPL Electric, $500 million of senior unsecured notes
  by PPL Energy Supply and debt issued by PPL Global's consolidated affiliates.
  A portion of these proceeds was used to pay down commercial paper balances,
  which decreased short-term interest expense.



Dividends and distributions on preferred securities increased
  by $13 million for the six months ended June 30, 2002, compared with the same
  period in 2001. This increase was due to a $15 million increase in distributions
  on the PEPS Units, issued in the second quarter of 2001, offset by a $2 million
  decrease in preferred stock dividends due to redemptions and retirements of
  preferred stock and preferred securities.



Income Taxes



Income taxes decreased by $31 million for the three months
  ended June 30, 2002, compared to the same period in 2001. The change was primarily
  due to lower pre-tax book income, resulting in a $70 million reduction in income
  taxes. This decrease was offset by $33 million of deferred income tax valuation
  allowances recorded on PPL's investment in CEMAR and a $4 million reduction
  in the amount of federal synfuel tax credits recognized.



Income taxes decreased by $95 million for the six months ended
  June 30, 2002, compared to the same period in 2001. The change was primarily
  due to lower pre-tax book income, resulting in a $126 million reduction in income
  taxes, offset by $33 million of deferred income tax valuation allowances recorded
  on PPL's investment in CEMAR.



Change in Accounting Principle



PPL adopted SFAS 142, "Goodwill and Other Intangible Assets,"
  on January 1, 2002. SFAS 142 requires an annual impairment test of goodwill
  and other intangible assets that are not subject to amortization. PPL conducted
  a transition impairment analysis in the first quarter of 2002 and recorded a
  transition goodwill impairment charge of $150 million, which was reported as
  a "Cumulative Effect of a Change in Accounting Principle" on the Statement
  of Income. See Note 12 to the Financial Statements for additional information
  on the adoption of SFAS 142.



Financial Condition



Liquidity



At June 30, 2002, PPL had $193 million in cash and cash equivalents
  and $281 million of short-term debt. At December 31, 2001, PPL had $933 million
  in cash and cash equivalents and $118 million of short-term debt. The decrease
  in net cash position from December resulted from less cash provided from operating
  activities due primarily to the effect of $150 million of turbine cancellation
  payments, a $50 million payment to terminate the outstanding liability under
  an energy purchase contract with a NUG, mild weather and seasonal cash outflows
  that normally occur in the first half of each year (such as the prepayment of
  the Pennsylvania gross receipts tax). In addition, PPL incurred one-time acquisition
  costs of approximately $105 million for certain generation equipment it purchased
  from two lessor trusts in the first half of 2002, and $151 million of additional
  project development costs. PPL and its subsidiaries also retired $291 million
  of securities in the first half of 2002.



In the second quarter of 2002, PPL filed a universal shelf
  registration statement with the SEC for the issuance of up to $950 million in
  various securities. Subject to market conditions, PPL currently plans to issue
  approximately $200 million of common stock and a lesser amount of equity-linked
  securities during the third quarter of 2002 under this registration statement.
  PPL expects to use the proceeds of these issuances to retire other securities,
  for general corporate purposes, including the repayment of short-term debt,
  and to provide liquidity.



PPL Capital Funding currently has outstanding 7.70% Reset Put
  Securities due 2007 in the aggregate principal amount of $200 million, which
  are subject to remarketing in the fourth quarter of 2002. If the securities
  are remarketed, their term would be extended for an additional five years to
  the final maturity date in 2007, and the interest rate on the securities would
  be reset at a rate equal to 6.115% plus a credit spread based on PPL Capital
  Funding's credit profile at the time of remarketing. To the extent that the
  actual five-year U.S. Treasury rate (the "Treasury Rate"), at the
  time of remarketing is less than 6.115%, PPL Capital Funding would incur an
  effective incremental cost of funds over the subsequent five-year period approximately
  equal to the difference between 6.115% and the actual Treasury Rate. On August
  6, 2002, the Treasury Rate was 3.26%. If the remarketing fails, which could
  occur due to a number of reasons beyond PPL Capital Funding's control, or if
  PPL Capital Funding elects not to remarket these securities, PPL would incur
  a pre-tax charge to earnings during the third or fourth quarter of 2002. Based
  on the Treasury Rate on August 6, 2002, the amount of this pre-tax charge would
  be approximately $25 million. However, at this time, PPL cannot predict whether
  it will incur a charge in 2002, or if it does incur a charge, the amount of
  such charge.



For additional information on PPL's liquidity, see Item 7,
  "Review of the Financial Condition and Results of Operations," in
  PPL's Annual Report to the SEC on Form 10-K for the year ended December 31,
  2001.



Energy Marketing and Trading Activities



Through PPL EnergyPlus, PPL sells and purchases, and PPL Montana
  sells, physical energy at the wholesale level under FERC market-based tariffs
  throughout the U.S. Because of the generating assets PPL owns or controls, the
  majority of PPL's energy transactions qualify for accrual or hedge accounting.
  In addition, PPL enters into financial contracts to hedge the price risk associated
  with its electricity, gas and oil positions. At June 30, 2002, PPL had net assets
  of $20 million related to its energy hedging activities.



Certain transactions, however, meet the definition of trading
  activities as defined by EITF 98-10, "Accounting for Contracts Involved
  in Energy Trading and Risk Management Activities." These trading activities
  include physical and financial energy contracts, such as forwards, futures,
  options, and swaps that do not qualify for hedge accounting or were entered
  into to profit from market fluctuations. Trading activities also include certain
  transactions for capacity and ancillary products, such as transmission congestion
  credits (TCCs) and fixed transmission rights (FTRs).



In June 2002, the FASB's EITF adopted the position in EITF
  02-3, which addresses accounting for contracts involved in trading and risk
  management activities, that revenues from energy trading contracts must be reported
  "net" in financial statements for periods ending after June 30, 2002.
  The EITF requires that all comparative financial statements should be restated
  (reclassified) to conform to this consensus. Although this new accounting guidance
  will require changes to certain line items in the financial statements, it will
  not impact PPL's overall financial position or earnings. Rather, the portion
  of PPL's revenues from wholesale energy marketing and trading will be netted
  against expenses from energy purchases that represent energy trading activities.
  PPL has not yet quantified the financial statement impact from this revised
  guidance.



PPL's trading contracts mature at various times through 2006.
  The following chart sets forth the gains/(losses) in the net fair market value
  of PPL's trading contracts for the following periods (millions of dollars):



|                                                                                 |  | June 30, 2002    |   
|-------------------------------------------------------------------------------- |  | ---------------- | --
|                                                                                 |  | ThreeMonthsEnded |   
|                                                                                 |  |                  |   
|Fair value of contracts outstanding
      at the
        beginning of the period |  | $                | 7 
|Contracts realized or otherwise
      settled 
        during the period         |  |                  | 2 
|Fair value of new contracts when
      entered
        into during the period    |  |                  | (5
|Other changes in fair values                                                     |  |                  | (3
|                                                                                 |  |                  |   
|Fair value of contracts outstanding
      at the 
        end of the period      |  | $                | 1 
|                                                                                 |  |                  |   



During the six months ended June 30, 2002, PPL reversed net
  gains of approximately $1 million related to contracts entered into prior to
  January 1, 2002. This amount does not reflect intra-year contracts that were
  entered into and settled during the period.



As of June 30, 2002, the net loss on PPL's trading activities
  expected to be recognized in earnings during the next three months is approximately
  $3 million.



The following chart segregates estimated fair values of PPL's
  trading portfolio at June 30, 2002 based on whether the fair values are determined
  by quoted market prices or other more subjective means (millions of dollars):





|                                                                                                 | Fair Value of Contracts at June 30, 2002  |  
|------------------------------------------------------------------------------------------------ | ----------------------------------------- | -
|                                                                                                 | Gains/(Losses)                            |  
|                                                                                                 | Maturity
        less than
        1 year |  
|                                                                                                 |                                           |  
|Source of Fair Value                                                                             |                                           |  
|Prices actively 
        quoted                                                                  |                                           |  
|Prices provided by
        other external 
         sources                                      |                                           | $
|Prices based on 
        models and
        other valuation 
        methods                     |                                           |  
|                                                                                                 |                                           |  
|Fair value of 
        contracts 
        outstanding at 
        the end of the 
        period |                                           | $
|                                                                                                 |                                           |  



For additional information on PPL's Energy Marketing and Trading
  Activities, see Item 7, "Review of the Financial Condition and Results
  of Operations," in PPL's Annual Report to the SEC on Form 10-K for the
  year ended December 31, 2001.



Related Party Transactions



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

Acquisitions and Development



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



At June 30, 2002, PPL Global had domestic generation projects,
  either announced or under development, which would provide more than 2,200 MW
  of additional generation. Subsequently, the Sundance, University Park, Edgewood
  and Shoreham projects began commercial operation, which added 1,150 MW to PPL's
  generation capacity.



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



Financing Activities



See Note 6 to the Financial Statements for a discussion of
  financing activities.



Cash Flow



Cash and cash equivalents decreased by $422 million more during
  the six months ended June 30, 2002, compared with the same period in 2001. The
  reasons for this change were:



- a $178 million decrease in cash provided by operating activities,
      primarily due to a decrease in operating income, higher prepayment of Pennsylvania
      gross receipts tax, $150 million of turbine cancellation payments, and a
      $50 million payment to terminate an energy purchase contract with a NUG;
- a $333 million increase in cash used in investing activities,
      in part due to an increase of $107 million in capital expenditures. Also,
      there were no repayments of loans by affiliated companies in 2002; and

- an $89 million decrease in cash used in financing activities
      primarily due to a $59 million reduction in retirements of long-term debt
      and preferred securities.



Environmental Matters



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



Critical Accounting Policies



PPL's financial condition and results of operations are necessarily
  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 and contingencies.
  See Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31,
  2001 for a discussion of each critical accounting policy. For an additional
  discussion of the impact of the workforce reduction on pension and other postretirement
  benefits, see Note 15 to the Financial Statements and "Other Operation
  Expenses" in Results of Operations. For an additional discussion of the
  impact of the CEMAR write-down on asset impairment, see Note 14 to the Financial
  Statements.

---

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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



The following analysis of the financial condition and results
  of operations of PPL Energy Supply is abbreviated, as PPL Energy Supply meets
  the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q.
  This discussion should be read in conjunction with the Financial Statements
  and Combined Notes to Condensed Consolidated Financial Statements included in
  Item 1 above, and with the section entitled "Review of the Financial Condition
  and Results of Operations" in PPL Energy Supply's Annual Report to the
  SEC on Form 10-K for the year ended December 31, 2001. Terms and abbreviations
  appearing in Management's Discussion and Analysis of Financial Condition and
  Results of Operations are explained in the glossary.



Results of Operations



The following discussion explains significant changes in principal
  items on the Statement of Income, comparing the three and six months ended June
  30, 2002, to the comparable periods in 2001.



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



Earnings



Net income in 2002 was impacted by three unusual items as shown
  below. Refer to specific Notes to the Financial Statements for discussion of
  these items.



|                                        | Three MonthsEnded June 30,                                    |     |     | Six MonthsEnded June 30, |  
|--------------------------------------- | ------------------------------------------------------------- | --- | --- | ------------------------ | -
|                                        | 2002                                                          |     |     | 2001                     |  
|                                        |                                                               |     |     |                          |  
|(Millions of dollars)                   |                                                               |     |     |                          |  
|Net income - actual                     | $                                                             | 9   |     |                          | $
|Unusual items (net of
        tax):     |                                                               |     |     |                          |  
|                                        | SFAS 142 goodwill
        impairment 
        (Note 12)       |     |     |                          |  
|                                        | Write-down of 
        investment in 
        CEMAR (Note 14) |     | (94 | )                        |  
|                                        | Workforce reduction
        (Note 15)                         |     | (23 | )                        |  
|                                        |                                                               |     |     |                          |  
|Net income from core
        operations | $                                                             | 126 |     |                          | $
|                                        |                                                               |     |     |                          |  



Core earnings increased by $2 million for the three months
  ended June 30, 2002, compared to the same period in 2001. Core earnings decreased
  by $50 million for the six months ended June 30, 2002, compared to the same
  period in 2001. These changes in core earnings were primarily due to (after-tax
  earnings impacts noted in millions of dollars):



|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | June 30, 2002 vs. June 30, 2001 |    
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------- | ---
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Three MonthsEnded               |    
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|Lower wholesale energy margins                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $                               | (26
|Lower unregulated retail energy
      
        margins |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | (11
|PPL Global earnings (a)                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 4  
|Earnings from synfuel
        projects (b)             |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | (3 
|Higher regulated retail energy
        margins         |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 30 
|Lower transmission and 
        depreciation expenses  |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 6  
|Other - net                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 2  
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $                               | 2  
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 |    
|(a)                                                    | The increase for the three months
      ended was due to the discontinuance of goodwill amortization and lower development
      spending. The decrease for the six months ended was due to higher interest
      on Latin American debt and lower operating results at equity affiliates,
      offset by the discontinuance of goodwill amortization and a favorable termination
      settlement on a cancelled domestic development project.
|(b)                                                    | The decrease for the three months
      ended was due to $4 million less in tax credits. (The second quarter of
      2001 included additional tax credits which had been deferred pending the
      receipt of a private letter ruling from the IRS.) The increase for the six
      months ended was due to higher sales volumes.                                                                                                             



PPL Energy Supply expects that the current low level of wholesale
  energy prices will adversely impact margins for the remainder of this year,
  and could continue to do so beyond 2002. Based upon current energy price levels,
  there is a risk that PPL Energy Supply may be unable to recover its investment
  in new gas-fired generation facilities. Under generally accepted accounting
  principles, PPL Energy Supply does not believe that there is an impairment charge
  to be recorded at this time. PPL Energy Supply is unable to predict the ultimate
  earnings impact of this issue, based upon energy price levels, applicable accounting
  rules and other factors, but such impact may be material.



PPL Energy Supply also expects that it will incur quarterly
  operating losses from CEMAR until such time as it exits its investment in CEMAR.
  See Note 14 to the Financial Statements for information on PPL Global's investment
  in CEMAR.



Domestic Energy Margins



The following tables provide summary data regarding changes
  in domestic gross margins of wholesale and retail energy for the three and six
  months ended June 30, 2002, compared with the same periods in 2001 (millions
  of dollars):





|                                                        |                                                                                                                                                                                  | June 30, 2002 vs. June 30, 2001        |    
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---
|                                                        |                                                                                                                                                                                  | Three MonthsEnded                      |    
|                                                        |                                                                                                                                                                                  |                                        |    
|Wholesale energy marketing and
        trading revenues |                                                                                                                                                                                  | $                                      | (47
|Unregulated retail electric and
        gas revenues    |                                                                                                                                                                                  |                                        | (61
|                                                        |                                                                                                                                                                                  |                                        |    
|                                                        | Total revenues                                                                                                                                                                   |                                        |    
|                                                        |                                                                                                                                                                                  |                                        |    
|Fuel                                                    |                                                                                                                                                                                  |                                        | 3  
|Purchased power                                         |                                                                                                                                                                                  |                                        | (97
|Other cost adjustments (a)                              |                                                                                                                                                                                  |                                        | (2 
|                                                        |                                                                                                                                                                                  |                                        |    
|                                                        | Total cost of sales                                                                                                                                                              |                                        |    
|                                                        |                                                                                                                                                                                  |                                        |    
|                                                        |                                                                                                                                                                                  | Domestic gross energy 
        margins |    
|                                                        |                                                                                                                                                                                  |                                        |    
|                                                        |                                                                                                                                                                                  |                                        |    
|(a)                                                     | Adjusted to exclude the impact of
      any costs not associated with domestic energy margins, in particular, costs
      related to the international operations of PPL Global.

Changes in Gross Domestic Energy Margins By Customer:



|                         |                               | June 30, 2002 vs. June 30, 2001 |    
|------------------------ | ----------------------------- | ------------------------------- | ---
|                         |                               | Three MonthsEnded               |    
|                         |                               |                                 |    
|Wholesale - Eastern U.S. |                               | $                               | (24
|Wholesale - Western U.S. |                               |                                 | (20
|Unregulated retail       |                               |                                 | (19
|Regulated retail         |                               |                                 | 51 
|                         |                               |                                 |    
|                         | Domestic gross energy margins |                                 | $  
|                         |                               |                                 |    



Gross margin calculations are dependent on the allocation of
  fuel and purchased power costs to the customer segments. That allocation is
  based on hourly MWh consumption levels compared to hourly MWh supply costs.
  Any costs specific to a customer segment are charged to that customer segment.



Wholesale - Eastern U.S.



East wholesale margins were lower for the three and six months
  ended June 30, 2002, compared to the same periods in 2001, primarily due to
  lower wholesale prices. Average wholesale prices for the second quarter 2002
  were $16/MWh lower than those realized in the same period in 2001. As a result,
  wholesale revenues were lower by $17 million, despite a 36% increase in wholesale
  sales. Because of the higher levels of sales, costs were $7 million higher.
  Average wholesale prices for the year-to-date June 30, 2002 were $12/MWh lower
  than those realized for the same period in 2001, thereby providing $106 million
  less in revenues. Partially offsetting this decline were higher volumes of sales,
  which added $36 million to revenues and a buyout of a NUG contract, which reduced
  power purchases by $25 million.



Wholesale - Western U.S.



West wholesale margins were lower for the three and six months
  ended June 30, 2002, compared to the same periods in 2001, primarily due to
  significantly lower wholesale prices. Average wholesale prices for the three
  and six months ended June 30, 2002, were $43/MWh and $85/MWh lower than those
  realized for the same periods in 2001. Lower wholesale prices for the three
  and six months ended June 30, 2002 account for about $76 million and $248 million
  of margin reductions. These reductions were offset by higher volumes of $56
  million and $142 million, due in part to the commercial operations of Griffith
  Energy.



Unregulated Retail



Unregulated retail margins were lower for the three and six
  months ended June 30, 2002, compared to the same periods in 2001. These declines
  were primarily due to lower revenues resulting from the expiration of contracts
  which were not renewed in the East and to significantly lower retail prices
  in the West. However, the declines were partially offset by an increase in the
  number of customers. For the three and six months ended June 30, 2002, lower
  prices account for $18 million and $57 million of margin reductions.



Regulated Retail



Regulated retail margins in the East were higher for the three
  and six months ended June 30, 2002, compared to the same periods in 2001. For
  the three months ended June 30, 2002, increased sales volumes improved margins
  by $11 million. Higher average sales prices, caused by changes in usage among
  customer classes, improved margins by $13 million. Finally, lower supply costs
  in 2002, due to lower purchased power costs, lower fuel costs and increased
  generating unit availability, improved margins by $27 million. For the six months
  ended June 30, 2002, increased sales volumes improved margins by $25 million.
  Higher average prices, caused by changes in usage among customer classes, improved
  margins by $25 million. Finally, lower supply costs in 2002, due to lower purchased
  power costs, lower fuel costs and increased generating unit availability, improved
  margins by $52 million.



Operating Revenues



Wholesale Energy Marketing and Trading



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



|                     |                       | June 30, 2002 vs. June 30, 2001 |    
|-------------------- | --------------------- | ------------------------------- | ---
|                     |                       | Three MonthsEnded               |    
|                     |                       |                                 |    
|Eastern U.S. markets |                       |                                 |    
|                     | Bilateral/Spot market |                                 | $  
|                     | Cost-based            |                                 |    
|                     | Gas & oil             |                                 |    
|                     |                       |                                 |    
|                     |                       |                                 |    
|Western U.S. markets |                       |                                 | (6 
|                     |                       |                                 |    
|                     |                       | $                               | (81
|                     |                       |                                 |    



The decrease in eastern U.S. markets in both periods was attributable
  to lower bilateral/spot market revenues primarily due to lower prices, partially
  offset by higher volumes. A decline in prices adversely impacted revenues by
  $138 million and $167 million for the three and six months ended June 30, 2002,
  compared to the same periods in 2001. Partially offsetting the price decline
  were increased volumes which had a positive effect on revenues of $70 million
  and $60 million for the three and six months ended June 30, 2002, compared to
  the same periods in 2001. This was the result of PPL EnergyPlus' increasing
  emphasis on competing in the wholesale markets. Also, contributing to the decrease
  was the expiration of capacity and energy agreements (cost-based) with BG&E.



Gas and oil revenues in eastern U.S. markets decreased for
  the six months ended June 30, 2002, compared to the same period in 2001. This
  decrease was primarily due to significantly lower prices in the first quarter
  of 2002, which impacted revenues by $28 million, and lower volumes with a revenue
  impact of $17 million.



The decrease in western U.S. markets in both periods was due
  to a decline in wholesale energy prices from the high prices experienced during
  the energy supply shortage in the western U.S. in the first half of 2001. In
  June 2001, the FERC instituted a series of price controls designed to mitigate
  (or cap) prices in the entire western U.S. as a result of the California energy
  crisis. These price controls have had the effect of significantly lowering spot
  and forward energy prices in the western U.S. See Note 8 to the Financial Statements
  for further discussion on the California situation.



Wholesale Energy Marketing to Affiliates



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



|                            |  | June 30, 2002 vs. June 30, 2001 |   
|--------------------------- |  | ------------------------------- | --
|                            |  | Three MonthsEnded               |   
|                            |  |                                 |   
|Sales to PPL Electric (PLR) |  | $                               | 39
|Sales to PPL Gas Utilities  |  |                                 | (5
|                            |  |                                 |   
|                            |  | $                               | 34
|                            |  |                                 |   



PPL EnergyPlus has a power sales agreement to supply PPL Electric's
  entire PLR load, so PPL Energy Supply's wholesale electric sales to affiliate
  are a direct reflection of PPL Electric's success as a PLR. During the past
  12 months, about 80% to 90% of kWh in PPL Electric's service territory that
  had been served by alternate suppliers under the Customer Choice Act have returned
  to PPL Electric as the supplier. Therefore, there was a corresponding increase
  in PPL Energy Supply's wholesale sales to PPL Electric. Because the bulk of
  the shoppers returned to PPL Electric as their supplier in July 2001, there
  should not be similar levels of increase for the remainder of the year.



Utility



PPL Energy Supply's utility operations consist of the delivery
  of electricity by PPL Global subsidiaries. The $8 million increase in utility
  revenue in the three months ended June 30, 2002, compared to the same period
  in 2001 was due to an increase in the volume of deliveries in Brazil, Chile
  and El Salvador.



Unregulated Retail Electric and Gas



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



|                |  | June 30, 2002 vs. June 30, 2001 |    
|--------------- |  | ------------------------------- | ---
|                |  | Three MonthsEnded               |    
|                |  |                                 |    
|Retail Electric |  | $                               | (60
|Retail Gas      |  |                                 | (1 
|                |  |                                 |    
|                |  | $                               | (61
|                |  |                                 |    



The decrease in operating revenues from unregulated retail
  electric operations was primarily due to the expiration of certain PPL EnergyPlus
  contracts with existing customers and increased emphasis on competing in wholesale
  markets.



PPL EnergyPlus experienced lower retail gas revenues in the
  six months ended June 30, 2002, compared with the same period in 2001, primarily
  due to milder weather.



Fuel

Fuel costs decreased by $24 million in the six months ended
  June 30, 2002, compared with the same period in 2001. After eliminating $3 million
  for PPL Wallingford, which began operations at the end of December 2001, and
  $4 million for Griffith Energy, which began operations in January 2002, fuel
  costs decreased by $31 million in the first half of 2002. The decrease was attributed
  to $30 million in lower generation in the east's oil/gas fired stations due
  to reduced plant usage due to more favorable energy prices on the open market.



PPL Energy Supply subsidiaries have entered into new coal supply
  agreements in 2002 that will provide a large percentage of coal requirements
  of their coal-fired generating plants. For PPL Energy Supply's eastern U.S.
  coal-fired generating plants, the new agreements, together with the existing
  agreements, secure 95%, 79%, 54%, 34% and 20% of the expected coal requirements
  for 2002 through 2006. For PPL Energy Supply's western U.S. coal-fired generating
  plants, the new agreements, together with the existing agreements, secure 100%
  of the 2002 and 2003 requirements and 92% of the 2004 through 2006 expected
  coal requirements.



Energy Purchases



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





|              |                      | June 30, 2002 vs. June 30, 2001 |    
|------------- | -------------------- | ------------------------------- | ---
|              |                      | Three MonthsEnded               |    
|              |                      |                                 |    
|Domestic      |                      |                                 |    
|              | Eastern U.S. markets |                                 | $  
|              | Western U.S. markets |                                 |    
|International |                      |                                 | 2  
|              |                      |                                 |    
|              |                      | $                               | (84
|              |                      |                                 |    



The decreases in the eastern U.S. markets were primarily due
  to the following (millions of dollars):



|                                                |  | June 30, 2002 vs. June 30, 2001 |    
|----------------------------------------------- |  | ------------------------------- | ---
|                                                |  | Three MonthsEnded               |    
|                                                |  |                                 |    
|Gains on long-term forward
        transactions |  | $                               | (60
|Lower wholesale electricity prices              |  |                                 | (7 
|Lower wholesale electricity 
        volumes    |  |                                 | (28
|Gain on NUG contract buy-out                    |  |                                 |    
|Lower gas purchases for trading                 |  |                                 |    
|Lower gas purchases for retail                  |  |                                 |    
|Other - net                                     |  |                                 | 8  
|                                                |  |                                 |    
|                                                |  | $                               | (87
|                                                |  |                                 |    



Energy Purchases from Affiliates



The decrease in energy purchases from affiliates was attributable
  to the following (millions of dollars):



|                             |  | June 30, 2002 vs. June 30, 2001 |    
|---------------------------- |  | ------------------------------- | ---
|                             |  | Three MonthsEnded               |    
|                             |  |                                 |    
|                             |  |                                 |    
|Purchases of gas             |  | $                               | (9 
|Purchases of NUG electricity |  |                                 | (4 
|                             |  |                                 |    
|                             |  | $                               | (13
|                             |  |                                 |    



The decrease in gas purchases from PPL Gas Utilities was due
  to a decrease in gas trading activities by PPL EnergyPlus. Purchases of NUG
  energy are the result of PPL EnergyPlus' contract to buy from PPL Electric the
  electricity that PPL Electric purchases under contracts with NUGs. (See Note
  9 to the Financial Statements for a discussion of the NUG purchase contract.)
  With the termination in February 2002 of its NUG contract with Foster Wheeler,
  PPL Electric purchased less NUG energy, and therefore had less electricity to
  sell to PPL EnergyPlus.



Other Operation and Maintenance



Other operation and maintenance expenses decreased by $18 million
  for the three months ended June 30, 2002, compared to the same period in 2001.
  The decrease was primarily due to $22 million of lower costs at the Susquehanna
  generating station. Of this, $13 million were higher costs incurred in the second
  quarter of 2001 for the refueling outage and additional overtime and contractor
  costs to improve plant equipment reliability and $6 million resulted from a
  delay in outage related activities.



During the second quarter of 2002, the workforce reduction,
  (see "Workforce Reduction" discussion below) and union negotiated
  benefit enhancements had a significant impact on PPL's primary pension plan,
  increasing the benefit obligation by $140 million. As a result of these changes,
  PPL remeasured its net periodic pension cost for that plan, which included recognition
  of asset losses totaling $153 million as of June 30, 2002 due to weakened financial
  markets. These combined events decreased the funded status of PPL's pension
  plan by approximately $290 million. PPL Energy Supply participates in that plan
  and is allocated approximately 35% of the obligations of that plan.



Through June 30, 2002, PPL Energy Supply was allocated approximately
  $7 million of pension income. As a result of the events and remeasurements previously
  discussed, PPL Energy Supply will be allocated approximately $3 million of pension
  income in the second half of 2002 for a full year total of $10 million. PPL
  expects to continue to record pension income in 2003, but at lower levels due
  to the above events and continued weakness in the financial markets.



Transmission



Transmission expense decreased by $9 million for the three
  months ended June 30, 2002, compared with the same period in 2001. The decrease
  was attributed to $5 million in lower wholesale energy purchases needed to meet
  wholesale trading activity and $3 million in lower energy purchases due to a
  decrease in retail sales by PPL EnergyPlus.



Transmission expense decreased by $21 million for the six months
  ended June 30, 2002, compared with the same period in 2001. The decrease was
  attributed to $11 million in lower wholesale energy purchases needed to meet
  wholesale trading activity and $8 million in lower energy purchases due to a
  decrease in retail sales by PPL EnergyPlus.



Depreciation



Depreciation decreased by $9 million for the six months ended
  June 30, 2002, compared to the same period in 2001. This decrease was primarily
  the result of:



- $8 million due to the extension of the depreciable life
      of the Susquehanna station by 20 years;
- $4 million due to PPL Global's write-down of CEMAR assets
      in 2001, resulting in no depreciation on these assets in 2002; and
- $5 million due to a decrease in PPL Global's goodwill amortization,
      which is no longer being recorded effective January 1, 2002.



These decreases were partially offset by an increase of $7
  million due to depreciation of the PPL Wallingford facility, which began in
  January 2002, and higher depreciation at several facilities due to plant upgrades
  and installation of SCR technology.



Write-down of International Energy Projects



See Note 14 to the Financial Statements for additional information
  on a $6 million charge in the three months ended March 31, 2002 and a $94 million
  charge in the three months ended June 30, 2002 to reflect additional write-downs
  of PPL Global's investment in CEMAR.



Workforce Reduction



See Note 15 to the Financial Statements for information regarding
  the $40 million charge recorded in June 2002.



Other Income - net



Other income decreased by $11 million for the six months ended
  June 30, 2002, compared with the same period in 2001. The primary reasons for
  this decrease were an $8 million decrease in affiliated interest income, which
  was a result of less intercompany loans to affiliates in 2002, and a decrease
  of $5 million in miscellaneous other income due to lower miscellaneous income
  from PPL Global affiliates.



Interest Expense



Total interest expense increased by $14 million and $9 million
  for the three and six months ended June 30, 2002, compared with the same periods
  in 2001. The source of borrowing has changed between the two years. In 2001,
  the interest was on short-term borrowings, primarily with affiliated companies.
  Interest expense in 2002 reflects long-term debt issuances. PPL Energy Supply
  issued $500 million of senior unsecured notes in October 2001 and PPL Global
  subsidiaries issued long-term debt in 2001.



Income Taxes



Income taxes decreased by $9 million for the three months ended
  June 30, 2002, compared to the same period in 2001. The change was primarily
  due to lower pre-tax book income, resulting in a $48 million reduction in income
  taxes. This decrease was offset by $33 million of deferred income tax valuation
  allowances recorded on the PPL Energy Supply's investment in CEMAR and a $4
  million reduction in the amount of federal synfuel tax credits recognized.



Income taxes decreased by $54 million for the six months ended
  June 30, 2002, compared to the same period in 2001. The change was primarily
  due to lower pre-tax book income, resulting in a $91 million reduction in income
  taxes, offset by $33 million of deferred income tax valuation allowances recorded
  on PPL Energy Supply's investment in CEMAR.



Change in Accounting Principle



PPL Energy Supply adopted SFAS 142, "Goodwill and Other
  Intangible Assets," on January 1, 2002. SFAS 142 requires an annual impairment
  test of goodwill and other intangible assets that are not subject to amortization.
  PPL Energy Supply conducted a transition impairment analysis in the first quarter
  of 2002 and recorded a transition goodwill impairment charge of $150 million,
  which was reported as a "Cumulative Effect of a Change in Accounting Principle"
  on the Statement of Income. See Note 12 to the Financial Statements for additional
  information on the adoption of SFAS 142.

Acquisitions and Development



From time-to-time, PPL Energy Supply and its subsidiaries are
  involved in negotiations with third parties regarding acquisitions, joint ventures
  and other arrangements which may or may not result in definitive agreements.
  See Note 7 to the Financial Statements for information regarding recent acquisitions
  and development activities.



At June 30, 2002, PPL Global had domestic generation projects,
  either announced or under development, which would provide more than 2,200 MW
  of additional generation. Subsequently, the Sundance, University Park, Edgewood
  and Shoreham projects began commercial operation, which added 1,150 MW to PPL's
  generation capacity.



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



Critical Accounting Policies



PPL Energy Supply's financial condition and results of operations
  are necessarily 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 and contingencies. See Item 7, "Review of the
  Financial Condition and Results of Operations," in PPL Energy Supply's
  Annual Report to the SEC on Form 10-K for the year ended December 31, 2001,
  for a discussion of each critical accounting policy. For an additional discussion
  of the impact of the workforce reduction on pension and other postretirement
  benefits, see Note 15 to the Financial Statements and "Other Operation
  and Maintenance" in Results of Operations. For an additional discussion
  of the impact of the CEMAR write-down on asset impairment, see Note 14 to the
  Financial Statements.

---

PPL ELECTRIC UTILITIES CORPORATION
  AND SUBSIDIARIES



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



This discussion should be read in conjunction with the Financial
  Statements and Combined Notes to Condensed Consolidated Financial Statements
  included in Item 1 above, and with the section entitled "Review of the
  Financial Condition and Results of Operations" in PPL Electric's Annual
  Report to the SEC on Form 10-K for the year ended December 31, 2001. Terms and
  abbreviations appearing in Management's Discussion and Analysis of Financial
  Condition and Results of Operations are explained in the glossary.



Results of Operations



The following discussion explains significant changes in principal
  items on the Statement of Income, comparing the three and six months ended June
  30, 2002, to the comparable periods in 2001.



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



Earnings



Net income in 2002 was impacted by the workforce reduction
  charge, as described in Note 15 to the Financial Statements.



|                                        | Three MonthsEnded June 30,            |    |     | Six MonthsEnded June 30, |  
|--------------------------------------- | ------------------------------------- | -- | --- | ------------------------ | -
|                                        | 2002                                  |    |     | 2001                     |  
|                                        |                                       |    |     |                          |  
|(Millions of dollars)                   |                                       |    |     |                          |  
|Net income (loss) -
        actual      | $                                     | (8 | )   |                          | $
|Unusual item (net of tax):              |                                       |    |     |                          |  
|                                        | Workforce reduction
        (Note 15) |    | (19 | )                        |  
|                                        |                                       |    |     |                          |  
|Net income from core
        operations | $                                     | 11 |     |                          | $
|                                        |                                       |    |     |                          |  



The decline in core earnings of $10 million and $24 million
  for the three and six months ended June 30, 2002, compared to the same periods
  in 2001, was primarily due to (after-tax earnings impacts noted in millions
  of dollars):

|                                                                                                                 |  | June 30, 2002 vs. June 30, 2001 |    
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---
|                                                                                                                 |  | Three MonthsEnded               |    
|                                                                                                                 |  |                                 |    
|Higher energy purchase costs
        including amortization of 
        up-front payment on PLR
        contract |  | $                               | (2 
|PJM ancillary service expense                                                                                    |  |                                 | (6 
|Lower delivery revenues (net of
        CTC/ITC amortization)                                                    |  |                                 | (2 
|Lower other operating costs                                                                                      |  |                                 | 3  
|Other - net                                                                                                      |  |                                 | (3 
|                                                                                                                 |  |                                 |    
|                                                                                                                 |  | $                               | (10
|                                                                                                                 |  |                                 |    



Operating Revenues



Retail Electric



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



|                               |  | June 30, 2002 vs. June 30, 2001 |   
|------------------------------ |  | ------------------------------- | --
|                               |  | Three MonthsEnded               |   
|                               |  |                                 |   
|Electric delivery              |  | $                               | 4 
|PLR electric generation supply |  |                                 | 37
|Other                          |  |                                 | (4
|                               |  |                                 |   
|                               |  |                                 |   
|                               |  |                                 |   



The increase in operating revenues from retail electric operations
  in both periods was primarily due to higher revenues from providing electric
  generation supply as a PLR. During the past 12 months, about 80% to 90% of kWh
  in PPL Electric's service territory that had been served by alternate suppliers
  under the Customer Choice Act have returned to PPL Electric as the supplier.
  Because the bulk of the shoppers returned to PPL Electric as their supplier
  in July of 2001, there should not be similar levels of increase for the remainder
  of the year.



Revenues from delivery of electricity decreased for the six
  months ended June 30, 2002, compared to the same period in 2001. This reflected
  a 3.3% decrease in deliveries of electricity, primarily due to milder winter
  weather in the first quarter of 2002 and adverse economic conditions.



Wholesale Electric to Affiliate



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

Energy Purchases



Energy purchases increased by $7 million for the three months
  ended June 30, 2002, compared with the same period in 2001. This increase includes
  $10 million in service costs from PJM needed to support the increase in return
  of customers to PPL Electric as their PLR. Effective January 1, 2002, PPL Electric
  began incurring the cost of certain ancillary services in connection with its
  power supply contract with PPL EnergyPlus. (See Note 9 to the Financial Statements
  for a discussion of the power supply contract.) These costs were offset by a
  $4 million decrease in NUG purchases due to the termination of an energy purchase
  contract with a NUG in February 2002.



Energy purchases increased by $16 million for the six months
  ended June 30, 2002, compared with the same period in 2001. This increase includes
  $22 million in service costs from PJM needed to support the increase in return
  of customers to PPL Electric as their PLR. These costs were offset by a $6 million
  decrease in NUG purchases due to the termination of an energy purchase contract
  with a NUG in February 2002.



Energy Purchases from Affiliate



Energy purchases from affiliate increased by $39 million and
  $74 million for the three and six months ended June 30, 2002, compared with
  the same periods in 2001. These increases reflect higher purchases under the
  power supply contract with PPL EnergyPlus needed to support a higher PLR load,
  due to the return of customers to PPL Electric as their PLR. See Note 9 to the
  Financial Statements for a discussion of the power supply contract.



Amortization of Recoverable Transition Costs



Amortization of recoverable transition costs decreased by $23
  million for the six months ended June 30, 2002, compared with the same period
  in 2001. This decrease was primarily due to $19 million of lower ITC amortization
  in 2002 as a result of lower billed ITC revenues. Billed ITC revenues were lower
  as a result of the decrease in electricity delivery sales and lower ITC rates.



Taxes, Other Than Income



Taxes other than income increased by $11 million and $24 million
  during the three and six months ended June 30, 2002, compared to the same periods
  in 2001. These changes were primarily due to an increase in the revenue-neutral
  reconciliation (RNR) tax component of the effective Pennsylvania gross receipts
  tax rate in January 2002. The RNR, which adjusts the base gross receipts tax
  rate of 4.4%, was enacted as part of the Customer Choice Act as a tax revenue
  replacement component to recoup losses to the Commonwealth of Pennsylvania that
  may result from the restructuring of the electric industry. Changes in gross
  receipts tax do not significantly affect earnings, as they are substantially
  recovered through customer rate revenues.



Workforce Reduction



See Note 15 to the Financial Statements for information regarding
  the $33 million charge recorded in June 2002.



Income Taxes



Income taxes decreased by $22 and $33 million for the three
  and six months ended June 30, 2002, compared to the same periods in 2001, as
  a result of lower pre-tax book income.



Financial Condition



Liquidity



At June 30, 2002, PPL Electric had $35 million of cash and
  cash equivalents and no short-term debt. At December 31, 2001, PPL Electric
  had $79 million of cash and cash equivalents and no short-term debt. The decrease
  in cash position from December resulted from the retirement of $271 million
  of long-term debt and capital expenditures of $86 million, partially offset
  by a $270 million repayment of a notes receivable from an affiliate and cash
  provided from operating activities.



For additional information on PPL Electric's liquidity, see
  Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December
  31, 2001.



Related Party Transactions



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



For additional information on related party transactions, see
  Note 9 to the Financial Statements.



Cash Flow



Cash and cash equivalents decreased by $218 million less during
  the six months ended June 30, 2002, compared with the same period in 2001. The
  reasons for this change were:

- a $73 million decrease in cash provided by operating activities,
      primarily due to lower net income, and payment of collateral to PPL EnergyPlus
      under the power supply contract;

- a $192 million increase in cash provided by investing activities,
      primarily due to the repayment of notes receivable from parent and affiliates
      which was $200 million greater during the six months ended June 30, 2002;
      and
- a $99 million decrease in cash used in financing activities,
      primarily due to a $198 million reduction in retirements of long-term and
      short-term debt. These decreases were offset by the retirement of $100 million
      of preferred securities.



Environmental Matters



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



Critical Accounting Policies



PPL Electric's financial condition and results of operations
  are necessarily impacted by the methods, assumptions and estimates used in the
  application of critical accounting policies. Accounting policies for pensions
  and other postretirement benefits and for contingencies are particularly important
  to the financial condition or results of operations of PPL Electric, and require
  estimates or other judgments of matters inherently uncertain. See Item 7, "Review
  of the Financial Condition and Results of Operations," in PPL Electric's
  Annual Report to the SEC on Form 10-K for the year ended December 31, 2001,
  for a discussion of each critical accounting policy. For an additional discussion
  of the impact of the workforce reduction on pension and other postretirement
  benefits, see Note 15 to the Financial Statements.

---

PPL MONTANA, LLC AND SUBSIDIARIES



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



The following analysis of the results of operations and financial
  condition of PPL Montana is abbreviated as PPL Montana meets the conditions
  set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q. This discussion
  should be read in conjunction with the Financial Statements and Combined Notes
  to Condensed Consolidated Financial Statements included in Item 1 above, and
  with the section entitled "Review of the Financial Condition and Results
  of Operations" in PPL Montana's Annual Report to the SEC on Form 10-K for
  the year ended December 31, 2001. Terms and abbreviations appearing in Management's
  Discussion and Analysis of Financial Condition and Results of Operations are
  explained in the glossary.



Results of Operations



The following discussion explains significant changes in principal
  items on the Statement of Income, comparing the six months ended June 30, 2002,
  to the comparable period in 2001.



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



Earnings



Net income decreased by $83 million for the six months ended
  June 30, 2002, compared with the same period in 2001. The decrease was primarily
  due to lower wholesale prices in the western U.S.



Operating Revenues



Operating revenues decreased by $146 million for the six months
  ended June 30, 2002, compared with the same period in 2001. The decrease was
  primarily due to a decline in wholesale energy prices from the high prices experienced
  in the first half of 2001, resulting from an energy supply shortage in the western
  U.S. The decrease in power prices resulted in a decrease in revenues of $190
  million, while an increase in volume sold resulted in an increase in revenues
  of $44 million.



In June 2001, the FERC instituted a series of price controls
  designed to mitigate (or cap) prices in the entire western U.S. as a result
  of the California energy crisis. These price controls have had the effect of
  significantly lowering spot and forward energy prices in the western U.S. See
  Note 8 to the Financial Statements for further discussion on the California
  situation.



Operating Expense



Operating expenses decreased by $9 million during the six months
  ended June 30, 2002, compared with the same period in 2001. Operating expenses
  consist mainly of expenses for fuel, energy purchases, transmission tariffs,
  plant operations and maintenance, lease rental payments, and general and administrative
  expenses. The decrease was primarily due to a $12 million decrease in energy
  purchases, related to the decreased power costs in the western U.S. during the
  first half of 2002. The decrease in power prices resulted in a $33 million decrease
  in energy purchases, while an increase in volumes purchased resulted in an increase
  in energy purchases of $21 million.



Generation increased by 211 million kWh during the six months
  ended June 30, 2002, compared with the same period in 2001. This increase was
  primarily the result of higher hydroelectric generation caused by improved water
  flows in the first half of 2002.

Critical Accounting Policies

PPL Montana's financial condition and results of operations
  are necessarily impacted by the methods, assumptions and estimates used in the
  application of critical accounting policies. The following accounting policies
  are particularly important to the financial condition or results of operations
  of PPL Montana, and require estimates or other judgments of matters inherently
  uncertain: price risk management, leasing and contingencies. See Item 7, "Review
  of the Financial Condition and the Results of Operations," in PPL Montana's
  Annual Report to the SEC on Form 10-K for the year ended December 31, 2001,
  for a discussion of each critical accounting policy.

---

PPL CORPORATION AND SUBSIDIARIES



Item 3. Quantitative and Qualitative Disclosures About
  Market Risk



Market Risk-Sensitive Instruments

PPL actively manages the market risk inherent in its commodity,
  debt, and foreign currency and equity positions, as detailed in Note 10 to the
  Financial Statements. PPL has a comprehensive risk management policy to manage
  the risk exposures related to counterparty credit, energy prices, interest rates
  and foreign currency exchange rates. An RMC comprised of senior officers oversees
  the risk management function. Nonetheless, adverse changes in commodity prices,
  interest rates, foreign currency exchange rates and equity prices may result
  in losses in earnings, cash flows and/or fair values. The forward-looking information
  presented below provides estimates of what may occur in the future, assuming
  certain adverse market conditions, due to reliance on model assumptions. Actual
  future results may differ materially from those presented. These disclosures
  are not precise indicators of expected future losses, but only indicators of
  reasonably possible losses.



Commodity Price Risk



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



As of June 30, 2002, PPL estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of its non-hedge portfolio by $5 million. A similar adverse movement
  in market prices would have decreased the value of its hedge portfolio by approximately
  $126 million at June 30, 2002. However, the change in the value of the hedge
  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. In
  addition to commodity price risk associated with PPL's trading portfolio and
  any unhedged positions in its non-trading portfolio, PPL's commodity positions
  are also subject to operational and event risks including, among others, increases
  in load demand, decreases in hydro availability and forced outages at power
  plants.

PPL's risk management program is designed to manage the risks
  associated with market fluctuations in the price of electricity, fuel and fuel-related
  costs. PPL's risk management policy and programs include risk identification
  and risk limits management, with measurement and controls for daily monitoring.
  PPL has entered into forward, option and tolling contracts that require physical
  delivery of the commodity, as well as futures, exchange-for-physical transactions
  and other financial contracts (such as swap agreements where settlement is generally
  based on the difference between a fixed-price and an index-based price for the
  underlying commodity). PPL expects to continue to use these contracts.



PPL enters into contracts to hedge the impact of market fluctuations
  on PPL's energy-related assets, liabilities and other contractual arrangements.
  PPL also executes these contracts to take advantage of market opportunities.
  As a result, PPL may at times create a net open position in its portfolio that
  could result in significant losses if prices do not move in the manner or direction
  anticipated.



Interest Rate Risk



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



At June 30, 2002, PPL's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was estimated at
  $3 million.



PPL is also exposed to changes in the fair value of its debt
  portfolio. At June 30, 2002, 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 $126 million.



PPL utilizes various risk management instruments to reduce
  its exposure to adverse interest rate movements for future anticipated financings.
  While PPL is exposed to changes in the fair value of these instruments, they
  are designed such that an economic loss in value should generally be offset
  by interest rate savings at the time the future anticipated financing is completed.
  At June 30, 2002, 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 $11 million. See Note 10 to the Financial Statements
  for a discussion of financial derivative instruments outstanding at June 30,
  2002.



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.



During the first quarter of 2001, PPL entered into contracts
  for the forward purchase of 51 million euros to pay for certain equipment in
  2002 and 2003. The estimated value of these forward purchases as of June 30,
  2002, being the amount PPL would receive to terminate them, was $2 million.

During the second quarter of 2002, PPL executed three forward
  sale transactions, maturing in December 2002, for 12 million British pounds
  sterling to hedge the net investment in WPDH Limited. The estimated value of
  these agreements as of June 30, 2002, being the amount PPL would have to pay
  to terminate them, was insignificant.



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 June 30, 2002, these funds were invested primarily in domestic
  equity securities and fixed-rate, fixed-income securities and are reflected
  at fair value on PPL's Balance Sheet. The mix of securities is designed to provide
  returns to be used to fund Susquehanna's decommissioning and to compensate for
  inflationary increases in decommissioning costs. However, the equity securities
  included in the trusts are exposed to price fluctuation in equity markets, and
  the values of fixed-rate, fixed-income securities are exposed to changes in
  interest rates. PPL Susquehanna actively monitors the investment performance
  and periodically reviews asset allocation in accordance with its nuclear decommissioning
  trust policy statement. At June 30, 2002, a hypothetical 10% increase in interest
  rates and a 10% decrease in equity prices would have resulted in an estimated
  $17 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.

---

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES



Item 3. Quantitative and Qualitative Disclosures About
  Market Risk



Market Risk Sensitive Instruments



PPL Energy Supply actively manages the market risk inherent
  in its commodity, debt, and foreign currency and equity positions as detailed
  in Note 10 to the Financial Statements. PPL Energy Supply has a comprehensive
  risk management policy to manage the risk exposures related to counterparty
  credit, energy prices, interest rates and foreign currency exchange rates. An
  RMC comprised of senior officers of PPL oversees the risk management function.
  Nonetheless, adverse changes in commodity prices, interest rates, foreign currency
  exchange rates and equity prices may result in losses in earnings, cash flows
  and/or fair values. The forward-looking information presented below provides
  estimates of what may occur in the future, assuming certain adverse market conditions,
  due to reliance on model assumptions. Actual future results may differ materially
  from those presented. These disclosures are not precise indicators of expected
  future losses, but only indicators of reasonably possible losses.



Commodity Price Risk



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



As of June 30, 2002, 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 its non-hedge portfolio by $5 million. A similar
  adverse movement in market prices would have decreased the value of its hedge
  portfolio by approximately $126 million. However, the change in the value of
  the hedge 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.
  In addition to commodity price risk associated with PPL Energy Supply's trading
  portfolio and any unhedged positions in its non-trading portfolio, PPL Energy
  Supply's commodity positions are also subject to operational and event risks
  including, among others, increases in load demand, decreases in hydro availability
  and forced outages at power plants.



PPL Energy Supply's risk management program is designed to
  manage the risks associated with market fluctuations in the price of electricity,
  fuel and fuel-related costs. PPL Energy Supply's risk management policy and
  programs include risk identification and risk limits management, with measurement
  and controls for daily monitoring. PPL Energy Supply has entered into forward,
  option, and tolling contracts that require physical delivery of the commodity,
  as well as futures, exchange-for-physical transactions and other financial contracts
  (such as swap agreements where settlement is generally based on the difference
  between a fixed price and an index-based price for the underlying commodity).
  PPL Energy Supply expects the use of these contracts to be ongoing.



PPL Energy Supply enters into contracts to hedge the impact
  of market fluctuations on PPL Energy Supply's energy-related assets, liabilities
  and other contractual obligations. PPL Energy Supply also executes these contracts
  to take advantage of market opportunities. As a result, PPL Energy Supply may
  at times create a net open position in its portfolio that could result in significant
  losses if prices do not move in the manner or direction anticipated.



Commodity Price Risk - PLR Contracts



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



Interest Rate Risk



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



At June 30, 2002, PPL Energy Supply's potential annual exposure
  to increased interest expense, based on a 10% increase in interest rates, was
  estimated at $3 million.



PPL Energy Supply is also exposed to changes in the fair value
  of its debt portfolio. At June 30, 2002, 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 $22 million.



PPL utilizes various risk management instruments to reduce
  PPL Energy Supply's exposure to adverse interest rate movements for future anticipated
  financings. While PPL Energy Supply is exposed to changes in the fair value
  of these instruments, they are designed such that any economic loss in value
  should be offset by interest rate savings at the time the future anticipated
  financing is completed. At June 30, 2002, PPL Energy Supply had not entered
  into any such instruments.



See Note 10 to the Financial Statements for a discussion of
  financial derivative instruments outstanding at June 30, 2002.



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.



During the first quarter of 2001, PPL entered into contracts
  for the forward purchase of 51 million euros to pay for certain equipment in
  2002 and 2003. The estimated value of these forward purchases as of June 30,
  2002, being the amount PPL would receive to terminate them, was $2 million.



During the second quarter of 2002, PPL executed three forward
  sale transactions, maturing in December 2002, for 12 million British pounds
  sterling to hedge the net investment in WPDH Limited. The estimated value of
  these agreements as of June 30, 2002, being the amount PPL would have to pay
  to terminate them, was insignificant.



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 June 30, 2002, these funds were invested primarily in domestic
  equity securities and fixed-rate, fixed-income securities and are reflected
  at fair value on PPL Energy Supply's Balance Sheet. The mix of securities is
  designed to provide returns to be used to fund Susquehanna's decommissioning
  and to compensate for inflationary increases in decommissioning costs. However,
  the equity securities included in the trusts are exposed to price fluctuation
  in equity markets, and the values of fixed-rate, fixed-income securities are
  exposed to changes in interest rates. PPL Susquehanna actively monitors the
  investment performance and periodically reviews asset allocation in accordance
  with its nuclear decommissioning trust policy statement. At June 30, 2002, a
  hypothetical 10% increase in interest rates and a 10% decrease in equity prices
  would have resulted in an estimated $17 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.

---

PPL ELECTRIC UTILITIES CORPORATION
  AND SUBSIDIARIES



Item 3. Quantitative and Qualitative Disclosures About
  Market Risk



Market Risk Sensitive Instruments



Commodity Price Risk



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

Interest Rate Risk



PPL Electric has issued debt to finance its operations, which
  increases its interest rate risk. PPL Electric's potential annual exposure to
  increased interest expense, based on a 10% increase in interest rates, was an
  insignificant amount at June 30, 2002.



PPL Electric is also exposed to changes in the fair value of
  its debt portfolio. At June 30, 2002 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 $56 million.

---

PPL MONTANA, LLC AND SUBSIDIARIES



Item 3. Quantitative and Qualitative Disclosures About Market
  Risk

Market Risk Sensitive Instruments



PPL Montana actively manages the market risk inherent in its
  business. PPL Montana has adopted a comprehensive risk management policy to
  manage risk exposures related to energy prices, and through PPL, interest rates
  and counterparty credit. An RMC comprised of senior officers of PPL oversees
  the risk management function. Nonetheless, adverse changes in commodity prices
  and interest rates may result in losses in earnings, cash flows and/or fair
  values. The forward-looking information presented below provides estimates of
  what may occur in the future, assuming certain adverse market conditions, due
  to reliance on model assumptions. As a result, actual future results may differ
  materially from those presented. These disclosures are not precise indicators
  of expected future losses, but only indicators of reasonably possible losses.



Commodity Price Risk



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



PPL Montana estimated that a 10% adverse movement in market
  prices across the markets PPL Montana operates in, and across all time periods,
  would have decreased the value of the hedge portfolio by approximately $66 million
  at June 30, 2002. A similar adverse movement in market prices would have decreased
  the value of the non-hedge portfolio by an insignificant amount at June 30,
  2002. However, the change in the value of the hedge 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. In addition to commodity price
  risk associated with PPL Montana's trading portfolio and any unhedged positions
  in its non-trading portfolio, PPL Montana's commodity positions are also subject
  to operational and event risks including, among others, increases in load demand,
  decreases in hydro availability and forced outages at generating plants.



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



Interest Rate Risk



PPL Montana may use borrowings to provide funds for its operations.
  PPL Montana may utilize various financial derivative products and risk management
  techniques to adjust the mix of fixed and floating-rate interest rates in its
  debt portfolio and thereby reduce its exposure to adverse interest rate movements.
  PPL Montana had $40 million in borrowings outstanding as of June 30, 2002, and
  its interest rate risk was not significant.

---

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



PART II. OTHER INFORMATION

Item 1. Legal Proceedings

General



See Item 3 "Legal Proceedings" in PPL's, PPL Energy
  Supply's, PPL Electric's and PPL Montana's Annual Report to the SEC on Form
  10-K for the year ended December 31, 2001 and Note 8 of the companies' "Combined
  Notes to Condensed Consolidated Financial Statements" in Part I of this
  report 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.



Tax Assessment Appeals



Pursuant to changes in PURTA, enacted in 1999, PPL subsidiaries
  have filed a number of tax assessment appeals in various Pennsylvania counties
  where PPL facilities are located. These appeals challenge existing local tax
  assessments, which now comprise the basis for payment of the PURTA tax on PPL's
  properties. Also, as of January 1, 2000, generation facilities are no longer
  taxed under PURTA, and these local assessments will be used directly to determine
  local real estate tax liability for PPL's power plants. In July 1999, PPL filed
  retroactive appeals for tax years 1998 and 1999, as permitted by the new law,
  as well as prospective appeals for 2000, as permitted under normal assessment
  procedures. Additional prospective appeals were filed in 2000 for the 2001 tax
  year and in 2001 for the 2002 tax year. It is anticipated that assessment appeals
  will now be an annual occurrence.



Hearings on the pending appeals were held by the boards of
  assessment appeals in each county, and decisions have now been rendered by most
  counties. To the extent the appeals were denied or PPL was not otherwise satisfied
  with the results, PPL filed further appeals from the board decisions with the
  appropriate county Courts of Common Pleas.



Of all the pending proceedings, the most significant appeal
  concerns the assessed value of the Susquehanna nuclear station. The county assessment
  of the Susquehanna station indicated a market value of $3.9 billion. Based on
  this value, the annual local taxes for the Susquehanna station would have been
  about $70 million. However, PPL was able to reach a settlement with the local
  taxing authorities in December 2000, for tax years 2000 and 2001. This settlement
  will result in the payment of annual local taxes of about $3 million. PPL and
  the local taxing authorities also reached a settlement concerning the 1998 and
  1999 tax years which, if effectuated, would not result in any additional PURTA
  tax liability for PPL. This portion of the settlement with the local tax authorities
  is subject, however, to the outcome of claims asserted by certain intervenors
  which are described below.



In August 2000, over PPL's objections, the court permitted
  Philadelphia City and County, the Philadelphia School District and the Southeastern
  Pennsylvania Transportation Authority (SEPTA) (collectively, the "Philadelphia
  parties") to intervene in the case. The Philadelphia parties have intervened
  because they believe a change in the assessment of the plant will affect the
  amount they would collect under PURTA for the tax years 1998 and 1999. As part
  of the change in the law, the local real estate assessment determines what the
  1998 and 1999 PURTA payments by PPL will be. In November 2000, the Philadelphia
  parties submitted their own appraisal report, which indicates that the taxable
  fair market value of the Susquehanna station under PURTA for 1998 and 1999 is
  approximately $2.3 billion. Based on this appraisal, PPL would have to pay up
  to an extra $213 million in PURTA taxes for tax years 1998 and 1999.



PPL's appeal of the Susquehanna station assessment for 1998
  and 1999 was decided in PPL's favor by the Luzerne County Court of Common Pleas.
  The Philadelphia parties appealed this decision to the Commonwealth Court and
  PPL cross-appealed on the issue of the right of the Philadelphia parties to
  intervene. As a result of these proceedings and potential appeals, a final determination
  of market value and the associated tax liability for 1998 and 1999 may not occur
  for several years.

---

|Item 4. Submission
      of Matters to a Vote of Security Holders
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|                                               |     |  |                                                                                                                                                                
|---------------------------------------------- | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 6.
      Exhibits and Reports on Form 8-K
|                                               |     |  |                                                                                                                                                                
|                                               | (a) |  | Exhibits                                                                                                                                                       
|                                               |     |  |                                                                                                                                                                
|                                               |     |  | 10(a) - PPL Energy Supply
      $300 Million 364-Day Credit Agreement                                                                                          
|                                               |     |  | 10(b) - PPL Energy Supply
      $300 Million Three-Year Credit Agreement                                                                                       
|                                               |     |  | 10(c) - PPL Electric
      $400 Million 364-Day Credit Agreement                                                                                               
|                                               |     |  | 12(a) - Computation of
      Ratio of Earnings to Combined Fixed Charges and Preferred Stock
                 Dividends                                        
|                                               |     |  | 12(b),
          12(c) and
          12(d)
      - Computation of Ratio of Earnings to Fixed Charges                                                           
|                                               |     |  | 99(a) - Certificate of
      PPL's principal executive officer pursuant to Section 906 of the
                 Sarbanes-Oxley
      Act of 2002.               
|                                               |     |  | 99(b) - Certificate of
      PPL's principal financial officer pursuant to Section 906 of the
                 Sarbanes-Oxley
      Act of 2002.               
|                                               |     |  | 99(c) - Certificate of
      PPL Energy Supply's principal executive officer pursuant to
                  Section
      906 of the Sarbanes-Oxley Act of 2002.
|                                               |     |  | 99(d) - Certificate of
      PPL Energy Supply's principal financial officer pursuant to
                  Section
      906 of the Sarbanes-Oxley Act of 2002.
|                                               |     |  | 99(e) - Certificate of
      PPL Electric's principal executive officer pursuant to 
                 Section
      906 of the Sarbanes-Oxley Act of 2002.     
|                                               |     |  | 99(f) - Certificate of
      PPL Electric's principal financial officer pursuant to 
                 Section
      906 of the Sarbanes-Oxley Act of 2002.     
|                                               |     |  | 99(g) - Certificate of
      PPL Montana's principal executive officer pursuant to 
                 Section
      906 of the Sarbanes-Oxley Act of 2002.      
|                                               |     |  | 99(h) - Certificate of
      PPL Montana's principal financial officer pursuant to 
                 Section
      906 of the Sarbanes-Oxley Act of 2002.      
|                                               |     |  |                                                                                                                                                                
|                                               | (b) |  | Reports on Form 8-K                                                                                                                                            
|                                               |     |  |                                                                                                                                                                
|                                               |     |  | Report dated April
      24, 2002 - PPL                                                                                                                        
|                                               |     |  | Item 5.                                                                                                                                                        
|                                               |     |  |                                                                                                                                                                
|                                               |     |  |                                                                                                                                                                
|                                               |     |  | Item 7.                                                                                                                                                        
|                                               |     |  |                                                                                                                                                                
|                                               |     |  |                                                                                                                                                                
|                                               |     |  | Report dated June
      19, 2002 - PPL, PPL Energy Supply and PPL Electric                                                                                     
|                                               |     |  | Item 5.                                                                                                                                                        
|                                               |     |  |                                                                                                                                                                
|                                               |     |  |                                                                                                                                                                
|                                               |     |  | Item 7.                                                                                                                                                        
|                                               |     |  |                                                                                                                                                                
|                                               |     |  |                                                                                                                                                                

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SIGNATURES

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





|                      | PPL Corporation                     
|--------------------- | ------------------------------------
|                      | (Registrant)                        
|                      |                                     
|                      | PPL Energy Supply, LLC              
|                      | (Registrant)                        
|                      |                                     
|                      | PPL Electric Utilities Corporation  
|                      | (Registrant)                        
|                      |                                     
|                      | PPL Montana, LLC                    
|                      | (Registrant)                        
|                      |                                     
|                      |                                     
|                      |                                     
|                      |                                     
|Date: August 13, 2002 | /s/  John R. Biggar                 
|                      | John R. Biggar                      
|                      | Executive Vice President and        
|                      | Chief Financial Officer             
|                      | (PPL Corporation)                   
|                      | (principal financial officer)       
|                      |                                     
|                      |                                     
|                      |                                     
|                      |                                     
|                      | /s/  James E. Abel                  
|                      | James E. Abel                       
|                      | Treasurer                           
|                      | (PPL Energy Supply, LLC)            
|                      | (principal financial officer)       
|                      |                                     
|                      |                                     
|                      |                                     
|                      |                                     
|                      | /s/  Joseph J. McCabe               
|                      | Joseph J. McCabe                    
|                      | Vice President and Controller       
|                      | (PPL Electric Utilities Corporation)
|                      | (principal accounting officer)      
|                      |                                     
|                      |                                     
|                      |                                     
|                      |                                     
|                      | /s/  Craig D. Bartholomew           
|                      | Craig D. Bartholomew                
|                      | Controller                          
|                      | (PPL Montana, LLC)                  
|                      | (principal accounting officer)      

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