UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549



Form 10-Q





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





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

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



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



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



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

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



| | PPL Corporation                    | Common stock, $.01 par value, 177,326,521
        shares outstanding at October 31, 2003, 
        excluding 31,019,352 shares held as treasury 
        stock                             
| | ---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                    |                                                                                                                                                                                            
| | PPL Energy Supply, LLC             | PPL Corporation indirectly holds all of the
        
        member interests in PPL Energy Supply, LLC.                                                                                   
| |                                    |                                                                                                                                                                                            
| | PPL Electric Utilities Corporation | Common stock, no par value, 78,029,863 
        shares outstanding and all held by PPL 
        Corporation at October 31, 2003, excluding
        79,270,519 shares held as treasury stock
| |                                    |                                                                                                                                                                                            
| | PPL Montana, LLC                   | PPL Corporation indirectly holds all of the
        
        member interests in PPL Montana, LLC.                                                                                         

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

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

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(THIS PAGE LEFT BLANK INTENTIONALLY.)

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



FORM 10-Q
  FOR THE QUARTER ENDED SEPTEMBER 30, 2003



Table of Contents



|                                                                                                                                                       | Page                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------
|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                           
|                                                                                                                                                       |                                                                                                      
|                                                                                                                                                       | Item
        4. Controls and Procedures                                                              
|                                                                                                                                                       |                                                                                                      
|PART II. OTHER INFORMATION                                                                                                                             |                                                                                                      
|                                                                                                                                                       |                                                                                                      
|                                                                                                                                                       | Item
        1. Legal Proceedings                                                                    
|                                                                                                                                                       | Item
        6. Exhibits and Reports on Form 8-K                                                     
|                                                                                                                                                       |                                                                                                      
|SIGNATURES                                                                                                                                             | 80                                                                                                   
|                                                                                                                                                       |                                                                                                      
|COMPUTATION OF RATIO
        OF EARNINGS TO FIXED CHARGES                                                                                              |                                                                                                      
|                                                                                                                                                       |                                                                                                      
|                                                                                                                                                       |                                                                                                      
|                                                                                                                                                       |                                                                                                      
|CERTIFICATES OF PRINCIPAL
        EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER 
        PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |                                                                                                      
|                                                                                                                                                       |                                                                                                      
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|                                                                                                                                                       |                                                                                                      
|                                                                                                                                                       |                                                                                                      
|CERTIFICATES OF PRINCIPAL
        EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER 
        PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 |                                                                                                      
|                                                                                                                                                       |                                                                                                      
|                                                                                                                                                       |                                                                                                      
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|                                                                                                                                                       |                                                                                                      



---

GLOSSARY OF TERMS AND ABBREVIATIONS

£ - British pounds sterling.

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

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

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

APA - Asset Purchase Agreement.

APB- Accounting Principles Board.

ARB- Accounting Research Bulletin.

ARO - asset retirement obligation.

Bcf - billion cubic feet.

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

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

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

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

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

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

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

DIG- Derivatives Implementation Group.

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.

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

EMF - electric and magnetic fields.

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

EPS - earnings per share.

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

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

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

GAAP - generally accepted accounting principles.

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

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

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

ISO - Independent System Operator.

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

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

LIBOR- London Interbank Offered Rate.

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

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

MW - megawatt, one thousand kilowatts.

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

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

NPDES - National Pollutant Discharge Elimination System.

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

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

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

PEPS Units, Series B(Premium Equity Participating Security Units, or
  PEPSSM Units, Series B) - securities expected to be issued by PPL
  and PPL Capital Funding in connection with the proposed PEPS Units exchange
  offer which will consist of (i) an undivided interest in a debt security to
  be issued by PPL Capital Funding and guaranteed by PPL, and (ii) a forward contract
  to purchase PPL common stock.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PURTA - the Pennsylvania Public Utility Realty Tax Act.

SCR - selective catalytic reduction, a pollution control process.

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

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

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

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

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

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

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

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

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

WPDH Limited - Western Power Distribution Holdings Limited, an
  indirect, wholly-owned subsidiary of PPL Global. WPDH Limited owns WPD LLP,
  which owns WPD (South West) and WPD (South Wales).

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

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Forward-looking Information

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

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

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

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

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

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

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

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|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                                                         
|(Unaudited)                                                                                                                                              
|(Millions of Dollars)                                                                                                                                    
|                                                                                                                                                         
|Liabilities and Equity                                                                                                                                   
|                                                                                                                                                         
|Current Liabilities                                                                                                                                      
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|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|Long-term Debt                                                                                                                                           
|                                                                                                                                                         
|                                                                                                                                                         
|Deferred Credits and Other
        Noncurrent Liabilities                                                                                                
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|                                                                                                                                                         
|Commitments and Contingent
        Liabilities                                                                                                           
|                                                                                                                                                         
|                                                                                                                                                         
|Minority Interest                                                                                                                                        
|                                                                                                                                                         
|                                                                                                                                                         
|Company-obligated Mandatorily
        Redeemable Preferred Securities 
          of Subsidiary Trusts Holding Solely Company Debentures (Note
        15)
|                                                                                                                                                         
|                                                                                                                                                         
|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
        INCOME                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                
|(Unaudited)                                                                                                                            
|(Millions of Dollars)                                                                                                                  
|                                                                                                                                       
|                                                                                                                                       
|Operating Revenues                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Expenses                                                                                                                     
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Operating Income                                                                                                                       
|                                                                                                                                       
|Other Income - net                                                                                                                     
|                                                                                                                                       
|Interest Expense                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Income Before Income Taxes
        and Minority Interest                                                                               
|                                                                                                                                       
|Income Taxes                                                                                                                           
|                                                                                                                                       
|Minority Interest                                                                                                                      
|                                                                                                                                       
|                                                                                                                                       
|Income Before Cumulative
        Effect of a Change in 
          Accounting Principle                                                 
|                                                                                                                                       
|Cumulative Effect of a Change
        in Accounting Principle 
          (net of income taxes)                                         
|                                                                                                                                       
|                                                                                                                                       
|Income Before Distributions
        on Preferred Securities                                                                            
|                                                                                                                                       
|Distributions - Preferred Securities                                                                                                   
|                                                                                                                                       
|                                                                                                                                       
|Net Income                                                                                                                             
|                                                                                                                                       
|                                                                                                                                       
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.

---

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

---

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

---

|CONDENSED CONSOLIDATED BALANCE SHEET                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                                     
|(Unaudited)                                                                                                                                                 
|(Millions of Dollars)                                                                                                                                       
|                                                                                                                                                            
|Liabilities and Equity                                                                                                                                      
|                                                                                                                                                            
|Current Liabilities                                                                                                                                         
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|Long-term Debt                                                                                                                                              
|                                                                                                                                                            
|                                                                                                                                                            
|Deferred Credits and Other
        Noncurrent Liabilities                                                                                                   
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|Commitments and Contingent
        Liabilities                                                                                                              
|                                                                                                                                                            
|                                                                                                                                                            
|Minority Interest                                                                                                                                           
|                                                                                                                                                            
|                                                                                                                                                            
|Company-obligated Mandatorily
        Redeemable Preferred Securities 
          of Subsidiary Trusts Holding Solely Company Debentures 
          (Note 15)
|                                                                                                                                                            
|                                                                                                                                                            
|Member's Equity                                                                                                                                             
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|                                                                                                                                                            
|The accompanying
        Notes to Condensed Consolidated Financial Statements are an integral part
        of the financial statements.                     

---

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

---

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

---

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

---

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

---

|CONDENSED
        CONSOLIDATED STATEMENT OF 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.

---

Combined Notes to Condensed Consolidated
  Financial Statements

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

1. Interim Financial Statements
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    The accompanying unaudited condensed consolidated financial statements
      have been prepared in accordance with accounting principles generally accepted
      in the U.S. for interim financial information and with the instructions
      to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include
      all of the information and footnotes required by accounting principles generally
      accepted in the U.S. for complete financial statements. In the opinion of
      management, all adjustments (including normal, recurring accruals) considered
      necessary for a fair presentation in accordance with accounting principles
      generally accepted in the U.S. are reflected in the condensed consolidated
      financial statements. The Balance Sheet as of December 31, 2002 is derived
      from each Registrant's 2002 audited Balance Sheet. The financial statements
      and notes thereto should be read in conjunction with the financial statements
      and notes contained in each Registrant's Annual Report to the SEC on Form
      10-K for the year ended December 31, 2002. The results of operations for
      the three and nine months ended September 30, 2003 are not necessarily indicative
      of the results to be expected for the full year ending December 31, 2003
      or other future periods, because results for interim periods can be disproportionately
      influenced by various factors and developments and seasonal variations.
    Certain amounts in the September 30, 2002 and December 31, 2002 financial
      statements have been reclassified to conform to the presentation in the
      September 30, 2003 financial statements.
2. Summary of Significant Accounting Policies
    The following accounting policy disclosures represent updates to the "Summary
      of Significant Accounting Policies" Note in each Registrant's Annual Report
      to the SEC on Form 10-K for the year ended December 31, 2002.
    Stock-Based Compensation
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL grants stock options, restricted stock, restricted stock units and
      stock units to employees and directors under several stock-based compensation
      plans. SFAS 123, "Accounting for Stock-Based Compensation," encourages entities
      to record compensation expense for stock-based compensation plans at fair
      value but provides the option of measuring compensation expense using the
      intrinsic value method prescribed by APB Opinion No. 25, "Accounting for
      Stock Issued to Employees." The fair value method under SFAS 123 is indicated
      therein as the preferable method of accounting for stock-based compensation,
      as it provides a consistent basis of accounting for all stock-based awards,
      thereby facilitating a better measure of compensation cost and improved
      financial reporting.
    Prior to 2003, PPL accounted for stock-based compensation in accordance
      with APB Opinion No. 25, as permitted by SFAS 123. Effective January 1,
      2003, PPL and its subsidiaries adopted the fair value method of accounting
      for stock-based compensation, as prescribed by SFAS 123, using the prospective
      method of transition permitted by SFAS 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure, an Amendment of FASB Statement
      No. 123." See Note 15 for further discussion of SFAS 148. The prospective
      method of transition requires PPL and its subsidiaries to use the fair value
      method under SFAS 123 for all stock-based compensation awards granted, modified
      or settled on or after January 1, 2003. Thus, all awards granted prior to
      January 1, 2003 continue to be accounted for under the intrinsic value method
      of APB Opinion No. 25, to the extent such awards are not modified or settled.
      Stock-based compensation is included in "Other operation" expense on PPL's
      Statement of Income.
    Use of the fair value method prescribed by SFAS 123 requires PPL and its
      subsidiaries to recognize compensation expense for stock options issued.
      Fair value for the stock options is determined using the Black-Scholes options
      pricing model.
    Prior to January 1, 2003, PPL and its subsidiaries were not required to
      recognize compensation expense for stock options issued under the intrinsic
      value method of APB Opinion No. 25, since PPL grants stock options with
      an exercise price that is not less than the fair market value of PPL's common
      stock on the date of grant. For stock options granted on or after January
      1, 2003, stock option expense for PPL was approximately $1 million and $2
      million for the three and nine months ended September 30, 2003. As currently
      structured, awards of restricted stock, restricted stock units and stock
      units result in the same amount of compensation expense under the fair value
      method of SFAS 123 as they would under the intrinsic value method of APB
      Opinion No. 25.
    (PPL and PPL Energy Supply)
    The following tables illustrate the pro forma effect on net income and
      EPS as if the fair value method had been used to account for all outstanding
      stock-based compensation awards in the periods shown:
    PPL
        
        Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002IncomeNet Income - as reported
        
        $
        171
        
        
        $
        122
        
        
        $
        526
        
        
        $
        92Add: Stock-based employee compensation
            expense included in reported net income, net of tax
        
        
        1
        
        
        
        1
        
        
        
        4
        
        
        
        3Deduct: Total stock-based compensation
            expense determined under the fair value method for all awards, net
            of tax
        
        
        2
        
        
        
        2
        
        
        
        6
        
        
        
        6Pro forma Net Income
        
        $
        170
        
        
        $
        121
        
        
        $
        524
        
        
        $
        89EPSBasic - as reported
        
        $
        0.97
        
        
        $
        0.81
        
        
        $
        3.07
        
        
        $
        0.62Basic - pro forma
        
        $
        0.97
        
        
        $
        0.80
        
        
        $
        3.05
        
        
        $
        0.60Diluted - as reported
        
        $
        0.97
        
        
        $
        0.80
        
        
        $
        3.06
        
        
        $
        0.62Diluted - pro forma
        
        $
        0.96
        
        
        $
        0.80
        
        
        $
        3.04
        
        
        $
        0.60PPL Energy Supply
        
        Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002IncomeNet Income - as reported
        
        $
        190
        
        
        $
        141
        
        
        $
        538
        
        
        $
        145Add: Stock-based employee compensation
            expense included in reported net income, net of tax
        
        
        1
        
        
        
        
        
        
        
        2
        
        
        
        2Deduct: Total stock-based compensation
            expense determined under the fair value method for all awards, net
            of tax
        
        
        1
        
        
        
        1
        
        
        
        4
        
        
        
        4Pro forma Net Income
        
        $
        190
        
        
        $
        140
        
        
        $
        536
        
        
        $
        143(PPL Electric and PPL Montana)
    Stock-based compensation expense, including awards granted to employees
      and an allocation of costs of awards granted to employees of PPL Services,
      was insignificant under both the intrinsic value and fair value methods
      for the three and nine months ended September 30, 2003.
    Other
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 13 for a discussion of the accounting for asset retirement obligations,
      and Note 15 for a discussion of other new accounting standards.
3. Segment and Related Information
    (PPL and PPL Energy Supply)
    See the "Segment and Related Information" Note in each Registrant's Annual
      Report to the SEC on Form 10-K for the year ended December 31, 2002 for
      a discussion of reportable segments.
    Financial data for the segments are as follows:
    (PPL)
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Income Statement DataRevenues from external customersSupply
        
        $
        538
        
        
        $
        530
        
        
        $
        1,436
        
        
        $
        1,283International
        
        
        239
        
        
        
        275
        
        
        
        761
        
        
        
        836Delivery
        
        
        679
        
        
        
        687
        
        
        
        2,084
        
        
        
        2,0261,456
        
        
        
        1,492
        
        
        
        4,281
        
        
        
        4,145Intersegment revenuesSupply
        
        
        374
        
        
        
        373
        
        
        
        1,090
        
        
        
        1,081Delivery
        
        
        39
        
        
        
        40
        
        
        
        115
        
        
        
        122Net IncomeSupply (a)
        
        
        160
        
        
        
        112
        
        
        
        401
        
        
        
        286International (b)
        
        
        19
        
        
        
        (12
        )
        
        
        96
        
        
        
        (234
        )Delivery
        
        
        (8
        )
        
        
        22
        
        
        
        29
        
        
        
        40$
        171
        
        
        $
        122
        
        
        $
        526
        
        
        $
        92(a)
        
        The nine months ended September 30, 2003
            includes the "Cumulative Effect of a Change in Accounting Principle"
            recorded in January 2003. See Note 13 for additional information.(b)
        
        The nine months ended September 30, 2002
            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
            recorded in March and June 2002 described in Note 7.September
            30,
            2003
        
        
        December
            31,
            2002Balance Sheet DataTotal assetsSupply
        
        $
        5,303
        
        
        $
        4,907International
        
        
        4,877
        
        
        
        4,773Delivery
        
        
        5,754
        
        
        
        5,867$
        15,934
        
        
        $
        15,547(PPL Energy Supply)
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Income Statement DataRevenues from external customersSupply
        
        $
        908
        
        
        $
        903
        
        
        $
        2,518
        
        
        $
        2,365International
        
        
        239
        
        
        
        275
        
        
        
        761
        
        
        
        8361,147
        
        
        
        1,178
        
        
        
        3,279
        
        
        
        3,201Net IncomeSupply (a)
        
        
        171
        
        
        
        153
        
        
        
        442
        
        
        
        379International (b)
        
        
        19
        
        
        
        (12
        )
        
        
        96
        
        
        
        (234
        )$
        190
        
        
        $
        141
        
        
        $
        538
        
        
        $
        145(a)
        
        The nine months ended September 30, 2003
            includes the "Cumulative Effect of a Change in Accounting Principle"
            recorded in January 2003. See Note 13 for additional information.(b)
        
        The nine months ended September 30, 2002
            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
            recorded in March and June 2002 described in Note 7.September
            30,2003
        
        
        December
            31,2002Balance Sheet DataTotal assetsSupply
        
        $
        5,325
        
        
        $
        5,563International
        
        
        4,877
        
        
        
        4,773$
        10,202
        
        
        $
        10,336
4. Earnings Per Share
    (PPL)
    Basic EPS is calculated by dividing "Net Income" on the Statement of Income
      by the weighted-average number of common shares outstanding during the period.
      Diluted EPS is calculated similarly, except that weighted average shares
      outstanding are increased for additional shares that would be outstanding
      if potentially dilutive securities were converted to common stock. Potentially
      dilutive securities consist of:
    
        stock options, restricted stock and restricted
            stock units granted under the incentive compensation plans,
        stock units representing common stock
            granted under the directors compensation programs,
        common stock purchase contracts that
            are a component of the PEPS units, and
        convertible senior notes.The basic and diluted EPS calculations, and the reconciliation of the shares
      (in thousands) used in the calculations, are shown below:
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Income (Numerator)Net Income - before cumulative
            effect of a change in accounting principle (a)
        
        $
        171
        
        
        $
        122
        
        
        $
        463
        
        
        $
        242Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        63
        
        
        
        (150
        )Net Income
        
        $
        171
        
        
        $
        122
        
        
        $
        526
        
        
        $
        92Shares (Denominator)Shares for Basic EPS
        
        
        176,397
        
        
        
        151,565
        
        
        
        171,577
        
        
        
        148,758Add: Incremental shares:Stock options and other share-based
            awards
        
        
        654
        
        
        
        282
        
        
        
        604
        
        
        
        326Shares for Diluted EPS
        
        
        177,051
        
        
        
        151,847
        
        
        
        172,181
        
        
        
        149,084Basic EPSNet Income - before cumulative
            effect of a change in accounting principle
        
        $
        0.97
        
        
        $
        0.81
        
        
        $
        2.71
        
        
        $
        1.63Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.36
        
        
        
        (1.01
        )Net Income
        
        $
        0.97
        
        
        $
        0.81
        
        
        $
        3.07
        
        
        $
        0.62Diluted EPSNet Income - before cumulative
            effect of a change in accounting principle
        
        $
        0.97
        
        
        $
        0.80
        
        
        $
        2.70
        
        
        $
        1.63Cumulative effect of a change in accounting
            principle (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.36
        
        
        
        (1.01
        )Net Income
        
        $
        0.97
        
        
        $
        0.80
        
        
        $
        3.06
        
        
        $
        0.62(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.In May 2001, PPL issued 23 million PEPS Units that contain a purchase contract
      component for PPL's common stock. The purchase contracts will only be dilutive
      if the average price of PPL's common stock exceeds a threshold appreciation
      price, which is adjusted for cash distributions on PPL common stock. The
      appreciation price was initially set at $65.03 and has subsequently been
      adjusted to $63.94 as of September 30, 2003 based on dividends paid on PPL's
      common stock since issuance. Since the average price has not exceeded the
      threshold appreciation price, the purchase contracts were excluded from
      the diluted EPS calculations.
    In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible
      Senior Notes due 2023. The notes can be converted into shares of PPL common
      stock, at an initial conversion rate of 20.1106 shares per $1,000 principal
      amount of notes, subject to adjustment if:
    
        during any fiscal quarter starting after
            June 30, 2003, the market price of PPL's common stock trades at or
            above $59.67 per share over a certain period during the preceding
            fiscal quarter;
        PPL calls the debt for redemption;
        the holder exercises its right to put
            the debt on any five-year anniversary of the offering;
        the long-term credit rating assigned
            to the notes by Moody's and Standard & Poor's falls below Ba2
            and BB or the notes are not rated; or
        certain specified corporate transactions
            occur, e.g., change in control and certain distributions to the holders
            of PPL common stock.As none of these events has occurred, the convertible senior notes were
      excluded from the diluted EPS calculations.
    The following number of stock options to purchase PPL common shares were
      excluded in the periods' computations of diluted EPS, because the exercise
      price of the options was greater than the average market price of the common
      shares. Therefore, the effect would have been antidilutive.
    Three
            Months Ended
            September 30,
        
        
        Nine Months
            Ended
            September 30,(Thousands of Shares)
        2003
        
        
        2002
        
        
        2003
        
        
        2002Antidilutive stock options
        
        1,673
        
        
        
        1,716
        
        
        
        1,687
        
        
        
        1,158
5. Comprehensive Income
    (PPL, PPL Energy Supply and PPL Montana)
    The following tables show the after-tax components of comprehensive income:
    Three
            Months Ended
            September 30,
        
        
        Nine Months
            Ended
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002PPLNet Income
        $
        171
        
        
        $
        122
        
        
        $
        526
        
        
        $
        92Other comprehensive income:Foreign currency translation adjustments
        
        (5
        )
        
        
        (11
        )
        
        
        12
        
        
        
        133Unrealized gain (loss) on available-for-sale
            securities
        
        (2
        )
        
        
        (1
        )
        
        
        7
        
        
        
        (3
        )Unrealized gain (loss) on qualifying
            derivatives
        
        (25
        )
        
        
        5
        
        
        
        (11
        )
        
        
        (6
        )Total other comprehensive income (loss)
        
        (32
        )
        
        
        (7
        )
        
        
        8
        
        
        
        124Comprehensive Income
        $
        139
        
        
        $
        115
        
        
        $
        534
        
        
        $
        216Three
            Months Ended
            September 30,
        
        
        Nine Months
            Ended
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002PPL Energy SupplyNet Income
        $
        190
        
        
        $
        141
        
        
        $
        538
        
        
        $
        145Other comprehensive income:Foreign currency translation adjustments
        
        (5
        )
        
        
        (11
        )
        
        
        12
        
        
        
        133Unrealized gain (loss) on available-for-sale
            securities
        
        (3
        )
        
        
        
        
        
        
        5Unrealized gain (loss) on qualifying
            derivatives
        
        (29
        )
        
        
        10
        
        
        
        (5
        )
        
        
        (4
        )Total other comprehensive income (loss)
        
        (37
        )
        
        
        (1
        )
        
        
        12
        
        
        
        129Comprehensive Income
        $
        153
        
        
        $
        140
        
        
        $
        550
        
        
        $
        274PPL MontanaNet Income
        $
        16
        
        
        $
        14
        
        
        $
        49
        
        
        $
        31Other comprehensive income:Unrealized gain (loss) on qualifying
            derivatives
        
        8
        
        
        
        (5
        )
        
        
        1
        
        
        
        (18
        )Comprehensive Income
        $
        24
        
        
        $
        9
        
        
        $
        50
        
        
        $
        13(PPL Electric)
    PPL Electric's net income approximates comprehensive income.
6. Credit Arrangements and Financing Activities
    Credit Arrangements
    (PPL, PPL Energy Supply and PPL Electric)
    In June 2003, PPL Energy Supply's $300 million, 364-day credit facility
      and PPL Electric's $400 million, 364-day credit facility expired. PPL Energy
      Supply replaced its facility with a $300 million, three-year credit facility
      maturing in June 2006. PPL Electric replaced its facility with a $200 million,
      364-day facility maturing in June 2004 and a $100 million three-year credit
      facility maturing in June 2006. At September 30, 2003, no cash borrowings
      were outstanding under any credit facilities of PPL Electric or PPL Energy
      Supply. Both PPL Electric and PPL Energy Supply have the ability to cause
      the lenders to issue letters of credit under their respective facilities.
      At September 30, 2003, PPL Electric had $42 million of letters of credit
      outstanding under its $100 million, three-year facility, and PPL Energy
      Supply had $78 million of letters of credit outstanding under its existing
      $500 million, three-year facility.
    (PPL and PPL Energy Supply)
    At September 30, 2003, WPD (South West) had no outstanding borrowings under
      either its £100 million 364-day credit facility maturing in October
      2003 or its £150 million five-year credit facility maturing in October
      2007. In October 2003, WPD (South West) replaced its expiring facility with
      a new £100 million 364-day credit facility maturing in October 2004
      and extended its £150 million five-year credit facility to October
      2008. At September 30, 2003, WPD (South West) had uncommitted credit line
      borrowings of £9 million ($15 million based on current exchange rates)
      in separate agreements with lender banks.
    WPD (South West) maintained a £250 million bridge facility, that
      expired in April 2003, to meet short-term liquidity. This bridge facility
      was paid down with the proceeds from the issuance of long-term bonds and
      borrowings under another credit facility. The long-term bond issuance is
      discussed in more detail under "Financing Activities."
    (PPL Montana)
    At September 30, 2003, PPL Montana had no outstanding borrowings under
      its credit facility with another PPL Energy Supply subsidiary.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    The subsidiaries of PPL are separate legal entities. PPL's subsidiaries
      are not liable for the debts of PPL. Accordingly, creditors of PPL may not
      satisfy their debts from the assets of the subsidiaries absent a specific
      contractual undertaking by a subsidiary to pay PPL's creditors or as required
      by applicable law or regulation. Similarly, absent a specific contractual
      undertaking or as required by applicable law or regulation, PPL is not liable
      for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries
      may not satisfy their debts from the assets of PPL absent a specific contractual
      undertaking by PPL to pay the creditors of its subsidiaries or as required
      by applicable law or regulation.
    Similarly, the subsidiaries of PPL Energy Supply, PPL Electric and PPL
      Montana are separate legal entities. These subsidiaries are not liable for
      the debts of PPL Energy Supply, PPL Electric and PPL Montana. Accordingly,
      creditors of PPL Energy Supply, PPL Electric and PPL Montana may not satisfy
      their debts from the assets of their subsidiaries absent a specific contractual
      undertaking by a subsidiary to pay the creditors or as required by applicable
      law or regulation. In addition, absent a specific contractual undertaking
      or as required by applicable law or regulation, PPL Energy Supply, PPL Electric
      and PPL Montana are not liable for the debts of their subsidiaries. Accordingly,
      creditors of these subsidiaries may not satisfy their debts from the assets
      of PPL Energy Supply, PPL Electric or PPL Montana absent a specific contractual
      undertaking by that parent to pay the creditors of its subsidiaries or as
      required by applicable law or regulation.
    Financing Activities
    (PPL)
    In March 2003, PPL Capital Funding retired all $60 million of its medium-term
      notes, 6.375% Series due March 2003, at par value.
    In September 2003, PPL filed a Form S-4 registration statement with the
      SEC relating to an offer to exchange up to $573 million aggregate stated
      amount of its currently outstanding PEPS Units for up to $573 million aggregate
      stated amount of its PEPS Units, Series B, plus a cash payment of $0.375
      for each validly tendered and accepted outstanding PEPS Unit. PPL is seeking
      to conduct the exchange offer to reduce its future interest expense. The
      registration statement is not yet effective and the exchange offer has not
      been commenced.
    During the nine months ended September 30, 2003, PPL issued $424 million
      of common stock, including $109 million through its Structured Equity Shelf
      Program and $270 million through a public offering in May 2003. In this
      public offering, PPL issued 7.1 million shares of common stock for $38.25
      per share. PPL received net proceeds of approximately $261 million, which
      were used to repurchase commercial paper of PPL Energy Supply and for general
      corporate purposes.
    (PPL and PPL Energy Supply)
    In March 2003, WPD (South West) issued £200 million of 5.875% bonds
      due 2027. The proceeds from this issuance were used to repay £200
      million of borrowings under its bridge facility. Additionally, in May 2003,
      WPD (South West) issued an additional £50 million of 5.875% bonds
      due 2027. WPD (South West) used the proceeds from this issuance to pay down
      short-term borrowings. The issuance of this long-term debt resulted in an
      $11 million write-off of unamortized swap restructuring costs in the second
      quarter of 2003.
    In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible
      Senior Notes due 2023, which are guaranteed by PPL and convertible into
      PPL common stock. The convertible notes were sold in a Rule 144A private
      offering to qualified institutional buyers, and PPL Energy Supply and PPL
      subsequently registered the resale of the notes with the SEC for the benefit
      of the holders. See Note 4 for additional information on the convertibility
      features of the notes. PPL Energy Supply used the proceeds from the private
      offering of the convertible notes to repurchase commercial paper and for
      general corporate purposes.
    During the nine months ended September 30, 2003, WPD retired $53 million
      of 7.375% unsecured bonds due 2028, of which $3 million was retired in the
      third quarter of 2003.
    At September 30, 2003, PPL Energy Supply had no commercial paper outstanding.
    During the nine months ended September 30, 2003, PPL Energy Supply distributed
      $909 million to its parent company, PPL Energy Funding, and received capital
      contributions of $261 million.
    (PPL and PPL Electric)
    In February 2003, the Lehigh County Industrial Development Authority (LCIDA)
      issued $90 million of 3.125% Pollution Control Revenue Refunding Bonds due
      November 2008 on behalf of PPL Electric. The proceeds of the bonds were
      used to refund the LCIDA's $90 million, 6.40% Pollution Control Revenue
      Refunding Bonds due 2021. In order to secure its obligations to repay the
      LCIDA, PPL Electric issued $90 million aggregate principal amount of its
      Senior Secured Bonds under its 2001 Senior Secured Bond Indenture, having
      terms corresponding to the terms of the LCIDA bonds.
    In February 2003, PPL Electric retired $19 million of its outstanding First
      Mortgage Bonds, 6-7/8% Series due February 2003, at par value.
    In April 2003, as permitted by the 1945 First Mortgage Bond Indenture,
      PPL Electric retired approximately $46 million aggregate principal amount
      of its First Mortgage Bonds, 7-7/8% Series due 2023, at par value, plus
      accrued interest, through the application of cash deposited with the trustee
      to release certain transmission lines and other equipment from the lien
      of the 1945 First Mortgage Bond Indenture.
    In April 2003, PPL Electric redeemed all outstanding shares of its 6.15%
      Series Preferred Stock. This redemption, which totaled $10 million, was
      made at par value of $100 per share plus accumulated and unpaid dividends,
      in accordance with the mandatory sinking fund requirements of this series.
    In May 2003, PPL Electric issued $100 million of 4.30% Senior Secured Bonds
      due 2013. The proceeds were used for general corporate purposes including
      the refunding of higher-cost securities.
    In July 2003, PPL Electric redeemed all outstanding shares of the 6.33%
      Series Preferred Stock. This redemption, which totaled $5 million, was made
      at par value of $100 per share plus accumulated and unpaid dividends, in
      accordance with the mandatory sinking fund requirements of this series.
    In October 2003, PPL Electric redeemed all of its outstanding shares of
      the 6.125% Series Preferred Stock. This redemption, totaling $17 million,
      was made at par value of $100 per share plus accumulated and unpaid dividends,
      in accordance with the optional redemption provisions of this series.
    During the nine months ended September 30, 2003, PPL Transition Bond Company
      made principal payments on transition bonds totaling $196 million.
    During the nine months ended September 30, 2003, PPL Electric received
      a capital contribution of $75 million from PPL.
    At September 30, 2003, PPL Electric had no commercial paper outstanding.

    (PPL Montana)

    During the nine months ended September 30, 2003, PPL Montana repaid $26
      million under its revolving line of credit with an affiliate. Also during
      this period, PPL Montana distributed $5 million to its parent company, PPL
      Montana Holdings, LLC.

    Dividends and Dividend Restrictions(PPL)
    In February 2003, PPL announced an increase of its quarterly common stock
      dividend, effective April 1, 2003, from 36 cents per share to 38.5 cents
      per share (equivalent to $1.54 per annum). Future dividends, declared at
      the discretion of the Board of Directors, will be dependent upon future
      earnings, cash flows, financial requirements and other factors.
7. Acquisitions, Development and Divestitures
    Domestic Generation Projects(PPL and PPL Energy Supply)
    In January 2003, PPL announced that it had decided not to proceed with
      development of the 300 MW Kings Park project. In March, PPL Global sold
      its interest in Kings Park Energy, LLC.
    In April 2003, PPL Susquehanna completed the replacement of the Unit 2
      steam turbine at the Susquehanna station. This project provides a nominal
      power increase of 50 MW of generation capacity, of which PPL Susquehanna
      has a 90% undivided interest. An additional turbine upgrade is in progress
      for Unit 1 and is expected to be completed in 2004. Through September 30,
      2003, a total of approximately $84 million has been incurred on these projects.
    In October 2003, PPL Maine, LLC, a subsidiary of PPL Generation, entered
      into an agreement in principle with a coalition of government agencies and
      private groups to sell three of its nine hydroelectric dams in Maine. If
      the agreement is finalized, a non-profit organization designated by the
      coalition would have a five-year option to purchase the dams for approximately
      $25 million, and PPL Maine would receive rights to increase energy output
      at its other hydroelectric dams in Maine. The coalition has indicated that
      it plans to remove or bypass the dams subject to the agreement in order
      to restore runs of Atlantic salmon and other migratory fish to the Penobscot
      River. Any final agreement will require several approvals by the FERC.
    See Notes 8 and 15 for a discussion of the Lower Mt. Bethel facility.
    International Energy Projects (PPL and PPL Energy Supply)
    Acquisitions
    WPD
    On September 6, 2002, PPL Global acquired the remaining 49% equity interest
      in WPDH Limited and WPDL from Mirant for approximately $236 million, including
      acquisition costs. The acquisition of Mirant's 49% interest provides PPL
      Global with complete control of WPD.
    Prior to the acquisition, PPL Global held 51% of the equity interest in
      WPD but shared control with Mirant pursuant to a shareholders' agreement.
      The shareholders' agreement was terminated in connection with the closing
      of the acquisition. No regulatory approvals were required for this transaction.
    The purchase of Mirant's interest in WPD was accounted for as a step-acquisition
      and resulted in the consolidation of WPD's accounts by PPL and PPL Energy
      Supply.
    The assets acquired and liabilities assumed were recorded at estimated
      fair value as determined by management based on information currently available,
      including an independent appraisal of the fair value of acquired property,
      plant and equipment and intangible assets. Management is also completing
      its review and determination of fair value of other assets acquired and
      liabilities assumed, including pre-acquisition contingencies. Accordingly,
      the allocation of purchase price is preliminary and may be revised as additional
      information becomes available. The following table summarizes the preliminary
      allocation of purchase price based on estimated fair values of the assets
      acquired and liabilities assumed at the date of acquisition, plus the book
      value of assets and liabilities underlying PPL Global's previous 51% equity
      ownership:
    Current assets
        
        $
        228Investments (a)
        
        
        (438
        )Property, plant and equipment
        
        
        3,437Goodwill
        
        
        197Other
        
        
        244Total assets acquired
        
        
        3,668Current liabilities
        
        
        787Long-term debt
        
        
        1,581Other
        
        
        1,064Total liabilities assumed
        
        
        3,432Net assets acquired
        
        $
        236(a)
        
        Includes the reversal of PPL Global's
            equity investment.The goodwill reflected above includes the remaining value of PPL Global's
      51% share of the goodwill recognized by WPD on its acquisition of Hyder.
    The PPL income statements for the nine months ended September 30, 2003
      and 2002 include consolidated WPD results for the nine-month periods ended
      August 31, 2003 and 2002. This reflects PPL Global's policy of recording
      the results of foreign controlled subsidiaries on a one-month lag. The portion
      of earnings attributable to Mirant, $19 million and $72 million for the
      three and nine months ended September 30, 2002, is reported on the Statement
      of Income in "Minority Interest."
    TransEmel
    
    Emel acquired the remaining 40% interest in a joint venture (TransEmel, a
       provider of transmission service to northern Chile)
      in July 2003 at a net cost of $3 million, bringing its total ownership interest
      in TransEmel to 100%. As a result of this acquisition, the operating results
      of TransEmel have been consolidated from the beginning of the year. The
      portion of earnings attributable to the minority shareholder is reported
      on the Statement of Income in "Minority Interest."
    Write-down of International Energy Projects - CEMAR
    At December 31, 2001, PPL Global estimated that the long-term viability
      of its CEMAR investment was jeopardized and that there was minimal probability
      of positive future cash flows. At that time, PPL Global recorded an impairment
      loss of $217 million in the carrying value of its net assets in CEMAR. At
      March 31, 2002, PPL Global recorded a further impairment loss of $6 million,
      which was charged to "Write-down of international energy projects" on the
      Statement of Income. In June 2002, PPL made a decision to exit the investment.
      PPL Global's remaining portion of its CEMAR investment, $94 million, which
      related to foreign currency translation adjustments (CTA), was written-off
      as of June 30, 2002. Accounting guidance prohibited the inclusion of CTA
      in impairment calculations prior to designating such assets as held for
      disposal.
    On August 21, 2002, ANEEL authorized an administrative intervention in
      CEMAR and fully assumed operational and financial control of the company.
      In its public announcement relating to the intervention, ANEEL said that
      its intervention and control of CEMAR would last for an initial term of
      180 days and that it could be extended.
    The intervenor appointed by ANEEL issued a public statement and schedule
      for the transfer of the ownership interest in CEMAR to a new owner. Although
      the schedule announced by the intervenor reflected a closing for the transfer
      of control of CEMAR to a third party on December 20, 2002, the closing did
      not occur. The deadline for the sale process was extended to February 17,
      2003, the same day the initial term of the intervention was scheduled to
      end. No conforming bids were submitted to ANEEL by the February 17 deadline
      due to three outstanding injunctions preventing the sale process from continuing.
      ANEEL publicly announced a 180-day extension of the initial intervention
      on February 14, citing the continuing unresolved financial crisis of CEMAR
      as the primary reason for the extension. As of February 11, 2003, due to
      the inability to discharge their obligations under the continuing intervention,
      PPL-related officers and directors of CEMAR resigned from their respective
      positions.
    In April 2003, PPL learned that the Brazilian Federal Appellate Court hearing
      the appeal of one of the above-mentioned injunctions accepted ANEEL's arguments
      and cancelled the injunction. In June, ANEEL's officials indicated to PPL
      that the other two injunctions outstanding against the sale process had
      been lifted as well. The intervenor appointed by ANEEL issued a public statement
      and revised schedule for the transfer of the ownership interest in CEMAR
      to a new owner. In July, ANEEL pre-qualified a Brazilian private equity
      fund, GP Investimentos (GP), as the sole qualified bidder. However, on August
      12, ANEEL announced that it could not proceed with GP's offer because, among
      other reasons, it was unacceptable to CEMAR's creditors. On August 16, ANEEL
      extended the intervention for up to an additional 180 days. On September
      4, ANEEL published a revised schedule for the sale of CEMAR to a third party
      by the end of the year. PPL Global cannot predict the outcome of the current
      sale process sponsored by ANEEL.
    Based on these and other events described more fully in each Registrant's
      Annual Report to the SEC on Form 10-K for the year ended December 31, 2002,
      PPL Global no longer controls or manages CEMAR and PPL Global has deconsolidated
      the financial assets and liabilities of CEMAR from its financial statements.
      Consistent with the cost method of accounting, PPL Global is no longer recording
      CEMAR's operating results.
    At September 30, 2003, the negative investment in CEMAR of $18 million
      was included in "Deferred Credits and Other Noncurrent Liabilities - Other."
      Any negative carrying value will be reversed upon the final sale or other
      disposition of the company.
    Sales
    In the second quarter of 2003, a subsidiary of WPD sold certain Hyder properties.
      PPL Global received approximately $17 million from the sales, and recorded
      a pre-tax gain of about $2 million. This gain is included in "Other Income
      - net" on the Statement of Income.
    Other(PPL)
    In April 2003, a subsidiary of PPL Telcom acquired the fiber optic network
      of a Fairfax, Virginia-based company for approximately $21 million, consisting
      of $9 million in cash and a $12 million capital lease obligation for the
      right to use portions of a fiber optic network. The 1,330-route-mile metropolitan
      area fiber network connects New York, northern New Jersey, Philadelphia,
      Baltimore and Washington, D.C. The acquisition required certain regulatory
      approvals and authorizations in the area served by the network.
8. Commitments and Contingent Liabilities
    Energy Purchases and Sales Commitments
    Liability for Above Market NUG Contracts(PPL, PPL Energy
      Supply and PPL Electric)
    In 1998, PPL Electric recorded a loss accrual for above market contracts
      with NUGs of $854 million, due to its generation business being deregulated.
      Effective January 1999, PPL Electric began reducing this liability as an
      offset to "Energy purchases" on the Statement of Income. This reduction
      is based on the estimated timing of the purchases from the NUGs and projected
      market prices for this generation. The final existing NUG contract expires
      in 2014. In connection with the corporate realignment, effective July 1,
      2000, the remaining balance of this liability was transferred to PPL EnergyPlus.
      At September 30, 2003, the remaining liability associated with the above
      market NUG contracts was $371 million.
    Wholesale Energy Commitments
    (PPL, PPL Energy Supply and PPL Montana)
    As part of the purchase of generation assets from Montana Power, PPL Montana
      assumed a power purchase agreement and a power sales agreement, which were
      still in effect at September 30, 2003. In accordance with purchase accounting
      guidelines, PPL Montana recorded liabilities of $66 million as the estimated
      fair value of these agreements at the acquisition date. These liabilities
      are being reduced over the terms of the agreements, through 2010, as adjustments
      to "Wholesale energy marketing" revenues and "Energy purchases" on the Statement
      of Income. The unamortized balance of these liabilities at September 30,
      2003 was $63 million.
    On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate
      of 450 MW of energy to be supplied by PPL Montana. Under two five-year agreements,
      PPL EnergyPlus is supplying 300 MW of around-the-clock electricity and 150
      MW of unit-contingent on-peak electricity. PPL Montana also makes short-term
      energy sales to NorthWestern. Following NorthWestern's credit downgrades
      to below investment grade in late 2002, PPL Montana and NorthWestern agreed
      to modify the payment provisions of the energy contracts such that NorthWestern
      would pay PPL Montana on a weekly basis, in arrears.
    In September 2003, NorthWestern filed a voluntary petition for relief seeking
      to reorganize under Chapter 11 of the U.S. Bankruptcy Code. NorthWestern
      made its filing in federal bankruptcy court in Delaware. Between the time
      of NorthWestern's last weekly payment and the bankruptcy filing date, PPL
      Montana made approximately $1.6 million of energy sales to NorthWestern.
    Following the date that NorthWestern filed for bankruptcy, PPL Montana
      and NorthWestern agreed to amend the power supply agreements to, among other
      things, eliminate the weekly payment arrangements and resume more typical
      monthly invoicing and payment arrangements. The amendments were contingent
      on NorthWestern's assumption of the power supply agreements in its bankruptcy
      proceeding.
    On September 26, 2003, NorthWestern filed a motion with the bankruptcy
      court seeking, among other things, to assume the two five-year power supply
      agreements (as amended) and to pay PPL Montana for the approximately $1.6
      million of energy sales made immediately prior to the time of the bankruptcy
      filing. On October 13, 2003, the bankruptcy court entered an order granting
      NorthWestern's motion. NorthWestern has, in accordance with the terms of
      the judge's order, paid PPL Montana for the pre-filing energy sales, and
      the parties have resumed monthly invoicing and payment arrangements.
    (PPL and PPL Energy Supply)
    As a result of New Jersey's Electric Discount and Energy Competition Act,
      its Board of Public Utilities authorized and made available to power suppliers,
      on a competitive basis, the opportunity to provide Basic Generation Service
      (BGS) to all non-shopping New Jersey customers. In February 2003, PPL EnergyPlus
      was awarded 34-month fixed-price BGS and 10-month hourly energy price BGS
      for a fixed percentage of customer load (approximately 1,000 MW) for Atlantic
      City Electric Company, Jersey Central Power & Light Company and Public
      Service Electric & Gas Company. These contracts commenced in August
      2003.
    In April 2003, PPL EnergyPlus entered into an agreement with Arizona Public
      Service Company to provide 112 MW of capacity and associated electricity
      from July through September of 2003 and 150 MW from June through September
      of 2004 and 2005.
    In May 2003, PPL EnergyPlus entered into agreements with Tucson Electric
      Power Company to provide 37 MW of capacity and associated electricity from
      June through December of 2003 and 75 MW from January 2004 through December
      2006.
    In May 2003, PPL EnergyPlus entered into a 20-year agreement with Community
      Energy, Inc. to purchase energy from its Bear Creek wind power project in
      northeastern Pennsylvania. The project is expected to produce up to 20 MW
      and to be completed in 2004.
    Legal Matters
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL and its subsidiaries are involved in numerous legal proceedings, claims
      and litigation in the ordinary course of business. PPL and its subsidiaries
      cannot predict the ultimate outcome of such matters, or whether such matters
      may result in material liabilities.
    Tax Assessment Appeals
    (PPL and PPL Energy Supply)
    Pursuant to changes in PURTA enacted in 1999, PPL subsidiaries have filed
      a number of tax assessment appeals in various Pennsylvania counties where
      PPL facilities are located. These appeals challenge existing local tax assessments,
      which now comprise the basis for payment of the PURTA tax on PPL's properties.
      Also, as of January 1, 2000, generation facilities are no longer taxed
      under PURTA, and these local assessments will be used directly to determine
      local real estate tax liability for PPL's power plants. In July 1999, PPL
      filed retroactive appeals for tax years 1998 and 1999, as permitted by the
      new law. In addition, PPL has filed appeals for 2000 and beyond, as permitted
      under normal assessment procedures. It is anticipated that assessment appeals
      may now be an annual occurrence.
    Hearings on the pending appeals were held by the boards of assessment appeals
      in each county, and decisions have now been rendered by all counties. To
      the extent the appeals were denied or PPL was not otherwise satisfied with
      the results, PPL filed further appeals from the board decisions with the
      appropriate county Courts of Common Pleas.
    Of the three pending proceedings in Pennsylvania, only the appeal concerning
      the assessed value of the Susquehanna nuclear station will result in annual
      local taxes exceeding $1 million. PPL's appeal of the Susquehanna station
      assessment was decided in its favor by the Luzerne County Court of Common
      Pleas, and PPL subsequently settled with the local taxing authorities, resulting
      in annual local tax liability of approximately $3 million for tax years
      2000 and beyond and no additional PURTA tax liability for tax years 1998
      and 1999. However, the settlement of the tax liability for tax years 1998
      and 1999 is subject to the outcome of claims asserted by certain intervenors
      which are described below.
    In August 2000, over PPL's objections, the Luzerne County Court of Common
      Pleas permitted Philadelphia City and County, the Philadelphia School District
      and the Southeastern Pennsylvania Transportation Authority (SEPTA) (collectively,
      the "Philadelphia parties") to intervene in the case because a change in
      the assessment of the plant affected the amount they collected under PURTA
      for the tax years 1998 and 1999. Based on the appraisal obtained by the
      Philadelphia parties, PPL would be required to pay up to an extra $213 million
      in PURTA taxes for 1998 and 1999. The court ruled in PPL's favor concerning
      the assessed value of the plant, and this determination was affirmed by
      the Commonwealth Court in October 2003.
    (PPL, PPL Energy Supply and PPL Montana)
    PPL Montana is currently protesting certain property tax assessments by
      the Montana Department of Revenue (MDOR) on its generation facilities. The
      tax liabilities in dispute are approximately $2 million for 2000 and 2001
      and $9 million for 2002. PPL Montana's dispute with respect to most of the
      2002 tax liability is based on the assessed value used by the MDOR for PPL
      Montana's hydroelectric facilities versus the assessed value used for the
      facilities of another hydroelectric generator in the state. The state tax
      appeals board is scheduled to hear the 2000 and 2001 disputes in January
      2004, while the hearing for the 2002 dispute is scheduled for April 2004.
    Montana Power Shareholders' Litigation(PPL, PPL Energy
      Supply and PPL Montana)
    In August 2001, a purported class-action lawsuit was filed by a group of
      shareholders of Montana Power against Montana Power, the directors of Montana
      Power, certain advisors and consultants of Montana Power and PPL Montana.
      The plaintiffs allege, among other things, that Montana Power was required
      to, and did not, obtain shareholder approval of the sale of Montana Power's
      generation assets to PPL Montana in 1999. Although most of the claims in
      the complaint are against Montana Power, its board of directors, and its
      consultants and advisors, two claims are asserted against PPL Montana. In
      the first claim, plaintiffs seek a declaration that because Montana Power
      shareholders did not vote on the 1999 sale of generating assets to PPL Montana,
      that sale "was null and void ab initio." The second claim alleges that PPL
      Montana was privy to and participated in a strategy whereby Montana Power
      would sell its generation assets to PPL Montana without first obtaining
      Montana Power shareholder approval, and that PPL Montana has made net profits
      in excess of $100 million as the result of this alleged illegal sale. In
      the second claim, plaintiffs request that the court impose a "resulting
      and/or constructive trust" on both the generation assets themselves and
      all profits, plus interest on the amounts subject to the trust. This lawsuit
      is currently pending in the U.S. District Court of Montana, Butte Division.
      PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of this
      matter.
    Energy West Litigation (PPL, PPL Energy Supply and PPL Montana)
    In July 2001, PPL Montana filed an action in state court and a responsive
      pleading in the U.S. District Court of Montana, Great Falls Division, both
      related to a breach of contract by Energy West Resources, Inc. (Energy West),
      a Great Falls, Montana-based energy aggregator. PPL Montana was seeking
      a judgment that Energy West violated the terms of the contract under which
      it supplied energy to Energy West during the period July 1, 2000 through
      June 30, 2002. All litigation in this matter was consolidated in the U.S.
      District Court of Montana, Great Falls Division. In June 2003, PPL Montana
      and Energy West agreed to settle the litigation. Under the terms of the
      settlement, Energy West agreed to pay PPL Montana $3 million, of which $1
      million was paid in June and the remaining $2 million was paid in September
      2003. The litigation has now been dismissed by the federal court.
    NorthWestern Corporation Litigation(PPL, PPL Energy Supply
      and PPL Montana)
    In connection with the acquisition of the Montana generation assets, the
      Montana Power APA, which was previously assigned to PPL Montana by PPL Global,
      includes a provision concerning the proposed purchase by PPL Montana of
      a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission
      System (CTS) for $97 million. During 2002, PPL Montana had been in discussions
      with NorthWestern regarding the proposed purchase of the CTS and the claims
      that PPL Montana believes it has against NorthWestern arising from the Montana
      Power APA and related agreements. Notwithstanding such discussions, in September
      2002, NorthWestern filed a lawsuit against PPL Montana in Montana state
      court seeking specific performance of PPL Montana's purchase of the CTS
      or, alternatively, damages for breach of contract. Pursuant to PPL Montana's
      application, the matter was removed to the U.S. District Court of Montana,
      Butte Division. Following removal, NorthWestern asserted additional claims
      for damages against PPL Montana, and PPL Montana filed defenses denying
      liability for NorthWestern's claims as well as counterclaims against NorthWestern
      seeking damages PPL Montana believes it has suffered under the Montana Power
      APA and related agreements. This matter is currently scheduled for trial
      in mid-2005. In September 2003, NorthWestern filed a petition in Delaware
      for reorganization under the U.S. Bankruptcy Code, which has resulted in
      an automatic stay of PPL Montana's counterclaims against NorthWestern. PPL
      Montana has applied to the bankruptcy court for relief from the automatic
      stay. PPL, PPL Energy Supply and PPL Montana cannot predict the outcome
      of this litigation.
    Montana Hydroelectric Litigation (PPL, PPL Energy Supply and
      PPL Montana)
    In October 2003, a lawsuit was filed against PPL Montana, PPL Services,
      Avista Corporation, PacifiCorp and nine John Doe defendants in the U.S. District Court
      of Montana, Missoula Division, by two residents allegedly acting in a representative
      capacity on behalf of the State of Montana. The action seeks a declaratory
      judgment, compensatory damages for unjust enrichment, trespass and negligence,
      and attorneys fees on a "private attorney general" theory for use of state
      "school trust" lands without the compensation required by law and to require
      defendants to adequately compensate the State School Trust fund
      for full market value of lands occupied.
      Generally, the suit is founded on allegations that the bed of navigable
      rivers is state-owned property following admission to statehood, and that
      the use thereof for placement of dam structures, affiliated structures and
      reservoirs should trigger lease payments for use of "school trust" land
      underneath. The plaintiffs allege that the State Land Board and Department
      of Natural Resources and Conservation failed to exercise their duty to administer
      riverbeds for the maximum benefit of public education. No specific amount of
      damages has been claimed. PPL Montana and PPL
      Services deny the allegations in the complaint and intend to defend the
      lawsuit. PPL Montana and PPL Services cannot predict the outcome of this
      litigation at this time.
    Regulatory Issues
    California ISO and Pacific Northwest (PPL, PPL Energy Supply
      and PPL Montana)
    Through its subsidiaries, PPL has made approximately $18 million of sales
      to the California ISO, of which $17 million has not been paid to PPL subsidiaries.
      Given the myriad of electricity supply problems presently faced by the California
      electric utilities and the California ISO, PPL cannot predict whether or
      when it will receive payment. As of September 30, 2003, PPL has fully reserved
      for possible underrecoveries of payments for these sales.
    Regulatory proceedings arising out of the California electricity supply
      situation have been filed at the FERC. The FERC has determined that all
      sellers of energy into markets operated by the California ISO and the California
      Power Exchange, including PPL Montana, should be subject to refund liability
      for the period beginning October 2, 2000 through June 20, 2001 and initiated
      an evidentiary hearing concerning refund amounts. In April 2003, the FERC
      changed the manner in which this refund liability is to be computed and
      ordered further proceedings to determine the exact amounts that the sellers,
      including PPL Montana, would be required to refund.
    In June 2003, the FERC took several actions as a result of a number of
      related investigations. The FERC terminated proceedings pursuant to which
      it had been considering whether to order refunds for spot market bilateral
      sales made in the Pacific Northwest, including sales made by PPL Montana,
      during the period December 2000 through June 2001. The FERC explained that
      the totality of the circumstances made refunds unfeasible and inequitable,
      and that it had provided adequate relief by adopting a price cap throughout
      the western U.S. The FERC also denied pending complaints against long-term
      contracts in the western U.S. In these complaints, various power buyers
      challenged selected long-term contracts that they entered into during 2000
      and 2001, complaining that the power prices were too high and reflected
      manipulation of those energy markets. The FERC found that the complainants
      had not met their burden of showing that changing or canceling the contracts
      was "in the public interest" and that the dysfunction in the California
      markets did not justify changing these long-term contracts. In two separate
      orders, the FERC also ordered 65 different companies, agencies or municipalities
      to show cause why they should not be ordered to disgorge profits for "gaming"
      or anomalous market behavior during 2000 and 2001. These orders to show
      cause address both unilateral and joint conduct identified as the "Enron
      trading strategies." Neither PPL EnergyPlus nor PPL Montana was included
      in these orders to show cause, and they previously have explained in responses
      to data requests from the FERC that they have not engaged in such trading
      strategies. Finally, the FERC issued a new investigation order directing
      its staff to investigate any bids made into the California markets in excess
      of $250/MWh during the period from May 2000 to October 2000, a period of
      time prior to the period examined in connection with most of the proceedings
      described above. To their knowledge, neither PPL EnergyPlus nor PPL Montana
      is being investigated by the FERC under this new order.
    Litigation arising out of the California electricity supply situation has
      been filed in California courts against sellers of energy to the California
      ISO. The plaintiffs and intervenors in these legal proceedings allege, among
      other things, abuse of market power, manipulation of market prices, unfair
      trade practices and violations of state antitrust laws, and seek other relief,
      including treble damages and attorneys' fees. While PPL's subsidiaries have
      not been named by the plaintiffs in these legal proceedings alleging abuses
      of market power, manipulation of market prices, unfair trade practices and
      violations of state antitrust laws, PPL Montana was named by a defendant
      in its cross-complaint in a consolidated court proceeding, which combined
      into one master proceeding several of the lawsuits alleging antitrust violations
      and unfair trade practices. This generator denies that any unlawful, unfair
      or fraudulent conduct occurred but asserts that, if it is found liable,
      the other generators and power marketers, including PPL Montana, caused,
      contributed to and/or participated in the plaintiffs' alleged losses.
    In May 2003, the Port of Seattle filed a lawsuit in the U.S. District Court
      for the Western District of Washington against eighteen defendants, including
      PPL Montana. The lawsuit asserts claims against all defendants under the
      federal and state antitrust laws, the federal Racketeer Influenced and Corrupt
      Organizations Act and for common law fraud. The complaint centers on many
      of the same alleged activities that are the basis for the litigation arising
      out of the California electricity supply situation described above. The
      Port of Seattle is seeking actual, trebled and punitive damages, as well
      as attorneys' fees.
    While PPL and its subsidiaries believe that they have not engaged in any
      improper trading practices, they cannot predict whether, or the extent to
      which, any PPL subsidiaries will be the target of any additional governmental
      investigations or named in other lawsuits or refund proceedings, the outcome
      of any such lawsuits or proceedings or whether the ultimate impact on them
      of the electricity supply situation in California and other western states
      will be material.
    PJM Capacity Transactions(PPL, PPL Energy Supply and
      PPL Electric)
    In November 2001, the PJM Market Monitor publicly released a report prepared
      for the PUC entitled "Capacity Market Questions" relating to the pricing
      of installed capacity in the PJM daily market during the first quarter of
      2001. The report concluded that PPL EnergyPlus (identified in the report
      as "Entity 1") was able to exercise market power to raise the market-clearing
      price above the competitive level during that period. PPL EnergyPlus does
      not agree with the Market Monitor's conclusions that it exercised market
      power, and the Market Monitor acknowledged in his report that PJM's standards
      and rules did not prohibit PPL EnergyPlus' conduct. In November 2001, the
      PUC issued an Investigation Order directing its Law Bureau to conduct an
      investigation into the PJM capacity market and the allegations in the Market
      Monitor's report. In June 2002, the PUC issued an investigation report alleging,
      among other things, that PPL had unfairly manipulated electricity markets
      in early 2001. The PUC stated that it was not authorized to, and was not
      attempting to, adjudicate the merits of PPL's defenses to its allegations,
      but referred the matter to the U.S. Department of Justice - Antitrust Division
      (DOJ), the FERC and the Pennsylvania Attorney General.
    In June 2003, the DOJ notified PPL that it had closed its investigation
      in this matter. Also in June, the Pennsylvania Attorney General's office
      completed its investigation and notified the PUC that PPL did not violate
      antitrust or other laws in its capacity market activities. The FERC already
      has completed two investigations related to these capacity market questions
      and has found no reason to take action against PPL. PPL continues to believe
      that the PUC's report is inaccurate, that its conclusions are groundless,
      and that PPL acted ethically and legally, in compliance with all applicable
      laws and regulations.
    In September 2002, PPL was served with a complaint filed by Utilimax.com,
      Inc., which was a member of PJM, in the U.S. District Court for the Eastern
      District of Pennsylvania against PPL and PPL EnergyPlus alleging, among
      other things, violations of the federal antitrust laws in connection with
      the capacity transactions described in the Market Monitor's report. The
      court dismissed the complaint with prejudice in July 2003, and Utilimax
      has appealed the court's dismissal to the U.S. Court of Appeals for the
      Third Circuit.
    In December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus
      and PPL Electric filed in the U.S. District Court for the Eastern District
      of Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleges,
      in broad terms, similar violations of the federal antitrust laws. These
      boroughs are wholesale customers of PPL Electric. In addition, in November
      2003, PPL and PPL EnergyPlus were served with a complaint which was
      filed in the same court by Joseph Martorano, III (d/b/a ENERCO), that also
      alleges violations of the federal antitrust laws. The complaint
      indicates that ENERCO provides consulting and energy procurement services
      to clients in Pennsylvania and New Jersey. Although PPL, PPL EnergyPlus
      and PPL Electric believe the claims in these complaints are without merit,
      they cannot predict the outcome of these matters.
    FERC Market-Based Rate Authority (PPL and PPL Energy Supply)
    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to
      make wholesale sales of electric power and related products at market-based
      rates. In that order, the FERC directed PPL EnergyPlus to file an updated
      market analysis within three years of the date of the order, and every three
      years thereafter. PPL EnergyPlus filed its initial updated market analysis
      in December 2001. Several parties thereafter filed interventions and protests
      requesting that, in light of the PJM Market Monitor's report described above,
      PPL EnergyPlus be required to provide additional information demonstrating
      that it has met the FERC's market power tests necessary for PPL EnergyPlus
      to continue its market-based rate authority. PPL EnergyPlus has responded
      that the FERC does not require the economic test suggested by the intervenors
      and that, in any event, it would meet such economic test if required by
      the FERC. PPL EnergyPlus cannot predict the outcome of this matter.
    FERC Proposed Rules (PPL, PPL Energy Supply, PPL Electric and
      PPL Montana)
    In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled
      "Remedying Undue Discrimination through Open Access Transmission Service
      and Standard Electricity Market Design." The proposed rule is currently
      available for public comment and contains a proposed implementation date
      of July 31, 2003. However, since the issuance of the proposed rule, the
      FERC has delayed the implementation date. This far-reaching proposed rule,
      in its current form, purports to establish uniform transmission rules and
      establish a standard market design by, among other things:
    
        enacting standard transmission tariffs
            and uniform market mechanisms,
        monitoring and mitigating "market power,"
        managing transmission congestion through
            pricing and tradable financial rights,
        requiring independent operational control
            over transmission facilities,
        forming state advisory committees on
            regional transmission organizations and resource adequacy, and
        exercising FERC jurisdiction over all
            transmission service.In April 2003, the FERC issued a white paper describing certain modifications
      to the proposed rule. The FERC has requested comments and is holding numerous
      public comment sessions concerning the white paper.
    In an order issued in June 2003, the FERC requested comments on a proposal
      to condition all new and existing electric market-based tariffs and authorizations
      to include provisions prohibiting the seller from engaging in anticompetitive
      behavior or the exercise of market power. The FERC order proposes a list
      of market behavior rules that, if adopted, would apply to all electric market-based
      rate tariffs and authorizations, including those of PPL EnergyPlus and any
      other PPL subsidiaries that hold market-based rate authority.
    If adopted, these proposed rules may have a significant impact on PPL and
      its subsidiaries, which cannot be predicted at this time.
    Montana Hydroelectric License Contingencies(PPL Montana)
    PPL Montana has 11 hydroelectric facilities and one storage reservoir licensed
      by the FERC pursuant to the Federal Power Act under long-term licenses which
      expire on varying dates from 2009 through 2040. Pursuant to Section 8(e)
      of the Federal Power Act, the FERC approved the transfer from Montana Power
      to PPL Montana of all pertinent licenses and any amendments in connection
      with the Montana APA.
    The Kerr Dam Project license was jointly issued by the FERC to Montana
      Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation
      in 1985, and required Montana Power to hold and operate the project for
      30 years. The license required Montana Power, and subsequently PPL Montana
      as a result of the purchase of the Kerr Dam from Montana Power, to continue
      to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife
      and the habitat. Such implementation will require remaining payments totaling
      approximately $22 million between 2004 and 2015.
    PPL Montana entered into a Memorandum of Understanding (MOU) with state,
      federal and private entities related to the issuance in 2000 of the FERC
      renewal license for the nine dams for the Missouri-Madison project. The
      MOU requires PPL Montana to implement plans to mitigate the impact of its
      projects on fish, wildlife, habitat and to increase recreational opportunities.
      The MOU was created to maximize collaboration between the parties and possibilities
      for matching funds. Such implementation will require remaining payments
      by PPL Montana totaling $17 million between 2003 and 2010.
    Wallingford Deactivation (PPL and PPL Energy Supply)
    In January 2003, PPL negotiated an agreement with the ISO - New England
      that would declare that four of the five units at PPL's Wallingford, Connecticut
      facility are "reliability must run" units and put those units under cost-based
      rates. This agreement and the cost-based rates are subject to the FERC's
      approval, and PPL filed a request with the FERC for such approval. PPL requested
      authority for cost-based rates because the current and anticipated wholesale
      prices in New England are insufficient to cover the costs of keeping these
      units available for operation. In March 2003, PPL filed an application with
      the New England Power Pool to temporarily deactivate these four units. In
      May 2003, FERC denied PPL's request for cost-based rates in light of FERC's
      changes to the market and bid mitigation rules of the ISO - New England
      made in a similar case involving generating units owned by NRG Energy, Inc.
      PPL subsequently has explained to the FERC that its changes to the market
      and bid mitigation rules of ISO - New England will not provide sufficient
      revenues to PPL, and PPL continues to seek approval of its cost-based rates.
      However, PPL has informed the New England Power Pool that it will not pursue
      its request to temporarily deactivate certain Wallingford units. PPL cannot
      predict whether the FERC will eventually approve its request for cost-based
      rates.
    IRS Synthetic Fuels Tax Credits (PPL and PPL Energy Supply)
    Through one of its subsidiaries, PPL operates a synfuel facility in Somerset,
      Pennsylvania and receives tax credits pursuant to Section 29 of the Internal
      Revenue Code based on its sale of synfuel to unaffiliatedthird-party
      purchasers. Section 29 of the Internal Revenue Code provides tax credits
      for the production and sale of solid synthetic fuels produced from coal.
      To qualify for the Section 29 tax credits, the synthetic fuel must meet
      three primary conditions: (i) there must be a significant chemical change
      in the coal feedstock, (ii) the product must be sold to an unaffiliated
      entity, and (iii) the production facility must have been placed in service
      before July 1, 1998. Section 29 tax credits are currently scheduled to expire
      at the end of 2007.
    PPL received a private letter ruling from the IRS in November 2001 pursuant
      to which, among other things, the IRS concluded that the synthetic fuel
      produced at the Somerset facility qualifies for Section 29 tax credits.
      PPL uses the Covol technology to produce synfuel at the Somerset facility,
      and the IRS issued the private letter ruling after its review and approval
      of that technology. In reliance on this private letter ruling, PPL has sold
      synfuel produced at the Somerset facility resulting in an aggregate of approximately
      $133 million of tax credits as of September 30, 2003.PPL has
      projected that the Somerset facility will contribute approximately $0.15
      to its EPS in each year from 2003 through 2007. PPL also purchases synfuel
      from unaffiliated third parties, at prices below the market price of coal,
      for use at its coal-fired power plants.
    In June 2003, the IRS announced that it had reason to question the scientific
      validity of certain test procedures and results that have been presented
      to it by taxpayers with interests in synfuel operations as evidence that
      the required significant chemical change has occurred, and that it was reviewing
      information regarding these test procedures and practices. In conjunction
      with such review, the IRS suspended the issuance of private letter rulings
      concerning whether a significant chemical change has occurred for requests
      relying on the procedures and results being reviewed. In addition, the IRS
      indicated that it might revoke existing private letter rulings that relied
      on the procedures and results under review if it determined that those test
      procedures and results do not demonstrate that a significant chemical change
      has occurred.
    In October 2003, the IRS announced that it had completed its review of
      the scientific validity of test procedures and results presented by taxpayers
      as evidence of significant chemical change and determined that the test
      procedures and results used by taxpayers are scientifically valid, if the
      procedures are applied in a consistent and unbiased manner. Further, the
      IRS announced that it will continue to issue rulings on significant chemical
      change under applicable IRS guidelines, despite some question by the IRS
      as to whether those processes result in the level of significant chemical
      change required by Section 29 of the Internal Revenue Code and IRS revenue
      rulings. Finally, the IRS indicated that it would require taxpayers to comply
      with certain sampling and data/record retention practices to obtain or maintain
      a ruling on significant chemical change.
    PPL believes that the October IRS announcement confirms that PPL is justified
      in its reliance on the private letter ruling for the Somerset facility,
      that the test results that PPL presented to the IRS in connection with its
      private letter ruling are scientifically valid and that PPL has operated
      the Somerset facility in compliance with the private letter ruling and Section
      29 of the Internal Revenue Code.
    In October 2003, following the IRS announcement, PPL became aware of reports
      indicating that the U.S. Senate Permanent Subcommittee on Investigations,
      of the Committee on Governmental Affairs,
      had begun an investigation of the synthetic fuel industry and its producers.
      PPL has no further knowledge of the investigation, when the investigation
      will be completed or the potential results of the investigation.
    U.K. Electricity Regulation(PPL and PPL Energy Supply)
    The principal legislation governing the structure of the electricity industry
      in Great Britain is the Electricity Act 1989 (the "Electricity Act"), as
      amended by the Utilities Act 2000 (the "Utilities Act").
    The provisions in the Utilities Act include the replacement of individual
      gas and electricity regulators with the Gas and Electricity Markets Authority
      (the "Regulator"). The principal objective of the Regulator is to protect
      the interests of consumers, wherever appropriate, by promoting effective
      competition in electricity generation and supply. There currently is no
      competition in electricity distribution.
    Each distribution business constitutes a natural regional monopoly and
      is subject to control on the prices it can charge and the quality of supply
      it must provide. The operations of WPD are regulated under its distribution
      licenses, pursuant to which income generated is subject to an allowed revenue
      regulatory framework that provides economic incentives to minimize operating,
      capital and financing costs. Under the Electricity Act, WPD is under a statutory
      duty to offer terms to connect any customer requiring electricity within
      their area and to maintain that connection. The allowed revenue that is
      recovered from electricity supply businesses through charges by the Distribution
      Network Operator (DNO) made for the use of the distribution network is regulated
      on the basis of the Retail Price Index (RPI) minus X formula. The allowed
      revenue is increased by RPI minus X during the tenure of each price control
      period. (RPI is a measure of inflation and equals the percentage change
      in the U.K. RPI between the six-month period of July to December in the
      previous year. The X factor is established by the Regulator following review
      and represents an annual efficiency factor.) The Regulator currently sets
      the Distribution Price Control Formula for five-year periods.
    The current Distribution Price Control Formula permits DNOs, within a review
      period, to partially retain additional revenues due to increased distribution
      of units and to retain all increases in operating profit due to efficient
      operations and the reduction of expenses (including financing costs). The
      Regulator may reduce this increase in operating profit through a one-off
      price reduction in the first year of the new pricing regime, if the Regulator
      determines that it is not a function of efficiency savings, or, if genuine
      efficiency savings have been made, and the Regulator determines that customers
      should benefit through lower prices.
    In December 1999, the Regulator published final price proposals for distribution
      price control for the 12 DNOs in England and Wales. These proposals represented
      a reduction to distribution prices of 20% for WPD (South West) and 26% for
      WPD (South Wales) effective April 2000, followed by a reduction in real
      terms (i.e., before inflation is taken into account) of 3% each year from
      April 2001. This price control is scheduled to operate until March 2005.
    Improvements in quality of supply form an important part of the final proposals.
      Revised targets for system performance, in terms of the security and availability
      of supply, were proposed with new targets for reductions in minutes lost
      and interruptions.
    The Regulator has introduced a quality of service incentive plan for the
      period from April 2002 to March 2005. Companies will be penalized annually
      up to 2% of revenue for failing to meet their quality of supply targets
      for the incentive plan. The plan includes a mechanism for rewarding companies
      which exceed their targets based on their rate of improvement of performance
      during the period and a process for rewarding exceptional performance by
      specifying how the targets will be reset.
    Distribution businesses must also meet the Guaranteed and Overall Standards
      of Performance, which are set by the Regulator to ensure an appropriate
      level of quality of supply. If a company fails to provide the level of service
      specified, it must make a fixed payment to the retail customer affected.
    In June 2003, the Regulator published a report on the quality of supply
      from April 2001 through March 2002. The report confirms that WPD (South
      West) and WPD (South Wales) met or exceeded such standards and that no payments
      were required to be made by either company.
    Environmental Matters - Domestic
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Due to the environmental issues discussed below or other environmental
      matters, PPL subsidiaries may be required to modify, replace or cease operating
      certain facilities to comply with statutes, regulations and actions by regulatory
      bodies or courts. In this regard, PPL subsidiaries also may incur capital
      expenditures or operating expenses in amounts which are not now determinable,
      but which could be significant.
    Air(PPL, PPL Energy Supply and PPL Montana)
    The Clean Air Act deals, in part, with acid rain, attainment of federal
      ambient ozone standards and toxic air emissions in the U.S. PPL's subsidiaries
      are in substantial compliance with the Clean Air Act. The Bush administration
      and certain members of Congress have made proposals regarding possible amendments
      to the Clean Air Act. These amendments could require significant further
      reductions in nitrogen oxide, sulfur dioxide and mercury and could possibly
      require measures to limit carbon dioxide. In addition, several states have
      taken their own actions requiring mandatory carbon dioxide emission reductions.
      Pennsylvania and Montana have not, at this time, established any formal
      programs to address carbon dioxide and other greenhouse gases.
    The Pennsylvania DEP has finalized regulations requiring further seasonal
      (May-June) nitrogen oxide reductions to 80% from 1990 levels starting in
      2003. These regulations are pursuant to EPA's 1998 State Implementation
      Plan (SIP) call to 22 eastern states, including Pennsylvania, to revise
      their state implementation plans. PPL will achieve the 2003 nitrogen oxide
      reductions with the recent installation of SCR technology on the Montour
      units, and may install SCR or other additional nitrogen oxide reduction
      technology on one or more Brunner Island units at a later date.
    The EPA has also developed new standards for ambient levels of ozone and
      fine particulates in the U.S. These standards have been upheld following
      court challenges. The new particulates standard may require further reductions
      in sulfur dioxide and year-round nitrogen oxide reductions commencing in
      2010-2012 at SIP-call levels in Pennsylvania for certain PPL subsidiaries,
      and at slightly less stringent levels in Montana. The revised ozone standard
      is not expected to have a material effect on facilities of PPL subsidiaries.
    Under the Clean Air Act, the EPA has been studying the health effects of
      hazardous air emissions from power plants and other sources in order to
      determine what emissions should be regulated, and has determined that mercury
      and nickel emissions must be regulated. The EPA may determine that other
      hazardous air emissions from power plants should be regulated. In this regard,
      the EPA is expected to develop mercury and nickel regulations by 2004.
    In 1999, the EPA initiated enforcement actions against several utilities,
      asserting that older, coal-fired power plants operated by those utilities
      have, over the years, been modified in ways that subject them to more stringent
      "New Source" requirements under the Clean Air Act. The EPA has since issued
      notices of violation and commenced enforcement activities against other
      utilities. The future direction of the EPA's enforcement initiative is presently
      unclear. Therefore, at this time, PPL is unable to predict whether such
      EPA enforcement actions will be brought with respect to any of its affiliates'
      plants. However, the EPA regional offices that regulate plants in Pennsylvania
      (Region III) and Montana (Region VIII) have indicated an intention to issue
      information requests to all utilities in their jurisdiction. The Region
      VIII office issued such a request to PPL Montana's Corette plant in 2000,
      and the Region III office issued such a request to PPL Generation's Martins
      Creek plant in 2002. PPL and its subsidiaries have responded to both of
      these information requests. The EPA has taken no further action following
      these submittals. PPL cannot presently predict what, if any, action the
      EPA might take in this regard. Should the EPA or any state initiate one
      or more enforcement actions against PPL or its subsidiaries, compliance
      with any such enforcement actions could result in additional capital and
      operating expenses in amounts which are not now determinable, but which
      could be significant.
    The EPA has issued further changes to its "New Source" regulations that
      clarify what projects are exempt from "New Source" requirements as routine
      maintenance and repair. These clarifications substantially reduce the uncertainties
      under the prior "New Source" regulations. Under the new rules, any project
      to replace existing equipment with functionally equivalent equipment is
      considered routine maintenance and excluded from "New Source" review if
      the cost of the replaced equipment does not exceed 20% of the replacement
      cost of the entire process unit, the basic design is not changed and no
      permit limit is exceeded.
    The New Jersey DEP and some New Jersey residents raised environmental concerns
      with respect to the Martins Creek plant, particularly with respect to sulfur
      dioxide emissions and the opacity of the plant's plume. These issues were
      raised in the context of an appeal by the New Jersey DEP of the Air Quality
      Plan Approval issued by the Pennsylvania DEP to the adjacent Lower Mt. Bethel
      facility, which is currently under construction. In October 2003, PPL finalized
      an agreement with the New Jersey DEP and the Pennsylvania DEP pursuant to
      which it will reduce sulfur dioxide emissions from its Martins Creek power
      plant. Under the agreement, PPL Martins Creek will shut down the plant's
      two coal-fired generating units by September 2007 and may repower them any
      time after shutting them down so long as it follows all applicable state
      and federal requirements, including installing the best available pollution
      control technology. PPL Martins Creek also will reduce the fuel sulfur content
      for those units as well as the plant's two oil-fired units beginning in
      2004. In addition, PPL will donate to a non-profit organization 70% of the
      excess emission allowances and emission reduction credits that result from
      shutting down or repowering the coal units. As a result of the agreement,
      the New Jersey DEP will withdraw its challenge to the Air Quality Plan Approval
      for the Lower Mt. Bethel facility. The agreement will not result in material
      costs to PPL. The agreement does not address the opacity issues. If it is
      determined that opacity must be addressed, the cost is not now determinable,
      but could be significant.
    Water/Waste(PPL, PPL Energy Supply and PPL Montana)
    A final NPDES permit has been issued to the Brunner Island generating plant.
      The permit contains a provision requiring further studies on the thermal
      impact of the cooling water discharge from the plant. These studies are
      underway and are expected to be completed in 2006. Depending on the outcome
      of these studies, the plant could be subject to capital and operating costs
      that are not now determinable, but which could be significant.
    The Pennsylvania DEP has issued a water quality certification to PPL Holtwood,
      LLC in the FERC license renewal proceeding for its Lake Wallenpaupack
      hydroelectric facility.
      PPL has appealed the certification and is discussing the matter
      with the Pennsylvania DEP. Depending on the outcome of this appeal, the
      certification could impose additional costs on PPL, which are not now
      determinable, but which could be significant.
    The EPA has significantly tightened the water quality standard for arsenic.
      The revised standard may require several PPL subsidiaries to either further
      treat wastewater or take abatement action at their power plants, or both.
      The cost of complying with the revised standard is not now determinable,
      but could be significant.
    The EPA recently finalized requirements for new or modified water intake
      structures. These requirements will affect where generating facilities are
      built, will establish intake design standards, and could lead to requirements
      for cooling towers at new and modified power plants. If the source of water
      for the plants is surface water, these rules could impose significant capital
      and operating costs on PPL subsidiaries. Another new rule, expected to be
      finalized in 2004, will address existing structures. PPL has begun preliminary
      studies to evaluate options to comply with the expected rule. Each of these
      rules could impose additional costs on PPL subsidiaries, which are not now
      determinable, but which could be significant.
    Superfund and Other Remediation
    (PPL and PPL Electric)
    In 1995, PPL Electric entered into a consent order with the Pennsylvania
      DEP to address a number of sites where it may be liable for remediation.
      This may include potential PCB contamination at certain PPL Electric substations
      and pole sites; potential contamination at a number of coal gas manufacturing
      facilities formerly owned or operated by PPL Electric; and oil or other
      contamination which may exist at some of PPL Electric's former generating
      facilities. Remedial actions at the site in Sunbury, Pennsylvania are now
      substantially completed. As of September 30, 2003, work has been completed
      on over 90% of the sites included in the consent order. Additional sites
      formerly owned or operated by PPL Electric are added to the consent order
      on a case-by-case basis.
    In 1996, PPL Gas Utilities entered into a similar consent order with the
      Pennsylvania DEP to address a number of sites where subsidiaries of PPL
      Gas Utilities may be liable for remediation. The sites primarily include
      former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities
      are also investigating the potential for any mercury contamination from
      gas meters and regulators. Accordingly, PPL Gas Utilities and the Pennsylvania
      DEP have agreed to add 72 meter/regulation sites to the consent order. As
      of September 30, 2003, PPL Gas Utilities had addressed 15% of the sites
      under its consent order.
    At September 30, 2003, PPL Electric and PPL Gas Utilities had accrued approximately
      $4 million and $9 million, representing the estimated amounts they will
      have to spend for site remediation, including those sites covered by each
      company's consent orders mentioned above. Depending on the outcome of investigations
      at sites where investigations have not begun or have not been completed,
      the costs of remediation and other liabilities could be substantial. PPL
      also could face other non-remediation liabilities at sites included in the
      consent order or other contaminated sites, the costs of which are not now
      determinable, but which could be significant.
    (PPL, PPL Energy Supply and PPL Montana)
    In conjunction with its 1999 sale of generating assets to PPL Montana,
      Montana Power prepared a Phase I and Phase II Environmental Site Assessment.
      The assessment identified various groundwater remediation issues. Based
      upon subsequent assessments and actions taken by PPL Montana, the costs
      to PPL Montana of the groundwater remediation measures identified in those
      assessments are expected to be approximately $3 million. However, additional
      expenditures could be required in amounts which are not now determinable,
      but which could be significant.
    In May 2003, approximately 40 plaintiffs brought an action in the Montana
      Second Judicial District Court, Butte-Silver Bow County, against PPL
      Montana and the other owners of the Colstrip plant alleging
      property damage from freshwater pond seepage and contamination from wastewater
      ponds at the plant. This action has been moved to the Montana Sixteenth
      Judicial District Court, Rosebud County. This action could result in
      PPL Montana and the other
      Colstrip owners being required to take additional remedial measures, the
      costs of which are not now determinable, but which could be significant.
    In 1999, the Montana Supreme Court held in favor of several citizens' groups
      that the right to a clean and healthful environment is a fundamental right
      guaranteed by the Montana Constitution. The court's ruling could result
      in significantly more stringent environmental laws and regulations, as well
      as an increase in citizens' suits under Montana's environmental laws. The
      effect on PPL Montana of any such changes in laws or regulations or any
      such increase in legal actions is not currently determinable, but it could
      be significant.
    Future cleanup or remediation work at sites currently under review, or
      at sites not currently identified, may result in material additional operating
      costs for PPL subsidiaries that cannot be estimated at this time.
    Asbestos (PPL and PPL Energy Supply)
    There have been increasing litigation claims throughout the U.S. based
      on exposure to asbestos against companies that manufacture or distribute
      asbestos products or that have these products on their premises. Certain
      of PPL's generation subsidiaries and certain of its energy services subsidiaries,
      such as those that have supplied, may have supplied or installed asbestos
      material in connection with the repair or installation of process piping
      and heating, ventilating and air conditioning systems, have been named as
      defendants in asbestos-related lawsuits. PPL cannot predict the outcome
      of these lawsuits or whether additional claims may be asserted against its
      subsidiaries in the future. PPL does not expect that the ultimate resolution
      of the current lawsuits will have a material adverse effect on its financial
      condition.
    Electric and Magnetic Fields (PPL, PPL Energy Supply and PPL
      Electric)
    Concerns have been expressed by some members of the public regarding the
      potential health effects of EMFs. These fields are emitted by all devices
      carrying electricity, including electric transmission and distribution lines
      and substation equipment. Government officials in the U.S. and the U.K.
      have focused attention on this issue. PPL and its subsidiaries support the
      current efforts to determine whether EMFs cause any human health problems
      and are taking steps to reduce EMFs, where practical, in the design of new
      transmission and distribution facilities. PPL is unable to predict what
      effect, if any, the EMF issue might have on its operations and facilities
      either in the U.S. or abroad, and the associated cost, or what, if any,
      liabilities it might incur related to the EMF issue.
    Lower Mt. Bethel (PPL and PPL Energy Supply)
    
    The Air Quality Plan Approval issued by the Pennsylvania DEP for construction
      of the Lower Mt. Bethel facility was appealed by the New Jersey DEP to the
      Pennsylvania DEP Environmental Hearing Board. In October 2003, PPL Generation
      finalized an agreement with the New Jersey DEP and the Pennsylvania DEP
      pursuant to which PPL will, among other things, reduce the sulfur dioxide
      emissions from its Martins Creek power plant and the New Jersey DEP will
      withdraw its challenge to the Air Quality Plan Approval for the Lower Mt.
      Bethel facility. PPL's costs to comply with this agreement will not be material.
    In addition, in August 2002, the Northampton County Court of Common Pleas
      issued a decision concerning the permissible noise levels from the Lower
      Mt. Bethel facility when it becomes operational. Specifically, the court's
      decision addressed the noise measurement criteria and the point at which
      the noise levels are to be measured. PPL appealed the court's decision to
      the Commonwealth Court, and an intervenor in the lawsuit cross-appealed
      the court's decision. In May 2003, the Commonwealth Court remanded the case
      to the Court of Common Pleas for further findings of fact concerning the
      zoning application relating to the construction of the facility. The Court
      of Common Pleas ruled in PPL's favor in September 2003, and the intervenor
      has appealed this ruling to the Commonwealth Court. The Lower Mt.
      Bethel facility is expected to enter into its final construction phase,
      including initial startup, in the fourth quarter of 2003 and be operational
      in early 2004. However, PPL and PPL Energy Supply cannot predict the outcome
      of the ongoing litigation concerning the facility or its ultimate impact
      on the Lower Mt. Bethel facility, but such impact may be material.
    Environmental Matters - International(PPL and PPL
      Energy Supply)
    U.K.
    WPD's distribution businesses are subject to numerous regulatory and statutory
      requirements with respect to environmental matters. PPL believes that WPD
      has taken and continues to take measures to comply with the applicable laws
      and governmental regulations for the protection of the environment. There
      are no material legal or administrative proceedings pending against WPD
      with respect to environmental matters. See "Environmental Matters - Domestic
      - Electric and Magnetic Fields" for a discussion of EMFs.
    Latin America
    Certain of PPL's affiliates have electric distribution operations in Latin
      America. PPL believes that these affiliates have taken and continue to take
      measures to comply with the applicable laws and governmental regulations
      for the protection of the environment. There are no material legal or administrative
      proceedings pending against PPL's affiliates in Latin America with respect
      to environmental matters.
    Other
    Commitments - Acquisitions, Development and Lease Activities(PPL and PPL Energy Supply)
    At September 30, 2003, a lessor had $22 million of purchase commitments
      for domestic construction projects for which a PPL subsidiary is the construction
      agent. PPL's exposure is limited to the guarantees under the operating lease.
      See Note 15 for additional information on guarantees under operating lease
      arrangements.
    Nuclear Insurance(PPL and PPL Energy Supply)
    PPL Susquehanna is a member of certain insurance programs which provide
      coverage for property damage to members' nuclear generating stations. Facilities
      at the Susquehanna station are insured against property damage losses up
      to $2.75 billion under these programs. PPL Susquehanna is also a member
      of an insurance program which provides insurance coverage for the cost of
      replacement power during prolonged outages of nuclear units caused by certain
      specified conditions. Under the property and replacement power insurance
      programs, PPL Susquehanna could be assessed retroactive premiums in the
      event of the insurers' adverse loss experience. At September 30, 2003, this
      maximum assessment was about $40 million.
    PPL Susquehanna's public liability for claims resulting from a nuclear
      incident at the Susquehanna station is limited to about $10.9 billion under
      provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna
      is protected against this liability by a combination of commercial insurance
      and an industry assessment program. In the event of a nuclear incident at
      any of the reactors covered by The Price Anderson Amendments Act of 1988,
      PPL Susquehanna could be assessed up to $201 million per incident, payable
      at $20 million per year.
    Guarantees and Other Assurances
    (PPL, PPL Energy Supply and PPL Electric)
    In the normal course of business, PPL, PPL Energy Supply and PPL Electric
      enter into agreements that provide financial performance assurance to third
      parties on behalf of certain subsidiaries. Such agreements include, for
      example, guarantees, stand-by letters of credit issued by financial institutions
      and surety bonds issued by insurance companies. These agreements are entered
      into primarily to support or enhance the creditworthiness attributed to
      a subsidiary on a stand-alone basis, thereby facilitating the extension
      of credit to accomplish the subsidiaries' intended commercial purposes.
    (PPL)
    PPL fully and unconditionally guarantees the medium-term notes of PPL Capital
      Funding, a wholly owned financing subsidiary of PPL.
      PPL also fully and unconditionally guarantees all of the obligations
      of PPL Capital Funding Trust I, a wholly owned financing subsidiary of PPL,
      under the trust preferred securities that
      are a component of the PEPS Units.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL, PPL Energy Supply, PPL Electric and PPL Montana provide certain guarantees
      that are required to be disclosed in accordance with FIN 45, "Guarantor's
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others, an Interpretation of FASB Statements
      No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." See Note
      15 for a discussion of FIN 45. The guarantees provided as of September 30,
      2003 are discussed below. In accordance with the provisions of FIN 45, the
      fair values of guarantees related to arrangements entered into prior to
      January 1, 2003, as well as guarantees excluded from the initial recognition
      and measurement provisions of FIN 45, are not recorded in the financial
      statements.
    (PPL Energy Supply)
    PPL Energy Supply has entered into several standby letter of credit arrangements
      under its $500 million three-year credit facility for the purposes of protecting
      various third parties against nonperformance by PPL and PPL Gas Utilities.
      As of September 30, 2003, the aggregate maximum exposure related to these
      standby letters of credit was $13 million. These letters of credit expire
      in 2004.
    (PPL and PPL Energy Supply)
    PPL Generation has entered into certain partnership arrangements for the
      sale of coal to third parties. PPL Generation has also executed support
      agreements, which expire in 2007, for the benefit of these third-party purchasers
      pursuant to which it guarantees the partnerships' obligations in an amount
      up to its pro rata ownership interest in the partnerships. PPL Generation's
      maximum aggregate exposure under these support arrangements was approximately
      $9 million as of September 30, 2003.
    Certain PPL Generation subsidiaries provide residual value guarantees under
      the operating leases for the Sundance, University Park and Lower Mt. Bethel
      generation facilities. See Note 15 for further discussion of these residual
      value guarantees.
    PPL Susquehanna is contingently obligated to pay $40 million related to
      potential retroactive premiums that could be assessed under its nuclear
      insurance programs. Additionally, under the Price Anderson Amendments Act
      of 1988, PPL Susquehanna could be assessed up to $201 million for each incident
      at any of the nuclear reactors covered by this Act. See "Nuclear Insurance"
      for additional information.
    PPL EnergyPlus is party to numerous energy trading or purchase and sale
      agreements pursuant to which the parties indemnify each other for any damages
      arising from events that occur while the indemnifying party has title to
      the electricity or natural gas. For example, in the case of the party that
      is delivering the product, such party would be responsible for damages arising
      from events occurring prior to delivery. The overall maximum amount of the
      obligation under such indemnifications cannot be reasonably estimated. Historically,
      PPL EnergyPlus has not made any significant payments with respect to this
      type of indemnification. As of September 30, 2003, the aggregate fair value
      of these indemnifications related to arrangements entered into subsequent
      to December 31, 2002 was insignificant.
    PPL EnergyPlus enters into written put option contracts under which, in
      exchange for a premium received, it agrees to purchase a specified quantity
      of a commodity for a specified price if the counterparty exercises the option.
      The aggregate carrying value of such contracts that were outstanding as
      of September 30, 2003 was a net liability of $3 million, which is included
      in price risk management assets and liabilities on the Balance Sheet. These
      option contracts expire from October 2003 through August 2004. The aggregate
      maximum amount of payments that PPL EnergyPlus could be required to make
      if the options are exercised by the counterparties under these contracts
      is $17 million.
    In connection with their sales of various businesses, WPD and its affiliates
      have provided the purchasers with indemnifications that are standard for
      such transactions, including indemnifications for certain pre-existing liabilities
      and environmental and tax matters. In addition, in connection with certain
      of these sales, WPD and its affiliates have agreed to continue their obligations
      under existing third-party guarantees, either for a set period of time following
      the transactions or upon the condition that the purchasers make reasonable
      efforts to terminate the guarantees. They also have guaranteed the payment
      of up to £19 million, or $32 million at current exchange rates, under
      a contract, which expires in 2005, assigned as part of one of these sales.
      Finally, WPD and its affiliates remain secondarily responsible for lease
      payments under certain leases that they have assigned to third parties.
      These various guarantees vary in duration and in the maximum potential payment,
      which, except as otherwise noted above, cannot be estimated but which in
      the aggregate could be material. To date, neither WPD nor any of its affiliates
      have made any significant payments with respect to these guarantees.
    Certain acquisition agreements relating to the acquisition of mechanical
      contractors contain provisions that require a PPL Energy Supply subsidiary
      to make contingent payments to the former owners based upon the profitability
      of the business unit. The maximum amount of potential payments is not explicitly
      stated in the acquisition agreements. Such arrangements expire in 2005.
      Based on current expectations, PPL Energy Supply estimates that an aggregate
      of approximately $7 million could be paid under these arrangements.
    Certain agreements relating to the purchase of ownership interests in synfuel
      projects contain provisions that require certain PPL Energy Supply subsidiaries
      to make contingent purchase price payments to the former owners. These payments
      are non-recourse to PPL, PPL Energy Supply and their other subsidiaries
      and are based primarily upon production levels of the synfuel projects.
      The maximum amounts of potential payments are not explicitly stated in the
      agreements. Such arrangements expire in 2007. Based on current expectations,
      PPL Energy Supply estimates that the subsidiaries could pay up to an aggregate
      of approximately $66 million under these arrangements.
    (PPL and PPL Electric)
    PPL Electric provides a guarantee in the amount of approximately $7 million,
      as of September 30, 2003, related to debt of an unconsolidated entity. The
      guarantee expires in June 2008.
    PPL Electric leases vehicles and other equipment under four master operating
      lease agreements. The term for each piece of equipment leased under three
      of the master agreements is one year, after which time the lease term is
      extended from month to month until terminated. Under the fourth master agreement,
      the term for each piece of equipment ranges from one year to three years,
      after which time the lease term may be extended for certain equipment for
      up to two additional years. Under these lease arrangements, PPL Electric
      provides residual value guarantees to the lessors. PPL Electric generally
      could be required to pay a residual value guarantee if the proceeds received
      from the sale of a piece of equipment, upon termination of the lease, are
      less than the expected residual value of the equipment. As of September
      30, 2003, the maximum aggregate amount of future payments that PPL Electric
      could be required to make as a result of these residual value guarantees
      was approximately $90 million. The aggregate carrying value of PPL Electric's
      residual value guarantees issued subsequent to December 31, 2002 was $15
      million at September 30, 2003 and is included in "Current Liabilities -
      Other" on the Balance Sheet. These guarantees generally expire within one
      year, unless the lease terms are extended.
    (PPL, PPL Energy Supply and PPL Montana)
    PPL Montana leases certain equipment under a master operating lease agreement.
      The term for each piece of equipment leased under the master agreement is
      one year, after which time the lease term is extended from month to month
      until terminated. Under this lease arrangement, PPL Montana provides residual
      value guarantees to the lessor. PPL Montana generally would be required
      to pay a residual value guarantee if the proceeds received from the sale
      of a piece of equipment, upon termination of the lease, are less than the
      expected residual value of the equipment. As of September 30, 2003, the
      maximum aggregate amount of future payments that PPL Montana could be required
      to make as a result of these residual value guarantees was approximately
      $4 million. The aggregate carrying value of PPL Montana's residual value
      guarantees issued subsequent to December 31, 2002 was insignificant at September
      30, 2003. These guarantees generally expire within one year, unless the
      lease terms are extended.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    The operating lease arrangements described above and the companies' or
      their subsidiaries' other lease arrangements include certain indemnifications
      in favor of the lessors (e.g., tax and environmental matters) with terms
      that range in duration and scope and that are not explicitly defined. Because
      the obligated amounts of these types of indemnifications often are not explicitly
      stated, the overall maximum amount of the obligation under such indemnifications
      cannot be reasonably estimated. Historically, no significant payments have
      been made with respect to these indemnifications. As of September 30, 2003,
      the aggregate fair value of these indemnifications related to arrangements
      entered into subsequent to December 31, 2002 was insignificant.
    In connection with their issuances of securities, PPL, PPL Energy Supply,
      PPL Electric and PPL Montana and their subsidiaries engage underwriters,
      purchasers and purchasing agents to whom they provide indemnification for
      damages incurred by such parties arising from the companies' material misstatements
      or omissions in the related offering documents. In addition, in connection
      with these securities offerings and other financing transactions, the companies
      also engage trustees or custodial, escrow or other agents to act for the
      benefit of the investors or to provide other agency services. PPL, PPL Energy
      Supply, PPL Electric, PPL Montana and their subsidiaries typically provide
      indemnification to these agents for any liability or expenses incurred by
      them in performing their obligations. Because the obligated amounts of these
      types of indemnifications often are not explicitly stated, the overall maximum
      amount of the obligation under such indemnifications cannot be reasonably
      estimated. Historically, no significant payments have been made with respect
      to these indemnifications. As of September 30, 2003, the fair value of these
      indemnifications related to arrangements entered into subsequent to December
      31, 2002 was insignificant.
    PPL, PPL Energy Supply, PPL Electric, PPL Montana and their subsidiaries
      also have various guarantees in contracts that they enter into in the normal
      course of business. These guarantees are primarily in the form of various
      indemnifications as well as warranties, related to services or equipment,
      that range in duration and coverage and that do not explicitly state the
      amount of the indemnification obligation. Historically, no significant payments
      have been made for these guarantees. As of September 30, 2003, the aggregate
      fair value of these guarantees related to arrangements entered into subsequent
      to December 31, 2002 was insignificant.
    PPL, on behalf of itself and its subsidiaries, maintains insurance that
      covers liability assumed under contract for bodily injury and property damage.
      The coverage requires a $4 million deductible per occurrence and provides
      maximum aggregate coverage of approximately $175 million. This insurance
      may be applicable to certain obligations under the contractual arrangements
      discussed above.
9. Related Party Transactions
    PLR Contract(PPL Energy Supply and PPL Electric)
    PPL Electric has power sales agreements with PPL EnergyPlus, effective
      January 1, 2002, to supply all of PPL Electric's PLR load through 2009.
      Under these contracts, PPL EnergyPlus will provide electricity at the pre-determined
      capped prices that PPL Electric is authorized to charge its PLR customers.
      For the three months ended September 30, 2003 and 2002, these purchases
      were $368 million and $371 million. For the nine months ended September
      30, 2003 and 2002, these purchases were $1.1 billion in each period. These
      purchases include nuclear decommissioning recovery and amortization of an
      up-front contract payment and are included in the Statement of Income as
      "Energy purchases from affiliate" by PPL Electric and as revenues from "Wholesale
      energy marketing to affiliates" by PPL Energy Supply.
    Under the PLR contracts, PPL Electric is required to make performance assurance
      deposits with PPL EnergyPlus when the market price of electricity is less
      than the contract price by more than its contract collateral threshold.
      Conversely, PPL EnergyPlus is required to make performance assurance deposits
      with PPL Electric when the market price of electricity is greater than the
      contract price by more than its contract collateral threshold. PPL Electric's
      deposit with PPL EnergyPlus was $45 million at September 30, 2003. This
      deposit is shown on the Balance Sheet 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.
    In 2001, PPL Electric made a $90 million payment to PPL EnergyPlus in connection
      with the PLR contracts. The upfront payment is being amortized by both parties
      over the term of the PLR contracts. The unamortized balance of this payment,
      and other payments under the contract, were $72 million at September 30,
      2003 and $81 million at December 31, 2002.
    NUG Purchases(PPL Energy Supply and PPL Electric)
    PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity
      purchased under contracts with NUGs. PPL Electric purchases electricity
      from the NUGs at contractual rates and then sells the electricity at the
      same price to PPL EnergyPlus. For the three months ended September 30, 2003
      and 2002, these NUG purchases totaled $39 million and $40 million and for
      the nine months ended September 30, 2003 and 2002 were $115 million and
      $122 million. These amounts are included in the Statement of Income as revenues
      from "Wholesale electric to affiliate" by PPL Electric, and as "Energy purchases
      from affiliates" by PPL Energy Supply.
    Montana Retail Supply(PPL Montana)
    PPL Montana has a memorandum of understanding (MOU) with PPL EnergyPlus
      regarding the supply of energy to satisfy PPL EnergyPlus' obligations under
      its retail contracts. This MOU will remain in effect until terminated by
      mutual consent of the parties, or upon 90 days written notice of termination
      given by either party to the other party. Under the MOU, energy sales to
      PPL EnergyPlus for the three months ended September 30, 2003 and 2002 were
      $16 million and $21 million and for the nine months ended September 30,
      2003 and 2002 were $47 million and $51 million. These amounts are included
      in revenues from "Wholesale energy marketing to affiliate" on the Statement
      of Income.
    Brokering and Contract Management Agreement(PPL Montana)
    Under a brokering and contract management agreement between PPL Montana
      and PPL EnergyPlus, PPL Montana paid PPL EnergyPlus $1 million and $2 million
      for the three months ended September 30, 2003 and 2002. For the nine months
      ended September 30, 2003 and 2002, the payments were $3 million and $5 million.
      These amounts are included in "Other operation and maintenance" on the Statement
      of Income.
    Allocations of Corporate Service Costs(PPL Energy Supply, PPL
      Electric and PPL Montana)
    PPL Services provides corporate functions such as financial, legal, human
      resources and information services. PPL Services bills the respective PPL
      subsidiaries for the cost of such services when they can be specifically
      identified. The cost of these services that is not directly charged to PPL
      subsidiaries is allocated to certain of the subsidiaries using a three-factor
      method based on an average of the subsidiaries' relative invested capital,
      operation and maintenance expenses, and number of employees. PPL Services
      allocated the following charges to PPL Energy Supply, PPL Electric and PPL
      Montana:
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Direct expensesPPL Energy Supply
        
        $
        24
        
        
        $
        22
        
        
        $
        68
        
        
        $
        65PPL Electric
        
        
        15
        
        
        
        13
        
        
        
        45
        
        
        
        41PPL Montana
        
        
        2
        
        
        
        4
        
        
        
        4
        
        
        
        8Overhead costsPPL Energy Supply
        
        
        12
        
        
        
        8
        
        
        
        40
        
        
        
        26PPL Electric
        
        
        6
        
        
        
        7
        
        
        
        19
        
        
        
        21PPL Montana
        
        
        1
        
        
        
        2
        
        
        
        3
        
        
        
        6Intercompany Borrowings
    (PPL Energy Supply)
    PPL Energy Supply, primarily through its financing subsidiary PPL Investment
      Corporation, had notes receivable from affiliates of PPL totaling $58 million
      and $655 million at September 30, 2003 and December 31, 2002. Interest earned
      on loans to affiliates, included in "Other Income - net" on the Statement
      of Income, was $2 million and $4 million for the three months ended September
      30, 2003 and 2002 and was $14 million and $16 million for the nine months
      ended September 30, 2003 and 2002.
    (PPL Electric)
    In 2001, PPL Electric made a $150 million demand loan from excess cash
      to PPL Energy Funding. Interest on the loan is due monthly at an annual
      interest rate of 4.0%. There was no outstanding balance at September 30,
      2003. The outstanding balance at December 31, 2002 was $90 million. Intercompany
      interest income was $1 million for the three months ended September 30,
      2003 and 2002, and was $3 million and $7 million for the nine months ended
      September 30, 2003 and 2002.
    (PPL Montana)
    In 2002, PPL Montana entered into a $100 million three-year credit facility
      with PPL Investment Corporation on market terms to meet its liquidity needs.
      PPL Montana had outstanding borrowings under this facility of $26 million
      at December 31, 2002, which is shown as "Revolving line of credit with affiliate"
      on the Balance Sheet. There was no outstanding balance at September 30,
      2003.
    Trademark Royalties(PPL Energy Supply)
    In the fourth quarter of 2002, a PPL subsidiary that owns PPL trademarks
      began billing certain affiliates who use these trademarks. PPL Energy Supply
      was allocated $10 million and $30 million of this license fee for the three
      and nine months ended September 30, 2003, which is primarily included in
      "Other operation and maintenance" on the Statement of Income.
10. Other Income - Net
    The breakdown of "Other Income - net" was as follows:
    PPL
        
        Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Other IncomeInterest income
        
        $
        3
        
        
        $
        14
        
        
        $
        9
        
        
        $
        27Realized earnings on nuclear decommissioning
            trust (a)
        
        
        10
        
        
        
        
        
        
        
        18Hyder-related activity
        
        
        2
        
        
        
        
        
        
        
        6Gain on property sales
        
        
        
        
        
        
        4
        
        
        
        3
        
        
        
        5Rental income
        
        
        2
        
        
        
        
        
        
        
        5Legal claim settlements
        
        
        
        
        
        
        
        
        
        
        3Equity earnings (loss)
        
        
        (1
        )
        
        
        (4
        )
        
        
        (1
        )
        
        
        1Miscellaneous
        
        
        1
        
        
        
        
        
        
        
        15
        
        
        
        4Total
        
        
        17
        
        
        
        14
        
        
        
        58
        
        
        
        37Other DeductionsNon-operating taxes other than income
        
        
        
        
        
        
        2
        
        
        
        1
        
        
        
        3Miscellaneous
        
        
        2
        
        
        
        1
        
        
        
        11
        
        
        
        12Other Income - net
        
        $
        15
        
        
        $
        11
        
        
        $
        46
        
        
        $
        22(a)
        Effective with the adoption of SFAS 143
            on January 1, 2003 (as described in Note 13), realized earnings on
            the nuclear decommissioning trust are recorded in "Other Income -
            net." Prior to January 1, 2003, such realized earnings were recorded
            as an increase to the nuclear decommissioning liability.
    PPL Energy Supply
        
        Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Other IncomeAffiliated interest income
        
        $
        2
        
        
        $
        4
        
        
        $
        14
        
        
        $
        16Realized earnings on nuclear decommissioning
            trust (a)
        
        
        10
        
        
        
        
        
        
        
        18Hyder-related activity
        
        
        2
        
        
        
        
        
        
        
        6Interest income
        
        
        2
        
        
        
        9
        
        
        
        6
        
        
        
        18Gain on property sales
        
        
        
        
        
        
        4
        
        
        
        3
        
        
        
        5Rental income
        
        
        2
        
        
        
        
        
        
        
        5Legal claim settlements
        
        
        
        
        
        
        
        
        
        
        3Equity earnings
        
        
        
        
        
        
        
        
        
        
        2
        
        
        
        2Miscellaneous
        
        
        1
        
        
        
        (4
        )
        
        
        10
        
        
        
        1Total
        
        
        19
        
        
        
        13
        
        
        
        67
        
        
        
        42Other DeductionsNon-operating taxes other than income
        
        
        1
        
        
        
        
        
        
        
        1
        
        
        
        1Miscellaneous
        
        
        1
        
        
        
        2
        
        
        
        7
        
        
        
        9Other Income - net
        
        $
        17
        
        
        $
        11
        
        
        $
        59
        
        
        $
        32(a)
        Effective with the adoption of SFAS 143
            on January 1, 2003 (as described in Note 13), realized earnings on
            the nuclear decommissioning trust are recorded in "Other Income -
            net." Prior to January 1, 2003, such realized earnings were recorded
            as an increase to the nuclear decommissioning liability.
    PPL Electric
        
        Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Other IncomeAffiliated interest income
        
        $
        1
        
        
        $
        1
        
        
        $
        3
        
        
        $
        7Interest income
        
        
        
        
        
        
        5
        
        
        
        3
        
        
        
        7Miscellaneous
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        1Total
        
        
        1
        
        
        
        6
        
        
        
        6
        
        
        
        15Other DeductionsMiscellaneous
        
        
        
        
        
        
        
        
        
        
        1
        
        
        
        2Other Income - net
        
        $
        1
        
        
        $
        6
        
        
        $
        5
        
        
        $
        13
11. Derivative Instruments and Hedging Activities
    (PPL, PPL Energy Supply and PPL Montana)
    Fair Value Hedges
    PPL Energy Supply and PPL Montana enter into financial or physical contracts
      to hedge a portion of the fair value of firm commitments of forward electricity
      sales. These contracts range in maturity through 2006. Additionally, PPL
      and PPL Energy Supply enter into financial contracts to hedge fluctuations
      in market value of existing debt issuances. These contracts range in maturity
      through 2029.
    As a result of settling certain transactions with a counterparty that exited
      its energy marketing function, PPL and PPL Energy Supply recognized a $1
      million net gain for the nine months ended September 30, 2003. PPL Montana
      recognized a $1 million net loss for the nine months ended September 30,
      2003. No gains or losses were recognized for these transactions for the
      three months ended September 30, 2003. These gains and losses resulted from
      firm commitments that no longer qualified as fair value hedges and were
      reported in "Energy purchases" on the Statement of Income. PPL, PPL Energy
      Supply and PPL Montana did not recognize any net gains or losses for similar
      activity for the three and nine months ended September 30, 2002.
    PPL, PPL Energy Supply and PPL Montana did not recognize any gains or losses
      resulting from the ineffective portion of fair value hedges for the three
      and nine months ended September 30, 2003 or 2002.
    Cash Flow Hedges
    PPL Energy Supply and PPL Montana enter into financial and physical contracts,
      including forwards, futures and swaps, to hedge the price risk associated
      with electric, gas and oil commodities. These contracts range in maturity
      through 2007. Additionally, PPL and PPL Energy Supply enter into financial
      interest rate forward and swap contracts to hedge interest expense associated
      with both existing and anticipated debt issuances. These contracts range
      in maturity through 2014. PPL and PPL Energy Supply also enter into foreign
      currency forward and swap contracts to hedge exchange rates associated with
      firm commitments and anticipated debt financings denominated in foreign
      currencies, and to hedge the net investment of foreign operations. These
      forward contracts range in maturity through 2028.
    Cash flow hedges may be discontinued if it becomes probable that the original
      forecasted transaction will not occur by the end of the originally specified
      time period. PPL and PPL Energy Supply discontinued certain cash flow hedges
      which resulted in a net loss of $11 million being reclassified from other
      comprehensive income into earnings for the nine months ended September 30,
      2003 (reported in "Interest Expense" on the Statement of Income). There
      was no such reclassification for the three months ended September 30, 2003.
      Reclassifications for the three and nine months ended September 30, 2002
      were insignificant.
    Due to hedge ineffectiveness, PPL and PPL Energy Supply reclassified
      a net loss of $1 million into earnings for the three and nine months ended
      September 30, 2003, and a net loss of $2 million for the three and nine
      months ended September 30, 2002.
    As of September 30, 2003, 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 was $2 million, $5 million and
      $4 million for PPL, PPL Energy Supply and PPL Montana.
    The following table shows the change in accumulated unrealized gains or
      losses on qualifying derivatives in other comprehensive income (see also
      Note 5):
    Three
            Months Ended
            September 30,
        
        
        Nine Months
            Ended
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002PPLBeginning accumulated derivative gain
        
        $
        21
        
        
        $
        12
        
        
        $
        7
        
        
        $
        23Net change associated with current
            period hedging activities and other
        
        
        (51
        )
        
        
        6
        
        
        
        17
        
        
        
        (2
        )Net change associated with net investment
            hedge
        
        
        (2
        )
        
        
        (1
        )
        
        
        (5
        )
        
        
        (1
        )Net change from reclassification into
            earnings
        
        
        28
        
        
        
        
        
        
        
        (23
        )
        
        
        (3
        )Ending accumulated derivative gain
            (loss)
        
        $
        (4
        )
        
        $
        17
        
        
        $
        (4
        )
        
        $
        17PPL Energy SupplyBeginning accumulated derivative gain
        
        $
        47
        
        
        $
        33
        
        
        $
        23
        
        
        $
        47Net change associated with current
            period hedging activities and other
        
        
        (54
        )
        
        
        11
        
        
        
        21
        
        
        
        1Net change associated with net investment
            hedge
        
        
        (2
        )
        
        
        (1
        )
        
        
        (5
        )
        
        
        (1
        )Net change from reclassification into
            earnings
        
        
        27
        
        
        
        
        
        
        
        (21
        )
        
        
        (4
        )Ending accumulated derivative gain
        
        $
        18
        
        
        $
        43
        
        
        $
        18
        
        
        $
        43PPL MontanaBeginning accumulated derivative gain
            (loss)
        
        $
        (3
        )
        
        $
        20
        
        
        $
        4
        
        
        $
        33Net change associated with current
            period hedging activities and other
        
        
        7
        
        
        
        (1
        )
        
        
        1
        
        
        
        (14
        )Net change from reclassification into
            earnings
        
        
        1
        
        
        
        (4
        )
        
        
        
        
        
        
        (4
        )Ending accumulated derivative gain
        
        $
        5
        
        
        $
        15
        
        
        $
        5
        
        
        $
        15The changes associated with current period activity and reclassifications
      into earnings were significantly higher in 2003 than 2002 due to foreign
      currency hedges at WPD that were not reported on a consolidated basis during
      the first half of 2002. The transaction gains and losses arising from the
      remeasurement of its foreign-currency denominated debt are offset by a related
      amount reclassified each period from other comprehensive income to earnings.
    See Note 15 regarding the adoption of SFAS 149.
    Energy Trading Activities
    PPL adopted the final provisions of EITF 02-3, "Issues Involved in Accounting
      for Derivative Contracts Held for Trading Purposes and Contracts Involved
      in Energy Trading and Risk Management Activities," during the fourth quarter
      of 2002. As such, PPL now reflects its net realized and unrealized gains
      and losses associated with all derivatives that are held for trading purposes
      in the "Net energy trading margins" line on the Statement of Income. Non-derivative
      contracts that meet the definition of energy trading activities as defined
      by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities,"
      are reflected in the financial statements using the accrual method of accounting.
      Under the accrual method of accounting, unrealized gains and losses are
      not reflected in the financial statements. Prior periods have been reclassified.
      PPL did not need to record a cumulative effect of this change in accounting
      principle because all non-derivative energy-related trading contracts had
      been shown in the financial statements at their amortized cost. This amortized
      cost reflected modeling reserves that incorporated the lack of independence
      in valuing contracts for which there were no external market prices.
    The financial statement impact of netting energy trading activities is
      as follows:
    Three
            Months Ended
            September 30,
        
        
        Nine Months
            Ended
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002PPL and PPL Energy
            SupplyPrior classificationWholesale energy marketing
        $
        203
        
        
        $
        188
        
        
        $
        716
        
        
        $
        394Energy purchases
        
        201
        
        
        
        191
        
        
        
        707
        
        
        
        381Net energy trading margins
        $
        2
        
        
        $
        (3
        )
        
        $
        9
        
        
        $
        13PPL MontanaPrior classificationWholesale energy marketing
        $
        7
        
        
        
        
        
        
        $
        20Energy purchases
        
        7
        
        
        
        
        
        
        
        20
        
        
        $
        1Net energy trading margins
        $
        
        
        
        
        
        
        
        $
        
        
        
        $
        (1
        )Credit Concentration
    PPL, PPL Energy Supply and PPL Montana enter into contracts with many entities
      for the purchase and sale of energy. Most of these contracts are considered
      a normal part of doing business and, as such, the mark-to-market value of
      these contracts is not reflected in the financial statements. However, the
      mark-to-market value of these contracts is considered when committing to
      new business from a credit perspective.
    PPL, PPL Energy Supply and PPL Montana have credit exposures to energy
      trading partners. The majority of these exposures were the mark-to-market
      value of multi-year contracts for energy sales. Therefore, if these counterparties
      fail to perform their obligations under such contracts, the companies would
      not experience an immediate financial loss, but would experience lower revenues
      in future years to the extent that replacement sales could not be made at
      the same prices as sales under the defaulted contracts.
    At September 30, 2003, PPL had a credit exposure of $188 million to energy
      trading partners. Ten counterparties accounted for 62% of this exposure.
      No other individual counterparty accounted for more than 3% of the exposure.
      With two exceptions, each of the ten primary counterparties had an investment
      grade credit rating from Standard & Poor's. PPL entered into a multi-year
      contract with one non-investment grade counterparty through a bidding process
      sponsored by a state regulatory commission. The other non-investment grade
      counterparty, NorthWestern, has filed for Chapter 11 bankruptcy protection.
      NorthWestern has assumed the power supply agreements in its bankruptcy proceeding.
      NorthWestern has remained current on all post-bankruptcy obligations with
      PPL Montana. Payment on all pre-bankruptcy obligations was received in October
      2003. See Note 8 under "Wholesale Energy Commitments," for additional information
      regarding the NorthWestern bankruptcy proceeding.
    At September 30, 2003, PPL Energy Supply had a credit exposure of $482
      million to energy trading partners. Eleven counterparties accounted for
      85% of this exposure. No other individual counterparty accounted for more
      than 1% of the exposure. The largest exposure, $294 million, was to PPL
      Electric, under the long-term contract to provide PPL Electric's PLR load.
      With two exceptions, the other ten counterparties have an investment grade
      credit rating from Standard & Poor's. PPL Energy Supply entered into
      a multi-year contract with one non-investment grade counterparty through
      a bidding process sponsored by a state regulatory commission. The other
      non-investment grade counterparty, NorthWestern, has filed for Chapter 11
      bankruptcy protection, as discussed above.
    At September 30, 2003, PPL Montana had a credit exposure of $50 million
      to energy trading partners. Four counterparties accounted for 83% of this
      exposure. No other individual counterparty accounted for more than 4% of
      the exposure. Three of the four counterparties have an investment grade
      credit rating from Standard & Poor's. The non-investment grade counterparty,
      NorthWestern, has filed for Chapter 11 bankruptcy protection, as discussed
      above.
    PPL, PPL Energy Supply and PPL Montana have the right to request collateral
      from each of these counterparties, except for one government agency, in
      the event their credit ratings fall below investment grade or, in one case,
      below current levels. PPL Montana and NorthWestern have mutually agreed
      not to request collateral from each other while NorthWestern's Chapter 11
      bankruptcy proceeding is pending. It is also the policy of PPL, PPL Energy
      Supply and PPL Montana to enter into netting agreements with all of their
      counterparties to minimize credit exposure.
12. Goodwill
    (PPL and PPL Energy Supply)
    The changes in the carrying amounts of goodwill by segment were as follows:
    PPL Energy
            Supply
        
        
        
        
        
        PPLSupply
        
        
        International
        
        
        Total
        
        
        Delivery(a)
        
        
        TotalBalance at December 31, 2002
        
        $
        85
        
        
        $
        334
        
        
        $
        419
        
        
        $
        55
        
        
        $
        474Effect of foreign currency exchange
            rates
        
        
        
        
        
        
        4
        
        
        
        4
        
        
        
        
        
        
        
        4Purchase accounting adjustments
        
        
        1
        
        
        
        (27
        ) (b)
        
        
        (26
        )
        
        
        
        
        
        
        (26
        )Balance at September 30, 2003
        
        $
        86
        
        
        $
        311
        
        
        $
        397
        
        
        $
        55
        
        
        $
        452(a)
        
        The Delivery segment is not part of
            PPL Energy Supply.(b)
        
        See Note 7 for additional information.The reporting units of the Supply, Delivery and International segments
      completed the transition impairment test in the first quarter of 2002 in
      accordance with SFAS 142, "Goodwill and Other Intangible Assets." A transition
      goodwill impairment loss of $150 million was recognized in the Latin American
      reporting unit within the International segment, and is reported as a "Cumulative
      Effect of a Change in Accounting Principle" on the Statement of Income.
      The fair value of the reporting unit was estimated using the expected present
      value of future cash flows.
13. Asset Retirement Obligations
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations,"
      which addresses the accounting for obligations associated with the retirement
      of tangible long-lived assets. SFAS 143 requires legal obligations associated
      with the retirement of long-lived assets to be recognized as a liability
      in the financial statements. The initial obligation should be measured at
      the estimated fair value. An equivalent amount should be recorded as an
      increase in the value of the capitalized asset and allocated to expense
      over the useful life of the asset. Until the obligation is settled, the
      liability should be increased, through the recognition of accretion expense
      in the income statement, for changes in the obligation due to the passage
      of time. SFAS 143 is effective for fiscal years beginning after June 15,
      2002.
    (PPL and PPL Energy Supply)
    PPL and PPL Energy Supply adopted SFAS 143 effective January 1, 2003. Initial
      adoption of the new rules resulted in an increase in net property, plant
      and equipment of $32 million, reversal of previously recorded liabilities
      of $304 million, recognition of asset retirement obligations of $229 million,
      recognition of a deferred tax liability of $44 million and a cumulative
      effect of adoption that increased net income by $63 million. For the three
      and nine months ended September 30, 2003, PPL and PPL Energy Supply recognized
      $5 million and $14 million of accretion expense and an insignificant amount
      of depreciation expense as a result of applying SFAS 143.
    PPL and PPL Energy Supply identified various legal obligations to retire
      long-lived assets, the largest of which relates to the decommissioning of
      the Susquehanna station. PPL and PPL Energy Supply identified and recorded
      other asset retirement obligations related to significant interim retirements
      at the Susquehanna station and various environmental requirements for coal
      piles, ash basins and other waste basin retirements.
    PPL and PPL Energy Supply also identified legal retirement obligations
      that were not measurable at the time of adoption. These items included the
      retirement of certain transmission assets and a reservoir. These retirement
      obligations were not measurable due to indeterminable dates of retirement.
    Amounts collected from PPL Electric's customers for decommissioning, less
      applicable taxes, are deposited in external trust funds for investment and
      can only be used for future decommissioning costs. The fair value of the
      nuclear decommissioning trust was $330 million and $287 million as of September
      30, 2003 and December 31, 2002.
    Asset retirement obligations are included in "Deferred Credits and Other
      Noncurrent Liabilities - Other" on the Balance Sheet. The changes in the
      carrying amounts of asset retirement obligations were as follows:
    Asset retirement obligation at January
            1, 2003
        
        $
        229Add: Accretion expense
        
        
        14Less: Settlement
        
        
        (4
        )Asset retirement obligation at September
            30, 2003
        
        $
        239The pro forma asset retirement obligation liability balances, calculated
      as if SFAS 143 had been adopted on January 1, 2002 (rather than January
      1, 2003), were $239 million, $229 million and $211 million as of September
      30, 2003, December 31, 2002 and January 1, 2002.
    The pro forma income statement effects of the application of SFAS 143,
      calculated as if it had been adopted on January 1, 2002 (rather than January
      1, 2003), are presented below:
    (PPL)
    Three
            Months Ended
            September 30,
        
        
        Nine Months
            Ended
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Reported net income - before cumulative
            effect of a change 
            in accounting principle (a)
        
        $
        171
        
        
        $
        122
        
        
        $
        463
        
        
        $
        242Pro forma net income - before cumulative
            effect of a change in accounting principle
        
        $
        171
        
        
        $
        114
        
        
        $
        463
        
        
        $
        227Reported net income
        
        $
        171
        
        
        $
        122
        
        
        $
        526
        
        
        $
        92Pro forma net income
        
        $
        171
        
        
        $
        114
        
        
        $
        463
        
        
        $
        77Basic EPS:Reported net income - before cumulative
            effect of a change in accounting principle
        
        $
        0.97
        
        
        $
        0.81
        
        
        $
        2.71
        
        
        $
        1.63Pro forma net income - before cumulative
            effect of a change in accounting principle
        
        $
        0.97
        
        
        $
        0.76
        
        
        $
        2.71
        
        
        $
        1.53Reported net income
        
        $
        0.97
        
        
        $
        0.81
        
        
        $
        3.07
        
        
        $
        0.62Pro forma net income
        
        $
        0.97
        
        
        $
        0.76
        
        
        $
        2.71
        
        
        $
        0.52Diluted EPS:Reported net income - before cumulative
            effect of a change in accounting principle
        
        $
        0.97
        
        
        $
        0.80
        
        
        $
        2.70
        
        
        $
        1.63Pro forma net income - before cumulative
            effect of a change in accounting principle
        
        $
        0.97
        
        
        $
        0.75
        
        
        $
        2.70
        
        
        $
        1.52Reported net income
        
        $
        0.97
        
        
        $
        0.80
        
        
        $
        3.06
        
        
        $
        0.62Pro forma net income
        
        $
        0.97
        
        
        $
        0.75
        
        
        $
        2.70
        
        
        $
        0.52(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.(PPL Energy Supply)
    Three
            Months Ended 
            September 30,
        
        
        Nine Months
            Ended 
            September 30,2003
        
        
        2002
        
        
        2003
        
        
        2002Reported net income - before cumulative
            effect of a change 
            in accounting principle (a)
        
        $
        190
        
        
        $
        141
        
        
        $
        475
        
        
        $
        295Pro forma net income - before cumulative
            effect of a change in accounting principle
        
        $
        190
        
        
        $
        133
        
        
        $
        475
        
        
        $
        280Reported net income
        
        $
        190
        
        
        $
        141
        
        
        $
        538
        
        
        $
        145Pro forma net income
        
        $
        190
        
        
        $
        133
        
        
        $
        475
        
        
        $
        130(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.(PPL Electric)
    PPL Electric adopted SFAS 143 effective January 1, 2003 and did not record
      any asset retirement obligations upon adoption. PPL Electric identified
      legal retirement obligations for the retirement of certain transmission
      assets that were not measurable at this time due to indeterminable dates
      of retirement.
    (PPL Montana)
    PPL Montana adopted SFAS 143 effective January 1, 2003. PPL Montana recorded
      asset retirement obligations associated with various environmental requirements
      for coal piles, ash basins and other waste basin retirements. The impact
      of these asset retirement obligations was insignificant.
    Reconciliation of Prior Annual Periods(PPL and PPL Energy Supply)
    The pro forma asset retirement obligation liability balances, calculated
      as if SFAS 143 had been adopted on January 1, 2000 (rather than January
      1, 2003), were $211 million, $196 million and $181 million as of December
      31, 2001, December 31, 2000 and January 1, 2000.
    The pro forma income statement effects of the application of SFAS 143,
      calculated as if it had been adopted on January 1, 2000 (rather than January
      1, 2003), are presented below:
    PPLFor the
            Years Ended 
            December 31,2002
        
        
        2001
        
        
        2000Reported net income - before
            extraordinary item and cumulative effect of a change in accounting
            principle (a)
        
        $
        358
        
        
        $
        169
        
        
        $
        487Pro forma net income - before
            extraordinary item and cumulative effect of a change in accounting
            principle
        
        $
        349
        
        
        $
        167
        
        
        $
        489Reported net income
        
        $
        208
        
        
        $
        179
        
        
        $
        498Pro forma net income
        
        $
        199
        
        
        $
        177
        
        
        $
        500Basic EPS:Reported net income - before
            extraordinary item and cumulative effect of a change in accounting
            principle
        
        $
        2.35
        
        
        $
        1.16
        
        
        $
        3.38Pro forma net income - before
            extraordinary item and cumulative effect of a change in accounting
            principle
        
        $
        2.29
        
        
        $
        1.15
        
        
        $
        3.39Reported net income
        
        $
        1.37
        
        
        $
        1.23
        
        
        $
        3.45Pro forma net income
        
        $
        1.31
        
        
        $
        1.21
        
        
        $
        3.46Diluted EPS:Reported net income - before
            extraordinary item and cumulative effect of a change in accounting
            principle
        
        $
        2.35
        
        
        $
        1.15
        
        
        $
        3.37Pro forma net income - before
            extraordinary item and cumulative effect of a change in accounting
            principle
        
        $
        2.29
        
        
        $
        1.14
        
        
        $
        3.38Reported net income
        
        $
        1.36
        
        
        $
        1.22
        
        
        $
        3.44Pro forma net income
        
        $
        1.31
        
        
        $
        1.21
        
        
        $
        3.45(a)
        Represents income before
            extraordinary item and cumulative effect of a change in accounting
            principle, less dividends and distributions on preferred securities.PPL Energy
            SupplyFor the
            Years Ended 
            December 31,2002
        
        
        2001
        
        
        2000Reported net income - before
            cumulative effect of a change in accounting principle (a)
        
        $
        429
        
        
        $
        171
        
        
        $
        242Pro forma net income - before
            cumulative effect of a change in accounting principle
        
        $
        420
        
        
        $
        169
        
        
        $
        244Reported net income
        
        $
        279
        
        
        $
        174
        
        
        $
        242Pro forma net income
        
        $
        270
        
        
        $
        172
        
        
        $
        244(a)
        Represents income before cumulative
            effect of a change in accounting principle less dividends and distributions
            on preferred securities.
14. Workforce Reduction
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In an effort to improve operational efficiency and reduce costs, PPL and
      its subsidiaries commenced a workforce reduction assessment in June 2002
      that was expected to eliminate up to 598 employees, or about 7% of PPL's
      U.S. workforce, at an estimated cost of $74 million. The program was broad-based
      and impacted all employee groups except certain positions that are key to
      providing high-quality service to PPL's electricity delivery customers.
      Linemen, electricians and line foremen, for example, were not affected by
      the reductions. An additional $1 million workforce reduction charge was
      recorded in September 2002, when plans specific to PPL Global and PPL Montana
      subsidiaries were finalized which were expected to impact 26 employees.
      These additional reductions increased PPL's total charge for workforce reductions
      to $75 million for the elimination of up to 624 positions.
    PPL recorded the charges in the Statement of Income as "Workforce reduction"
      for the year ended December 31, 2002. These charges reduced net income by
      $44 million after taxes. The program provides primarily for enhanced early
      retirement benefits and/or one-time special pension separation allowances
      based on an employee's age and years of service. These features of the program
      will be paid from the PPL Retirement Plan pension trust and increased PPL's
      pension and postretirement benefit liabilities by $65 million. The remaining
      $10 million of costs related primarily to non-pension benefits, such as
      severance payments and outplacement costs, which will be paid by PPL.
    PPL Energy Supply expected to ultimately eliminate up to 221 employees
      and recorded charges of $40 million in June 2002 and $1 million in September
      2002. These charges reduced net income by $24 million for the year ended
      December 31, 2002. Included in these charges was a $10 million allocation
      of costs associated with the elimination of employees of PPL Services.
    PPL Electric expected to ultimately eliminate up to 260 employees and recorded
      a charge of $33 million, which reduced net income by $19 million for the
      year ended December 31, 2002. Included in the charge was a $6 million allocation
      of costs associated with the elimination of employees of PPL Services.
    PPL Montana expected to ultimately eliminate up to ten employees and recorded
      an insignificant charge for the year ended December 31, 2002.
    In the third quarter of 2003, PPL Electric recorded an additional $9 million
      charge as a completion of the program that commenced in 2002. This additional
      charge covers the final 94 employees anticipated to be separated as part
      of the automated meter reader implementation project. The charge was related
      to pension enhancements, which will be paid from the PPL Retirement Plan
      pension trust.
    As of September 30, 2003, 478 employees of PPL subsidiaries were terminated.
      Approximately 143 positions, which are primarily bargaining unit, will be
      evaluated for termination over the next twelve months, due to the timing
      of the automated meter reader implementation and the displacement process
      under the bargaining unit contract. Substantially all of the accrued non-pension
      benefits have been paid.
15. New Accounting Standards
    SFAS 143 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 13 for a discussion of SFAS 143, "Accounting for Asset Retirement
      Obligations," and the impact of its adoption.
    SFAS 146(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
      Exit or Disposal Activities." SFAS 146 addresses financial accounting and
      reporting for costs associated with exit or disposal activities and nullifies
      EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
      Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
      in a Restructuring)." SFAS 146 requires the recognition of a liability for
      costs associated with exit or disposal activities when the liability is
      incurred rather than at the date of a commitment to an exit or disposal
      plan. SFAS 146 also establishes that the initial liability should be measured
      at its estimated fair value. The provisions of SFAS 146 are effective for
      exit or disposal activities initiated after December 31, 2002, with earlier
      application encouraged. PPL and its subsidiaries adopted SFAS 146 effective
      January 1, 2003. The initial adoption did not have an impact on PPL
      or its subsidiaries. However, SFAS 146 may impact the accounting treatment
      of future disposal or exit activities.
    SFAS 148(PPL, PPL Energy Supply, PPL Electric and
      PPL Montana)
    In 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation
      - Transition and Disclosure, an Amendment of FASB Statement No. 123." SFAS
      148 provides three transition methods for adopting the fair value method
      of accounting for stock-based compensation prescribed under SFAS 123 and
      enhances the required disclosures regarding stock-based compensation effective
      for fiscal years ending after December 15, 2002. SFAS 148 also requires
      certain disclosures in financial reports issued for interim periods beginning
      after December 15, 2002.
    PPL and its subsidiaries elected to adopt the fair value method of accounting
      for stock-based compensation as of January 1, 2003 using the prospective
      method of transition, as permitted by SFAS 148. The prospective method provides
      that PPL and its subsidiaries will recognize expense for all stock-based
      compensation awards granted, modified or settled on or after January 1,
      2003. See Note 2 for a discussion of the change in accounting for stock-based
      compensation and the interim disclosures required by SFAS 148.
    SFAS 149(PPL, PPL Energy Supply and PPL Montana)

    In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
      Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
      SFAS 133 to improve financial accounting and reporting for derivative instruments
      and hedging activities. To ensure that contracts with comparable characteristics
      are accounted for similarly, SFAS 149 clarifies the circumstances under
      which a contract with an initial net investment meets the characteristics
      of a derivative, clarifies when a derivative contains a financing component,
      amends the definition of an "underlying" and amends certain other existing
      pronouncements. SFAS 149 is effective for contracts entered into or modified
      and for hedging relationships designated after June 30, 2003, except certain
      provisions relating to forward purchases or sales of when-issued securities
      or other securities that do not yet exist should be applied to both existing
      contracts and new contracts entered into after June 30, 2003.
    PPL, PPL Energy Supply and PPL Montana adopted SFAS 149 effective July 1, 2003.
       The adoption of SFAS 149 did not have a significant impact on any of PPL,
       PPL Energy Supply or PPL Montana for the quarter ended September 30, 2003.
       Each company has changed the accounting for certain transactions on a prospective
       basis to conform with SFAS 149.  This change could result in increased
       volatility in other comprehensive income and earnings in future periods.
    SFAS 150

    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
      Instruments with Characteristics of Both Liabilities and Equity." SFAS 150
      establishes standards for classifying and measuring certain financial instruments
      that have characteristics of both liabilities and equity. The standards
      established by it require certain financial instruments that, under previous
      guidance, could be classified as equity or "mezzanine" equity to now be
      classified as liabilities on the Balance Sheet. SFAS 150 requires the following
      freestanding financial instruments to be classified as liabilities (or assets
      in some circumstances):
    
        mandatorily redeemable financial instruments,
        financial instruments that embody obligations
            to repurchase equity shares in exchange for cash or other assets,
            including written put options and forward purchase contracts, and
        certain financial instruments that embody
            obligations to issue a variable number of shares.SFAS 150 also requires disclosure regarding the nature and terms of those instruments
and settlement alternatives. Except as discussed below, SFAS 150 is effective
for all financial instruments entered into or modified after May 31, 2003 and
is otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. In November 2003, the FASB issued Staff Position No. FAS 150-3,
"Effective Date, Disclosures, and Transition for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB
Statement No. 150, 'Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity,' " which, as it relates to public entities, defers
indefinitely certain provisions of SFAS 150 related to certain mandatorily redeemable
noncontrolling interests. SFAS 150 prohibits the restatement of
financial statements for periods prior to its adoption.
    (PPL, PPL Energy Supply and PPL Electric)
    In accordance with SFAS 150, effective July 1, 2003, PPL changed its classification
      of the trust preferred securities of PPL Capital Funding Trust I, which
      were issued as a component of the PEPS Units, PPL Energy Supply changed
      its classification of the trust preferred securities issued by SIUK Capital
      Trust I and PPL Electric changed its classification of its preferred stock
      with sinking fund requirements. These securities are mandatorily redeemable
      financial instruments, as they require the issuer to redeem the securities
      for cash on a specified date. Thus, they have been classified as liabilities,
      as a component of long-term debt, instead of "mezzanine" equity, on the
      Balance Sheet as of September 30, 2003. The amounts included in long-term
      debt as of September 30, 2003 are as follows: $575 million of trust preferred
      securities of PPL Capital Funding Trust I (for PPL), $86 million of trust
      preferred securities of SIUK Capital Trust I (for PPL and PPL Energy Supply)
      and $17 million of preferred stock with sinking fund requirements (for PPL
      and PPL Electric). Additionally, the distributions on these securities are
      required to be included as a component of "Interest Expense" instead of
      "Dividends and Distributions - Preferred Securities" in the Statement of
      Income effective July 1, 2003. "Interest Expense" for the three and nine
      months ended September 30, 2003 includes distributions on these mandatorily
      redeemable securities totaling $15 million for PPL, $4 million for PPL Energy
      Supply and an insignificant amount for PPL Electric. Periods ending prior
      to July 1, 2003 have not been restated to conform to these presentations
      since SFAS 150 specifically prohibits the restatement of financial statements
      for periods prior to its adoption.
    See the "Consolidated Statement of Company-Obligated Mandatorily Redeemable
      Securities" contained in PPL's Annual Report to the SEC on Form 10-K for
      the year ended December 31, 2002 for a discussion of the terms of the trust
      preferred securities of PPL Capital Funding Trust I and SIUK Capital Trust
      I. In addition, SIUK Capital Trust I may, at the discretion of WPD LLP,
      redeem its preferred securities, in whole or in part, at 104.115% of par
      beginning February 2007 and thereafter at an annually declining premium
      over par through January 2017, after which time they are redeemable at par.
      The preferred stock with sinking fund requirements of PPL Electric that
      was outstanding at September 30, 2003 was redeemed in full in October 2003.
    FIN 45(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
      and Disclosure Requirements for Guarantees, Including Indirect Guarantees
      of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57,
      and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies
      that upon issuance of certain types of guarantees, the guarantor must recognize
      an initial liability for the fair value of the obligation it assumes under
      the guarantee. The offsetting entry will be dependent upon the circumstances
      under which the guarantee is issued, and the initial liability should typically
      be reduced as the guarantor is released from risk under the guarantee. FIN
      45 also requires a guarantor to make significant new disclosures for guarantees
      even if the likelihood of the guarantor's having to make payments is remote.
      The provisions relating to the initial recognition and measurement of guarantee
      obligations must be applied on a prospective basis to guarantees issued
      or modified after December 31, 2002. PPL and its subsidiaries adopted FIN
      45 effective January 1, 2003. FIN 45 did not have a significant impact on
      earnings for the three or nine months ended September 30, 2003. See Note
      8 for disclosure of guarantees and other assurances existing as of September
      30, 2003.
    FIN 46 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In January 2003, the FASB issued Interpretation No. 46, "Consolidation
      of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46
      clarifies that variable interest entities, as defined therein, that do not
      disperse risks among the parties involved should be consolidated by the
      entity that is determined to be the primary beneficiary. FIN 46 also requires
      certain disclosures to be made by the primary beneficiary and by an enterprise
      that holds a significant variable interest in a variable interest entity
      but is not the primary beneficiary. FIN 46 applies immediately to variable
      interest entities created after January 31, 2003 and to variable interest
      entities in which an enterprise obtains an interest after January 31, 2003.
      For variable interest entities in which an enterprise holds a variable interest
      that was acquired before February 1, 2003, FIN 46 was originally required
      to be adopted no later than the first fiscal year or interim period beginning
      after June 15, 2003. However, in October 2003, the FASB issued Staff Position
      No. FIN 46-6, "Effective Date of FASB Interpretation No. 46, Consolidation
      of Variable Interest Entities," which delays the effective date for applying
      the provisions of FIN 46 to interests held by public entities in variable
      interest entities or potential variable interest entities created before
      February 1, 2003 until the end of the first interim period ending after
      December 15, 2003.
    FIN 46 did not have an impact on PPL or its subsidiaries during the three
      or nine months ended September 30, 2003. PPL and its subsidiaries are in
      the process of evaluating entities in which they hold a variable interest
      that was acquired before February 1, 2003. Except as discussed below, PPL
      and its subsidiaries are currently not aware of any variable interest entities
      that are not consolidated as of September 30, 2003 but which they will be
      required to consolidate in accordance with FIN 46 effective December 31,
      2003. As they continue to evaluate the impact of applying FIN 46, PPL and
      its subsidiaries may identify additional entities that they would need to
      consolidate.
    (PPL and PPL Energy Supply)
    The lessors under the operating leases for the Sundance, University Park
      and Lower Mt. Bethel generation facilities are variable interest entities
      in which PPL Energy Supply is the primary beneficiary. Consequently, under
      FIN 46, PPL Energy Supply will be required to consolidate the financial
      statements of the lessors effective December 31, 2003. The principal impact
      from consolidating the lessors under these leases will be the inclusion
      of the generation facilities as assets and the lease financing as liabilities
      in the consolidated balance sheet of PPL Energy Supply. Additionally, PPL
      Energy Supply will be required to recognize a cumulative effect of a change
      in accounting principle in connection with the initial consolidation of
      these variable interest entities. PPL Energy Supply estimates that, upon
      applying FIN 46 to these entities effective December 31, 2003, it will recognize
      approximately $1.0 billion of additional assets and liabilities on its balance
      sheet and a charge of $27 million, after-tax, as a cumulative effect of
      a change in accounting principle. See below for a discussion of the leases.
    In May 2001, a subsidiary of PPL Energy Supply entered into a lease arrangement,
      as lessee, for the development, construction and operation of commercial
      power generation facilities. The lessor is a variable interest entity that
      was created for the sole purpose of owning the facilities and incurring
      the related financing costs. The $660 million operating lease arrangement
      covers the 450 MW gas-powered Sundance project near Coolidge, Arizona and
      the 540 MW gas-powered University Park project near University Park, Illinois.
      These facilities were substantially complete in July 2002, at which time
      the initial lease term commenced. At the end of the lease term, which is
      June 2008, the lessee has the option to extend the lease or purchase the
      facilities. If the lessee does not choose either of these options, then
      it must sell the assets on behalf of the lessor and guarantee a residual
      value of up to $544 million based on a total lessor's investment of $656
      million for both projects combined. If the financing is terminated early
      as a result of significant environmental damage, or an event of default,
      the lessee could be obligated to pay up to 100% of the lessor's investment
      in the facilities.
    In December 2001, another subsidiary of PPL Energy Supply entered into
      a $455 million operating lease arrangement, as lessee, for the development,
      construction and operation of a 600 MW gas-fired combined-cycle generation
      facility located in Lower Mt. Bethel Township, Northampton County, Pennsylvania.
      The lessor is a variable interest entity that was created for the sole purpose
      of owning the facilities and incurring the related financing costs. The
      initial lease term commences on the date of commercial operation, which
      is expected to occur in early 2004, and ends in December 2013. At the end
      of the lease term, the lessee has the option to extend the lease or purchase
      the facilities. If the lessee does not choose either of these options, then
      it must sell the assets on behalf of the lessor and guarantee a residual
      value estimated to be up to $321 million based on an estimated total lessor's
      investment of $455 million. The lessee could be obligated to pay up to 100%
      of the lessor's investment and other obligations in the facilities if the
      financing is terminated early as a result of a loss, destruction or condemnation
      of the project, or upon an event of default. Based on current market conditions,
      the total exposure as a result of such a termination is estimated to be
      up to $558 million as of September 30, 2003 and is estimated to be up to
      $570 million as of the commencement of the lease.
    EITF 03-11 (PPL, PPL Energy Supply and PPL Montana)
    In August 2003, the FASB ratified EITF 03-11, "Reporting Realized Gains
      and Losses on Derivative Instruments That Are Subject to FASB Statement
      No. 133, Accounting for Derivative Instruments and Hedging Activities, and
      Not 'Held for Trading Purposes' as Defined in EITF Issue No. 02-3, 'Issues
      Involved in Accounting for Derivative Contracts Held for Trading Purposes
      and Contracts Involved in Energy Trading and Risk Management Activities.' "
      EITF 03-11 addresses whether realized gains and losses on physically settled
      derivative contracts not "held for trading purposes" should be reported
      in the income statement on a gross or net basis. It requires that each entity
      make this determination for itself based on the relevant facts and circumstances
      in the context of the various activities of the entity rather than based
      solely on the terms of the individual contracts. EITF 03-11 is effective
      for transactions entered into on or after October 1, 2003. PPL, PPL Energy
      Supply and PPL Montana are in the process of evaluating the impact of the
      adoption of EITF 03-11. Although this new accounting guidance could have
      a material impact on the presentation of certain line items in the financial
      statements, it will not impact the financial position or earnings of PPL,
      PPL Energy Supply or PPL Montana.

---

PPL CORPORATION AND SUBSIDIARIES



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



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

Results of Operations

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

Prior to September 6, 2002, PPL Global held 51% of the equity interest in WPD,
  but shared joint control with Mirant. On September 6, 2002, PPL Global acquired
  the remaining 49% equity interest in WPD and gained complete control. The purchase
  of Mirant's interest was accounted for as a step-acquisition and resulted in
  the consolidation of WPD's results of operations as of January 1, 2002. Therefore,
  PPL's Statement of Income for the three and nine months ended September 30,
  2002 has been reclassified to reflect the consolidation of WPD's results. Mirant's
  $19 million and $72 million share of earnings for the three and nine months
  ended September 30, 2002 is reflected in "Minority Interest."

WPD's results, as consolidated in PPL's Statement of Income, are impacted by
  changes in foreign currency exchange rates. For the three and nine months ended
  September 30, 2003, as compared to the same periods in 2002, changes in foreign
  exchange rates increased WPD's portion of revenue and expense line items by
  about 6% and 10%.

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

Earnings

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

|                             |                     | Net Income                                        |    
|---------------------------- | ------------------- | ------------------------------------------------- | ---
|                             |                     | Three Months
        Ended 
        September 30, |    
|                             |                     | 2003                                              |    
|                             |                     |                                                   |    
|Income from core operations  |                     | $                                                 | 176
|                             |                     |                                                   |    
|Non-core items (net of tax): |                     |                                                   |    
|                             |                     |                                                   |    
|                             | Accounting changes: |                                                   |    
|                             |                     |                                                   |    
|                             |                     | Asset retirement obligations (Note 13)            |    
|                             |                     |                                                   |    
|                             |                     | Goodwill impairment (Note 12)                     |    
|                             |                     |                                                   |    
|                             | Unusual items:      |                                                   |    
|                             |                     |                                                   |    
|                             |                     | Workforce reduction (Note 14)                     |    
|                             |                     |                                                   |    
|                             |                     | CEMAR operating losses 
        (Note 7)          |    
|                             |                     |                                                   |    
|                             |                     | CEMAR impairment (Note 7)                         |    
|                             |                     |                                                   |    
|Net Income - actual          |                     | $                                                 | 171
|                             |                     |                                                   |    
|                             |                     |                                                   |    

|                             |                     | EPS - Diluted                                     |     
|---------------------------- | ------------------- | ------------------------------------------------- | ----
|                             |                     | Three Months
        Ended 
        September 30, |     
|                             |                     | 2003                                              |     
|                             |                     |                                                   |     
|Income from core operations  |                     | $                                                 | 1.00
|                             |                     |                                                   |     
|Non-core items (net of tax): |                     |                                                   |     
|                             |                     |                                                   |     
|                             | Accounting changes: |                                                   |     
|                             |                     |                                                   |     
|                             |                     | Asset retirement obligations (Note 13)            |     
|                             |                     |                                                   |     
|                             |                     | Goodwill impairment (Note 12)                     |     
|                             |                     |                                                   |     
|                             | Unusual items:      |                                                   |     
|                             |                     |                                                   |     
|                             |                     | Workforce reduction (Note 14)                     |     
|                             |                     |                                                   |     
|                             |                     | CEMAR operating losses 
        (Note 7)          |     
|                             |                     |                                                   |     
|                             |                     | CEMAR impairment (Note 7)                         |     
|                             |                     |                                                   |     
|Net Income - actual          |                     | $                                                 | 0.97
|                             |                     |                                                   |     



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

|               |                                                                                                  | September
        30, 2003 vs. September 30, 2002 |   
|-------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------------------- | --
|               |                                                                                                  | Three Months
        Ended                        |   
|Domestic:      |                                                                                                  |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Higher wholesale energy margins                                                                  |                                                   | $ 
|               |                                                                                                  |                                                   |   
|               | Net energy trading margins                                                                       |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Lower unregulated retail energy margins                                                          |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Lower regulated retail energy margins                                                            |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Delivery revenues (net of CTC/ITC amortization
        and interest expense on transition bonds) |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Higher ancillary expenses                                                                        |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Higher operating and maintenance expenses                                                        |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Settlement of capital stock tax in 2002                                                          |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Realized earnings on decommissioning trust
        fund                                          |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Lower dividends and distributions on preferred
        securities                                |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Lower interest expense                                                                           |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Other                                                                                            |                                                   |   
|               |                                                                                                  |                                                   |   
|International: |                                                                                                  |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Higher earnings from U.K. operations                                                             |                                                   |   
|               |                                                                                                  |                                                   |   
|               | Other                                                                                            |                                                   |   
|               |                                                                                                  |                                                   |   
|               |                                                                                                  | $                                                 | 31
|               |                                                                                                  |                                                   |   

The period to period changes in earnings components, including margins by activity
  and income statement line items, are discussed in the balance of the discussion
  in "Results of Operations." The increase in earnings from U.K. operations was
  primarily due to obtaining complete ownership of WPD in September 2002. (See
  Note 7 to the Financial Statements for additional information.)

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

- PPL expects that the low level of wholesale energy prices will continue
    to put pressure on margins in 2003 and beyond. Based upon current energy price
    levels, there is a risk that PPL may be unable to recover its investment in
    new gas-fired generation facilities. Under GAAP, PPL does not believe that
    there is an impairment charge to be recorded at this time. PPL is unable to
    predict the ultimate earnings impact of this issue, based upon energy price
    levels, applicable accounting rules and other factors, but such impact may
    be material. See "Application of Critical Accounting Policies - Asset Impairment"
    in PPL's Annual Report to the SEC on Form 10-K for the year ended December
    31, 2002 for additional information.
- Earnings in the fourth quarter of 2003 and beyond will be impacted by the
    consolidation of variable interest entities (as discussed in Note 15 to the
    Financial Statements).
- In May 2003, PPL Electric announced that it expects to file a request for
    a delivery rate increase with the PUC in the spring of 2004. If approved,
    the new rates will go into effect January 2005, when PPL Electric's distribution
    rate cap expires. PPL Electric has not yet determined the amount of the rate
    increase it will request, and cannot predict the amount of such increase that
    will ultimately be approved by the PUC.
- Earnings in 2005 and beyond may be impacted by a rate review of the delivery
    business of WPD (South West) and WPD (South Wales). WPD cannot predict the
    ultimate outcome of the rate review.
- PPL operates a synfuel facility and receives tax credits pursuant to Section
    29 of the Internal Revenue Code based on its sale of synfuel to unaffiliated
    third-party purchasers. See Note 8 to the Financial Statements for a discussion
    of the IRS review of synfuel production procedures, and the projected annual
    earnings attributable to PPL's synfuel operations.
- PPL expects to record the benefit of a tax loss associated with the CEMAR
    investment in the fourth quarter of 2003. This is expected to increase 2003
    reported earnings by $0.50 to $0.65 per share. Future earnings may also be
    impacted by the ultimate exiting of this investment.

Domestic Energy Margins

The following table provides changes in income statement line items that comprise
  domestic gross energy margins for the three and nine months ended September 30,
  2003, compared with the same periods in 2002:

|                                                     |                     | September
        30, 2003 vs. September 30, 2002 |    
|---------------------------------------------------- | ------------------- | ------------------------------------------------- | ---
|                                                     |                     | Three Months
        Ended                        |    
|                                                     |                     |                                                   |    
|Utility revenues                                     |                     | $                                                 | (38
|                                                     |                     |                                                   |    
|Unregulated retail electric
        and gas revenues |                     |                                                   | (13
|                                                     |                     |                                                   |    
|Wholesale energy marketing revenues                  |                     |                                                   | 28 
|                                                     |                     |                                                   |    
|Net energy trading margins                           |                     |                                                   | 5  
|                                                     |                     |                                                   |    
|Other revenue adjustments (a)                        |                     |                                                   | 45 
|                                                     |                     |                                                   |    
|                                                     | Total revenues      |                                                   |    
|                                                     |                     |                                                   |    
|Fuel                                                 |                     |                                                   | (19
|                                                     |                     |                                                   |    
|Energy purchases                                     |                     |                                                   | 10 
|                                                     |                     |                                                   |    
|Other cost adjustments (a)                           |                     |                                                   | 24 
|                                                     |                     |                                                   |    
|                                                     | Total cost of sales |                                                   |    
|                                                     |                     |                                                   |    
|                                                     |                     | Domestic gross energy margins                     |    
|                                                     |                     |                                                   |    
|                                                     |                     |                                                   |    

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

Changes in Gross Domestic Energy Margins By Activity

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

|                         |                               | September
        30, 2003 vs. September 30, 2002 |   
|------------------------ | ----------------------------- | ------------------------------------------------- | --
|                         |                               | Three Months
        Ended                        |   
|                         |                               |                                                   |   
|Wholesale - Eastern U.S. |                               | $                                                 | 4 
|                         |                               |                                                   |   
|Wholesale - Western U.S. |                               |                                                   | 11
|                         |                               |                                                   |   
|Net energy trading       |                               |                                                   | 5 
|                         |                               |                                                   |   
|Unregulated retail       |                               |                                                   | (8
|                         |                               |                                                   |   
|Regulated retail         |                               |                                                   |   
|                         |                               |                                                   |   
|                         | Domestic gross energy margins |                                                   | $ 
|                         |                               |                                                   |   

Wholesale - Eastern U.S.

Eastern wholesale margins were higher for the three and nine months ended September
  30, 2003, compared to the same periods in 2002, primarily due to higher volumes,
  which increased by 11% and 39% over the same periods in 2002. The higher volumes
  were primarily driven by market opportunities to optimize the value of generating
  assets, and for the nine months ended September 30, 2003, by higher spot prices
  that allowed PPL to increase the utilization of its higher-cost generating units
  and by 699 MW of new generation which began commercial operations in mid-2002.
  Average PJM spot market real time prices rose 43% for the nine months ended
  September 30, 2003, compared to the same period in 2002. Partially offsetting
  the increase in wholesale energy margins for the nine months ended September
  30, 2003, compared to the same period in 2002, was the buyout of a NUG contract
  in February 2002, which reduced power purchases by $25 million.

Wholesale - Western U.S.

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

In the Northwest, margins were $5 million and $28 million higher for the three
  and nine months ended September 30, 2003, compared to the same periods in 2002,
  primarily due to higher wholesale prices. Average wholesale prices for the three
  and nine months ended September 30, 2003 were $6/MWh higher than those realized
  in the same periods in 2002. Also, the nine months ended September 30, 2003
  includes a $3 million favorable settlement with Energy West Resources, Inc.
  in June 2003.

In the Southwest, margins were $6 million higher for the three months ended
  September 30, 2003, compared to the same period in 2002, primarily due to the
  inception of new tolling agreements in Arizona in mid-2003. Margins in the Southwest
  were $2 million higher for the nine months ended September 30, 2003, compared
  to the same period in 2002, due to the new tolling agreements in Arizona, partially
  offset by lower margins earlier in the year due to lower sales volumes.

Net Energy Trading

PPL enters into certain energy contracts that meet the criteria of trading
  derivatives as defined by EITF 02-3. These physical and financial contracts
  cover trading activity associated with electricity, gas and oil. Margins include
  both realized and unrealized gains and losses. The $5 million increase for the
  three months ended September 30, 2003, compared to the same period in 2002,
  was primarily due to realized gains associated with electricity positions. The
  $4 million decrease for the nine months ended September 30, 2003, compared to
  the same period in 2002, was primarily due to realized electric swap losses
  in 2003. The physical volumes associated with energy trading for the three months
  ended September 30, 2003 were 2,760 GWh and 3.8 Bcf, compared to 3,088 GWh and
  3.6 Bcf for the three months ended September 30, 2002. Energy trading physical
  volumes for the nine months ended September 30, 2003 were 7,616 GWh and 11.0
  Bcf, compared to 7,824 GWh and 8.7 Bcf for the nine months ended September 30,
  2002.

Unregulated Retail

Unregulated retail margins were lower for the three and nine months ended September
  30, 2003, compared to the same periods in 2002, primarily due to significantly
  lower electric retail prices in the West. West retail contract prices decreased
  by approximately 22% for both the three and nine months ended September 30,
  2003, compared to the same periods in 2002.

Regulated Retail

Regulated retail margins in the East were flat for the three months ended September
  30, 2003, compared to the same period in 2002, as sales and supply costs were
  unchanged between the periods. For the nine months ended September 30, 2003,
  regulated retail margins decreased by 10%, compared to the same period in 2002,
  due to higher supply costs resulting from higher purchased power prices during
  the first half of 2003. Purchase power prices were higher because of increased
  gas and oil prices and the abnormally cold winter.

Utility Revenues

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

|               |                                                   | September
        30, 2003 vs. September 30, 2002 |    
|-------------- | ------------------------------------------------- | ------------------------------------------------- | ---
|               |                                                   | Three Months
        Ended                        |    
|Domestic:      |                                                   |                                                   |    
|               |                                                   |                                                   |    
|               | Retail electric revenue (PPL
        Electric)    |                                                   |    
|               |                                                   |                                                   |    
|               |                                                   | Electric delivery                                 |    
|               |                                                   |                                                   |    
|               |                                                   | PLR electric generation supply                    |    
|               |                                                   |                                                   |    
|               |                                                   | Other                                             |    
|               |                                                   |                                                   |    
|               | Wholesale electric revenue (PPL
        Electric) |                                                   |    
|               |                                                   |                                                   |    
|               | Gas revenue (PPL Gas Utilities)                   |                                                   |    
|               |                                                   |                                                   |    
|International: |                                                   |                                                   |    
|               |                                                   |                                                   |    
|               | Retail electric delivery (PPL
        Global)     |                                                   |    
|               |                                                   |                                                   |    
|               |                                                   | U.K.                                              |    
|               |                                                   |                                                   |    
|               |                                                   | El Salvador                                       |    
|               |                                                   |                                                   |    
|               |                                                   | Bolivia                                           |    
|               |                                                   |                                                   |    
|               |                                                   | Chile                                             |    
|               |                                                   |                                                   |    
|               |                                                   | Brazil                                            |    
|               |                                                   |                                                   |    
|               |                                                   | $                                                 | (38
|               |                                                   |                                                   |    
|               |                                                   |                                                   |    

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

- lower revenues in Brazil attributable to the deconsolidation of CEMAR in
    August 2002. PPL Global stopped recording operating results of CEMAR upon
    relinquishing control to ANEEL. (See Note 7 to the Financial Statements for
    additional information); offset by
- higher revenues in Chile primarily due to higher volumes and the consolidation
    of certain transmission revenues. (See Note 7 to the Financial Statements
    for additional information.)

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

- higher PPL Electric delivery revenues resulting from a 1.5% increase in
    delivery sales, in part due to the colder winter weather in the first quarter
    of 2003;
- higher PPL Electric PLR supply revenues due to higher energy and capacity
    rates in 2003 compared with 2002;
- higher PPL Gas Utilities revenues primarily due to higher sales volumes
    of 19%, which were also attributable to the colder winter weather in the first
    quarter of 2003;
- higher WPD revenues in the U.K. due to the change in foreign currency exchange
    rates from period to period;
- higher revenues in El Salvador due to higher volumes and higher pass-through
    energy costs, partially offset by a 6% tariff reduction effective January
    1, 2003; and
- higher revenues in Chile primarily due to higher volumes and the consolidation
    of certain transmission revenues; offset by
- lower revenues in Brazil due to the deconsolidation of CEMAR, as noted above.

Energy Related Businesses

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

- $8 million due to credits recorded on development projects in 2002, due
    largely to a favorable settlement on the cancellation of a generation project
    in Washington state;
- a $6 million operating loss on some Hyder properties in 2003, which were
    subsequently sold in April 2003;
- a $4 million decrease in Latin America revenues from lower material and
    construction project sales. In 2002, PPL Global's Bolivian subsidiary participated
    in the construction of a 1,500 kilometer transmission line in rural areas
    of Bolivia; and
- a $4 million decrease in margins from telecommunications, due to the acquisition
    of a fiber optic network and start-up activities for new products.

Other Operation Expenses

The increase (decrease) in other operation expenses was primarily due to:

|                                                                                                                                                                                                                                                            |  | September
        30, 2003 vs. September 30, 2002 |    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ---
|                                                                                                                                                                                                                                                            |  | Three Months
        Ended                        |    
|Decrease in domestic and international
        pension income                                                                                                                                                                                               |  | $                                                 | 11 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Increased operating expenses
        in domestic business lines                                                                                                                                                                                             |  |                                                   | 23 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Increase in WPD expenses due
        to increases in foreign currency exchange rates, regulatory accounting
        adjustments, and resolution of purchase accounting contingencies in the
        second quarter of 2002 related to the Hyder acquisition |  |                                                   | 15 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Additional expenses of new generating
        facilities that became operational in mid-2002                                                                                                                                                                |  |                                                   | 3  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Accretion expense as a result
        of applying SFAS 143, "Accounting for Asset Retirement Obligations." See
        Note 13.                                                                                                                             |  |                                                   | 5  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Incremental storm restoration
        costs associated with Hurricane Isabel                                                                                                                                                                                |  |                                                   | 6  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Change to account for CEMAR
        on the cost method                                                                                                                                                                                                      |  |                                                   | (23
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Reduction in salaries and benefits
        as a result of the workforce reduction initiated in 2002                                                                                                                                                         |  |                                                   | (10
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Insurance settlements - property
        damage and environmental                                                                                                                                                                                           |  |                                                   | (23
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Estimated 2002 vacation liability
        adjustment in conjunction with the workforce reduction                                                                                                                                                            |  |                                                   | (15
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Other decreases - net                                                                                                                                                                                                                                       |  |                                                   | (4 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|                                                                                                                                                                                                                                                            |  | $                                                 | (12
|                                                                                                                                                                                                                                                            |  |                                                   |    

The decreases in pension income for the three and nine months ended September
  30, 2003 were attributable to PPL's primary domestic pension plan and the U.K.
  pension plans of WPD. As a result of weak capital markets during 2002, PPL's
  domestic and U.K. pension plans experienced significant asset losses. The weakened
  market performance decreased economic forecasts, which resulted in PPL reducing
  its assumed expected return on assets for its pension plans for 2003. In addition,
  declining fixed-income security yield rates resulted in PPL decreasing its discount
  rate assumption for its pension plans as of December 31, 2002. These events
  and assumption changes reduced the amount of pension income PPL will record
  in 2003. Through September 30, 2003, PPL recorded approximately $32 million
  of pension income and will record approximately $10 million of additional pension
  income in the fourth quarter of 2003. Future levels of pension income or expense
  depend on ongoing market conditions and results.

Maintenance Expenses

Maintenance expenses increased by $6 million for the three months ended September
  30, 2003, compared with the same period in 2002. This was primarily due to $7
  million of incremental storm restoration costs due to Hurricane Isabel, $2 million
  from summer electrical storms, $5 million from outage work at two fossil plants
  and $5 million of increased maintenance expenses in domestic business lines.
  These increases were offset by a $9 million decline in WPD expenses associated
  with timing of network and substation maintenance, tree trimming accruals and
  cost transfers.

Maintenance expenses increased by $17 million for the nine months ended September
  30, 2003, compared with the same period in 2002. This was primarily due to $3
  million of additional outage costs associated with the turbine replacement at
  the PPL Susquehanna station, $9 million of storm restoration costs, $2 million
  of additional tree trimming costs and $12 million of increased maintenance expenses
  in domestic business lines. These increases were offset by a $3 million decrease
  in WPD expenses primarily due to adjustment of tree trimming accruals and cost
  transfers, partially offset by higher foreign currency exchange rates in 2003.

Depreciation

Impacts on depreciation were as follows:

|                                                                                     |  | September
        30, 2003 vs. September 30, 2002 |   
|------------------------------------------------------------------------------------ |  | ------------------------------------------------- | --
|                                                                                     |  | Three Months
        Ended                        |   
|                                                                                     |  |                                                   |   
|Normal plant additions                                                               |  | $                                                 | 11
|                                                                                     |  |                                                   |   
|Additional depreciation due to write-up
        to fair value of acquired WPD assets |  |                                                   | 3 
|                                                                                     |  |                                                   |   
|Foreign currency exchange rates                                                      |  |                                                   | 2 
|                                                                                     |  |                                                   |   
|Lower depreciation due to deconsolidation
        of CEMAR                           |  |                                                   | (3
|                                                                                     |  |                                                   |   
|No decommissioning expense in 2003 due
        to application of SFAS 143 (a)        |  |                                                   | (6
|                                                                                     |  |                                                   |   
|                                                                                     |  | $                                                 | 7 
|                                                                                     |  |                                                   |   
|                                                                                     |  |                                                   |   

|(a) |  | There was a corresponding recording of accretion
        expense for PPL Susquehanna in 2003, which is part of other operation
        expense.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

Taxes, Other Than Income

Taxes, other than income, increased by $10 million during the three months
  ended September 30, 2003, compared with the same period in 2002. This increase
  was primarily due to the settlement of prior years' capital stock tax refund
  claims of $8 million in 2002, and higher taxes related to an increase in the
  basis on which capital stock tax is calculated for 2003.

Taxes, other than income, increased by $17 million during the nine months ended
  September 30, 2003, compared with the same period in 2002. This increase was
  affected by the same items that impacted the three-month period, as well as
  a $5 million increase in property taxes.

Write-down of International Energy Projects

See Note 7 to the Financial Statements for additional information on the write-down
  of PPL Global's investment in CEMAR.

Workforce Reduction

See Note 14 to the Financial Statements for information regarding the $9 million
  charge recorded in September 2003 and the $75 million of charges recorded in
  2002.

Other Income - net

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

Financing Costs

The decreases in interest expense were due to:

|                                                                              |  | September
        30, 2003 vs. September 30, 2002 |    
|----------------------------------------------------------------------------- |  | ------------------------------------------------- | ---
|                                                                              |  | Three Months
        Ended                        |    
|                                                                              |  |                                                   |    
|Decrease in long-term debt interest
        due to debt retirements           |  | $                                                 | (23
|                                                                              |  |                                                   |    
|Decrease in long-term debt interest
        from the deconsolidation of CEMAR |  |                                                   | (17
|                                                                              |  |                                                   |    
|Write-off unamortized swap costs
        on WPD debt restructuring            |  |                                                   |    
|                                                                              |  |                                                   |    
|Decrease in short-term debt
        interest                                  |  |                                                   | (6 
|                                                                              |  |                                                   |    
|Interest on preferred securities
        due to applying SFAS 150             |  |                                                   | 14 
|                                                                              |  |                                                   |    
|2002 charge to cancel a remarketing
        agreement                         |  |                                                   | (24
|                                                                              |  |                                                   |    
|Capitalized interest and other                                                |  |                                                   | 7  
|                                                                              |  |                                                   |    
|                                                                              |  | $                                                 | (49
|                                                                              |  |                                                   |    

Dividends and distributions on preferred securities decreased by $14 million
  and $23 million during the three and nine months ended September 30, 2003, compared
  with the same periods in 2002. The three-month decrease is due to the implementation
  of SFAS 150 on July 1, 2003, which requires the classification of dividends
  and distributions on certain preferred securities to be recorded as a component
  of interest expense. See Note 15 to the Financial Statements for additional
  information. The remaining decrease for the nine-month period was due to the
  retirement of preferred securities in 2002.

Income Taxes

Income taxes increased by $3 million and $6 million for the three and nine
  months ended September 30, 2003, compared to the same periods in 2002. The increases
  were primarily due to:

- higher pre-tax book income, resulting in $10 million and $58 million increases
    in income taxes for the three and nine months ended September 30, 2003; offset
    by
- a reduction related to an impairment charge on PPL's investment in CEMAR
    resulting in a $33 million deferred income tax valuation allowance recorded
    in the second quarter of 2002; and
- differences in income recognition for tax purposes related to foreign affiliates,
    resulting in $9 million and $20 million reductions in income taxes for the
    three and nine months ended September 30, 2003.

Cumulative Effect of a Change in Accounting Principle

PPL adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective
  January 1, 2003. SFAS 143 addresses the accounting for obligations associated
  with the retirement of tangible long-lived assets. It requires legal obligations
  associated with the retirement of long-lived assets to be recognized as a liability
  in the financial statements.

Application of the new rules resulted in a cumulative effect of adoption that
  increased net income by $63 million in 2003. See Note 13 to the Financial Statements
  for additional information.

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

Financial Condition

Liquidity

At September 30, 2003, PPL had $587 million of cash and cash equivalents and
  $412 million of short-term debt (including long-term debt due within one year).
  At December 31, 2002, PPL had $245 million of cash and cash equivalents
  and $1.3 billion of short-term debt (including long-term debt due within one
  year).

The increase in PPL's cash position was primarily the net result of:

- cash provided by operating activities of $1 billion,
- the issuance of $989 million of long-term debt, and
- the issuance of $424 million of common stock; offset by
- the net decrease of $873 million of short-term debt,
- the retirement of $467 million of long-term debt,
- payment of $217 million of common and preferred dividends, and
- capital expenditures of $517 million.

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

Rating Agency Decisions - PPL

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

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

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

S&P

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

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

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

Moody's

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

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

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

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

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

In September 2003, Moody's announced that it was placing PPL Montana's 8.903%
  Pass-Through Certificates due 2020 under review for possible downgrade. These
  securities currently are rated 'Baa3' by Moody's. Moody's stated that its review
  is prompted by its concerns about the credit profile of PPL Montana's largest
  customer, NorthWestern, and lower cash flow generation than was forecasted at
  the time the securities were issued in 2000. See Note 8 to the Financial Statements
  for additional information on NorthWestern's current situation. Management does
  not expect any action by Moody's based on this review to limit PPL Montana's
  ability to fund its short-term liquidity needs. PPL Montana has no plans to
  raise new long-term debt. Any ratings downgrade by Moody's would have an insignificant
  impact on PPL Montana's cost of maintaining the credit facility that it has
  in place with its affiliate. In addition, management does not expect any ratings
  downgrade by Moody's based on this review to have any adverse impact on the
  credit ratings of PPL or PPL Energy Supply.

Fitch

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

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

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

Rating Agency Decisions - WPD

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

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

Risk Management - Energy Marketing & Trading and Other

Market Risk

Accounting and Reporting

PPL follows the provisions of SFAS 133, "Accounting for Derivative Instruments
  and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative
  Instruments and Certain Hedging Activities," and SFAS 149, "Amendment of Statement
  133 on Derivative Instruments and Hedging Activities," and interpreted by DIG
  issues (together, "SFAS 133") and EITF 02-3, "Issues Involved in Accounting
  for Derivative Contracts Held for Trading Purposes and Contracts Involved in
  Energy Trading and Risk Management Activities," to account for contracts entered
  into to manage market risk. SFAS 133 requires that all derivative instruments
  be recorded at fair value on the balance sheet as an asset or liability (unless
  they meet SFAS 133's criteria for exclusion) and that changes in the derivative's
  fair value be recognized currently in earnings unless specific hedge accounting
  criteria are met. PPL is in the process of evaluating the impact of adopting
  EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That
  Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments
  and Hedging Activities, and Not 'Held for Trading Purposes' as Defined in EITF
  Issue No. 02-3, 'Issues Involved in Accounting for Derivative Contracts Held
  for Trading Purposes and Contracts Involved in Energy Trading and Risk Management
  Activities,' " which requires prospective application as of October 1, 2003.

In April 2003, the FASB issued SFAS 149, which amends and clarifies SFAS 133
  to improve financial accounting and reporting for derivative instruments and
  hedging activities. To ensure that contracts with comparable characteristics
  are accounted for similarly, SFAS 149 clarifies the circumstances under which
  a contract with an initial net investment meets the characteristics of a derivative,
  clarifies when a derivative contains a financing component, amends the definition
  of an "underlying" and amends certain other existing pronouncements. SFAS 149
  is effective for contracts entered into or modified and for hedging relationships
  designated after June 30, 2003, except certain provisions relating to forward
  purchases or sales of when-issued securities or other securities that do not
  yet exist should be applied to both existing contracts and new contracts entered
  into after June 30, 2003.

PPL adopted SFAS 149 effective July 1, 2003. The adoption of SFAS 149 did not
have a significant impact on PPL for the quarter ended September 30, 2003. PPL
has changed the accounting for certain transactions on a prospective basis to
conform with SFAS 149. This change could result in increased volatility in other
comprehensive income and earnings in future periods.

For energy contracts that meet the definition of a derivative, the circumstances
  and intent existing at the time that energy transactions are entered into determine
  their accounting designation. The following summarizes the changes to the electricity
  guidelines that have been provided to the traders who are responsible for contract
  designation for derivative energy contracts due to the adoption of SFAS 149:

- Any wholesale and retail contracts to sell electricity and the related capacity
    that are expected to be delivered from PPL's generation are considered "normal."
    These transactions are not recorded in the financial statements and have no
    earnings impact until delivery.
- Physical electricity-only transactions can receive cash flow hedge treatment
    if all of the qualifications under SFAS 133 are met. Any unrealized gains
    or losses on transactions receiving cash flow hedge treatment are recorded
    in other comprehensive income.
- Physical electricity purchases that increase PPL's long position and any
    energy sale or purchase considered a "market call" are speculative, with unrealized
    gains or losses recorded immediately through earnings.
- Financial electricity transactions, which can be settled in cash, cannot
    be considered "normal" because they do not require physical delivery. These
    transactions receive cash flow hedge treatment if they lock in the price PPL
    will receive or pay for energy expected to be generated or purchased in the
    spot market. Any unrealized gains or losses on transactions that receive cash
    flow hedge treatment are recorded in other comprehensive income.

Transactions which do not qualify for hedge accounting treatment are marked
  to market through earnings.

Commodity Price Risk

As of September 30, 2003, PPL estimated that a 10% adverse movement in market
  prices across all geographic areas and time periods would have decreased the
  value of the commodity contracts in its non-trading portfolio by approximately
  $174 million. However, the change in the value of the non-trading portfolio
  would have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL's unsold generation would be improved. Because PPL's electricity
  portfolio is generally in a net sales position, the adverse movement in prices
  is usually an increase in prices. Conversely, because PPL's commodity fuels
  portfolio is generally in a net purchase position, the adverse movement in prices
  is usually a decrease in prices. If both of these scenarios happened, the implied
  margins for the unsold generation would increase.

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

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

|                                                                           |  | Three Months
        Ended 
        September 30, |    |   | Nine Months
        Ended 
        September 30, |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------- | -- | - | ------------------------------------------------ | -
|                                                                           |  | 2003                                              |    |   | 2002                                             |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Fair value of contracts outstanding
        at the beginning of the period |  | $                                                 | (7 | ) |                                                  | $
|                                                                           |  |                                                   |    |   |                                                  |  
|Contracts realized or otherwise
        settled during the period          |  |                                                   | 7  |   |                                                  |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Fair value of new contracts
        at inception                           |  |                                                   |    |   |                                                  |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Other changes in fair values                                               |  |                                                   | (3 | ) |                                                  |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Fair value of contracts outstanding
        at the end of the period       |  | $                                                 | (3 | ) |                                                  | $
|                                                                           |  |                                                   |    |   |                                                  |  

During the three and nine months ended September 30, 2003, PPL reversed net
  losses of approximately $7 million and $16 million, and during the three and
  nine months ended September 30, 2002, PPL reversed net gains of approximately
  $1 million and $2 million. These amounts do not reflect intra-period contracts
  that were entered into and settled during the period.

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

As of September 30, 2003, the net unrealized loss on PPL's trading activities
  expected to be realized in earnings during the next three months is approximately
  $9 million.

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

|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains/(Losses) |   
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | --
|                                                                     |  | Maturity
        Less Than
        1 Year                            |   
|                                                                     |  |                                                                      |   
|Source of Fair Value                                                 |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices actively quoted                                               |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices provided by other external sources                            |  | $                                                                    | (1
|                                                                     |  |                                                                      |   
|Prices based on models and other valuation
        methods           |  |                                                                      | (2
|                                                                     |  |                                                                      |   
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | (3
|                                                                     |  |                                                                      |   

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

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

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

As of September 30, 2003, PPL estimated that a 10% adverse movement in market
  prices across all geographic areas and time periods would have decreased the
  value of the commodity contracts in its trading portfolio by $3 million.

Interest Rate Risk

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

At September 30, 2003, PPL's potential annual exposure to increased interest
  expense, based on a 10% increase in interest rates, was estimated at $1 million.

PPL is also exposed to changes in the fair value of its U.S. and international
  debt portfolios. At September 30, 2003, PPL estimated that its potential exposure
  to a change in the fair value of its debt portfolios, through a 10% adverse
  movement in interest rates, was $141 million.

PPL utilizes various risk management instruments to reduce its exposure to
  adverse interest rate movements for future anticipated financing. While PPL
  is exposed to changes in the fair value of these instruments, they are designed
  such that an economic loss in value should generally be offset by interest rate
  savings at the time the future anticipated financing is completed. At September
  30, 2003, PPL estimated that its potential exposure to a change in the fair
  value of these instruments, through a 10% adverse movement in interest rates,
  was approximately $5 million.

Foreign Currency Risk

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

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

PPL holds contracts for the forward purchase of 26 million euros and £1
  million to pay for certain equipment of a PPL Energy Supply subsidiary in 2003
  and 2004. The estimated value of these forward purchases as of September 30,
  2003, being the amount PPL would receive to terminate them, was approximately
  $6 million.

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

WPDH Limited executed cross-currency swaps totaling $1.3 billion to hedge the
  value of its U.S. dollar-denominated bonds. The estimated value of this position
  on September 30, 2003, being the amount PPL would pay to terminate them, was
  $31 million.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of September 30, 2003, these funds were invested primarily
  in domestic equity securities and fixed-rate, fixed-income securities and are
  reflected at fair value on PPL's Balance Sheet. The mix of securities is designed
  to provide returns to be used to fund Susquehanna's decommissioning and to compensate
  for inflationary increases in decommissioning costs. However, the equity securities
  included in the trusts are exposed to price fluctuation in equity markets, and
  the values of fixed-rate, fixed-income securities are exposed to changes in
  interest rates. PPL Susquehanna actively monitors the investment performance
  and periodically reviews asset allocation in accordance with its nuclear decommissioning
  trust policy statement. At September 30, 2003, a hypothetical 10% adverse movement
  in interest rates and a 10% decrease in equity prices would have resulted in
  an estimated $21 million reduction in the fair value of the trust assets.

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

Related Party Transactions

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

Acquisitions and Development

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

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

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

Environmental Matters

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

New Accounting Standards

FIN 46

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
  Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarifies that variable
  interest entities, as defined therein, that do not disperse risks among the
  parties involved should be consolidated by the entity that is determined to
  be the primary beneficiary. FIN 46 also requires certain disclosures to be made
  by the primary beneficiary and by an enterprise that holds a significant variable
  interest in a variable interest entity but is not the primary beneficiary. FIN
  46 applies immediately to variable interest entities created after January 31,
  2003 and to variable interest entities in which an enterprise obtains an interest
  after January 31, 2003. For variable interest entities in which an enterprise
  holds a variable interest that was acquired before February 1, 2003, FIN 46
  was originally required to be adopted no later than the first fiscal year or
  interim period beginning after June 15, 2003. However, in October 2003, the
  FASB issued Staff Position No. FIN 46-6, "Effective Date of FASB Interpretation
  No. 46, Consolidation of Variable Interest Entities," which delays the effective
  date for applying the provisions of FIN 46 to interests held by public entities
  in variable interest entities or potential variable interest entities created
  before February 1, 2003 until the end of the first interim period ending after
  December 15, 2003.

FIN 46 did not have an impact on PPL during the three or nine months ended
  September 30, 2003. PPL is in the process of evaluating entities in which it
  holds a variable interest that was acquired before February 1, 2003. Except
  as discussed below, PPL is currently not aware of any variable interest entities
  that are not consolidated as of September 30, 2003 but which it will be required
  to consolidate in accordance with FIN 46 effective December 31, 2003. As it
  continues to evaluate the impact of applying FIN 46, PPL may identify additional
  entities that it would need to consolidate.

The lessors under the operating leases for the Sundance, University Park and
  Lower Mt. Bethel generation facilities are variable interest entities in which
  PPL is the primary beneficiary. Consequently, under FIN 46, PPL will be required
  to consolidate the financial statements of the lessors effective December 31,
  2003. The principal impact from consolidating the lessors under these leases
  will be the inclusion of the generation facilities as assets and the lease financing
  as liabilities in the consolidated balance sheet of PPL. Additionally, PPL will
  be required to recognize a cumulative effect of a change in accounting principle
  in connection with the initial consolidation of these variable interest entities.
  PPL estimates that, upon applying FIN 46 to these entities effective December
  31, 2003, it will recognize approximately $1.0 billion of additional assets
  and liabilities on its balance sheet and a charge of $27 million, after-tax,
  as a cumulative effect of a change in accounting principle. See Note 15 to the
  Financial Statements for a discussion of the leases.

Other

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

Application of Critical Accounting Policies

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

See Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31,
  2002 for a discussion of each critical accounting policy, except for asset retirement
  obligations which is discussed below. For an additional discussion on the impact
  of SFAS 149 on price risk management, see "Risk Management - Energy Marketing
  & Trading and Other" in Financial Condition. PPL's senior management has
  reviewed these critical accounting policies, and the estimates and assumptions
  regarding them, with its Audit Committee. In addition, PPL's senior management
  reviewed the Form 10-K disclosures regarding the application of these critical
  accounting policies with the Audit Committee.

Asset Retirement Obligations

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

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

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

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

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

---

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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

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

Results of Operations

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

Prior to September 6, 2002, PPL Global held 51% of the equity interest in WPD,
  but shared joint control with Mirant. On September 6, 2002, PPL Global acquired
  the remaining 49% equity interest in WPD and gained complete control. The purchase
  of Mirant's interest was accounted for as a step-acquisition and resulted in
  the consolidation of WPD's results of operations as of January 1, 2002. Therefore,
  PPL Energy Supply's Statement of Income for the three and nine months ended
  September 30, 2002 has been reclassified to reflect the consolidation of WPD's
  results. Mirant's $19 million and $72 million share of earnings for the three
  and nine months ended September 30, 2002 is reflected in "Minority Interest."

WPD's results, as consolidated in PPL Energy Supply's Statement of Income,
  are impacted by changes in foreign currency exchange rates. For the three and
  nine months ended September 30, 2003, as compared to the same periods in 2002,
  changes in foreign exchange rates increased WPD's portion of revenue and expense
  line items by about 6% and 10%.

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

Earnings

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

|                             | Three Months
        Ended 
        September 30, |     |  | Nine Months
        Ended 
        September 30, |  
|---------------------------- | ------------------------------------------------- | --- |  | ------------------------------------------------ | -
|                             | 2003                                              |     |  | 2002                                             |  
|                             |                                                   |     |  |                                                  |  
|Income from core operations  | $                                                 | 190 |  |                                                  | $
|                             |                                                   |     |  |                                                  |  
|Non-core items (net of tax): |                                                   |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|Accounting changes:          |                                                   |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|                             | Asset retirement obligations (Note 13)            |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|                             | Goodwill impairment (Note 12)                     |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|Unusual items:               |                                                   |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|                             | Workforce reduction (Note 14)                     |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|                             | CEMAR operating losses 
        (Note 7)          |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|                             | CEMAR impairment (Note 7)                         |     |  |                                                  |  
|                             |                                                   |     |  |                                                  |  
|Net Income - actual          | $                                                 | 190 |  |                                                  | $
|                             |                                                   |     |  |                                                  |  

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

|               |                                                         | September
        30, 2003 vs. September 30, 2002 |   
|-------------- | ------------------------------------------------------- | ------------------------------------------------- | --
|               |                                                         | Three Months
        Ended                        |   
|               |                                                         |                                                   |   
|Domestic:      |                                                         |                                                   |   
|               |                                                         |                                                   |   
|               | Higher wholesale energy margins                         |                                                   | $ 
|               |                                                         |                                                   |   
|               | Net energy trading margins                              |                                                   |   
|               |                                                         |                                                   |   
|               | Lower unregulated retail energy margins                 |                                                   |   
|               |                                                         |                                                   |   
|               | Lower regulated retail energy margins                   |                                                   |   
|               |                                                         |                                                   |   
|               | Realized earnings on decommissioning trust
        fund |                                                   |   
|               |                                                         |                                                   |   
|               | Trademark royalties to affiliates                       |                                                   |   
|               |                                                         |                                                   |   
|               | Operating and maintenance expenses                      |                                                   |   
|               |                                                         |                                                   |   
|               | Other                                                   |                                                   |   
|               |                                                         |                                                   |   
|International: |                                                         |                                                   |   
|               |                                                         |                                                   |   
|               | Higher earnings from U.K. operations                    |                                                   |   
|               |                                                         |                                                   |   
|               | Other                                                   |                                                   |   
|               |                                                         |                                                   |   
|               |                                                         | $                                                 | 26
|               |                                                         |                                                   |   

The period to period changes in earnings components, including margins by activity
  and income statement line items, are discussed in the balance of the discussion
  in "Results of Operations." The increase in earnings from U.K. operations was
  primarily due to obtaining complete ownership of WPD in September 2002. (See
  Note 7 to the Financial Statements for additional information.)

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

- PPL Energy Supply expects that the low level of wholesale energy prices
    will continue to put pressure on margins in 2003 and beyond. Based upon current
    energy price levels, there is a risk that PPL Energy Supply may be unable
    to recover its investment in new gas-fired generation facilities. Under GAAP,
    PPL Energy Supply does not believe that there is an impairment charge to be
    recorded at this time. PPL Energy Supply is unable to predict the ultimate
    earnings impact of this issue, based upon energy price levels, applicable
    accounting rules and other factors, but such impact may be material. See "Application
    of Critical Accounting Policies - Asset Impairment" in PPL Energy Supply's
    Annual Report to the SEC on Form 10-K for the year ended December 31, 2002
    for additional information.
- Earnings in the fourth quarter of 2003 and beyond will be impacted by the
    consolidation of variable interest entities (as discussed in Note 15 to the
    Financial Statements).
- Earnings in 2005 and beyond may be impacted by a rate review of the delivery
    business of WPD (South West) and WPD (South Wales). WPD cannot predict the
    ultimate outcome of the rate review.
- PPL Energy Supply operates a synfuel facility and receives tax credits pursuant
    to Section 29 of the Internal Revenue Code based on its sale of synfuel to
    unaffiliated third-party purchasers. See Note 8 to the Financial Statements
    for a discussion of the IRS review of synfuel production procedures, and the
    projected annual earnings attributable to PPL Energy Supply's synfuel operations.
- PPL Energy Supply expects to record the benefit of a tax loss associated
    with the CEMAR investment in the fourth quarter of 2003. This is expected
    to increase 2003 reported earnings by $85 million to $112 million. Future
    earnings may also be impacted by the ultimate exiting of this investment.

Domestic Energy Margins

The following table provides changes in income statement line items that comprise
  domestic gross energy margins for the three and nine months ended September 30,
  2003, compared with the same periods in 2002:

|                                                     |                     | September
        30, 2003 vs. September 30, 2002 |    
|---------------------------------------------------- | ------------------- | ------------------------------------------------- | ---
|                                                     |                     | Three Months
        Ended                        |    
|                                                     |                     |                                                   |    
|Wholesale energy marketing revenues                  |                     | $                                                 | 28 
|                                                     |                     |                                                   |    
|Wholesale energy marketing to
        affiliates     |                     |                                                   | 1  
|                                                     |                     |                                                   |    
|Unregulated retail electric
        and gas revenues |                     |                                                   | (13
|                                                     |                     |                                                   |    
|Net energy trading margins                           |                     |                                                   | 5  
|                                                     |                     |                                                   |    
|Other revenue adjustments (a)                        |                     |                                                   | 6  
|                                                     |                     |                                                   |    
|                                                     | Total revenues      |                                                   |    
|                                                     |                     |                                                   |    
|Fuel                                                 |                     |                                                   | (12
|                                                     |                     |                                                   |    
|Energy purchases                                     |                     |                                                   | 11 
|                                                     |                     |                                                   |    
|Energy purchases from affiliates                     |                     |                                                   | (4 
|                                                     |                     |                                                   |    
|Other cost adjustments (a)                           |                     |                                                   | 20 
|                                                     |                     |                                                   |    
|                                                     | Total cost of sales |                                                   |    
|                                                     |                     |                                                   |    
|                                                     |                     | Domestic gross energy margins                     |    
|                                                     |                     |                                                   |    
|                                                     |                     |                                                   |    

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

Changes in Gross Domestic Energy Margins By Activity

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

|                         |                               | September
        30, 2003 vs. September 30, 2002 |   
|------------------------ | ----------------------------- | ------------------------------------------------- | --
|                         |                               | Three Months
        Ended                        |   
|                         |                               |                                                   |   
|Wholesale - Eastern U.S. |                               | $                                                 | 4 
|                         |                               |                                                   |   
|Wholesale - Western U.S. |                               |                                                   | 11
|                         |                               |                                                   |   
|Net energy trading       |                               |                                                   | 5 
|                         |                               |                                                   |   
|Unregulated retail       |                               |                                                   | (8
|                         |                               |                                                   |   
|Regulated retail         |                               |                                                   |   
|                         |                               |                                                   |   
|                         | Domestic gross energy margins |                                                   | $ 
|                         |                               |                                                   |   

Wholesale - Eastern U.S.

Eastern wholesale margins were higher for the three and nine months ended September
  30, 2003, compared to the same periods in 2002, primarily due to higher volumes,
  which increased by 11% and 39% over the same periods in 2002. The higher volumes
  were primarily driven by market opportunities to optimize the value of generating
  assets, and for the nine months ended September 30, 2003, by higher spot prices
  that allowed PPL Energy Supply to increase the utilization of its higher-cost
  generating units and by 699 MW of new generation which began commercial operations
  in mid-2002. Average PJM spot market real time prices rose 43% for the nine
  months ended September 30, 2003, compared to the same period in 2002. Partially
  offsetting the increase in wholesale energy margins for the nine months ended
  September 30, 2003, compared to the same period in 2002, was the buyout of a
  NUG contract in February 2002, which reduced power purchases by $25 million.

Wholesale - Western U.S.

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

In the Northwest, margins were $5 million and $28 million higher for the three
  and nine months ended September 30, 2003, compared to the same periods in 2002,
  primarily due to higher wholesale prices. Average wholesale prices for the three
  and nine months ended September 30, 2003 were $6/MWh higher than those realized
  in the same periods in 2002. Also, the nine months ended September 30, 2003
  includes a $3 million favorable settlement with Energy West Resources, Inc.
  in June 2003.

In the Southwest, margins were $6 million higher for the three months ended
  September 30, 2003, compared to the same period in 2002, primarily due to the
  inception of new tolling agreements in Arizona in mid-2003. Margins in the Southwest
  were $2 million higher for the nine months ended September 30, 2003, compared
  to the same period in 2002, due to the new tolling agreements in Arizona, partially
  offset by lower margins earlier in the year due to lower sales volumes.

Net Energy Trading

PPL Energy Supply enters into certain energy contracts that meet the criteria
  of trading derivatives as defined by EITF 02-3. These physical and financial
  contracts cover trading activity associated with electricity, gas and oil. Margins
  include both realized and unrealized gains and losses. The $5 million increase
  for the three months ended September 30, 2003, compared to the same period in
  2002, was primarily due to realized gains associated with electricity positions.
  The $4 million decrease for the nine months ended September 30, 2003, compared
  to the same period in 2002, was primarily due to realized electric swap losses
  in 2003. The physical volumes associated with energy trading for the three months
  ended September 30, 2003 were 2,760 GWh and 3.8 Bcf, compared to 3,088 GWh and
  3.6 Bcf for the three months ended September 30, 2002. Energy trading physical
  volumes for the nine months ended September 30, 2003 were 7,616 GWh and 11.0
  Bcf, compared to 7,824 GWh and 8.7 Bcf for the nine months ended September 30,
  2002.

Unregulated Retail

Unregulated retail margins were lower for the three and nine months ended September
  30, 2003, compared to the same periods in 2002, primarily due to significantly
  lower electric retail prices in the West. West retail contract prices decreased
  by approximately 22% for both the three and nine months ended September 30,
  2003, compared to the same periods in 2002.

Regulated Retail

Regulated retail margins in the East were flat for the three months ended September
  30, 2003, compared to the same period in 2002, as sales and supply costs were
  unchanged between the periods. For the nine months ended September 30,
  2003, regulated retail margins decreased by 10%, compared to the same period
  in 2002, due to higher supply costs resulting from higher purchased power prices
  during the first half of 2003. Purchase power prices were higher because of
  increased gas and oil prices and the abnormally cold winter.

Utility Revenues

The decreases in utility revenues were attributable to the following:

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

The decrease for both periods was primarily due to the deconsolidation of CEMAR
  in August 2002. PPL Global stopped recording operating results of CEMAR upon
  relinquishing control to ANEEL. (See Note 7 to the Financial Statements for
  additional information.)

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

- higher WPD revenues in the U.K. primarily due to the change in foreign currency
    exchange rates from period to period;
- higher revenues in El Salvador primarily due to higher volumes and higher
    pass-through energy costs, partially offset by a 6% tariff reduction effective
    January 1, 2003; and
- higher revenues in Chile primarily due to higher volumes and the consolidation
    of certain transmission revenues. (See Note 7 to the Financial Statements
    for additional information.)

Energy Related Businesses

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

- $8 million due to credits recorded on development projects in 2002, due
    largely to a favorable settlement on the cancellation of a generation project
    in Washington state;
- a $6 million operating loss on some Hyder properties in 2003, which were
    subsequently sold in April 2003; and
- a $4 million decrease in Latin America revenues from lower material and
    construction project sales. In 2002, PPL Global's Bolivian subsidiary participated
    in the construction of a 1,500 kilometer transmission line in rural areas
    of Bolivia.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance expenses was primarily
  due to:

|                                                                                                                                                                                                                                                            |  | September
        30, 2003 vs. September 30, 2002 |    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ---
|                                                                                                                                                                                                                                                            |  | Three Months
        Ended                        |    
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Increase in WPD expenses due
        to increases in foreign currency exchange rates, regulatory accounting
        adjustments, and resolution of purchase accounting contingencies in the
        second quarter of 2002 related to the Hyder acquisition |  | $                                                 | 6  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Decrease in domestic and international
        pension income                                                                                                                                                                                               |  |                                                   | 9  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Allocated trademark license
        fees from a PPL subsidiary                                                                                                                                                                                              |  |                                                   | 10 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Additional expenses of new generating
        facilities that became operational in mid-2002                                                                                                                                                                |  |                                                   | 4  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Accretion expense as a result
        of applying SFAS 143, "Accounting for Asset Retirement Obligations." See
        Note 13.                                                                                                                             |  |                                                   | 5  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Outage costs associated with
        the turbine replacement at the Susquehanna station                                                                                                                                                                     |  |                                                   |    
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Impairment charge on transmission
        rights                                                                                                                                                                                                            |  |                                                   |    
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Increased expenses in domestic
        business lines and other-net                                                                                                                                                                                         |  |                                                   | 7  
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Change to account for CEMAR
        on the cost-method                                                                                                                                                                                                      |  |                                                   | (23
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Insurance settlements - property
        damage and environmental                                                                                                                                                                                           |  |                                                   | (22
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Reduction in salaries and benefits
        as a result of the workforce reduction initiated in 2002                                                                                                                                                         |  |                                                   | (6 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Gains on sales of emission allowances                                                                                                                                                                                                                       |  |                                                   | (2 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Decrease in the Clean Air Act
        contingency relating to generating facilities                                                                                                                                                                         |  |                                                   |    
|                                                                                                                                                                                                                                                            |  |                                                   |    
|Estimated 2002 vacation liability
        adjustment in conjunction with the workforce reduction                                                                                                                                                            |  |                                                   | (6 
|                                                                                                                                                                                                                                                            |  |                                                   |    
|                                                                                                                                                                                                                                                            |  | $                                                 | (18
|                                                                                                                                                                                                                                                            |  |                                                   |    

The decreases in pension income for the three and nine months ended September
  30, 2003 were attributable to PPL Energy Supply's participation in PPL's primary
  domestic pension plan and the U.K. pension plans of WPD. As a result of weak
  capital markets during 2002, PPL's domestic and U.K. pension plans experienced
  significant asset losses. The weakened market performance decreased economic
  forecasts, which resulted in PPL reducing its expected return on assets assumption
  for its pension plans for 2003. In addition, declining fixed-income security
  yield rates resulted in PPL decreasing its discount rate assumption for its
  pension plans as of December 31, 2002. These events and assumption changes reduced
  the amount of pension income PPL Energy Supply will record in 2003. Through
  September 30, 2003, PPL Energy Supply recorded approximately $30 million of
  pension income and will record approximately $10 million of additional pension
  income in the fourth quarter of 2003. Future levels of income or expense will
  depend on ongoing market conditions and results.

Depreciation

Depreciation expense increased by $9 million for the nine months ended September
  30, 2003, compared with the same period in 2002. Normal plant additions accounted
  for a $16 million increase. Other impacts on depreciation were as follows:

- WPD depreciation increased by $10 million due to depreciation on the write-up
    to fair value of assets acquired in the acquisition, and by $7 million from
    increased foreign currency exchange rates.
- PPL Global's deconsolidation of CEMAR in 2002 resulted in a $7 million decrease
    in depreciation on those assets in 2003.
- Due to the application of SFAS 143 on January 1, 2003, PPL Susquehanna depreciation
    expense (which previously included nuclear decommissioning expense) decreased
    by $17 million for the nine months ended September 30, 2003, compared with
    the same period in 2002. There was a corresponding recording of accretion
    expense in 2003, which is part of other operation expense.

Write-down of International Energy Projects

See Note 7 to the Financial Statements for additional information on the write-down
  of PPL Global's investment in CEMAR.

Workforce Reduction

See Note 14 to the Financial Statements for information regarding the $41 million
  charge recorded in 2002.

Other Income - net

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

Interest Expense

The decreases in interest expense were due to:

|                                                                              |  | September
        30, 2003 vs. September 30, 2002 |    
|----------------------------------------------------------------------------- |  | ------------------------------------------------- | ---
|                                                                              |  | Three Months
        Ended                        |    
|                                                                              |  |                                                   |    
|Decrease in long-term debt interest
        due to debt retirements           |  | $                                                 | (12
|                                                                              |  |                                                   |    
|Decrease in long-term debt interest
        from the deconsolidation of CEMAR |  |                                                   | (17
|                                                                              |  |                                                   |    
|Write-off unamortized swap costs
        on WPD debt restructuring            |  |                                                   |    
|                                                                              |  |                                                   |    
|Decrease in short-term debt
        interest                                  |  |                                                   | (7 
|                                                                              |  |                                                   |    
|Interest on Preferred Securities
        due to applying SFAS 150             |  |                                                   | 3  
|                                                                              |  |                                                   |    
|Capitalized interest and other                                                |  |                                                   | 11 
|                                                                              |  |                                                   |    
|                                                                              |  | $                                                 | (22
|                                                                              |  |                                                   |    

Income Taxes

Income taxes increased by $3 million and decreased by $37 million for the three
  and nine months ended September 30, 2003, compared to the same periods in 2002.
  The changes were primarily due to:

- higher pre-tax book income, resulting in $11 million and $18 million increases
    in income taxes for the three and nine months ended September 30, 2003; offset
    by
- a reduction related to an impairment charge on PPL Energy Supply's investment
    in CEMAR resulting in a $33 million deferred income tax valuation allowance
    recorded in the second quarter of 2002; and
- differences in income recognition for tax purposes related to foreign affiliates
    resulting in $9 million and $20 million reductions in income taxes for the
    three and nine months ended September 30, 2003.

Cumulative Effect of a Change in Accounting Principle

PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement Obligations,"
  effective January 1, 2003. SFAS 143 addresses the accounting for obligations
  associated with the retirement of tangible long-lived assets. It requires legal
  obligations associated with the retirement of long-lived assets to be recognized
  as a liability in the financial statements. Application of the new rules resulted
  in a cumulative effect of adoption that increased net income by $63 million.
  See Note 13 to the Financial Statements for additional information.

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

Financial Condition

Liquidity

At September 30, 2003, PPL Energy Supply had $339 million of cash and cash
  equivalents and $84 million of short-term debt (including long-term debt due
  within one year). At December 31, 2002, PPL Energy Supply had $149 million of
  cash and cash equivalents and $934 million of short-term debt (including long-term
  debt due within one year).

The increase in PPL Energy Supply's cash position was primarily the net result
  of:

- cash provided by operating activities of $645 million,
- the net decrease of $597 million of notes receivables from affiliates,
- the issuance of $799 million of long-term debt, and
- $261 million of contributions from Member; offset by
- the net decrease of $858 million of short-term debt,
- the retirement of $56 million of long-term debt,
- $909 million of distributions to Member, and
- capital expenditures of $322 million.

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

Rating Agency Decisions - PPL Energy Supply

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

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

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

S&P

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

Moody's

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

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

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

In September 2003, Moody's announced that it was placing PPL Montana's 8.903%
  Pass-Through Certificates due 2020 under review for possible downgrade. These
  securities currently are rated 'Baa3' by Moody's. Moody's stated that its review
  is prompted by its concerns about the credit profile of PPL Montana's largest
  customer, NorthWestern, and lower cash flow generation than was forecasted at
  the time the securities were issued in 2000. See Note 8 to the Financial Statements
  for additional information on NorthWestern's current situation. Management does
  not expect any action by Moody's based on this review to limit PPL Montana's
  ability to fund its short-term liquidity needs. PPL Montana has no plans to
  raise new long-term debt. Any ratings downgrade by Moody's would have an insignificant
  impact on PPL Montana's cost of maintaining the credit facility that it has
  in place with its affiliate. In addition, management does not expect any ratings
  downgrade by Moody's based on this review to have any adverse impact on the
  credit ratings of PPL Energy Supply.

Fitch

In May 2003, Fitch notified PPL Energy Supply that it:

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

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

Rating Agency Decisions - WPD

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

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

Risk Management - Energy Marketing & Trading and Other

Market Risk

Accounting and Reporting

PPL Energy Supply follows the provisions of SFAS 133, "Accounting for Derivative
  Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for
  Certain Derivative Instruments and Certain Hedging Activities," and SFAS 149,
  "Amendment of Statement 133 on Derivative Instruments and Hedging Activities,"
  and interpreted by DIG issues (together, "SFAS 133") and EITF 02-3, "Issues
  Involved in Accounting for Derivative Contracts Held for Trading Purposes and
  Contracts Involved in Energy Trading and Risk Management Activities," to account
  for contracts entered into to manage market risk. SFAS 133 requires that all
  derivative instruments be recorded at fair value on the balance sheet as an
  asset or liability (unless they meet SFAS 133's criteria for exclusion) and
  that changes in the derivative's fair value be recognized currently in earnings
  unless specific hedge accounting criteria are met. PPL Energy Supply is in the
  process of evaluating the impact of adopting EITF 03-11, "Reporting Realized
  Gains and Losses on Derivative Instruments That Are Subject to FASB Statement
  No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not
  'Held for Trading Purposes' as Defined in EITF Issue No. 02-3, 'Issues Involved
  in Accounting for Derivative Contracts Held for Trading Purposes and Contracts
  Involved in Energy Trading and Risk Management Activities,' " which requires prospective
  application as of October 1, 2003.

In April 2003, the FASB issued SFAS 149, which amends and clarifies SFAS 133
  to improve financial accounting and reporting for derivative instruments and
  hedging activities. To ensure that contracts with comparable characteristics
  are accounted for similarly, SFAS 149 clarifies the circumstances under which
  a contract with an initial net investment meets the characteristics of a derivative,
  clarifies when a derivative contains a financing component, amends the definition
  of an "underlying" and amends certain other existing pronouncements. SFAS 149
  is effective for contracts entered into or modified and for hedging relationships
  designated after June 30, 2003, except certain provisions relating to forward
  purchases or sales of when-issued securities or other securities that do not
  yet exist should be applied to both existing contracts and new contracts entered
  into after June 30, 2003.

PPL Energy Supply adopted SFAS 149 effective July 1, 2003. The adoption of SFAS
149 did not have a significant impact on PPL Energy Supply for the quarter ended
September 30, 2003. PPL Energy Supply has changed the accounting for certain transactions
on a prospective basis to conform with SFAS 149. This change could result in increased
volatility in other comprehensive income and earnings in future periods.

For energy contracts that meet the definition of a derivative, the circumstances
  and intent existing at the time that energy transactions are entered into determine
  their accounting designation. The following summarizes the changes to the electricity
  guidelines that have been provided to the traders who are responsible for contract
  designation for derivative energy contracts due to the adoption of SFAS 149:

- Any wholesale and retail contracts to sell electricity and the related capacity
    that are expected to be delivered from PPL Energy Supply's generation are
    considered "normal." These transactions are not recorded in the financial
    statements and have no earnings impact until delivery.
- Physical electricity-only transactions can receive cash flow hedge treatment
    if all of the qualifications under SFAS 133 are met. Any unrealized gains
    or losses on transactions receiving cash flow hedge treatment are recorded
    in other comprehensive income.
- Physical electricity purchases that increase PPL Energy Supply's long position
    and any energy sale or purchase considered a "market call" are speculative,
    with unrealized gains or losses recorded immediately through earnings.
- Financial electricity transactions, which can be settled in cash, cannot
    be considered "normal" because they do not require physical delivery. These
    transactions receive cash flow hedge treatment if they lock in the price PPL
    Energy Supply will receive or pay for energy expected to be generated or purchased
    in the spot market. Any unrealized gains or losses on transactions that receive
    cash flow hedge treatment are recorded in other comprehensive income.

Transactions which do not qualify for hedge accounting treatment are marked
  to market through earnings.

Commodity Price Risk

As of September 30, 2003, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its non-trading portfolio by approximately
  $174 million. However, the change in the value of the non-trading portfolio
  would have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL Energy Supply's unsold generation would be improved. Because PPL
  Energy Supply's electricity portfolio is generally in a net sales position,
  the adverse movement in prices is usually an increase in prices. Conversely,
  because PPL Energy Supply's commodity fuels portfolio is generally in a net
  purchase position, the adverse movement in prices is usually a decrease in prices.
  If both of these scenarios happened, the implied margins for the unsold generation
  would increase.

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

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

|                                                                           |  | Three Months
        Ended 
        September 30, |    |   | Nine Months
        Ended 
        September 30, |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------- | -- | - | ------------------------------------------------ | -
|                                                                           |  | 2003                                              |    |   | 2002                                             |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Fair value of contracts outstanding
        at the beginning of the period |  | $                                                 | (7 | ) |                                                  | $
|                                                                           |  |                                                   |    |   |                                                  |  
|Contracts realized or otherwise
        settled during the period          |  |                                                   | 7  |   |                                                  |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Fair value of new contracts
        at inception                           |  |                                                   |    |   |                                                  |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Other changes in fair values                                               |  |                                                   | (3 | ) |                                                  |  
|                                                                           |  |                                                   |    |   |                                                  |  
|Fair value of contracts outstanding
        at the end of the period       |  | $                                                 | (3 | ) |                                                  | $
|                                                                           |  |                                                   |    |   |                                                  |  

During the three and nine months ended September 30, 2003, PPL Energy Supply
  reversed net losses of approximately $7 million and $16 million, and during
  the three and nine months ended September 30, 2002, PPL Energy Supply reversed
  net gains of approximately $1 million and $2 million. These amounts do not reflect
  intra-period contracts that were entered into and settled during the period.

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

As of September 30, 2003, the net unrealized loss on PPL Energy Supply's trading
  activities expected to be realized in earnings during the next three months
  is approximately $9 million.

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

|                                                                     |  | Fair Value
        of Contracts at Period-End
        Gains/(Losses) |   
|-------------------------------------------------------------------- |  | -------------------------------------------------------------------- | --
|                                                                     |  | Maturity
        Less Than
        1 Year                            |   
|                                                                     |  |                                                                      |   
|Source of Fair Value                                                 |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices actively quoted                                               |  |                                                                      |   
|                                                                     |  |                                                                      |   
|Prices provided by other external sources                            |  | $                                                                    | (1
|                                                                     |  |                                                                      |   
|Prices based on models and other valuation
        methods           |  |                                                                      | (2
|                                                                     |  |                                                                      |   
|Fair value of contracts outstanding at
        the end of the period |  | $                                                                    | (3
|                                                                     |  |                                                                      |   

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

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

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

As of September 30, 2003, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its trading portfolio by $3 million.

Interest Rate Risk

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

At September 30, 2003, PPL Energy Supply's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was estimated at
  $1 million.

PPL Energy Supply is also exposed to changes in the fair value of its debt
  portfolio. At September 30, 2003, PPL Energy Supply estimated that its potential
  exposure to a change in the fair value of its debt portfolio, through a 10%
  adverse movement in interest rates, was $127 million.

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

Foreign Currency Risk

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

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

PPL holds contracts for the forward purchase of 26 million euros and £1
  million to pay for certain equipment of a PPL Energy Supply subsidiary in 2003
  and 2004. The estimated value of these forward purchases as of September 30,
  2003, being the amount PPL would receive to terminate them, was approximately
  $6 million.

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

WPDH Limited executed cross-currency swaps totaling $1.3 billion to hedge the
  value of its U.S. dollar-denominated bonds. The estimated value of this position
  on September 30, 2003, being the amount PPL would pay to terminate them, was
  $31 million.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of September 30, 2003, these funds were invested primarily
  in domestic equity securities and fixed-rate, fixed-income securities and are
  reflected at fair value on PPL Energy Supply's Balance Sheet. The mix of securities
  is designed to provide returns to be used to fund Susquehanna's decommissioning
  and to compensate for inflationary increases in decommissioning costs. However,
  the equity securities included in the trusts are exposed to price fluctuation
  in equity markets, and the values of fixed-rate, fixed-income securities are
  exposed to changes in interest rates. PPL Susquehanna actively monitors the
  investment performance and periodically reviews asset allocation in accordance
  with its nuclear decommissioning trust policy statement. At September 30, 2003,
  a hypothetical 10% adverse movement in interest rates and a 10% decrease in
  equity prices would have resulted in an estimated $21 million reduction in the
  fair value of the trust assets.

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

Related Party Transactions

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

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

Acquisitions and Development

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

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

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

Environmental Matters

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

New Accounting Standards

FIN 46

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
  Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarifies that variable
  interest entities, as defined therein, that do not disperse risks among the
  parties involved should be consolidated by the entity that is determined to
  be the primary beneficiary. FIN 46 also requires certain disclosures to be made
  by the primary beneficiary and by an enterprise that holds a significant variable
  interest in a variable interest entity but is not the primary beneficiary. FIN
  46 applies immediately to variable interest entities created after January 31,
  2003 and to variable interest entities in which an enterprise obtains an interest
  after January 31, 2003. For variable interest entities in which an enterprise
  holds a variable interest that was acquired before February 1, 2003, FIN 46
  was originally required to be adopted no later than the first fiscal year or
  interim period beginning after June 15, 2003. However, in October 2003, the
  FASB issued Staff Position No. FIN 46-6, "Effective Date of FASB Interpretation
  No. 46, Consolidation of Variable Interest Entities," which delays the effective
  date for applying the provisions of FIN 46 to interests held by public entities
  in variable interest entities or potential variable interest entities created
  before February 1, 2003 until the end of the first interim period ending after
  December 15, 2003.

FIN 46 did not have an impact on PPL Energy Supply during the three or nine
  months ended September 30, 2003. PPL Energy Supply is in the process of evaluating
  entities in which it holds a variable interest that was acquired before February
  1, 2003. Except as discussed below, PPL Energy Supply is currently not aware
  of any variable interest entities that are not consolidated as of September
  30, 2003 but which it will be required to consolidate in accordance with FIN
  46 effective December 31, 2003. As it continues to evaluate the impact
  of applying FIN 46, PPL Energy Supply may identify additional entities that
  it would need to consolidate.

The lessors under the operating leases for the Sundance, University Park and
  Lower Mt. Bethel generation facilities are variable interest entities in which
  PPL Energy Supply is the primary beneficiary. Consequently, under FIN 46, PPL
  Energy Supply will be required to consolidate the financial statements of the
  lessors effective December 31, 2003. The principal impact from consolidating
  the lessors under these leases will be the inclusion of the generation facilities
  as assets and the lease financing as liabilities in the consolidated balance
  sheet of PPL Energy Supply. Additionally, PPL Energy Supply will be required
  to recognize a cumulative effect of a change in accounting principle in connection
  with the initial consolidation of these variable interest entities. PPL Energy
  Supply estimates that, upon applying the provisions of FIN 46 to these entities
  effective December 31, 2003, it will recognize approximately $1.0 billion of
  additional assets and liabilities on its balance sheet and a charge of $27 million,
  after-tax, as a cumulative effect of a change in accounting principle. See Note
  15 to the Financial Statements for a discussion of the leases.

Other

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

Application of Critical Accounting Policies

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

See Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended
  December 31, 2002 for a discussion of each critical accounting policy, except
  for asset retirement obligations which is discussed below. For an additional
  discussion on the impact of SFAS 149 on price risk management, see "Risk Management
  - Energy Marketing & Trading and Other" in Financial Condition. PPL's senior
  management has reviewed these critical accounting policies, and the estimates
  and assumptions regarding them, with its Audit Committee. In addition, PPL's
  senior management reviewed the Form 10-K disclosures regarding the application
  of these critical accounting policies with the Audit Committee.

Asset Retirement Obligations

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

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

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

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

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

---

PPL ELECTRIC UTILITIES CORPORATION
  AND SUBSIDIARIES



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

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

Results of Operations

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

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

Earnings

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

|                                   | Three Months
        Ended September 30, |    |    | Nine Months
        Ended 
        September 30, |  
|---------------------------------- | ---------------------------------------- | -- | -- | ------------------------------------------------ | -
|                                   | 2003                                     |    |    | 2002                                             |  
|                                   |                                          |    |    |                                                  |  
|Income (loss) from core operations | $                                        | (1 | )  |                                                  | $
|                                   |                                          |    |    |                                                  |  
|Unusual item (net of tax):         |                                          |    |    |                                                  |  
|                                   |                                          |    |    |                                                  |  
|                                   | Workforce reduction (Note 14)            |    | (5 | )                                                |  
|                                   |                                          |    |    |                                                  |  
|Net Income (loss) - actual         | $                                        | (6 | )  |                                                  | $
|                                   |                                          |    |    |                                                  |  

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

|                                                                                                 |  | September
        30, 2003 vs. September 30, 2002 |    
|------------------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ---
|                                                                                                 |  | Three Months
        Ended                        |    
|                                                                                                 |  |                                                   |    
|Delivery revenues (net of CTC/ITC amortization
        and interest expense on transition bonds) |  | $                                                 | (2 
|                                                                                                 |  |                                                   |    
|Higher ancillary expenses                                                                        |  |                                                   |    
|                                                                                                 |  |                                                   |    
|Higher operating and maintenance expenses                                                        |  |                                                   | (9 
|                                                                                                 |  |                                                   |    
|Lower dividends and distributions on preferred
        securities                                |  |                                                   | 2  
|                                                                                                 |  |                                                   |    
|Lower interest income                                                                            |  |                                                   | (3 
|                                                                                                 |  |                                                   |    
|Higher interest expense (excluding transition
        bonds)                                     |  |                                                   | (2 
|                                                                                                 |  |                                                   |    
|Settlement of capital stock tax in 2002                                                          |  |                                                   | (7 
|                                                                                                 |  |                                                   |    
|Lower affiliated revenues                                                                        |  |                                                   | (2 
|                                                                                                 |  |                                                   |    
|Higher depreciation expense                                                                      |  |                                                   | (2 
|                                                                                                 |  |                                                   |    
|Other - net                                                                                      |  |                                                   |    
|                                                                                                 |  |                                                   |    
|                                                                                                 |  | $                                                 | (25
|                                                                                                 |  |                                                   |    

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

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

Operating Revenues

Retail Electric

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

| |                                           | September
        30, 2003 vs. September 30, 2002 |   
| | ----------------------------------------- | ------------------------------------------------- | --
| |                                           | Three Months
        Ended                        |   
| |                                           |                                                   |   
| | Electric delivery                         |                                                   | $ 
| |                                           |                                                   |   
| | PLR electric generation supply            |                                                   |   
| |                                           |                                                   |   
| | Delivery and PLR supply to PPL Generation |                                                   |   
| |                                           |                                                   |   
| | Other                                     |                                                   |   
| |                                           |                                                   |   
| |                                           | $                                                 | (7
| |                                           |                                                   |   

The decrease in operating revenue from retail electric operations for the three
  months ended September 30, 2003, compared with the same period in 2002, was
  primarily due to lower sales to PPL Generation beginning in April 2003. PPL
  Generation's power plants began self-supplying their station use at that date,
  rather than taking delivery from PPL Electric.

The increase in operating revenues from retail electric operations for the
  nine months ended September 30, 2003, compared with the same period in 2002,
  was primarily due to:

- higher delivery revenues resulting from a 1.5% increase in delivery sales.
    The increase in sales volume was due in part to colder winter weather in the
    first quarter of 2003;
- higher net unbilled revenues;
- higher PLR revenues due to increased energy and capacity rates in 2003 compared
    with 2002; and
- lower sales to PPL Generation's power plants, as described above.

Wholesale Electric to Affiliate

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

Other Operation Expenses

The increases in other operation expenses were due to:

|                                                                                                    |  | September
        30, 2003 vs. September 30, 2002 |   
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------------------- | --
|                                                                                                    |  | Three Months
        Ended                        |   
|                                                                                                    |  |                                                   |   
|Decrease in pension income                                                                          |  | $                                                 | 2 
|                                                                                                    |  |                                                   |   
|Incremental storm restoration
        costs associated with Hurricane Isabel                        |  |                                                   | 6 
|                                                                                                    |  |                                                   |   
|Increases in expenses in responding
        to customers' service calls                             |  |                                                   | 2 
|                                                                                                    |  |                                                   |   
|Environmental accrual for a
        former manufactured gas plant                                   |  |                                                   |   
|                                                                                                    |  |                                                   |   
|Increased electric contractor/additional
        material costs                                     |  |                                                   | 1 
|                                                                                                    |  |                                                   |   
|Increased residential weatherization
        program expenses                                       |  |                                                   | 1 
|                                                                                                    |  |                                                   |   
|Increase to property damage
        provision, based on an aging of those accounts receivable       |  |                                                   |   
|                                                                                                    |  |                                                   |   
|Other increases - net                                                                               |  |                                                   | 1 
|                                                                                                    |  |                                                   |   
|Reduction in salaries and benefits
        as a result of the workforce reduction initiated in 2002 |  |                                                   | (4
|                                                                                                    |  |                                                   |   
|Estimated 2002 vacation liability
        adjustment in conjunction with the workforce reduction    |  |                                                   | (7
|                                                                                                    |  |                                                   |   
|                                                                                                    |  | $                                                 | 2 
|                                                                                                    |  |                                                   |   

The decreases in pension income for the three and nine months ended September
  30, 2003 were attributable to PPL Electric's participation in PPL's primary
  domestic pension plan. As a result of weak capital markets during 2002, PPL's
  domestic pension plans experienced significant asset losses. The weakened market
  performance decreased economic forecasts, which resulted in PPL reducing its
  expected return on assets assumption for 2003. In addition, declining fixed-income
  security yield rates resulted in PPL's decreasing its discount rate assumption
  for its pension plans as of December 31, 2002. These events and assumption changes
  reduced the amount of pension income PPL will record in 2003. PPL Electric participates
  in PPL's primary domestic pension plan and is allocated approximately 46% of
  the obligations and costs of that plan. Through September 30, 2003, PPL Electric
  was allocated approximately $3 million of pension income and expects to be allocated
  an additional $1 million of pension income in the fourth quarter of 2003. Future
  levels of pension income or expense depend on ongoing market conditions and
  plan results.

Maintenance Expenses

Maintenance expenses increased by $13 million for the three months ended September
  30, 2003, compared with the same period in 2002. The increase was primarily
  due to $7 million of incremental storm restoration costs due to Hurricane Isabel,
  $2 million associated with summer storms and a $2 million increase in tree trimming
  costs.

Maintenance expenses increased by $18 million for the nine months ended September
  30, 2003, compared with the same period in 2002. The increase was primarily
  due to the $9 million of storm restoration costs mentioned above, as well as
  $2 million of work performed to assure reliability of the transmission and distribution
  system and $4 million in lower rent allocations to other PPL affiliates in 2003.

Depreciation

Depreciation increased by $3 million and $7 million for the three and nine
  months ended September 30, 2003, compared with the same periods in 2002, primarily
  due to plant and software additions, including the automated meter reading project.

Taxes, Other Than Income

Taxes, other than income, increased by $9 million and $11 million during the
  three and nine months ended September 30, 2003, compared with the same periods
  in 2002. These increases were primarily due to the settlement of prior years'
  capital stock tax refund claims of $8 million in 2002, and higher taxes related
  to an increase in the basis on which capital stock tax is calculated for 2003.

Workforce Reduction

See Note 14 to the Financial Statements for information regarding the $33 million
  charge recorded in June 2002 and the $9 million charge recorded in September
  2003.

Income Taxes

Income taxes decreased by $18 million and $5 million for the three and nine
  months ended September 30, 2003, compared to the same periods in 2002, as a
  result of lower pre-tax book income.

Dividends and Distributions - Preferred Securities

Dividends and distributions on preferred securities decreased by $3 million
  and $12 million during the three and nine months ended September 30, 2003, compared
  with the same periods in 2002, due to the retirement of preferred securities
  in 2002.

Financial Condition

Liquidity

At September 30, 2003, PPL Electric had $208 million of cash and cash equivalents
  and $303 million of long-term debt due within one year. At December 31, 2002,
  PPL Electric had $29 million of cash and cash equivalents and $289 million of
  short-term debt (including long-term debt due within one year).

The increase in PPL Electric's cash position was primarily the net result of:

- cash provided by operating activities of $415 million,
- the issuance of $190 million of long-term debt,
- a $90 million net decrease in notes receivable from affiliates, and
- a $75 million capital contribution from PPL; offset by
- the retirement of $351 million of long-term debt,
- payment of $32 million of common and preferred dividends,
- retirement of preferred stock of $14 million,
- repayment of commercial paper of $15 million, and
- capital expenditures of $174 million.

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

Rating Agency Decisions

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

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

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

S&P

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

Moody's

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

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

Risk Management

Market Risk

Commodity Price Risk - PLR Contracts

PPL Electric and PPL EnergyPlus have power supply agreements under which PPL
  EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement)
  energy and capacity to fulfill PPL Electric's PLR obligation through 2009. As
  a result, PPL Electric has shifted any electric price risk relating to its PLR
  obligation to PPL EnergyPlus for 2002 through 2009. See Note 9 to the Financial
  Statements for information on the PLR contracts.

Interest Rate Risk

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

PPL Electric is also exposed to changes in the fair value of its debt portfolio.
  At September 30, 2003, PPL Electric estimated that its potential exposure to
  a change in the fair value of its debt portfolio, through a 10% adverse movement
  in interest rates, was approximately $60 million.

Related Party Transactions

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

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

Environmental Matters

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

New Accounting Standards

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

Application of Critical Accounting Policies

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

---

PPL MONTANA, LLC AND SUBSIDIARIES



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

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

Results of Operations

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

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

Earnings

Net income increased by $18 million for the nine months ended September 30,
  2003, compared with the same period in 2002. The increase was primarily due
  to higher wholesale prices in the western U.S.

Operating Revenues

Operating revenues increased by $46 million for the nine months ended September
  30, 2003, compared with the same period in 2002. Higher wholesale energy prices
  in 2003, compared with 2002, accounted for $35 million of this increase. Higher
  sales volumes accounted for an additional $11 million increase.

Operating Expense

Operating expenses increased by $18 million during the nine months ended September
  30, 2003, compared with the same period in 2002. Operating expenses consist
  mainly of expenses for fuel, energy purchases, transmission tariffs, plant operations
  and maintenance, lease rental payments, and general and administrative expenses.
  The increase was primarily due to a $19 million increase in energy purchases.
  Higher power prices resulted in an $18 million increase in energy purchases,
  while an increase in volumes purchased resulted in an increase of $1 million.

Generation increased by 306 million kWh during the nine months ended September
  30, 2003, compared with the same period in 2002. This increase was due to improved
  operational performance from coal-fired generation units.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Accounting and Reporting

PPL Montana follows the provisions of SFAS 133, "Accounting for Derivative
  Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for
  Certain Derivative Instruments and Certain Hedging Activities," and SFAS 149,
  "Amendment of Statement 133 on Derivative Instruments and Hedging Activities,"
  and interpreted by DIG issues (together, "SFAS 133") and EITF 02-3, "Issues
  Involved in Accounting for Derivative Contracts Held for Trading Purposes and
  Contracts Involved in Energy Trading and Risk Management Activities," to account
  for contracts entered into to manage market risk. SFAS 133 requires that all
  derivative instruments be recorded at fair value on the balance sheet as an
  asset or liability (unless they meet SFAS 133's criteria for exclusion) and
  that changes in the derivative's fair value be recognized currently in earnings
  unless specific hedge accounting criteria are met. PPL Montana is in the process
  of evaluating the impact of adopting EITF 03-11, "Reporting Realized Gains and
  Losses on Derivative Instruments That Are Subject to FASB Statement No. 133,
  Accounting for Derivative Instruments and Hedging Activities, and Not "Held
  for Trading Purposes" as Defined in EITF Issue No. 02-3, "Issues Involved in
  Accounting for Derivative Contracts Held for Trading Purposes and Contracts
  Involved in Energy Trading and Risk Management Activities," which requires prospective
  application as of October 1, 2003.

In April 2003, the FASB issued SFAS 149, which amends and clarifies SFAS 133
  to improve financial accounting and reporting for derivative instruments and
  hedging activities. To ensure that contracts with comparable characteristics
  are accounted for similarly, SFAS 149 clarifies the circumstances under which
  a contract with an initial net investment meets the characteristics of a derivative,
  clarifies when a derivative contains a financing component, amends the definition
  of an "underlying" and amends certain other existing pronouncements. SFAS 149
  is effective for contracts entered into or modified and for hedging relationships
  designated after June 30, 2003, except certain provisions relating to forward
  purchases or sales of when-issued securities or other securities that do not
  yet exist should be applied to both existing contracts and new contracts entered
  into after June 30, 2003.

PPL Montana adopted SFAS 149 effective July 1, 2003. The adoption of SFAS 149
did not have a significant impact on PPL Montana for the quarter ended September
30, 2003. PPL Montana has changed the accounting for certain transactions on a
prospective basis to conform with SFAS 149. This change could result in increased
volatility in other comprehensive income and earnings in future periods.

For energy contracts that meet the definition of a derivative, the circumstances
  and intent existing at the time that energy transactions are entered into determine
  their accounting designation. The following summarizes the changes to the electricity
  guidelines that have been provided to the traders who are responsible for contract
  designation for derivative energy contracts due to the adoption of SFAS 149:

- Any wholesale and retail contracts to sell electricity and the related capacity
    that are expected to be delivered from PPL Montana's generation are considered
    "normal." These transactions are not recorded in the financial statements
    and have no earnings impact until delivery.
- Physical electricity-only transactions can receive cash flow hedge treatment
    if all of the qualifications under SFAS 133 are met. Any unrealized gains
    or losses on transactions receiving cash flow hedge treatment are recorded
    in other comprehensive income.
- Physical electricity purchases that increase PPL Montana's long position
    and any energy sale or purchase considered a "market call" are speculative,
    with unrealized gains or losses recorded immediately through earnings.
- Financial electricity transactions, which can be settled in cash, cannot
    be considered "normal" because they do not require physical delivery. These
    transactions receive cash flow hedge treatment if they lock in the price PPL
    Montana will receive or pay for energy expected to be generated or purchased
    in the spot market. Any unrealized gains or losses on transactions that receive
    cash flow hedge treatment are recorded in other comprehensive income.

Transactions which do not qualify for hedge accounting treatment are marked
  to market through earnings.

Commodity Price Risk

As of September 30, 2003, PPL Montana estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its non-trading portfolio by approximately
  $85 million. However, the change in the value of the non-trading portfolio would
  have been substantially offset by an increase in the value of the underlying
  commodity, the electricity generated, because these contracts serve to reduce
  the market risk inherent in the generation of electricity. Additionally, the
  value of PPL Montana's unsold generation would be improved. Because PPL Montana's
  electricity portfolio is generally in a net sales position, the adverse movement
  in prices is usually an increase in prices.

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

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

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

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

Interest Rate Risk

PPL Montana may use borrowings to provide funds for its operations. PPL and
  PPL Energy Supply may utilize various financial derivative products and risk
  management techniques on behalf of PPL Montana to adjust the mix of fixed and
  floating interest rates in PPL Montana's debt portfolio and thereby reduce its
  exposure to adverse interest rate movements. PPL Montana had no exposure to
  increased interest expense based on a 10% increase in interest rates.

New Accounting Standards

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

Application of Critical Accounting Policies

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

See Item 7, "Review of the Financial Condition and Results of Operations,"
  in PPL Montana's Annual Report to the SEC on Form 10-K for the year ended December
  31, 2002 for a discussion of each critical accounting policy. For an additional
  discussion on the impact of SFAS 149 on price risk management, see "Risk Management
  - Energy Marketing & Trading and Other" in Financial Condition. PPL's senior
  management has reviewed these critical accounting policies, and the estimates
  and assumptions regarding them, with its Audit Committee. In addition, PPL's
  senior management reviewed the Form 10-K disclosures regarding the application
  of these critical accounting policies with the Audit Committee.

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



Item 3. Quantitative and Qualitative Disclosures About Market Risk



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

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

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



|Item
        6. Exhibits and Reports on Form 8-K
|------------------------------------------------
|                                                
|(a)                                             
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|(b) |  | Reports on Form 8-K                                                        
|--- |  | ---------------------------------------------------------------------------
|    |  |                                                                            
|    |  | Report dated July
        9, 2003 - PPL, PPL Energy Supply and PPL Electric
|    |  | Item 5.                                                                    
|    |  |                                                                            
|    |  |                                                                            
|    |  | Report dated July
        29, 2003 - PPL                                   
|    |  | Item 12.                                                                   
|    |  |                                                                            
|    |  | Item 7.                                                                    
|    |  |                                                                            
|    |  |                                                                            
|    |  | Report dated September
        11, 2003 - PPL Montana                      
|    |  | Item 9.                                                                    
|    |  |                                                                            
|    |  | 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: November 10, 2003 | /s/  John R. Biggar                 
|                        | John R. Biggar                      
|                        | Executive Vice President and        
|                        | Chief Financial Officer             
|                        | (PPL Corporation)                   
|                        | (principal financial officer)       
|                        |                                     
|                        |                                     
|                        |                                     
|                        |                                     
|                        | /s/  James E. Abel                  
|                        | James E. Abel                       
|                        | Treasurer                           
|                        | (PPL Energy Supply, LLC)            
|                        | (principal financial officer)       
|                        |                                     
|                        |                                     
|                        |                                     
|                        |                                     
|                        | /s/  Joseph J. McCabe               
|                        | Joseph J. McCabe                    
|                        | Vice President and Controller       
|                        | (PPL Electric Utilities Corporation)
|                        | (principal accounting officer)      
|                        |                                     
|                        |                                     
|                        |                                     
|                        |                                     
|                        | /s/  Charles S. Baker               
|                        | Charles S. Baker                    
|                        | Controller                          
|                        | (PPL Montana, LLC)                  
|                        | (principal accounting officer)