10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2005
OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

Commission File Number		Registrant; State of Incorporation; Address and Telephone Number		IRS Employer Identification 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class			Name of each exchange on which registered
Common Stock of PPL Corporation			New York & Philadelphia Stock Exchanges
Preferred Stock of PPL Electric Utilities Corporation
	4-1/2% 4.40% Series		New York Stock Exchange New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.

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

Indicate by check mark if the Registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

PPL Corporation	[ X ]
PPL Energy Supply, LLC	[ X ]
PPL Electric Utilities Corporation	[ X ]

Indicate by check mark whether the Registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

	Large accelerated filer	Accelerated filer	Non-accelerated filer
PPL Corporation	[ X ]	[     ]	[     ]
PPL Energy Supply, LLC	[     ]	[     ]	[ X ]
PPL Electric Utilities Corporation	[     ]	[     ]	[ X ]

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

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

As of June 30, 2005, PPL Corporation had 379,949,984 shares of its $.01 par value Common Stock outstanding, excluding 62,113,042 shares held as treasury stock. The aggregate market value of these common shares (based upon the closing price of these shares on the New York Stock Exchange on that date) held by non-affiliates was $11,280,715,025. As of January 31, 2006, PPL Corporation had 380,241,751 shares of its $.01 par value Common Stock outstanding, excluding 62,113,489 shares held as treasury stock.

As of June 30, 2005, PPL Corporation held all 78,029,863 outstanding common shares, no par value, of PPL Electric Utilities Corporation, excluding 79,270,519 shares held as treasury stock.

PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.

PPL Energy Supply, LLC meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

Documents incorporated by reference:

PPL Corporation and PPL Electric Utilities Corporation have incorporated herein by reference certain sections of PPL Corporation's 2006 Notice of Annual Meeting and Proxy Statement, and PPL Electric Utilities Corporation's 2006 Notice of Annual Meeting and Information Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2005. Such Statements will provide the information required by Part III of this Report.

PPL CORPORATION

PPL ENERGY SUPPLY, LLC

PPL ELECTRIC UTILITIES CORPORATION

FORM 10-K ANNUAL REPORT TO

THE SECURITIES AND EXCHANGE COMMISSION

FOR THE YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS

This combined Form 10-K is separately filed by PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation. Information contained herein relating to PPL Energy Supply, LLC and PPL Electric Utilities Corporation is filed by PPL Corporation and separately by PPL Energy Supply, LLC and PPL Electric Utilities Corporation on their own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to the two PPL Corporation subsidiaries is also attributed to PPL Corporation.

Item		Page
PART I
	Glossary of Terms and Abbreviations	i
	Forward-Looking Information	v
1.	Business	1
1A.	Risk Factors	10
1B.	Unresolved Staff Comments	17
2.	Properties	18
3.	LegalProceedings	19
4.	Submission of Matters to a Vote of Security Holders	23
	Executive Officersof the Registrants	24
PART II
5.	Market for theRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
6.	Selected Financial and Operating Data	26
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
7A.	Quantitative and Qualitative Disclosures About Market Risk	87
	Reportof IndependentRegistered Public Accounting Firm	88
8.	FinancialStatements andSupplementary Data	91
9.	Changesin and Disagreements with Accountants on Accounting and Financial Disclosure	172
9A.	Controls and Procedures	172
9B.	Other Information	173
PART III
10.	Directors andExecutive Officers of the Registrant	173
11.	Executive Compensation	174
12.	SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters	174
13.	Certain Relationships and Related Transactions	175
14.	Principal Accounting Fees andServices	175
PART IV
15.	Exhibits, Financial Statement Schedules	177
	Shareowner and Investor Information	178
	Signatures	180
	ExhibitIndex	183
	Computation of Ratio of Earnings to Fixed Charges	192
	Certifications ofPrincipal Executive Officer and Principal Financial Officer Pursuant to Section 302 of   the Sarbanes-Oxley Act of 2002	195
	Certificates of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of   the Sarbanes-Oxley Act of 2002	201
	PPL Corporation - Corporate Organization	207
	Examples of Wholesale Energy, Fuel and Emission Allowance Price Fluctuations - 2000 through 2005	208

GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and its current and former subsidiaries

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

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

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

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

Elfec - Empresa de Luz y Fuerza Electrica Cochabamba S.A., a Bolivian electric distribution company in which PPL Global has a majority ownership interest.

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

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

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

Integra-Empresa de Ingenieria y Servicios Integrales Cochabamba S.A., a Bolivian construction and engineering services company in which PPL Global has a majority ownership interest.

MicDos - Minicentrales Dos, S.A., a Spanish company that owns several small hydroelectric generating facilities in Spain. PPL Global sold its ownership interest in MicDos in June 2004.

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

PPL Capital Funding - PPL Capital Funding, Inc., a wholly owned financing subsidiary of PPL.

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

PPL Coal Supply- PPL Coal Supply, LLC, a limited liability company owned by PPL Coal Holdings Corporation (a subsidiary of PPL Generation) and Iris Energy LLC. PPL Coal Supply procures coal, which it sells to PPL Generation for power plants and to Iris Energy for synthetic fuel production.

PPL Development Company - PPLDevelopment Company, LLC, a subsidiary of PPL Services that has responsibility for PPL's acquisition, divestiture and development activities.

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 that markets wholesale and retail electricity, and supplies energy and energy services in deregulated markets.

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

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

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

PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Supply that owns and operates international energy businesses that are focused on the regulated distribution of electricity.

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

PPL Maine - PPL Maine, LLC, a subsidiary of PPL Generation that owns generating operations in Maine.

PPL Martins Creek - PPL Martins Creek, LLC, a generating subsidiary of PPL Generation that owns generating operations in Pennsylvania.

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

PPL Montour - PPL Montour, LLC, a generating subsidiary of PPL Generation that owns generating operations in Pennsylvania.

PPL Services - PPL Services Corporation, a subsidiary of PPL that 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 that delivers high bandwidth 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 subsidiary of PPL Electric that was formed to issue transition bonds under the Customer Choice Act.

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

SIUK Limited -was an intermediate holding company within the WPDH Limited group. In January 2003, SIUK Limited transferred its assets and liabilities to WPD LLP.

WPD - refers collectively to WPDH Limited and WPDL.

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

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

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

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

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

Other 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.

AFUDC (Allowance for Funds Used During Construction) - the cost of equity and debt funds used to finance construction projects of regulated businesses, which is capitalized as part of construction cost.

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.

Bangor Hydro - Bangor Hydro-Electric Company.

Bcf - billion cubic feet.

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:

a.   It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. Those terms determine the amount of the settlement or settlements, and, in some cases, whether or not a settlement is required.

b.   It 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.

c.   Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement.

DIG- Derivatives Implementation Group.

DOE - Department of Energy, a U.S. government agency.

DRIP - Dividend Reinvestment Plan.

EGS - electric generation supplier.

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

EMF - electric and magnetic fields.

Enrichment - the concentration of fissionable isotopes to produce a fuel suitable for use in a nuclear reactor.

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

EPS - earnings per share.

ESOP - Employee Stock Ownership Plan.

EWG - exempt wholesale generator.

Fabrication - the process that manufactures nuclear fuel assemblies for insertion into the reactor.

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.

Fitch - Fitch, Inc.

FSP - FASB Staff Position.

FTR - financial transmission rights, which are financial instruments established to manage price risk related to electricity transmission congestion. They entitle the holder to receive compensation or remit payment for certain congestion-related transmission charges that arise when the transmission grid is congested.

GAAP - generally accepted accounting principles.

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

IBEW - International Brotherhood of Electrical Workers.

ICP - Incentive Compensation Plan.

ICPKE - Incentive Compensation Plan for Key Employees.

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

ISO - Independent System Operator.

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

kVA- kilovolt-ampere.

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

LIBOR-London Interbank Offered Rate.

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.

Moody's - Moody's Investors Service, Inc.

MW - megawatt, one thousand kilowatts.

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

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

NPDES - National Pollutant Discharge Elimination System.

NRC - Nuclear Regulatory Commission, the federal agency that regulates the operation of nuclear power facilities.

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

NYMEX- New York Mercantile Exchange.

Ofgem- Office of Gas and Electricity Markets, the British agency that regulates transmission, distribution and wholesale sales of electricity and related matters.

OSM - Office of Surface Mining, a U.S. government agency.

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

PEPS Units (Premium Equity Participating Security Units, or PEPS^SM Units) - securities issued by PPL and PPL Capital Funding Trust I that consisted of a Preferred Security and a forward contract to purchase PPL common stock, which settled in May 2004.

PEPS Units, Series B(Premium Equity Participating Security Units, or PEPS^SM Units, Series B) - securities issued by PPL and PPL Capital Funding that consisted of an undivided interest in a debt security issued by PPL Capital Funding and guaranteed by PPL, and a forward contract to purchase PPL common stock, which settled in May 2004.

PJM(PJM Interconnection, L.L.C.) - operator of the electric transmission network and electric energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.

PLR (Provider of Last Resort) - The role of PPL Electric in providing electricity to retail customers within its delivery territory who have not chosen to select an alternative electricity supplier under the Customer Choice Act.

PP&E- property, plant and equipment.

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

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

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

PUHCA - Public Utility Holding Company Act of 1935, legislation passed by the U.S. Congress. Repealed effective February 2006 by the Energy Policy Act of 2005.

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.

Regulation S-X - SEC regulation governing the form and content of and requirements for financial statements required to be filed pursuant to the federal securities laws.

RMC - Risk Management Committee.

RTO - Regional Transmission Organization.

Sarbanes-Oxley 404- Section 404 of the Sarbanes-Oxley Act of 2002, which sets requirements for management assessment of internal controls for financial reporting. It also requires an independent auditor to attest to and report on management's assessment and make its own assessment.

SCR - selective catalytic reduction, a pollution control process.

SEC - Securities and Exchange Commission, a U.S. government agency whose primary mission is to protect investors and maintain the integrity of the securities markets.

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

S&P - Standard & Poor's Ratings Services.

SPE - special purpose entity.

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

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

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.

UF- inflation-indexed Chilean peso-denominated unit.

VEBA - Voluntary Employee Benefit Association Trust, trust accounts for health and welfare plans for future benefit payments for employees, retirees or their beneficiaries.

FORWARD-LOOKING INFORMATION

Statements contained in this Form 10-K concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts are "forward-looking statements" within the meaning of the federal securities laws. Although PPL, PPL Energy Supply and PPL Electric believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. These forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the forward-looking statements. In addition to the specific factors discussed in "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," 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;

· market prices for crude oil and the potential impact on synthetic fuel tax credits and synthetic fuel operations;

· weather conditions affecting generation production, customer energy usage and operating costs;

· competition in retail and wholesale power markets;

· liquidity of wholesale power markets;

· the effect of any business or industry restructuring;

· the profitability and liquidity, including access to capital markets and credit facilities, of PPL and its subsidiaries;

· new accounting requirements or new interpretations or applications of existing requirements;

· operation and availability of existing generation facilities and operating costs;

· transmission and distribution system conditions and operating costs;

· current and future environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses;

· development of new projects, markets and technologies;

· performance of new ventures;

· asset acquisitions and dispositions;

· political, regulatory or economic conditions in states, regions or countries where PPL or its subsidiaries conduct business;

· any impact of 2005's hurricanes on PPL and its subsidiaries, including any impact on fuel prices;

· receipt of necessary governmental permits, approvals and rate relief;

· new state, federal or foreign legislation, including new tax legislation;

· state, federal and foreign regulatory developments;

· impact of state, federal or foreign investigations applicable to PPL and its subsidiaries and the energy industry;

· capital market conditions, including changes in interest rates, and decisions regarding capital structure;

· stock price performance;

· the market prices of equity securities and the impact on pension costs and resultant cash funding requirements for defined benefit pension plans;

· securities and credit ratings;

· foreign currency exchange rates;

· the outcome of litigation against PPL and its subsidiaries;

· potential effects of threatened or actual terrorism or war or other hostilities; and

· the commitments and liabilities of PPL and its subsidiaries.

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

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

PART I

ITEM 1. BUSINESS

BACKGROUND

PPL Corporation, headquartered in Allentown, PA, is an energy and utility holding company that was incorporated in 1994. Through its subsidiaries, PPL generates electricity from power plants in the northeastern and western U.S.; markets wholesale or retail energy primarily in the northeastern and western portions of the U.S.; delivers electricity to approximately 5.1 million customers in Pennsylvania, the U.K. and Latin America; and provides energy services for businesses in the mid-Atlantic and northeastern U.S. PPL's significant subsidiaries are shown below:

See Exhibit 99(a) in Item 15 for a listing of the current corporate organization. In addition to PPL Corporation, the other SEC registrants included in this filing are:

PPL Energy Supply, LLC, an indirect, wholly owned subsidiary of PPL formed in 2000, is an energy company engaged through its subsidiaries in the generation and marketing of power primarily in the northeastern and western power markets of the U.S. and in the delivery of electricity in the U.K. and Latin America. PPL Energy Supply's major operating subsidiaries are PPL Generation, PPL EnergyPlus and PPL Global. PPL Energy Supply owns or controls 11,830 MW of electric power generation capacity, and has current plans to implement capital projects at certain of its existing generation facilities in Pennsylvania and Montana that would provide 258 MW of additional generation capacity by 2010.

PPL Electric Utilities Corporation, incorporated in 1920, is a direct subsidiary of PPL and a regulated public utility. PPL Electric provides electricity delivery service in its service territory in Pennsylvania, and provides electricity supply to retail customers in that territory as a PLR under the Customer Choice Act.

Segment Information

PPL is organized into segments consisting of Supply, Pennsylvania Delivery and International Delivery. PPL Energy Supply's segments consist of Supply and International Delivery. PPL Electric operates in a single business segment, Pennsylvania Delivery. See Note 2 to the Financial Statements for financial information about the segments and geographic financial data.

·	Supply Segment -
	Owns and operates domestic power plants to generate electricity; markets this electricity and other power purchases to deregulated wholesale and retail markets; and acquires and develops domestic generation projects. Consists primarily of the activities of PPL Generation and PPL EnergyPlus.

PPL has generation assets that are focused on the eastern and western markets. The eastern generation assets are focused on the Northeast/Mid-Atlantic energy markets - including PJM, the New York ISO, ISO New England and the Mid-American Interconnection Network. PPL's western generating capacity is focused on the markets within the Western Electricity Coordinating Council.

PPL Generation

PPL Generation had a total generating capacity of 11,830 MW at December 31, 2005. Through subsidiaries, PPL Generation owns and operates power plants in Pennsylvania, Montana, Arizona, Connecticut, Illinois, New York and Maine. See "Power Supply" for a complete listing of PPL's generating capacity.

The Pennsylvania generation plants had a total capacity of 9,225 MW at December 31, 2005. These plants are fueled by uranium, coal, gas, oil and water. The electricity from these plants is sold to PPL EnergyPlus under FERC-jurisdictional power purchase agreements.

PPL's U.S. generation subsidiaries are EWGs, which sell electricity into the wholesale market. PPL's EWGs are subject to regulation by the FERC, which has authorized these EWGs to sell generation from their facilities at market-based prices.

PPL Susquehanna, a subsidiary of PPL Generation, owns a 90% undivided interest in each of the two nuclear-fueled generating units at its Susquehanna station; Allegheny Electric Cooperative, Inc. owns the remaining 10% undivided interest. PPL's 90% share of Susquehanna's capacity was 2,120 MW at December 31, 2005.

PPL Generation operates its Pennsylvania and Illinois power plants in conjunction with PJM. PPL Generation's Pennsylvania power plants and PPL EnergyPlus are members of the ReliabilityFirst Corporation (RFC), the new regional reliability council that replaced the Mid-Atlantic Area Coordination Council. In Illinois, PPL's 540 MW natural gas-fired generating station is a party to the Mid-America Interconnected Network Agreement. Refer to "Pennsylvania Delivery Segment" for information regarding PJM's operations and functions and the RFC.

The Montana coal-fired and hydro-powered stations have a capacity of 1,267 MW. PPL Montana's power plants are parties to the Western Electricity Coordinating Council Agreement.

The Maine oil-fired and hydro-powered stations have a total capacity of 96 MW. The Maine generating assets are operated in conjunction with ISO New England and are parties to the Northeast Power Coordinating Council Agreement. See Note 9 for information on the possible sale of three hydroelectric dams.

The Connecticut natural gas-fired station has a total capacity of 243 MW and is operated in conjunction with ISO New England and is party to the Northeast Power Coordinating Council Agreement.

During 2002, PPL began commercial operations in Arizona of two natural gas-fired generating stations, Griffith and Sundance. PPL's ownership interest in the Griffith station is 300 MW. This generating station is a party to the Western Electricity Coordinating Council Agreement. In May 2005, a subsidiary of PPL Generation completed the sale of its 450 MW Sundance power plant to Arizona Public Service Company for approximately $190 million in cash. See Note 9 for additional information.

In 2002, PPL also began commercial operations in New York of its Edgewood natural gas-fired generating station and its Shoreham oil-fired generating station. The New York plants have a combined capacity of 159 MW. The New York generating stations are operated in connection with the New York ISO and are parties to the Northeast Power Coordinating Council Agreement.

In 2004, PPL began commercial operations in Pennsylvania of its Lower Mt. Bethel 582 MW natural gas-fired generating station.

PPL Generation has current plans to implement capital projects at certain of its generation facilities in Pennsylvania and Montana that would provide 258 MW of additional generation capacity by 2010. See "Item 2. Properties" for additional information regarding these capital projects.

In 2003, PPL reached an agreement with the New Jersey DEP and the Pennsylvania DEP that included the shut-down of the two 150 MW coal-fired generating units at the Martins Creek generating facility by September 2007. See "Environmental Matters - Domestic - Air" in Note 14 to the Financial Statements for more information regarding this agreement.

Refer to the "Power Supply" section for additional information regarding the various power plants operated by PPL Generation and to the "Fuel Supply" section for a discussion of fuel requirements and contractual arrangements for fuel.

PPL Generation subsidiaries are subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with respect to air and water quality, land use and other environmental matters. PPL Susquehanna is subject to the jurisdiction of the NRC in connection with the operation of the Susquehanna units. Certain of PPL Generation's other subsidiaries, including PPL Montana, are subject to the jurisdiction of the NRC in connection with the operation of their fossil plants with respect to certain level and density monitoring devices.

Certain operations of PPL Generation's subsidiaries are subject to the Occupational Safety and Health Act of 1970 and comparable state statutes.

PPL EnergyPlus

PPL EnergyPlus markets or brokers the electricity produced by PPL Generation subsidiaries, along with purchased power, natural gas and oil, in competitive wholesale and deregulated retail markets in order to take advantage of opportunities in the competitive energy marketplace.

PPL EnergyPlus buys and sells energy at competitive prices. PPL EnergyPlus purchases electric capacity and energy at the wholesale level, and also sells electric capacity and energy at the wholesale level under FERC market-based tariffs. PPL EnergyPlus enters into these agreements to market available energy and capacity from PPL Generation's assets and to profit from market price fluctuations. PPL EnergyPlus actively manages its portfolios to maximize the value of PPL's generating assets and to limit exposure to price fluctuations. PPL EnergyPlus also purchases and sells energy forward and futures contracts as well as other commodity-based financial instruments in accordance with PPL's risk management policies, objectives and strategies.

PPL EnergyPlus has executed contracts to provide electricity to PPL Electric sufficient for it to meet its PLR obligation through 2009, at the predetermined capped rates PPL Electric is entitled to charge its customers during this period. This arrangement with PPL Electric accounted for 35% of PPL Energy Supply's operating revenues in 2005. See Note 15 to the Financial Statements for more information concerning these contracts.

PPL EnergyPlus has a PUC license to act as an EGS in Pennsylvania. This license permits PPL EnergyPlus to offer retail electric supply to customers throughout Pennsylvania. In 2005, PPL EnergyPlus was licensed to provide, and provided energy to industrial and commercial customers in Pennsylvania, New Jersey and Montana. PPL EnergyPlus also is licensed to provide energy in Delaware, Maryland, Maine and Massachusetts. PPL EnergyPlus currently is not marketing to residential customers in the competitive marketplace based on economic considerations.

PPL EnergyPlus also develops distributed generation plants on customer sites using technologies such as fuel cells, small turbines, microturbines and reciprocating engines. As of December 31, 2005, a subsidiary of PPL Energy Supply owned approximately 12 MW of installed capacity serving commercial and industrial customers.

PPL Synfuel Investments, LLC, a subsidiary of PPL EnergyPlus, indirectly owns, through its subsidiaries, two production facilities that manufacture synthetic fuel from coal or coal byproducts. PPL receives federal tax credits for these qualified manufactured solid synthetic fuel products. See Note 14 to the Financial Statements for additional information.

PPL Telcom

PPL Telcom, an unregulated subsidiary of PPL Energy Funding, has a fiber optic network and markets available capacity on PPL Electric's fiber optic cables in eastern and central Pennsylvania. Through acquisition and customer-driven demand, the fiber optic network has been extended beyond PPL Electric's service area to include portions of the mid-Atlantic states from northern Virginia to New York. The fiber optic services include point-to-point data transport, high-speed connections among multiple sites and access to national and global fiber networks. PPL Telcom markets its services to customers such as other telecommunications companies, internet service providers and large enterprises that need high-speed data connections between multiple locations. Additionally, PPL Telcom provides engineering, construction and site leasing services to wireless carriers.

In 2003, a subsidiary of PPL Telcom acquired the fiber optic network of a Fairfax, Virginia-based company. The 1,330-route-mile metropolitan area fiber network connects New York, northern New Jersey, Philadelphia, Baltimore and Washington, D.C.

PPL Services

Various corporate service functions reside in PPL Services, an unregulated subsidiary of PPL. PPL Services provides shared services for PPL and its subsidiaries. These services include financial, legal, human resources and information services. These services are directly charged or allocated, as appropriate, to the Supply, Delivery and International segments. In the third quarter of 2004, PPL Services formed a wholly owned subsidiary, PPL Development Company, which has responsibility for all of PPL's acquisition, divestiture and development activities. These activities previously were the responsibility of PPL Global.

·	Pennsylvania Delivery Segment -
	Includes the regulated electric and gas delivery operations of PPL Electric and PPL Gas Utilities.

PPL Electric

PPL Electric provides electricity delivery service to approximately 1.4 million customers in a 10,000-square mile territory in 29 counties of eastern and central Pennsylvania. The largest cities in this territory are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport.

In addition to providing electricity delivery service in its service territory in Pennsylvania, PPL Electric also provides electricity supply to retail customers in that territory as a PLR under the Customer Choice Act. As part of the PUC Final Order, PPL Electric agreed to provide this electricity supply at predetermined capped rates through 2009. PPL Electric has executed two contracts to purchase electricity from PPL EnergyPlus sufficient for PPL Electric to meet its PLR obligation through 2009, at the predetermined capped rates. PPL Electric's PLR obligation after 2009 will be determined by the PUC pursuant to rules that have not yet been promulgated.

During 2005, about 95% of PPL Electric's operating revenues were derived from regulated electricity deliveries and supply as a PLR. About 5% of 2005 operating revenues were from wholesale sales, primarily the sale to PPL EnergyPlus of power purchased from NUGs. During 2005, about 43% of electricity delivery and PLR revenues were from residential customers, 36% from commercial customers, 20% from industrial customers and 1% from other customer classes.

PPL Electric's transmission facilities are operated as part of PJM, which operates the electric transmission network and electric energy market in the mid-Atlantic and Midwest regions of the U.S. Bulk electricity is transmitted to wholesale users throughout a geographic area including all or part of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. As of January 1, 2006, PPL Electric became a member of the RFC. The purpose of RFC is to preserve and enhance electric service reliability and security for the interconnected electric systems within its territory and to be a regional entity under the framework of the North America Electric Reliability Council (NERC). RFC's key functions are the development of regional standards for reliable planning and operation of the bulk electric system and non-discriminatory compliance monitoring and enforcement of both NERC and regional standards.

PJM serves as a FERC-approved RTO in order to accommodate greater competition and broader participation in the region. An RTO, like an ISO, is a designation provided by the FERC to a FERC-approved independent entity that operates the transmission system and typically administers a competitive power market. A primary purpose of the RTO/ISO is to separate the operation of, and access to, the transmission grid from PJM electric utilities' generation interests. PJM also administers regional markets for energy, capacity and ancillary services. Electric utilities continue to own the transmission assets, but the RTO/ISO directs the control and operation of the transmission facilities. PPL Electric fully recovers from retail customers the charges that it pays to PJM for transmission-related services. PJM imposes these charges pursuant to its FERC-approved Open Access Transmission Tariff.

PPL Electric is subject to regulation as a public utility by the PUC, and certain of its activities are subject to the jurisdiction of the FERC under the Federal Power Act.

PPL Electric also is subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with respect to land use and other environmental matters. Certain operations of PPL Electric are subject to the Occupational Safety and Health Act of 1970 and comparable state statutes.

In November 2004, Pennsylvania enacted the Alternative Energy Portfolio Standards legislation, which requires electric distribution companies, such as PPL Electric, and electric generation suppliers serving retail load to provide 18% of the electricity sold to retail customers in Pennsylvania from alternative sources within 15 years (by 2020). Under this new state legislation, alternative sources include hydro, wind, solar, waste coal, landfill methane and fuel cells. An electric distribution company will pay an alternative compliance payment of $45 for each MWh that it is short of its required alternative energy supply percentage. Since PPL Electric's PLR generation rates are capped through 2009 as described above and the legislation allows for a cost recovery exemption period, PPL Electric will not be subject to the requirements of this legislation until 2010. In that year, PPL Electric will have to supply about 9% of the total amount of electricity it delivers to its PLR customers from alternative energy sources. At this time, PPL Electric cannot predict the impact of this legislation on its future results of operations because the impact will depend on a number of factors that will not be known until 2010, including customer load requirements, PLR contract terms and available alternative energy sources in the market.

PPL Gas Utilities

PPL Gas Utilities was formed in 1946, and PPL acquired the company in 1998. PPL Gas Utilities operates a natural gas distribution and propane business in portions of various counties in Pennsylvania, as well as in a small portion of Maryland and Delaware, providing natural gas and propane services to approximately 110,000 customers. PPL Gas Utilities provides its natural gas services in Pennsylvania subject to the regulatory jurisdiction of the PUC. PPL Gas Utilities also provides intrastate and interstate natural gas storage service from storage fields in Pennsylvania. The intrastate storage service is regulated by the PUC and the interstate storage service is regulated by the FERC. However, by order of the FERC issued in 1992, rates for interstate storage services are the rates set by the PUC for intrastate service. The propane delivery service is not subject to the regulatory jurisdiction of the PUC or the FERC.

·	International Delivery Segment -
	Through PPL Global, owns and operates international energy businesses that are focused on the distribution of electricity.

PPL Global provides electricity delivery service to approximately 3.7 million customers in the U.K. and Latin America.

In the U.K., WPD, through indirect wholly owned subsidiaries, operates two electric distribution companies that together serve approximately 2.6 million end-users. WPD delivered 28,884 million kWh of electricity in 2005.

PPL Global also has controlling interests in electric transmission and distribution companies serving customers in Chile, El Salvador and Bolivia. Emel, of which PPL Global owns 95.4%, serves approximately 558,000 customers through subsidiary distribution companies in northern Chile and just south of its headquarters in Santiago, Chile. DelSur, of which PPL Global owns 86.4%, is an electric distribution company headquartered in San Salvador, which serves approximately 277,000 customers in the central and southern regions of El Salvador, including a portion of the city of San Salvador. Elfec, of which PPL Global owns 92.1%, is the second largest electric distribution company in Bolivia, and serves approximately 269,000 customers in the Cochabamba region. In the recent past, Bolivia has experienced political and social unrest. At this time, PPL is unable to predict the potential effect on its Bolivian operations.

PPL Global also has a minority investment in a combined generating and natural gas production facility in Peru. In January 2006, PPL Global entered into an agreement to sell its minority interest in this investment.

In August 2002, PPL Global deconsolidated its 90% equity interest in its Brazilian investment, CEMAR, when ANEEL authorized an administrative intervention and fully assumed operational and financial control of the company. In April 2004, PPL Global sold its investment in CEMAR. See Note 9 to the Financial Statements for additional information on the CEMAR investment.

Seasonality

Demand for and market prices of electricity are affected by weather. As a result, PPL's overall operating results in the future may fluctuate substantially on a seasonal basis, especially when more severe weather conditions such as heat waves or winter storms make such fluctuations more pronounced. The pattern of this fluctuation may change depending on the nature and location of the facilities PPL owns and the terms of the contracts to purchase or sell electricity.

FINANCIAL CONDITION

See PPL's, PPL Energy Supply's and PPL Electric's Management's Discussion and Analysis of Financial Condition and Results of Operations for this information.

CAPITAL EXPENDITURE REQUIREMENTS

See "Financial Condition - Liquidity and Capital Resources" in PPL's, PPL Energy Supply's and PPL Electric's "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information concerning estimated capital expenditure requirements for the years 2006-2010. See Note 14 to the Financial Statements for additional information concerning expected capital expenditures for environmental matters.

COMPETITION

The unregulated businesses and markets in which PPL and its subsidiaries participate are highly competitive. The electric industry has experienced an increase in the level of competition in the energy markets due to federal and state deregulation initiatives. For instance, in 1992, the Energy Act amended the Federal Power Act to provide open access to electric transmission systems for wholesale transactions. In 1996, the Customer Choice Act was enacted in Pennsylvania to restructure the state's electric utility industry in order to create retail access to a competitive market for the generation of electricity. Certain other states in which PPL's subsidiaries operate have also adopted "customer choice" plans to allow customers to choose their electricity supplier. PPL and its subsidiaries believe that competition in deregulated energy markets will continue to be intense. In "Item 1A. Risk Factors," see "We face intense competition in our energy supply business, which may adversely affect our ability to operate profitably," and "If the present trend towards competition is reversed, discontinued or delayed, our business prospects and financial condition could be materially adversely affected" for more information concerning the risks PPL faces with respect to competition in the deregulated energy markets.

Pursuant to PPL Electric's authorizations from the Commonwealth of Pennsylvania and the PUC, PPL Electric operates a regulated distribution monopoly in its service area. Accordingly, PPL Electric does not face competition in its distribution business. Although the majority of PPL Global's international electricity transmission and distribution companies operate in non-exclusive concession areas in their respective countries, these companies currently face little or no competition with respect to residential customers. See "Franchises and Licenses" for more information.

POWER SUPPLY

PPL Generation's system capacity (winter rating) at December 31, 2005, was:

Plant				Net MW Capacity
Pennsylvania
	Nuclear-fueled steam station
		Susquehanna		2,120	(a)
	Coal-fired steam stations
		Montour		1,542
		Brunner Island		1,483
		Martins Creek		300	(b)
		Keystone		211	(c)
		Conemaugh		278	(d)
			Total coal-fired	3,814
	Gas- and oil-fired steam stations
		Martins Creek		1,670
		Lower Mt. Bethel		582
			Total gas- and oil-fired	2,252
	Combustion turbines and diesels			451
	Hydroelectric			153
			Total generating capacity	8,790
	Firm purchases
		Hydroelectric		140	(e)
		Qualifying facilities		295
			Total firm purchases	435
	Total system capacity - Pennsylvania			9,225
Montana
	Coal-fired stations
		Colstrip Units 1 & 2		307	(f)
		Colstrip Unit 3		222	(g)
		Corette		162
			Total coal-fired	691
	Hydroelectric			576
	Total system capacity - Montana			1,267
Illinois
	Natural gas-fired station
		University Park		540

Arizona
	Natural gas-fired station
		Griffith	300	(h)
Connecticut
	Natural gas-fired station
		Wallingford	243
New York
	Natural gas- and oil-fired stations
		Edgewood and Shoreham	159
Maine
	Oil-fired generating station
		Wyman Unit 4	52	(i)
	Hydroelectric		44	(j)
	Total system capacity - Maine		96
	Total system capacity - PPL Generation		11,830

(a)	PPL's 90% interest.
(b)	PPL has agreed to shut down the Martins Creek coal-fired units by September 2007. See "Environmental Matters - Domestic - Air" in Note 14 to the Financial Statements for more information.
(c)	PPL's 12.34% interest.
(d)	PPL's 16.25% interest.
(e)	From Safe Harbor Water Power Corporation.
(f)	PPL's 50% leasehold interest.
(g)	PPL's 30% leasehold interest.
(h)	PPL's 50% interest.
(i)	PPL's 8.33% interest.
(j)	Includes PPL's 50% interest in the West Enfield Station.

The capacity of generating units is based upon a number of factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changed circumstances.

During 2005, PPL Generation's plants generated the following amounts of electricity.

State		Millions of kWh
Pennsylvania		45,449
Montana		8,253
Maine		379
Arizona		341
Illinois		234
New York		209
Connecticut		111
	Total	54,976

This generation represented a 2% increase over the output for 2004. Of this generation, 55% of the energy was generated by coal-fired stations, 30% from nuclear operations at the Susquehanna station, 8% from oil/gas-fired stations and 7% from hydroelectric stations.

PPL estimates that, on average, approximately 84% of its expected annual generation output for the period 2006 through 2009 will be sufficient to meet:

· PPL EnergyPlus' obligation under two contracts to provide electricity for PPL Electric to satisfy its PLR obligation under the Customer Choice Act;

· PPL EnergyPlus' obligation under two contracts to provide electricity to NorthWestern through June 2007; and

· other contractual sales to other counterparties for terms of various lengths.

Due to the expiration of the PLR contracts at the end of 2009, PPL currently estimates that approximately 5% of its expected generation output for 2010 is needed to fulfill obligations under its existing power sales contracts.

Consistent with PPL's business strategy noted above, PPL expects that it will enter into new power sales contracts over the next few years as its existing long-term contracts expire. Based on the way in which the wholesale markets have developed over the last several years, PPL expects that these new contracts may be of a shorter duration than the PLR contracts, which at inception had terms of approximately nine years.

See Note 14 to the Financial Statements for more information regarding PPL's wholesale energy commitments and Note 15 for more information regarding the PLR contracts. These contractual arrangements are consistent with, and are an integral part of, PPL's strategy for its energy supply business, which includes the matching of PPL's anticipated energy supply with load, or customer demand, under contracts of varying lengths with creditworthy counterparties, to capture profits while effectively managing PPL's exposure to movements in energy and fuel prices and counterparty credit risk.

FUEL SUPPLY

Coal

Pennsylvania

PPL Coal Supply provides coal to Iris Energy, LLC for the production of synthetic fuel. In 2005, synthetic fuel from Iris Energy provided 57% of the fuel requirements for three Pennsylvania power plants operated by PPL Generation. The contract to provide coal to Iris Energy terminates at the end of 2007. PPL Coal Supply provides the balance of the plants' coal requirements. PPL Coal Supply actively manages its supply base by purchasing coal principally from mines located in central Appalachia and western and central Pennsylvania.

During 2005, PPL Coal Supply purchased about 92% of the coal delivered to PPL Generation's wholly owned Pennsylvania stations under short-term and long-term contracts and obtained 8% through spot market purchases. These contracts provided PPL Coal Supply with about 7.4 million tons of coal. Contracts currently in place are expected to provide approximately 8.1 million tons in 2006. At December 31, 2005, the wholly owned Pennsylvania plants had sufficient supply for about 39 days of operations. The amount of coal in inventory varies from time to time depending on market conditions and plant operations.

Also at December 31, 2005, a PPL Generation subsidiary owned a 12.34% interest in the Keystone station and a 16.25% interest in the Conemaugh station. The owners of the Keystone station have a long-term contract with a synthetic fuel supplier to provide up to 4.3 million tons in 2006. This contract terminates at the end of 2007. The Keystone station contracts with Keystone Fuels, LLC for the balance of its requirements. The owners of the Conemaugh station have a long-term contract with a synthetic fuel supplier to provide a minimum of 2.4 million tons through 2007. The balance of the Conemaugh station requirements is purchased under contract from Conemaugh Fuels, LLC.

Montana

PPL Montana has a 50% leasehold interest in Colstrip Units 1 and 2, and a 30% leasehold interest in Colstrip Unit 3. PPL Montana is party to contracts to purchase 100% of its coal requirements with defined quality characteristics and specifications. The coal supply contract for Units 1 and 2 is in effect through December 31, 2009. The coal supply contract for Unit 3 is in effect through December 31, 2019.

Coal supply contracts are in place to purchase low-sulfur coal with defined quality characteristics and specifications for PPL Montana's Corette station. The contracts supplied 100% of the plant coal requirements in 2005. Similar contracts are currently in place to supply 100% of the expected coal requirements through 2008.

Oil and Natural Gas

PPL Generation's Martins Creek Units 3 and 4 burn both oil and natural gas. PPL EnergyPlus is responsible for procuring the oil and natural gas supply for all PPL Generation operations. During 2005, 100% of the physical oil requirements for the Martins Creek units were purchased on the spot market. As of December 31, 2005, PPL EnergyPlus had no long-term agreements for these oil requirements.

As of December 31, 2005, there were no long-term delivery or supply agreements to purchase natural gas for University Park.

PPL EnergyPlus has a long-term contract for approximately 40% of the expected pipeline transportation requirements of the Wallingford facility, but has no long-term supply agreement to purchase natural gas.

PPL EnergyPlus has a long-term contract for approximately 45% of the expected pipeline transportation requirements of the Griffith facility, but has no long-term supply agreement to purchase natural gas.

PPL EnergyPlus has a short-term and long-term gas transportation contract in place for approximately 30% of the maximum daily requirements of the Lower Mt. Bethel facility, but has no long-term supply agreement to purchase natural gas.

Nuclear

The nuclear fuel cycle consists of several material and service components: the mining and milling of uranium ore to produce uranium concentrates; the conversion of these concentrates into uranium hexafluoride, a gas component; the enrichment of the hexafluoride gas; the fabrication of fuel assemblies for insertion and use in the reactor core; and the temporary storage and final disposal of spent nuclear fuel.

PPL Susquehanna has in effect a portfolio of supply contracts, with varying expiration dates, for nuclear fuel materials and services. These contracts are expected to provide sufficient fuel to permit Unit 1 to operate into the first quarter of 2010 and Unit 2 to operate into the first quarter of 2011. PPL Susquehanna anticipates entering into additional contracts to ensure continued operation of the nuclear units.

Federal law requires the federal government to provide for the permanent disposal of commercial spent nuclear fuel. Under the Nuclear Waste Policy Act (NWPA), the DOE initiated an analysis of a site in Nevada for a permanent nuclear waste repository. There is no definitive date by which this repository will be operational. As a result, it was necessary to expand Susquehanna's on-site spent fuel storage capacity. To support this expansion, PPL Susquehanna contracted for the design and construction of a spent fuel storage facility employing dry cask fuel storage technology. The facility is modular, so that additional storage capacity can be added as needed. The facility began receiving spent nuclear fuel in 1999. PPL Susquehanna estimates that there is sufficient storage capacity in the spent nuclear fuel pools and the on-site spent fuel storage facility at Susquehanna to accommodate spent fuel discharged through approximately 2017, under current operating conditions. If necessary, the on-site spent fuel storage facility can be expanded, assuming appropriate regulatory approvals are obtained, such that, together, the spent fuel pools and the expanded dry fuel storage facility will accommodate all of the spent fuel expected to be discharged through the current licensed life of the plant.

In 2002, President Bush approved the Congressional override of a veto by the State of Nevada, designating Yucca Mountain, Nevada as the site for development of a permanent repository for high-level radioactive waste. The next step is for the DOE to submit a license application to the NRC to build and then operate the Yucca Mountain repository. The DOE has not announced a date when that license application will be submitted.

In 1996, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the NWPA imposed on DOE an unconditional obligation to begin accepting spent nuclear fuel on or before January 31, 1998. In 1997, the Court ruled that the contracts between the utilities and the DOE provide a potentially adequate remedy if the DOE failed to begin disposal of spent nuclear fuel by January 31, 1998. The DOE did not, in fact, begin to dispose of spent nuclear fuel on that date. The DOE continues to contest claims that its breach of contract resulted in recoverable damages. On January 22, 2004, PPL Susquehanna filed suit in the U.S. Court of Federal Claims for unspecified damages suffered as a result of the DOE's breach of its contract to accept and dispose of spent nuclear fuel. PPL Susquehanna's lawsuit currently remains stayed, pending developments in lawsuits filed by other plaintiffs. PPL cannot predict the outcome of these proceedings.

ENVIRONMENTAL MATTERS

Certain PPL subsidiaries, including PPL Electric and PPL Generation subsidiaries, are subject to certain present and developing federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters. See PPL's and PPL Energy Supply's "Financial Condition - Liquidity and Capital Resources" in Management's Discussion and Analysis of Financial Condition and Results of Operations for information concerning environmental expenditures during 2005 and their estimate of those expenditures during the years 2006-2010. Certain environmental laws, regulations and developments that may have a substantial impact on PPL are discussed below. See "Environmental Matters" in Note 14 to the Financial Statements for information regarding these laws and regulations and the status of PPL's and its subsidiaries compliance and remediation activities, as well as legal and regulatory proceedings, involving PPL and its subsidiaries.

Air

The Clean Air Act includes, among other things, provisions that: (a) restrict the construction of, and revise the performance standards for, new and substantially modified coal-fired and oil-fired generating stations; and (b) authorize the EPA to impose substantial noncompliance penalties of up to $32,500 per day of violation for each facility found to be in violation of the requirements of an applicable state implementation plan. The state agencies administer the EPA's air quality regulations through the state implementation plans and have concurrent authority to impose penalties for non-compliance.

In 2005, the EPA finalized its Clean Air Interstate Rule (CAIR) requiring substantial reductions for sulfur dioxide and nitrogen oxide emissions in 28 midwestern and eastern states, including Pennsylvania. Pursuant to a separate rule finalized in 2005, the EPA is requiring mercury reductions nationwide. Pennsylvania and Montana, where PPL owns coal-fired electric generating units, are considering mercury regulations more stringent than the federal rule, and Pennsylvania is considering an initiative by the Ozone Transport Commission that would be more stringent than the CAIR. In addition, there is mounting pressure from various states and environmental groups and at the federal level for mandatory carbon dioxide reductions. For example, several states have already passed legislation capping carbon emissions and bills have been introduced at the federal level proposing mandatory reductions. Also in 2005, seven northeast states (excluding Pennsylvania) signed a Memorandum of Understanding establishing a mandatory cap and trade program to stabilize and then reduce carbon dioxide emissions from their electric generating plants. It is not yet clear whether this program or a similar program will be extended to or adopted by Pennsylvania.

Water

To implement the requirements of the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987, the EPA has adopted regulations on effluent standards for steam electric stations. The states administer the EPA's effluent standards through state laws and regulations relating to, among other things, effluent discharges and water quality. The standards adopted by the EPA pursuant to the Clean Water Act may have a significant impact on existing facilities of certain PPL subsidiaries, depending on the states' interpretation and future amendments to regulations.

Pursuant to the Surface Mining and Reclamation Act of 1977, the Office of Surface Mining (OSM) has adopted effluent guidelines which are applicable to PPL subsidiaries as a result of their past coal mining and coal processing activities. The EPA and the OSM limitations, guidelines and standards also are enforced through the issuance of NPDES permits. In accordance with the provisions of the Clean Water Act and the Reclamation Act of 1977, the EPA and the OSM have authorized the states to implement the NPDES program. Compliance with applicable water quality standards is assured by state imposition of NPDES permit conditions and requirements to address acid mine drainage.

Solid and Hazardous Waste

The provisions of Superfund authorize the EPA to require past and present owners of contaminated sites and generators of any hazardous substance found at a site to clean-up the site or pay the EPA or the state for the costs of clean-up. The generators and past owners can be liable even if the generator contributed only a minute portion of the hazardous substances at the site. Present owners can be liable even if they contributed no hazardous substances to the site.

State laws such as the Pennsylvania and Montana Superfund statutes also give state agencies broad authority to identify hazardous or contaminated sites and to order owners or responsible parties to clean-up the sites. If responsible parties cannot or will not perform the clean-up, the agency can hire contractors to clean-up the sites and then require reimbursement from the responsible parties after the clean-up is completed. Another Pennsylvania statute, the Land Recycling and Environmental Remediation Standards, encourages voluntary clean-ups by allowing responsible parties to choose from a menu of clean-up standards and providing liability protection commensurate with the clean-up standard chosen.

Certain federal and state statutes, including federal and state Superfund statutes, also impose liability on the responsible parties for the lost value of damaged natural resources.

Low-Level Radioactive Waste

Under federal law, each state is responsible for the disposal of low-level radioactive waste generated in that state. States may join in regional compacts to jointly fulfill their responsibilities. The states of Pennsylvania, Maryland, Delaware and West Virginia are members of the Appalachian States Low-Level Radioactive Waste Compact. Efforts to develop a regional disposal facility in Pennsylvania were suspended by the Pennsylvania DEP in 1998. The Commonwealth retains the legal authority and may be required to resume the siting process should it be necessary. Low-level radioactive waste resulting from the operation of the Susquehanna facility is currently being sent to Barnwell, South Carolina, and Clive, Utah, for disposal. In the event these or other emergent disposal options become unavailable or no longer cost-effective, the low-level radioactive waste will be stored on-site at Susquehanna. PPL Susquehanna cannot predict the future availability of low-level waste disposal facilities or the cost of such disposal.

Asbestos

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

Concerns have been expressed by some members of the public regarding potential health effects of power frequency electric and/or magnetic fields (EMFs), which 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 reviewed this issue. The U.S. National Institute of Environmental Health Sciences concluded in 2002 that, for most health outcomes, there is no evidence of EMFs causing adverse effects. The agency further noted that there is some epidemiological evidence of an association with childhood leukemia, but that this evidence is difficult to interpret without supporting laboratory evidence. The U.K. National Radiological Protection Board concluded in 2004 that, while the research on EMFs does not provide a basis to find that EMFs cause any illness, there is a basis to consider precautionary measures beyond existing exposure guidelines. PPL and its subsidiaries believe the current efforts to determine whether EMFs cause adverse health effects should continue and are taking steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PPL and its subsidiaries are unable to predict what effect, if any, the EMF issue might have on their operations and facilities either in the U.S. or abroad, and the associated cost, or what, if any, liabilities they might incur related to the EMF issue.

General

PPL and its subsidiaries are unable to predict the ultimate effect of evolving environmental laws and regulations upon their existing and proposed facilities and operations. In complying with statutes, regulations and actions by regulatory bodies involving environmental matters, including the areas of water and air quality, hazardous and solid waste handling and disposal and toxic substances, PPL's subsidiaries may be required to modify, replace or cease operating certain of their facilities. PPL's subsidiaries may also incur significant capital expenditures and operating expenses in amounts which are not now determinable, but could be significant.

FRANCHISES AND LICENSES

PPL Electric is authorized to provide electric public utility service throughout its service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to PPL Electric and companies to which it has succeeded and as a result of certification by the PUC. PPL Electric is granted the right to enter the streets and highways by the Commonwealth subject to certain conditions. In general, such conditions have been met by ordinance, resolution, permit, acquiescence or other action by an appropriate local political subdivision or agency of the Commonwealth.

See "Background - Supply Segment" for a discussion of PPL EnergyPlus' licenses in various states. PPL EnergyPlus also has an export license from the DOE to sell capacity and/or energy to electric utilities in Canada.

PPL Susquehanna operates Units 1 and 2 pursuant to NRC operating licenses. PPL Susquehanna intends to file with the NRC in 2006 for license renewals for each of the Susquehanna units to extend their expirations by 20 years, from 2022 to 2042 for Unit 1 and from 2024 to 2044 for Unit 2.

PPL Holtwood operates the Holtwood hydroelectric generating station pursuant to a license renewed by the FERC in 1980 and expiring in 2014. PPL Holtwood operates the Wallenpaupack hydroelectric generating station pursuant to a license renewed by the FERC in 2005 and expiring in 2044. PPL Holtwood also owns one-third of the capital stock of Safe Harbor Water Power Corporation (Safe Harbor), which holds a project license that extends the operation of its hydroelectric generating station until 2030. The total capacity of the Safe Harbor generating station is 418 MW, and PPL Holtwood is entitled by contract to one-third of the total capacity.

The 11 hydroelectric facilities and one storage reservoir purchased from Montana Power in 1999 are licensed by the FERC. These licenses expire periodically, and the generating facilities must be relicensed at such times. The FERC license for the Mystic facility expires in 2009; the Thompson Falls and Kerr licenses expire in 2025 and 2035, respectively; and the licenses for the nine Missouri-Madison facilities expire in 2040. PPL Montana currently is working to have the Mystic facility relicensed.

In connection with the relicensing of these generation facilities, FERC may, under applicable law, relicense the original licensee or license a new licensee, or the U.S. government may take over the facility. If the original licensee is not relicensed, it is compensated for its net investment in the facility, not to exceed the fair value of the property taken, plus reasonable damages to other property affected by the lack of relicensing.

PPL Global's international electricity transmission and distribution companies are authorized by the governments of their respective countries to provide electric distribution services within their concession areas and service territories, subject to certain conditions and obligations. For instance, each of these companies is subject to governmental regulation on the prices that it can charge and the quality of service it must provide, and the companies can be fined or even have their licenses or concessions revoked if they do not meet the mandated quality of service.

WPD operates under distribution licenses granted, and price controls set, by Ofgem. The price control formula that governs WPD's allowed revenue is normally determined every five years. The most recent review was completed in late-2004, and new prices became effective April 1, 2005.

Emel is subject to regulated maximum tariffs set by Chile's National Energy Commission. The components of the distribution tariffs are energy and capacity prices, a transmission surcharge and the value added on account of distribution costs (VAD). The VAD includes a targeted return on invested capital of 10% per year. The energy and capacity prices are a direct pass-through to regulated customers of the energy charge that Emel pays to the generation companies. The tariffs are calculated every four years. The most recent tariff review was completed and revised rates became effective as of November 2004.

DelSur is subject to regulated maximum tariffs set by El Salvador's General Superintendent of Electricity and Telecommunications. The three components of the distribution tariff are an energy price, a commercialization charge and a distribution charge. DelSur's tariff specifies the energy price as a trailing six-month average of the spot market price. The tariffs are calculated every five years and are adjusted for inflation on January 1 of each year. The next comprehensive tariff review will take place in 2007 and be effective in 2008.

Elfec is subject to regulated maximum tariffs set by Bolivia's Superintendent of Electricity. Tariffs are calculated every four years based on the trailing three-year average of the equity returns from companies listed in the Dow Jones Utility Index. Tariffs are adjusted on a monthly basis for local inflation and every six months to reflect any changes in the energy node prices, which is a pass-through to regulated customers of the energy charge that Elfec pays to generation companies. The tariffs are calculated every four years. The most recent tariff review was completed in January 2004 and new prices became effective at that time.

EMPLOYEE RELATIONS

As of December 31, 2005, PPL and its subsidiaries had the following full-time employees.

PPL Energy Supply
	PPL Generation		2,582
	PPL EnergyPlus		1,955	(a)
	PPL Global
		Domestic	13
		International	3,794	(b)
	Total PPL Energy Supply		8,344
PPL Electric			2,239
PPL Gas Utilities			381
PPL Services & Other			1,312
Total PPL			12,276

(a)	Includes union employees of mechanical contracting subsidiaries, which tend to fluctuate due to the nature of their business.
(b)	Includes employees of WPD and PPL Global's consolidated subsidiaries in Latin America.

Approximately 60%, or 5,076, of PPL's domestic workforce are members of labor unions, with four IBEW locals representing 3,579 employees. The other unions primarily represent employees of the mechanical contractors and gas utility employees in Pennsylvania. The bargaining agreement with the largest union was negotiated in May 2002 and expires in May 2006. Eight four-year contracts with smaller gas utility locals in Pennsylvania were negotiated in 2003. In June 2004, the IBEW representing approximately 240 employees at the Montana Colstrip power plant approved a new four-year labor agreement expiring in June 2008. In April 2005, a three-year contract expiring in April 2008 was negotiated with an IBEW local in Montana that represents approximately 80 employees at the hydroelectric facility and at the Corette plant.

Approximately 79%, or 2,997, of PPL's international workforce are members of labor unions. WPD employs the majority of the international workforce. WPD recognizes five unions, the largest of which represents 37% of union members. WPD has two employment agreements that are negotiated with the unions. The largest agreement, the Electricity Business Agreement, covers 2,037 union employees; it may be amended by agreement between WPD and the unions and is terminable with 12 months notice by either side.

PPL's Latin American subsidiaries have 879 union employees that are represented by 12 unions. Emel and DelSur have agreements in place until 2006. Annually, Elfec negotiates adjustments to its compensation and benefits.

AVAILABLE INFORMATION

PPL's Internet Web site is www.pplweb.com. On the Investor Center page of that Web site, PPL provides access to all SEC filings of PPL registrants free of charge, as soon as reasonably practicable after filing with the SEC. Additionally, PPL registrants' filings are available at the SEC's Web site (www.sec.gov) and at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549, or by calling 1-800-SEC-0330.

ITEM 1A. RISK FACTORS

PPL, PPL Energy Supply and PPL Electric face various risks associated with their businesses. While we have tried to identify below the risks we currently consider material, these risks are not the only risks that we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our businesses, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks. In addition, this report also contains forward-looking and other statements that involve a number of risks and uncertainties. See "Forward-Looking Information," "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 14 to the Financial Statements for more information concerning the risks described below and for other risks, uncertainties and factors that could impact our businesses and financial results.

As used in this Item 1A., the terms "we," "our" and "us" generally refer to PPL and its consolidated subsidiaries taken as a whole, or to PPL Energy Supply and its consolidated subsidiaries taken as a whole within the Supply and International Delivery segment discussions, or PPL Electric and its consolidated subsidiaries taken as a whole within the Pennsylvania Delivery segment discussion.

Risks Related to Supply Segment

(PPL and PPL Energy Supply)

Adverse changes in commodity prices and related costs may decrease our future energy margins, which could adversely affect our earnings and cash flows.

Our energy margins, or the amount by which our revenues from the sale of power exceed our costs of supplying power, are impacted by changes in the market prices for electricity, as well as fluctuations in fuel prices, fuel transportation costs, electricity transmission and related congestion charges and other costs. Unlike most other commodities, electric power cannot be stored and must be produced at the time of use. As a result, the wholesale market prices for electricity may fluctuate substantially over relatively short periods of time and can be unpredictable. Among the factors that can influence such prices are:

· demand for electricity and additional supplies of electricity available from current or new generation resources;

· variable production costs, primarily fuel (and the associated fuel transportation costs) and emission allowance expense, for the generation resources used to meet the demand for electricity;

· capacity and transmission service into, or out of, markets served;

· changes in the regulatory framework for wholesale power markets;

· liquidity in the general wholesale electricity market; and

· weather conditions impacting demand for electricity or the facilities necessary to deliver electricity.

See Exhibit 99(b) for more information concerning the market fluctuations in wholesale energy, fuel and emission allowance prices over the past five years.

Whether we decide to, or are able to, continue to enter into or renew long-term power sales and fuel purchase and fuel transportation agreements in order to mitigate market price and supply risk may affect our earnings.

A substantial portion of our anticipated generation production currently is committed under long-term power sales agreements that include fixed prices for our electric power. We also enter into long-term fuel purchase and fuel transportation agreements that include fixed prices. Whether we decide to, or are able to, continue to enter into such agreements or renew existing agreements and the market conditions at that time will affect our financial performance. For instance, in the absence of long-term power sales agreements, we would sell the energy, capacity and other products from our facilities into the competitive wholesale power markets under contracts of shorter duration at then-current market prices. Although the current forward prices for electricity significantly exceed the prices available under our current long-term power sales agreements, this situation may not continue. In addition, if we do not secure or maintain favorable long-term fuel purchase and fuel transportation agreements for our power generation facilities, our fuel costs (and the associated fuel transportation costs) could exceed the revenues that we derive from our energy sales. Given the volatility and potential for material differences between actual electricity prices and fuel and other costs, if we do not secure or maintain long-term electricity sales and fuel purchase and fuel transportation agreements, our margins will be subject to increased volatility and, depending on future electricity and fuel costs (and the associated fuel transportation costs), our financial results may be materially adversely affected.

Disruptions in our fuel supplies could occur, which could adversely affect our ability to operate our generation facilities.

We purchase fuel from a number of suppliers. Disruption in the delivery of fuel, including disruptions as a result of weather, transportation difficulties, labor relations or environmental regulations affecting our fuel suppliers, could adversely affect our ability to operate our facilities, which could result in lower sales and/or higher costs and thereby adversely affect our results of operations.

Our generation facilities may not operate as planned, which may increase our expenses or decrease our revenues and, thus, have an adverse effect on our financial performance.

Our ability to manage operational risk with respect to our generation plants is critical to our financial performance. Operation of our power plants at expected capacity levels involves many risks, including the breakdown or failure of equipment or processes, accidents, labor disputes and fuel interruption. In addition, weather and natural disasters can disrupt our generation plants. Weather conditions also have a direct impact on the river flows required to operate our hydroelectric plants at expected capacity levels. Depending on the timing and duration of both planned and unplanned complete or partial outages at our power plants (in particular, if such outages are during peak periods or during periods of, or caused by, severe weather), our revenues from energy sales could be significantly decreased and our expenses significantly increased, and we could be required to purchase power at then-current market prices to satisfy our energy sales commitments or, in the alternative, pay penalties and damages for our failure to satisfy them. While we have been successful in the past several years in increasing fleet-wide equivalent availability (i.e., the percentage of time in a year that a generating unit is capable of producing power) from the low 80% range to over 90%, many of our generating units are reaching mid-life, and we are faced with the potential for outages of longer duration to accommodate significant investments in major component replacements.

Changes in technology may impair the value of our power plants.

A basic premise of our business is that generating electricity at central power plants achieves economies of scale and produces electricity at a relatively low price. There are other technologies for producing electricity, most notably fuel cells, microturbines, windmills and photovoltaic (solar) cells. Research and development activities are ongoing to seek improvements in the alternate technologies. It is possible that advances will reduce the cost of alternate methods of electric production to a level that is equal to or below that of most central station electric production. If this were to happen, the value of our generation facilities may be significantly impaired.

We rely on transmission and distribution assets that we do not own or control to deliver our wholesale electricity and natural gas. If transmission is disrupted, or not operated efficiently, or if capacity is inadequate, our ability to sell and deliver power may be hindered.

We depend on transmission and distribution facilities owned and operated by utilities and other energy companies to deliver the electricity and natural gas we sell to the wholesale market, as well as the natural gas we purchase for use in our electric generation facilities. If transmission is disrupted (as a result of weather, natural disasters or other reasons) or not operated efficiently by ISOs, in applicable markets, or if capacity is inadequate, our ability to sell and deliver products and satisfy our contractual obligations may be hindered, or we may be unable to sell products on the most favorable terms.

The FERC has issued regulations that require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. Although these regulations are designed to encourage competition in wholesale market transactions for electricity, there is the potential that fair and equal access to transmission systems will not be available or that sufficient transmission capacity will not be available to transmit electricity as we desire. We cannot predict the timing of industry changes as a result of these initiatives or the adequacy of transmission facilities in specific markets or whether ISOs in applicable markets will operate the transmission networks, and provide related services, efficiently.

The PLR contracts do not provide for a specific level of supply, and demand significantly below or above our forecasts could adversely affect our energy margins.

PPL Electric has agreed to provide electricity supply to its PLR customers at predetermined capped rates through 2009 and has entered into PUC-approved, full requirements energy supply agreements with PPL EnergyPlus at the rates PPL Electric is entitled to charge its PLR customers in order to fulfill its PLR obligation. If PPL Electric's customers obtain electricity from alternate suppliers, which they are entitled to do at any time, PPL EnergyPlus' sales of electricity under the PLR contracts may decrease.

Alternatively, demand that we satisfy pursuant to the PLR contracts could increase as a result of severe weather conditions, economic development or other reasons over which we have no control. We satisfy our electricity supply obligations through a portfolio approach of providing electricity from our generation assets, contractual relationships and market purchases. At December 31, 2005, the PLR requirements required over 70% of the normal operating capacity of our existing Pennsylvania generation assets. A significant increase in demand would adversely affect our energy margins because we are required under the terms of the PLR contracts to provide the energy supply to fulfill this increased demand at the capped rates, which we expect to remain significantly below the wholesale prices at which we would have to purchase the additional supply if needed or, if we had available capacity, the prices at which we could otherwise sell the additional supply. Accordingly, any significant increase in demand could have a material adverse effect on our results of operations or financial position.

PPL Electric's PLR obligation after 2009 will be determined by the PUC pursuant to rules that have not yet been promulgated. While regulations governing PLR obligations after 2009 have been proposed for comment by the PUC, at this time, we cannot predict the content of the final regulations, including whether they will include requirements regarding the length, pricing or other terms of PLR contracts, or when the regulations will be finalized. We also cannot predict the extent to which PPL EnergyPlus will sell power to PPL Electric after 2009.

We face intense competition in our energy supply business, which may adversely affect our ability to operate profitably.

Unlike our regulated delivery businesses, our energy supply business is not assured of any rate of return on our capital investments through predetermined rates, and our revenues and results of operations are dependent on our ability to operate in a competitive environment. We expect the deregulated electricity markets to continue to be competitive. Competition is impacted by electricity and fuel prices, new market entrants, construction by others of generating assets, technological advances in power generation, the actions of regulatory authorities and other factors. These competitive factors may negatively impact our ability to sell energy and related products and the prices which we may charge for such products, which could adversely affect our results of operations and our ability to grow our business.

Following the expiration of our existing long-term power sales agreements, we currently expect to sell a significant portion of our available capacity into the competitive wholesale markets through contracts of shorter duration. Competition in the wholesale power markets will occur principally on the basis of the price of products and, to a lesser extent, on the basis of reliability and availability. We expect the commencement of commercial operation of new electric facilities in the regional markets where we own or control generation capacity will continue to increase the competitiveness of the wholesale electricity market in those regions, which could have a material adverse effect on the prices we receive for electricity.

We also face competition in the wholesale markets for electricity capacity and ancillary services. We primarily compete with other electricity merchants based on our ability to aggregate supplies at competitive prices from different sources and to efficiently utilize transportation from third-party pipelines and transmission from electric utilities and ISOs. We also compete against other energy marketers on the basis of relative financial condition and access to credit sources, and many of our competitors have greater financial resources than we have.

Competitors in the wholesale power markets in which PPL Generation subsidiaries and PPL EnergyPlus operate include regulated utilities, industrial companies, non-utility generators and unregulated subsidiaries of regulated utilities. In the past, PUHCA significantly restricted mergers and acquisitions and other investments in the electric utility sector. Entirely new competitors, including financial institutions, may enter the energy markets as a result of the recent repeal of PUHCA. The repeal of PUHCA also may lead to consolidation in our industry, resulting in competitors with significantly greater financial resources than we have.

If the present trend towards competitive markets is reversed, discontinued or delayed, our business prospects and financial condition could be materially adversely affected.

Some deregulated electricity markets have experienced supply problems and price volatility. In some of these markets, government agencies and other interested parties have made proposals to delay market restructuring or even re-regulate areas of these markets that have previously been deregulated. For example, in 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. to address the extreme volatility in the California electricity markets. These price controls have had the effect of significantly lowering spot and forward electricity prices in the western market. In addition, the independent system operators, or ISOs, that oversee the transmission systems in certain wholesale electricity markets have from time to time been authorized to impose price limitations and other mechanisms to address volatility in the power markets. These types of price limitations and other mechanisms may reduce the profits that our wholesale power marketing and trading business would have realized based on competitive market conditions absent such limitations and mechanisms. Although we expect the deregulated electricity markets to continue to be competitive, other proposals to re-regulate our industry may be made, and legislative or other action affecting the electric power restructuring process may cause the process to be delayed, discontinued or reversed in the states in which we currently, or may in the future, operate.

We are exposed to operational, price and credit risks associated with selling and marketing products in the wholesale electricity markets.

We purchase and sell electricity at the wholesale level under market-based tariffs authorized by the FERC throughout the United States and also enter into short-term agreements to market available electricity and capacity from our generation assets with the expectation of profiting from market price fluctuations. If we are unable to deliver firm capacity and electricity under these agreements, we could be required to pay damages. These damages would generally be based on the difference between the market price to acquire replacement capacity or electricity and the contract price of the undelivered capacity or electricity. Depending on price volatility in the wholesale electricity markets, such damages could be significant. Extreme weather conditions, unplanned generation facility outages, transmissions disruptions, and other factors could affect our ability to meet our obligations, or cause significant increases in the market price of replacement capacity and electricity.

In addition, our power agreements typically include provisions requiring us to post collateral for the benefit of the counterparties if the market price of energy varies from the contract prices by certain thresholds. At December 31, 2005, we posted $540 million of collateral, in the form of letters of credit, under these contracts. Although we currently believe that we have sufficient liquidity facilities to fulfill our potential collateral obligations under these contracts, we have increased over the past two years our available liquidity facilities (from $1.1 billion at December 31, 2004 to $2.4 billion at December 31, 2005) to satisfy these collateral obligations and to maintain our credit ratings due, in significant part, to the potential collateral requirements under these contracts.

We also face credit risk that parties with whom we contract will default in their performance, in which case we may have to sell our electricity into a lower-priced market or make purchases in a higher priced market than existed at the time of contract. We attempt to mitigate these risks through various means, including through agreements that require our counterparties to post collateral for our benefit if the market price of energy varies from the contract prices beyond certain thresholds. However, there can be no assurance that we will avoid counterparty non-performance. Counterparty non-performance could adversely impact our ability to fully meet our obligations to other parties, which could in turn subject us to claims for damages.

We do not always hedge against risks associated with electricity and fuel price volatility.

We attempt to mitigate risks associated with satisfying our contractual electricity sales arrangements by reserving generation capacity to deliver electricity to satisfy our net firm sales contracts. We also routinely enter into contracts, such as fuel and electricity purchase and sale commitments, to hedge our exposure to weather conditions, fuel requirements and other electricity-related commodities. However, based on economic and other considerations, we may not hedge the entire exposure of our operations from commodity price volatility. To the extent we do not hedge against commodity price volatility, our results of operations and financial position may be adversely affected.

Our risk management policy and programs relating to electricity and fuel prices, interest rates, foreign currency and counterparties, may not work as planned, and we may suffer economic losses despite such programs.

We actively manage the market risk inherent in our electricity and fuel, debt, foreign currency and counterparty credit positions. We have implemented procedures to enhance and monitor compliance with our risk management policy and programs, including validation of transaction and market prices, verification of risk and transaction limits, sensitivity analyses and daily portfolio reporting of various risk measurement metrics. Nonetheless, adverse changes in electricity and fuel prices, interest rates, foreign currency exchange rates and counterparty credit exposures may result in losses in our earnings or cash flows and adversely affect our balance sheet.

Our risk management programs may not work as planned. For instance, actual electricity and fuel prices may be significantly different or more volatile than the historical trends and assumptions upon which we based our risk management positions. Similarly, interest rates or foreign currency exchange rates could change in significant ways that our risk management procedures were not set up to address. As a result, we cannot always predict the impact that our risk management decisions may have on us if actual events lead to greater losses or costs than our risk management positions were intended to hedge. If our risk management positions are ineffective in this way, we could be subject to mark-to-market accounting with respect to certain of our risk management contracts, which could lead to significant volatility in our earnings and our balance sheet.

In addition, our trading, marketing and risk management activities are exposed to the credit risk that counterparties that owe us money, electricity or fuel will breach their obligations. We have established a risk management policy and programs, including credit risk programs, to evaluate counterparty credit risk. However, if counterparties to these arrangements fail to perform, we may be forced to enter into alternative arrangements at then-current market prices. In that event, our financial results are likely to be adversely affected.

Despite federal and state deregulation initiatives, our supply business is still subject to extensive regulation, which may increase our costs, reduce our revenues, or prevent or delay operation of our facilities.

Our U.S. generation subsidiaries sell electricity into the wholesale market. Generally, our generation subsidiaries and our marketing subsidiaries are subject to regulation by the FERC. The FERC has authorized us to sell generation from our facilities and power from our marketing subsidiaries at market-based prices. The FERC retains the authority to modify or withdraw our market-based rate authority and to impose "cost of service" rates if it determines that the market is not workably competitive, that we possess market power or that we are not charging just and reasonable rates. See "Item 3. Legal Proceedings - FERC Market-Based Rate Authority," for the status of FERC's review of our Western market-based rate filing for PPL Montana. Any reduction by the FERC in the rates we may receive or any unfavorable regulation of our business by state regulators could materially adversely affect our results of operations.

In addition, the acquisition, ownership and operation of electricity generation facilities require numerous permits, approvals, licenses and certificates from federal, state and local governmental agencies. We may not be able to obtain or maintain all required regulatory approvals. If there is a delay in obtaining any required regulatory approvals or if we fail to obtain or maintain any required approval or fail to comply with any applicable law or regulation, the operation of our assets and our sales of electricity could be prevented or delayed or become subject to additional costs.

Our costs to comply with existing and new environmental laws are expected to continue to be significant, and we plan to incur significant capital expenditures on pollution control measures that, if delayed, would adversely affect our profitability and liquidity.

Our business is subject to extensive federal, state and local statutes, rules and regulations relating to environmental protection. To comply with existing and future environmental requirements and as a result of voluntary pollution control measures we may take, we expect to spend substantial amounts in the future on environmental control and compliance. For example, as a result of existing and recently-enacted federal environmental laws and regulations governing air emissions from coal-burning plants (in particular, sulfur dioxide, nitrogen oxide and mercury emissions), as of December 31, 2005, we planned to spend about $1.5 billion from 2005 through 2010 to install pollution control equipment at certain of our coal plants.

With respect to sulfur dioxide emission reduction, based on expected levels of generation, emission allowance shortfalls that would otherwise occur without significant purchases of allowances and projected emission allowance prices, we have determined that it is more economic to install sulfur dioxide scrubbers at certain of our plants rather than purchase necessary allowances in order to meet environmental requirements. Specifically, we plan to install scrubbers at our Montour Units 1 and 2 and Brunner Island Unit 3 by 2008 and at our Brunner Island Units 1 and 2 during 2009. Following the installation of the scrubbers, we expect to have excess emission allowances that we could sell at then-current market prices. Any significant delay in our installation of these scrubbers would adversely affect our profitability and liquidity, since we would be required to purchase rather than sell emission allowances.

There also is growing concern nationally and internationally about carbon dioxide and other greenhouse gas emissions (including concern about global warming). Further, many states and environmental groups have also challenged certain of the federal laws and regulations relating to air emissions as not being sufficiently strict. As a result, it is possible that state and federal regulations will be developed that will impose more stringent limitations on emissions than are currently in effect.

We may not be able to obtain or maintain all environmental regulatory approvals necessary for our planned capital projects or which are otherwise necessary to our business. If there is a delay in obtaining any required environmental regulatory approval or if we fail to obtain, maintain or comply with any such approval, operations at our affected facilities could be halted or subjected to additional costs. Further, at some of our older facilities it may be uneconomical for us to install the necessary equipment, which may cause us to shut down those generation units.

We are subject to the risks of nuclear generation, including the risk that our Susquehanna nuclear plant could become subject to revised security or safety requirements that would increase our capital and operating expenditures, and uncertainties associated with decommissioning our plant at the end of its licensed life.

Nuclear generation accounted for about 30% of our 2005 generation output. The risks of nuclear generation generally include:

· the potential harmful effects on the environment and human health resulting from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials;

· limitations on the amounts and types of insurance commercially available to cover losses and liabilities that might arise in connection with nuclear operations; and

· uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives.

The NRC has broad authority under federal law to impose licensing requirements, as well as security-related and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. In addition, revised security or safety requirements promulgated by the NRC could necessitate substantial capital or operating expenditures at our Susquehanna nuclear plant. In addition, although we have no reason to anticipate a serious nuclear incident at our Susquehanna plant, if an incident did occur, any resulting operational loss, damages and injuries could have a material adverse effect on our results of operations, cash flows or financial condition.

A continued increase in the price of crude oil could result in a phase-out of the significant tax credits that we receive based on our production and sale of synthetic fuel and a reduction in the availability of synthetic fuel that we purchase from unaffiliated third parties, which could adversely affect our results of operations and cash flows.

We have interests in two synthetic fuel facilities and receive tax credits pursuant to Section 29 of the Internal Revenue Code based on our sale of synthetic fuel to unaffiliated third-party purchasers. We also purchase synthetic fuel from unaffiliated third parties, at prices below the market price of coal, for use at our coal-fired power plants. The availability of the Section 29 tax credits is scheduled to expire after 2007. In addition, Section 29 provides for the phase-out of the tax credit when the average reference price for crude oil, as adjusted for inflation, falls within a certain range, and the tax credits are completely eliminated if the reference price exceeds the phase-out range. We do not expect any phase-out for 2005, but we cannot predict whether these credits will be phased out for 2006 or 2007, or the inflation for these years that affects the determination of the phase-out range of the tax credit. We have entered into economic hedge transactions that will serve to mitigate some of the earnings and cash flow impact that increases in crude oil prices for 2006 and 2007 within the phase-out range would have on our synthetic fuel operations. However, if the price of crude oil remains at or increases above current levels, we expect to experience a significant reduction in our synthetic fuel tax credits, which would adversely affect our results of operations and cash flows for those years. Based on forecast oil prices and other market factors for 2006 and 2007, we will evaluate our synthetic fuel production levels and operations. Furthermore, the suppliers of synthetic fuel to our coal-fired plants could decide to cease or reduce their synthetic fuel operations as a result of the impact of higher crude oil prices on their tax credits, requiring us to seek alternative synthetic fuel supply or to meet our supply needs with coal, which would significantly increase our fuel costs.

Risks Related to International Delivery Segment

(PPL and PPL Energy Supply)

Our international delivery businesses also are subject to risks with respect to rate-regulation and operational performance.

Like our Pennsylvania delivery businesses, our international delivery businesses are rate-regulated. In addition, their ability to manage operational risk is critical to their financial performance. Accordingly, these businesses are subject to the same risks as those described below "Risks Related to Pennsylvania Delivery Segment."

Our international delivery businesses expose us to risks related to laws of other countries, taxes, economic conditions, fluctuations in foreign currency exchange rates, political and social conditions and policies of foreign governments. These risks may reduce our results of operations from our delivery businesses.

The acquisition, financing, development and operation of projects outside of the United States entail significant financial risks, which vary by country, including:

· changes in foreign laws or regulations relating to foreign operations, including tax laws and regulations;

· changes in United States laws related to foreign operations, including tax laws and regulations;

· changes in government policies, personnel or approval requirements;

· changes in general economic conditions affecting each country;

· regulatory reviews of tariffs for local distribution companies;

· severe weather and natural disaster impacts on the electric sector and our assets in each country;

· material increases in the cost of generation supply for our local distribution customers;

· changes in labor relations in foreign operations;

· limitations on foreign investment or ownership of projects and returns or distributions to foreign investors;

· limitations on ability of foreign companies to borrow money from foreign lenders and lack of local capital or loans;

· fluctuations in currency exchange rates and difficulty in converting our foreign funds to U.S. dollars, which can increase our expenses and/or impair our ability to meet such expenses, and difficulty moving funds out of the country in which the funds were earned;

· limitations on ability to import or export property and equipment;

· compliance with United States foreign corrupt practices laws;

· political instability and civil unrest; and

· expropriation and confiscation of assets and facilities.

Our international operations are subject to regulation by various foreign governments and regulatory authorities. The laws and regulations of some countries may limit our ability to hold a majority interest in some of the projects that we may develop or acquire, thus limiting our ability to control the development, construction and operation of those projects. In addition, the legal environment in foreign countries in which we currently own assets or projects or may develop projects in the future could make it more difficult for us to enforce our rights under agreements relating to such projects. Our international projects also may be subject to risks of being delayed, suspended or terminated by the applicable foreign governments or may be subject to risks of contract invalidation by commercial or governmental entities.

Despite contractual or other protections we have against many of these risks for our international operations or potential investments in the future, our actual results and the value of our investments may be adversely affected by the occurrence of any of these events.

Risks Related to Pennsylvania Delivery Segment

(PPL and PPL Electric)

Regulators may not approve the rates we request.

Our Pennsylvania delivery businesses are rate-regulated. While such regulation is generally premised on the recovery of prudently incurred costs and a reasonable rate of return on invested capital, the rates that we may charge our delivery customers are subject to authorization of the applicable regulatory authorities, and there is no guarantee that the rates authorized by regulators will match our actual costs or provide a particular return on invested capital at any given time.

Our transmission and distribution facilities may not operate as planned, which may increase our expenses or decrease our revenues and, thus, have an adverse effect on our financial performance.

Our ability to manage operational risk with respect to our transmission and distribution systems is critical to the financial performance of our delivery business. Our delivery business also faces several risks, including the breakdown or failure of or damage to equipment or processes (especially due to severe weather or natural disasters), accidents and labor disputes. Operation of our delivery systems below our expectations may result in lost revenues or increased expenses, including higher maintenance costs.

PPL Electric generally bears the risk, through 2009, that it will not be able to obtain adequate energy supply at the predetermined capped rates it may charge to its PLR customers.

In order to mitigate the risk that we will not be able to obtain adequate energy supply, through 2009, at the predetermined capped rates we may charge to our PLR customers, we have entered into PUC-approved, full requirements energy supply agreements with PPL EnergyPlus at these capped rates. Under one of the PLR contracts, we are required to make performance assurance deposits with PPL EnergyPlus when the market price of electricity is less than the contract price by more than our contract collateral threshold. Conversely, PPL EnergyPlus is required to make performance assurance deposits with us when the market price of electricity is greater than the contract price by more than its contract collateral threshold. Over the past few years, market prices for electricity have exceeded the contract price, and we estimated that, at December 31, 2005, the market price of electricity exceeded the contract price by approximately $4.2 billion. Accordingly, at December 31, 2005, PPL EnergyPlus was required to provide us with performance assurance of $300 million, the maximum amount of collateral required under the contract. If PPL EnergyPlus is unable to satisfy its energy supply obligations to us under the PLR contracts, we would be required to obtain energy supply in the wholesale market at then-current market rates to meet our PLR obligation. While the Customer Choice Act provides generally for PLR costs to be borne by customers, it is not clear whether we would be able to pass on to our customers any costs of this replacement energy supply that exceed the predetermined capped rates.

Our PLR obligation after 2009 will be determined by the PUC pursuant to rules that have not yet been promulgated. While regulations governing PLR obligations after 2009 have been proposed for comment by the PUC, at this time, we cannot predict the content of the final regulations, including the specific mechanism for recovery from customers of our costs for energy supply, or when the regulations will be finalized.

Other Risks Related to All Segments

(PPL, PPL Energy Supply and PPL Electric)

Our operating results could fluctuate on a seasonal basis, especially as a result of severe weather conditions.

Our businesses may be seasonal. For example, in some markets demand for, and market prices of, electricity peak during the hot summer months, while in other markets such peaks occur in the cold winter months. As a result, our overall operating results in the future may fluctuate substantially on a seasonal basis, especially when severe weather conditions such as heat waves, extreme cold weather or storms make such fluctuations more pronounced. The pattern of this fluctuation may change depending on the nature and location of the facilities we acquire or develop and the terms of our contracts to sell electricity.

We cannot predict the outcome of the legal proceedings and investigations currently being conducted with respect to our current and past business activities. An adverse determination could have a material adverse effect on our financial condition, results of operations or cash flows.

We are involved in numerous legal proceedings, claims and litigation and subject to ongoing state and federal investigations arising out of our business operations, the most significant of which are summarized in "Item 3. Legal Proceedings" and in "Environmental Matters - Domestic" in Note 14 to the Financial Statements. We cannot predict the ultimate outcome of these matters, nor can we reasonably estimate the costs or liability that could potentially result from a negative outcome in each case.

We may need significant additional financing to pursue growth opportunities.

We continually review potential acquisitions and development projects and may enter into significant acquisition agreements or development commitments in the future. An acquisition agreement or development commitment may require access to substantial capital from outside sources on acceptable terms. We also may need external financing to fund capital expenditures, including capital expenditures necessary to comply with environmental regulations or other regulatory requirements. Our ability to arrange financing and our cost of capital are dependent on numerous factors, including general economic conditions, credit availability and our financial performance. The inability to obtain sufficient financing on terms that are acceptable to us could adversely affect our ability to pursue acquisition and development opportunities and fund capital expenditures.

A downgrade in our credit ratings could negatively affect our ability to access capital and increase the cost of maintaining our credit facilities and any new debt.

Our current credit ratings by Moody's, Fitch and S&P are listed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources." While we do not expect these ratings to limit our ability to fund our short-term liquidity needs and/or access any new long-term debt, any ratings downgrades could increase our short-term borrowing costs and negatively affect our ability to fund our short-term liquidity needs and access new long-term debt.

Significant increases in our operation and maintenance expenses, including our health care and pension costs, could adversely affect our future earnings and liquidity.

We continually focus on limiting, and reducing where possible, our operation and maintenance expenses. However, we expect to continue to face increased cost pressures, especially with respect to health care and pension costs. Pursuant to our collective bargaining agreements, we are contractually committed to provide specified levels of health care and pension benefits to current employees and retirees covered by the contracts, and we provide a similar level of benefits to our management employees, which benefits give rise to significant expenses. We have experienced significant health care cost inflation in the last few years, and we expect our health care costs, including prescription drug coverage, to continue to increase despite measures that we have taken and expect to continue to take to require employees and retirees to bear a higher portion of the costs of their health care benefits. In addition, we expect to continue to experience significant costs with respect to the defined benefit pension plans that we sponsor for our employees and retirees. For example, we expect WPD to experience increased pension costs due to a March 2004 actuarial valuation of WPD's plans that reflects higher pension obligations. The increase in WPD's pension costs in 2005 was $26 million after tax, and the increase in WPD's pension costs is expected to continue to be significant in 2006. The measurement of our expected future health care and pension obligations, costs and liabilities is highly dependent on a variety of assumptions, most of which relate to factors beyond our control. These assumptions include investment returns, interest rates, health care cost trends, benefit improvements, salary increases and the demographics of plan participants. If our assumptions prove to be inaccurate, our costs could be significantly increased.

There is a risk that we may be required to record impairment charges in the future for certain of our investments, which could adversely affect our earnings.

Under GAAP, we are required to test our recorded goodwill for impairment on an annual basis, or more frequently if events or circumstances indicate that these assets may be impaired. While no goodwill impairments were required based on our annual review in the fourth quarter of 2005, we are unable to predict whether any impairment charges may be necessary in the future.

We also review our long-lived assets for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable. We did not record any significant impairment charges on these assets during 2005, but we did record a loss on the sale of our Sundance generation station (as described in Note 9 to the Financial Statements.) We are unable to predict whether impairment charges may be necessary in the future. In particular, our ability to recover our investment in our gas-fired generation facilities, and to avoid any future impairment charges with respect to these assets, will depend upon future electricity and fuel price levels (which are subject to substantial fluctuations), as well as applicable accounting rules and other factors.

ITEM 1B. UNRESOLVED STAFF COMMENTS

PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation

None.

ITEM 2. PROPERTIES

Supply Segment

For a description of PPL's domestic generation portfolio, see "Item 1. Business - Power Supply."

PPL is continuously reexamining development projects based on market conditions and other factors to determine whether to proceed with these projects, sell them, cancel them, expand them, execute tolling agreements or pursue other opportunities. At December 31, 2005, PPL Generation was planning on implementing the following incremental capacity increases.

Project	Type	Total MW Capacity (a)	PPL Ownership or Lease Interest in MW		Expected In-Service Date (b)
Pennsylvania
Susquehanna (c)	Nuclear	205	185	(90%)	2007 - 2010
Brunner Island (d)	Coal-fired	37	37	(100%)	2006 - 2009
Montour (e)	Coal-fired	16	16	(100%)	2008
Montana
Colstrip (f)	Coal-fired	74	20	(15-50%)	2006 - 2008
Total		332	258

(a)	The capacity of generation units is based on a number of factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changed circumstances.
(b)	The expected in-service dates are subject to receipt of required approvals and permits and other contingencies.
(c)	This project involves the extended upgrade of Units 1 and 2 and will be implemented during two refueling outages per unit, with the first increase being an average of 60 MW per unit. The outages for Unit 1 are expected to occur in 2008 and 2010. The outages for Unit 2 are expected to occur in 2007 and 2009.
(d)	These projects involve turbine upgrades to all three Brunner Island Units that are expected to be implemented during normal overhaul schedules. Unit 3 is expected to be completed in 2006, Unit 1 in 2007 and Unit 2 in 2009.
(e)	This project involves turbine upgrades.
(f)	This project involves turbine upgrades to all four Colstrip Units that are expected to be implemented over three years during the normal overhaul schedules. Units 1 and 4 are expected to be completed in 2006, Unit 3 in 2007 and Unit 2 in 2008.

In 2003, PPL reached an agreement with the New Jersey DEP and the Pennsylvania DEP that included the shut-down of the two 150 MW coal-fired generating units at the Martins Creek generating facility by September 2007. See "Environmental Matters - Domestic - Air" in Note 14 to the Financial Statements for more information regarding this agreement.

Pennsylvania Delivery Segment

Electric

For a description of PPL Electric's service territory, see "Item 1. Business - Background." At December 31, 2005, PPL Electric had electric transmission and distribution lines in public streets and highways pursuant to franchises and rights-of-way secured from property owners. PPL Electric's system included 384 substations with a total capacity of 26 million kVA, 32,499 circuit miles of overhead lines and 6,705 cable miles of underground conductors. All of PPL Electric's facilities are located in Pennsylvania. Substantially all of PPL Electric's distribution properties and certain transmission properties are subject to the lien of PPL Electric's 1945 First Mortgage Bond Indenture and its 2001 Senior Secured Bond Indenture.

Gas

PPL Gas Utilities distributes natural gas and propane to customers in northern, southeastern and central Pennsylvania and in a small portion of Maryland and Delaware. It also has natural gas storage facilities in Pennsylvania. At December 31, 2005, PPL Gas Utilities had approximately 110,000 natural gas and propane delivery customers and 3,756 miles of pipeline mains, with 18 miles in Maryland and the remainder in Pennsylvania.

International Delivery Segment

PPL Global has consolidated investments in electricity distribution companies, serving approximately 3.7 million delivery customers in Latin America and the U.K.

Company	Location	PPL Ownership Interest	2005 Electricity Sales GWh (a)
Latin America
Emel	Santiago, Chile	95.40%	2,612
Elfec	Cochabamba, Bolivia	92.12%	642
DelSur	San Salvador, El Salvador	86.41%	1,008
United Kingdom
WPDH Limited	Bristol, England	100.00%	28,884
Total			33,146

(a) Corresponds to revenues recorded by PPL Global in 2005.

PPL Global's distribution system in Latin America includes 100 substations with a total capacity of 2.0 million kVA, 23,384 miles of overhead lines and 97 cable miles of underground conductors. PPL Global's distribution system in the U.K. includes 641 substations with a total capacity of 23.6 million kVA, 29,039 miles of overhead lines and 22,647 cable miles of underground conductors.

ITEM 3. LEGAL PROCEEDINGS

See "Item 1. Business - Fuel Supply," for information concerning a lawsuit against the DOE for failure of that agency to perform certain contractual obligations. See "Environmental Matters" in Note 14 to the Financial Statements for information concerning legal proceedings regarding certain environmental matters.

Montana Power Shareholders' Litigation

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 has been pending in the U.S. District Court of Montana, Butte Division and the judge has placed this proceeding on hold pending the outcome of certain motions currently before the U.S. Bankruptcy Court for the District of Delaware, the resolution of which may impact this proceeding. PPL and PPL Energy Supply cannot predict the outcome of this matter.

NorthWestern Corporation Litigation

In September 2002, NorthWestern filed a lawsuit against PPL Montana in Montana state court seeking specific performance of a provision in the Montana Power APA 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. In 2005, PPL Montana and NorthWestern settled the litigation, and PPL Energy Supply recorded a charge of $9 million ($6 million after tax, or $0.02 per share for PPL) in the first quarter of 2005 related to the settlement agreement. Pursuant to the settlement agreement, all claims of the parties in the litigation were dismissed with prejudice, NorthWestern retained its interest in the CTS, and PPL Montana paid NorthWestern $9 million in October 2005.

Montana Hydroelectric Litigation

In October 2003, a lawsuit was filed against PPL Montana, PPL Services, Avista Corporation, PacifiCorp and nine John Doe defendants in the U.S. District Court of Montana, Missoula Division, by two residents allegedly acting in a representative capacity on behalf of the State of Montana. In January 2004, the complaint was amended to, among other things, include the Great Falls school districts as additional plaintiffs. In May 2004, the Montana Attorney General filed a motion to allow the State of Montana to intervene as an additional plaintiff in the litigation. This motion was granted without objection. The individual plaintiffs, the school districts and the State sought declaratory judgment, compensatory damages and attorneys fees and costs for use of state and/or "school trust" lands by hydropower facilities and to require the defendants to adequately compensate the State and/or the State School Trust fund for full market value of lands occupied. Generally, the suit is founded on allegations that the bed of navigable rivers became state-owned property upon Montana's admission to statehood, and that the use thereof for placement of dam structures, affiliated structures and reservoirs should, under an existing regulatory scheme, trigger lease payments for use of land underneath. The plaintiffs also sought relief on theories of unjust enrichment, trespass and negligence. No specific amount of damages or future rental value has been claimed by the plaintiffs. The defendants filed separate motions to dismiss the individual plaintiffs' and school districts' complaint, as well as the complaint of the State of Montana. In September 2004, the federal court granted the motions to dismiss the individual plaintiffs' and school districts' complaint but denied the similar motions as to the State of Montana's complaint. Following the federal court's September decision, PPL Montana and the other defendants filed a motion to dismiss the State of Montana's complaint for lack of diversity jurisdiction and also filed a motion to vacate certain portions of the decision. The federal court granted both of these motions in September 2005.

In November 2004, PPL Montana, Avista Corporation and PacifiCorp commenced an action for declaratory judgment in Montana First Judicial District Court seeking a determination that no lease payments or other compensation for the hydropower facilities' use and occupancy of streambeds can be collected by the State of Montana. The State subsequently filed counterclaims and a motion for summary judgment. In February 2005, the individual plaintiffs and school districts who were dismissed from the federal court proceeding, along with a state teachers' union, filed a motion to intervene as additional defendants in this state court proceeding, and also filed a proposed answer and counterclaims to be used if their motion to intervene is granted. The state court denied this motion to intervene, but has not yet ruled on any of the other above-described motions. PPL and PPL Energy Supply cannot predict the outcome of the state court proceeding.

California ISO and Western Markets

Through its subsidiaries, PPL made approximately $18 million of sales to the California ISO during the period from October 2000 through June 2001, 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. At December 31, 2005, PPL has fully reserved for possible underrecoveries of payments for these sales.

Regulatory proceedings arising out of the California electricity supply situation have been filed at the FERC. The FERC has determined that all sellers of energy into markets operated by the California ISO and the California Power Exchange, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000, through June 20, 2001, and initiated an evidentiary hearing concerning refund amounts. In April 2003, the FERC changed the manner in which this refund liability is to be computed and ordered further proceedings to determine the exact amounts that the sellers, including PPL Montana, would be required to refund. In September 2004, the U.S. Court of Appeals for the Ninth Circuit held that the FERC had the additional legal authority to order refunds for periods prior to October 2, 2000, and ordered the FERC to determine whether or not it would be appropriate to grant such additional refunds.

In June 2003, the FERC took several actions as a result of a number of related investigations. The FERC terminated proceedings pursuant to which it had been considering whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. The FERC also commenced additional investigations relating to "gaming" and bidding practices during 2000 and 2001, but, to their knowledge, neither PPL EnergyPlus nor PPL Montana is a subject of these investigations.

Litigation arising out of the California electricity supply situation has been filed in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these legal proceedings allege, among other things, abuse of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, and seek other relief, including treble damages and attorneys' fees. While PPL's subsidiaries have not been named by the plaintiffs in these legal proceedings, PPL Montana was named by a defendant in its cross-complaint in a consolidated court proceeding, which combined into one master proceeding several of the lawsuits alleging antitrust violations and unfair trade practices. This generator denies that any unlawful, unfair or fraudulent conduct occurred but asserts that, if it is found liable, the other generators and power marketers, including PPL Montana, caused, contributed to and/or participated in the plaintiffs' alleged losses.

In February 2004, the Montana Public Service Commission initiated a limited investigation of the Montana retail electricity market for the years 2000 and 2001, focusing on how that market was affected by transactions involving the possible manipulation of the electricity grid in the western U.S. The investigation includes all public utilities and licensed electricity suppliers in Montana, as well as other entities that may possess relevant information. Through its subsidiaries, PPL is a licensed electricity supplier in Montana and a wholesale supplier in the western U.S. In June 2004, the Montana Attorney General served PPL Montana and more than 20 other companies with subpoenas requesting documents, and PPL Montana has provided responsive documents to the Montana Attorney General. As with the other investigations taking place as a result of the issues arising out of the electricity supply situation in California and other western states, PPL and its subsidiaries believe that they have not engaged in any improper trading or marketing practices affecting the Montana retail electricity market.

PPL and its subsidiaries believe that they have not engaged in any improper trading practices. However, 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. PPL also cannot predict 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 Litigation

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, among other things, violations of the federal antitrust laws in connection with the pricing of installed capacity in the PJM daily market during the first quarter of 2001. These boroughs were 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 in early 2001. The complaint indicates that ENERCO provides consulting and energy procurement services to clients in Pennsylvania and New Jersey. In September 2004, this complaint was dismissed by the District Court, and in June 2005 the U.S. Court of Appeals for the Third Circuit denied the plaintiff's appeal.

Each of the U.S. Department of Justice - Antitrust Division, the FERC and the Pennsylvania Attorney General conducted investigations regarding PPL's PJM capacity market transactions in early 2001 and did not find any reason to take action against PPL.

New England Investigation

In January 2004, PPL became aware of an investigation by the Connecticut Attorney General and the FERC's Office of Market Oversight and Investigation (OMOI) regarding allegations that natural gas-fired generators located in New England illegally sold natural gas instead of generating electricity during the week of January 12, 2004. Subsequently, PPL and other generators were served with a data request by OMOI. The data request indicated that PPL was not under suspicion of a regulatory violation, but that OMOI was conducting an initial investigation. PPL has responded to this data request. PPL also has responded to data requests of ISO New England and data requests served by subpoena from the Connecticut Attorney General. Both OMOI and ISO New England have issued preliminary reports finding no regulatory or other violations concerning these matters. While PPL does not believe that it committed any regulatory or other violations concerning the subject matter of these investigations, PPL cannot predict the outcome of these investigations.

PJM Billing

In December 2004, Exelon Corporation, on behalf of its subsidiary, PECO Energy, Inc. (PECO), filed a complaint against PJM and PPL Electric with the FERC alleging that PJM had overcharged PECO from April 1998 through May 2003 as a result of an error by PJM in the State Estimator Model used in connection with billing all PJM customers for certain transmission, spot market energy and ancillary services charges. Specifically, the complaint alleges that PJM mistakenly identified PPL Electric's Elroy substation transformer as belonging to PECO and that, as a consequence, during times of congestion, PECO's bills for transmission congestion from PJM erroneously reflected energy that PPL Electric took from the Elroy substation and used to serve PPL Electric's load. The complaint requests the FERC, among other things, to direct PPL Electric to refund to PJM $39 million, plus interest of approximately $8 million, and for PJM to refund these same amounts to PECO. In February 2005, PPL Electric filed its response with the FERC stating that neither PPL Electric nor any of its affiliates should be held financially responsible or liable to PJM or PECO as a result of PJM's error.

In April 2005, the FERC issued an Order Establishing Hearing and Settlement Judge Proceedings (the Order). In the Order, the FERC determined that PECO is entitled to reimbursement for the transmission congestion charges that PECO asserts PJM erroneously billed to it at the Elroy substation. The FERC set for additional proceedings before a judge the determination of the amount of the overcharge to PECO and which PJM market participants were undercharged and therefore are responsible for reimbursement to PECO. The FERC also ordered procedures before a judge to attempt to reach a settlement of the dispute.

PPL Electric recognized an after-tax charge of approximately $27 million (or $0.07 per share for PPL) in the first quarter of 2005 for a loss contingency related to this matter. The pre-tax accrual was approximately $47 million, with $39 million included in "Energy purchases" on the Statement of Income, and $8 million in "Interest Expense."

In September 2005, PPL Electric and Exelon Corporation filed a proposed settlement agreement regarding this matter with the FERC. Under the settlement agreement, PPL Electric would pay $33 million plus interest over a four-year period to PJM through a new transmission charge that, under applicable law, is recoverable from PPL Electric's retail customers. Also, all PJM market participants would pay approximately $8 million plus interest over a four-year period to PJM through a new market adjustment charge. PJM would forward amounts collected under the two new charges to PECO. PJM filed comments with the FERC neither supporting nor opposing the settlement agreement, and the FERC Trial Staff filed comments with the FERC supporting the settlement agreement. Numerous other parties, including PJM market participants, filed comments with the FERC opposing the settlement agreement. The FERC has not yet acted on the proposed settlement agreement.

PPL, PPL Electric and PPL Energy Supply cannot be certain of the outcome of this matter or the impact on PPL and its subsidiaries. Some or all of the first quarter 2005 charges for this matter may be reversed in a future period depending on the outcome of this matter, the potential for recovery of any amounts paid as a result of the additional FERC proceedings, the application of the relevant provisions of the energy supply agreements between PPL Electric and PPL EnergyPlus and other factors. Depending on these factors, PPL Energy Supply, the parent company of PPL EnergyPlus, may incur some or all of the costs associated with this matter in a future period.

FERC Market-Based Rate Authority

In December 1998, the FERC issued an order authorizing PPL EnergyPlus to make wholesale sales of electric power and related products at market-based rates. In that order, the FERC directed PPL EnergyPlus to file an updated market analysis within three years of the date of the order, and every three years thereafter. PPL EnergyPlus filed its initial updated market analysis in December 2001. Several parties thereafter filed interventions and protests requesting that PPL EnergyPlus be required to provide additional information demonstrating that it has met the FERC's market power tests necessary for PPL EnergyPlus to continue its market-based rate authority. PPL EnergyPlus has responded that the FERC does not require the economic test suggested by the intervenors and that, in any event, it would meet such economic test if required by the FERC.

In June 2004, FERC approved certain changes to its standards for granting market-based rate authority. As a result of the schedule adopted by the FERC, PPL EnergyPlus, PPL Electric, PPL Montana and most of PPL Generation's subsidiaries were required to file, in November 2004, updated analyses demonstrating that they should continue to maintain market-based rate authority under the new standards. PPL made two filings, a Western market-based rate filing for PPL Montana and an Eastern market-based rate filing for most of the other PPL subsidiaries in the PJM region.

In September 2005, the FERC issued an order conditionally approving the Eastern market-based rate filing. The FERC expressly rejected the concerns raised by various consumer advocates and industrial customers regarding generation market power of PPL's and PPL Energy Supply's generation subsidiaries in the PJM region. The FERC's order required the subsidiaries to make a compliance filing providing further support that they cannot erect other non-transmission barriers to entry into the generation market, and the PPL subsidiaries made this compliance filing in October 2005.

Also in September 2005, in an order on PPL's western market-based rate filing, the FERC found that PPL Montana did not pass one of the FERC's initial screening tests for market power in the Northwestern Energy Control Area, namely the wholesale market share screen. As a result, PPL Montana was required to make a more detailed filing with the FERC demonstrating that it meets the market power tests. Also, the FERC has established a refund effective date of November 8, 2005 (for sales made in the Northwestern Energy Control Area pursuant to contracts entered into on and after that date), in the event that PPL Montana does not pass the FERC's market power tests. The FERC's order is not a definitive determination that PPL Montana has market power but rather the FERC's mechanism for analyzing market-based rate authority applications that require further scrutiny. In October 2005, PPL Montana made the more detailed filing with the FERC, which PPL Montana believes demonstrates that it cannot exercise generation market power in the Northwestern Energy Control Area and should be granted market-based rate authority in that area. The FERC has not yet acted on this more detailed filing. While PPL Montana continues to believe that it does not have market power in the Northwestern Energy Control Area, it cannot predict the outcome of this proceeding.

Martins Creek Ash Basin

In August 2005, a leak from a disposal basin containing fly ash and water used in connection with the operation of the two 150-MW coal-fired generating units at the Martins Creek generating facility caused the discharge of approximately 100 million gallons of water containing ash from the basin onto adjacent roadways and fields, and into a nearby creek and the Delaware River. The leak was stopped, and PPL has determined that the problem was caused by a failure in the disposal basin's discharge structure. PPL is continuing to work with the Pennsylvania DEP and other appropriate agencies and consultants to assess the extent of the environmental damage caused by the ash in the discharged water and to remediate the damage. PPL shut down the two coal-fired generating units in August 2005 and placed the units back in service in December 2005 after completing the repairs and upgrades to the basin and obtaining the Pennsylvania DEP's approval.

On September 20, 2005, PPL Martins Creek and the Pennsylvania DEP were served with notice by the Delaware Riverside Conservancy and several citizens of their intention to file a citizens' suit on the basis that the leak from the disposal basin at Martins Creek allegedly violated various state and federal laws. The Pennsylvania DEP subsequently filed a complaint in Commonwealth court against PPL Martins Creek and PPL Generation, alleging violations of various state laws and regulations and seeking penalties and injunctive relief. The Delaware Riverside Conservancy and several citizens have filed a motion to intervene in the Pennsylvania DEP's action, which motion includes a class action complaint alleging that the fly ash spill caused damages to property along a 40-mile stretch of the Delaware River. PPL has objected to the intervention by certain of the intervenors and both PPL and the Pennsylvania DEP have objected to the purported class action suit. PPL intends to engage in settlement discussions to resolve the Pennsylvania DEP action.

At this time, PPL has no reason to believe that the Martins Creek leak has caused any danger to human health or any adverse biological impact on the river aquatic life. However, a group of natural resource trustees, along with the Delaware River Basin Commission, has been conducting an assessment of any natural resource damages that could have been caused by the Martins Creek leak. PPL expects the trustees and the Delaware River Basin Commission to seek to recover their costs as well as any damages they determine were caused by the leak. PPL cannot predict when the assessment will be completed but does not expect it to be completed before the end of 2006.

PPL Energy Supply recognized a $33 million charge in the third quarter of 2005 and an additional $15 million charge in the fourth quarter of 2005 (or a total of $31 million after tax, or $0.08 per share for PPL) in connection with the current expected on-site and off-site costs relating to the leak. Approximately $41 million of the total charge, or $27 million after tax, relates to the off-site costs, and the balance of the total charge, $7 million, or $4 million after tax, relates to the on-site costs. The pre-tax accrual of $48 million was included in "Other operation and maintenance" on the Statement of Income. PPL and PPL Energy Supply cannot predict the final cost of assessment and remediation of the leak, the outcome of the action initiated by the Pennsylvania DEP, the outcome of the natural resource damage assessment, and the exact nature of any other regulatory or other legal actions that may be initiated against PPL, PPL Energy Supply or their subsidiaries as a result of the disposal basin leak. PPL and PPL Energy Supply also cannot predict the extent of the fines or damages that may be sought in connection with any such actions or the ultimate financial impact on PPL or PPL Energy Supply.

Lower Mt. Bethel

In August 2002, the Northampton County Court of Common Pleas issued a decision setting the permissible noise levels for operation of the Lower Mt. Bethel facility. PPL appealed the court's decision to the Commonwealth Court, and an intervenor in the lawsuit cross-appealed the court's decision. In May 2003, the Commonwealth Court remanded the case to the Court of Common Pleas for further findings of fact concerning the zoning application relating to the construction of the facility. In September 2003, the Court of Common Pleas ruled in PPL's favor while also reaffirming its decision on the noise levels, and the intervenor appealed this ruling to the Commonwealth Court. In April 2004, the Commonwealth Court affirmed the decision of the Court of Common Pleas, and the Supreme Court of Pennsylvania has denied the intervenor's Petition for Allowance of Appeal. Accordingly, the September 2003 ruling by the Court of Common Pleas is final.

The certificate of occupancy for the Lower Mt. Bethel facility was issued by the local township zoning officer in April 2004, and the facility was placed in service in May 2004. In May 2004, the intervenor in the legal proceedings regarding the facility's permissible noise levels filed an appeal with the township zoning board regarding the issuance of the certificate of occupancy. The hearing on the appeal was held in December 2004, and the intervenor's appeal was denied. The intervenor appealed the zoning board's decision to the Northampton County Court of Common Pleas in February 2005, and the Court of Common Pleas denied this appeal in August 2005. The intervenor did not further appeal this matter. Accordingly, the zoning board's decision is final.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2005.

EXECUTIVE OFFICERS OF THE REGISTRANTS

Officers of PPL, PPL Energy Supply and PPL Electric are elected annually by their Boards of Directors (or Board of Managers for PPL Energy Supply) to serve at the pleasure of the respective Boards. There are no family relationships among any of the executive officers, nor is there any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected.

There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years.

Listed below are the executive officers at December 31, 2005.

PPL Corporation
Name		Age	Positions Held During the Past Five Years	Dates
William F. Hecht *		62	Chairman and Chief Executive Officer	August 2005 - present
			Chairman, President and Chief Executive Officer	February 1995 - July 2005
James H. Miller *		57	President and Chief Operating Officer	August 2005 - present
			Executive Vice President and Chief Operating Officer	September 2004 - July 2005
			Executive Vice President	January 2004 - August 2004
			President - PPL Generation	February 2001 - August 2004
			Executive Vice President - USEC, Inc.	January 1999 - February 2001
John R. Biggar		61	Executive Vice President and Chief Financial Officer	January 2001 - present
Paul A. Farr **		38	Senior Vice President-Financial and Controller	August 2005 - present
			Vice President and Controller	August 2004 - July 2005
			Senior Vice President - PPL Global	January 2004 - August 2004
			Vice President - International Operations - PPL Global	June 2002 - January 2004
			Vice President - PPL Global	October 2001 - June 2002
			Vice President and Chief Financial Officer - PPL Montana	June 1999 - October 2001
Robert J. Grey		55	Senior Vice President, General Counsel and Secretary	March 1996 - present
Paul T. Champagne***		47	President - PPL EnergyPlus	October 2001 - present
			President - PPL Global	May 1999 - October 2001
Clarence J. Hopf, Jr.***		49	Senior Vice President - Energy Marketing - PPL EnergyPlus	October 2005 - present
			Vice President - The Goldman Sachs Group, Inc.	August 2003 - September 2005
			Vice President - AmerenEnergy, Inc.	June 1999 - August 2003
Rick L. Klingensmith***		45	President - PPL Global	August 2004 - present
			Vice President - Finance - PPL Global	August 2000 - August 2004
Roger L. Petersen***		54	President - PPL Development Company	September 2004 - present
			President - PPL Global	October 2001 - August 2004
			President and Chief Executive Officer - PPL Montana	May 1999 - October 2001
Bryce L. Shriver***		58	President - PPL Generation	May 2005 - present
			President and Chief Nuclear Officer - PPL Generation	September 2004 - May 2005
			Senior Vice President and Chief Nuclear Officer - PPL Generation	May 2002 - August 2004
			Vice President - Nuclear Site Operations - PPL Susquehanna	January 2000 - May 2002
John F. Sipics***		57	President - PPL Electric	October 2003 - present
			Vice President - Asset Management	August 2001 - September 2003
			Vice President - Regulatory Support	August 2000 - August 2001
James E. Abel		54	Vice President - Finance and Treasurer	June 1999 - present
*	On February 27, 2006, PPL announced that Mr. Hecht will retire as Chairman and Chief Executive Officer before the end of 2006, at which time Mr. Miller will become Chairman and Chief Executive Officer.
**	Effective January 30, 2006, Matt Simmons was appointed as PPL's Vice President and Controller, reporting to Mr. Farr and Mr. Farr's title became Senior Vice President-Financial.
***	Messrs. Champagne, Hopf, Klingensmith, Petersen, Shriver and Sipics have been designated executive officers of PPL by virtue of their respective positions at PPL subsidiaries.

PPL Electric Utilities Corporation
Name	Age	Positions Held During the Past Five Years	Dates
John F. Sipics	57	President	October 2003 - present
		Vice President - Asset Management	August 2001 - September 2003
		Vice President - Regulatory Support	August 2000 - August 2001
Paul A. Farr *	38	Senior Vice President-Financial and Controller	August 2005 - present
		Vice President and Controller	August 2004 - July 2005
		Senior Vice President - PPL Global	January 2004 - August 2004
		Vice President - International Operations - PPL Global	June 2002 - January 2004
		Vice President - PPL Global	October 2001 - June 2002
		Vice President and Chief Financial Officer - PPL Montana	June 1999 - October 2001
James E. Abel	54	Treasurer	July 2000 - present

* Effective January 30, 2006, Matt Simmons was appointed as PPL Electric's Vice President and Controller, reporting to Mr. Farr and Mr. Farr's title became Senior Vice President-Financial.

PPL Energy Supply, LLC

Item 4 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY,

RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

PPL Corporation

Additional information for this item is set forth in the sections entitled "Quarterly Financial, Common Stock Price and Dividend Data," "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Shareowner and Investor Information" of this report. The number of common shareowners is set forth in "Item 6. Selected Financial and Operating Data."

Issuer Purchases of Equity Securities:

	(a)	(b)	(c)	(d)
Period	Total Number of Shares (or Units) Purchased (1)	Average Price Paid per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2)
October 1 to October 31, 2005
November 1 to November 30, 2005
December 1 to December 31, 2005	447	$30.16
Total	447	$30.16

(1)	Represents shares of common stock withheld by PPL as a result of net settlement of restricted stock awards, as permitted under the terms of PPL's Incentive Compensation Plan and Incentive Compensation Plan for Key Employees.
(2)	Not applicable. PPL does not currently have in place any publicly announced, specific plans or programs to purchase equity securities.

PPL Energy Supply, LLC

There is no established public trading market for PPL Energy Supply's membership interests. PPL Energy Funding, a direct wholly owned subsidiary of PPL, owns all of PPL Energy Supply's outstanding membership interests. Distributions on the membership interests will be paid as determined by PPL Energy Supply's Board of Managers. PPL Energy Supply made cash distributions to PPL Energy Funding of approximately $278 million in 2005 and $410 million in 2004.

PPL Electric Utilities Corporation

There is no established public trading market for PPL Electric's common stock, as PPL owns 100% of the outstanding common shares. Dividends paid to PPL on those common shares are determined by PPL Electric's Board of Directors. PPL Electric paid common stock dividends to PPL of approximately $93 million in 2005 and $24 million in 2004.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

PPL Energy Supply, LLC

Item 6 is omitted as PPL Energy Supply meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
PPL Corporation (a)					2005		2004		2003		2002		2001
Income Items - millions
	Operating revenues (b)			$	6,219	$	5,794	$	5,585	$	5,490	$	5,147
	Operating income				1,346		1,400		1,366		1,254		850
	Income from continuing operations				737		713		733		366		169
	Net income				678		698		734		208		179
Balance Sheet Items - millions (c)
	Property, plant and equipment - net (b)				10,916		11,149		10,593		9,733		5,947
	Recoverable transition costs				1,165		1,431		1,687		1,946		2,172
	Total assets				17,926		17,733		17,123		15,552		12,562
	Long-term debt				7,081		7,658		7,859		6,267		5,579
	Long-term debt with affiliate trusts (d)				89		89		681
	Company-obligated mandatorily redeemable preferred   securities of subsidiary trusts holding solely company   debentures (d)										661		825
	Preferred stock				51		51		51		82		82
	Common equity				4,418		4,239		3,259		2,224		1,857
	Short-term debt				214		42		56		943		118
	Total capital provided by investors				11,853		12,079		11,906		10,177		8,461
	Capital lease obligations				11		11		12
Financial Ratios
	Return on average common equity - %				15.65		18.14		26.55		10.27		8.41
	Embedded cost rates (c)
			Long-term debt - %		6.60		6.67		6.56		7.04		6.84
			Preferred stock - %		5.14		5.14		5.14		5.81		5.81
			Preferred securities - % (d)								8.02		8.13
	Times interest earned before income taxes				2.68		2.79		2.98		2.25		2.15
	Ratio of earnings to fixed charges - total enterprise basis (e)				2.6		2.7		2.6		1.9		1.7
Common Stock Data (i)
	Number of shares outstanding - thousands
			Year-end		380,145		378,143		354,723		331,472		293,161
			Average		379,132		368,456		345,589		304,984		291,948
	Number of shareowners of record (c)				79,198		81,175		83,783		85,002		87,796
	Income from continuing operations - Basic EPS			$	1.94	$	1.93	$	2.12	$	1.20	$	0.58
	Income from continuing operations - Diluted EPS			$	1.92	$	1.93	$	2.12	$	1.20	$	0.58
	Net income - Basic EPS			$	1.79	$	1.89	$	2.13	$	0.68	$	0.61
	Net income - Diluted EPS			$	1.77	$	1.89	$	2.12	$	0.68	$	0.61
	Dividends declared per share			$	0.96	$	0.82	$	0.77	$	0.72	$	0.53
	Book value per share (c)			$	11.62	$	11.21	$	9.19	$	6.71	$	6.33
	Market price per share (c)			$	29.40	$	26.64	$	21.88	$	17.34	$	17.43
	Dividend payout rate - % (f)				54		44		36		106		87
	Dividend yield - % (g)				3.27		3.08		3.52		4.15		3.04
	Price earnings ratio (f) (g)				16.61		14.10		10.32		25.50		28.57
Sales Data - millions of kWh
	Domestic - Electric energy supplied - retail				39,413		37,673		36,774		36,746		37,395
	Domestic - Electric energy supplied - wholesale				33,768		37,394		37,841		36,849		27,683
	Domestic - Electric energy delivered				37,358		35,906		36,083		35,712		35,534
	International - Electric energy delivered (h)				33,146		32,846		31,952		33,313		5,919
(a)		The earnings each year were affected by items management considers unusual, which affected net income. See "Earnings" in Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of unusual items in 2005, 2004 and 2003.
(b)		Data for certain years are reclassified to conform to the current presentation.
(c)		At year-end.
(d)		On July 1, 2003, PPL adopted the provisions of SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." The company-obligated mandatorily redeemable preferred securities are mandatorily redeemable financial instruments, as they require the issuer to redeem the securities for cash on a specified date. Thus, they should be classified as liabilities, as a component of long-term debt, instead of "mezzanine" equity on the Balance Sheet. However, as of December 31, 2005, 2004 and 2003, no amounts were included in "Long-term Debt" for these securities because PPL Capital Funding Trust I and SIUK Capital Trust I were deconsolidated effective December 31, 2003, in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. Instead, the subordinated debt securities that support the company-obligated mandatorily redeemable preferred securities of the trusts are reflected in "Long-term Debt with Affiliate Trusts" as of December 31, 2005, 2004 and 2003, to the extent they were outstanding. See Notes 8 and 22 to the Financial Statements for additional information.
(e)		Computed using earnings and fixed charges of PPL and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges; the estimated interest component of other rentals and preferred dividends.
(f)		Based on diluted EPS.
(g)		Based on year-end market prices.
(h)		Deliveries for 2002 include the electricity deliveries of WPD for the full year and of CEMAR prior to deconsolidation.
(i)		Share and per share information in prior periods have been adjusted to reflect PPL's 2-for-1 common stock split completed in August 2005.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
PPL Electric Utilities Corporation (a)							2005		2004		2003		2002		2001
Income Items - millions
	Operating revenues					$	3,163	$	2,847	$	2,788	$	2,748	$	2,694
	Operating income						377		259		251		275		419
	Income available to PPL Corporation						145		74		25		39		119
Balance Sheet Items - millions (b)
	Property, plant and equipment - net						2,716		2,657		2,589		2,456		2,319
	Recoverable transition costs						1,165		1,431		1,687		1,946		2,172
	Total assets						5,537		5,526		5,469		5,583		5,921
	Long-term debt						2,411		2,544		2,937		3,175		3,459
	Company-obligated mandatorily redeemable preferred    securities of subsidiary trusts holding solely company    debentures														250
	Preferred stock						51		51		51		82		82
	Common equity						1,324		1,272		1,222		1,147		931
	Short-term debt						42		42				15
	Total capital provided by investors						3,828		3,909		4,210		4,419		4,722
Financial Ratios
	Return on average common equity - %						11.20		5.95		2.08		3.87		11.09
	Embedded cost rates (b)
			Long-term debt - %				6.56		6.86		6.61		6.83		6.81
			Preferred stock - %				5.14		5.14		5.14		5.81		5.81
			Preferred securities - %												8.44
	Times interest earned before income taxes						2.19		1.45		1.22		1.33		1.89
	Ratio of earnings to fixed charges (c)						2.1		1.4		1.2		1.2		1.7
Sales Data
	Customers (thousands) (b)						1,365		1,351		1,330		1,308		1,298
	Electric energy delivered - millions of kWh
				Residential			14,218		13,441		13,266		12,640		12,269
				Commercial			13,196		12,610		12,388		12,371		12,130
				Industrial			9,777		9,620		9,599		9,853		10,000
				Other			167		163		154		169		211
					Retail electric sales		37,358		35,834		35,407		35,033		34,610
					Wholesale electric sales (d)				72		676		679		924
					Total electric energy delivered		37,358		35,906		36,083		35,712		35,534
	Electric energy supplied as a PLR - millions of kWh						36,917		34,841		33,627		33,747		31,653
(a)		The earnings for each year other than 2004 were affected by items management considers unusual, which affected net income. See "Earnings" in Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of unusual items in 2005 and 2003.
(b)		At year-end.
(c)		Computed using earnings and fixed charges of PPL Electric and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges and the estimated interest component of other rentals.
(d)		The contracts for wholesale sales to municipalities expired in January 2004.

PPL CORPORATION

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PPL is an energy and utility holding company with headquarters in Allentown, PA. See "Item 1. Business - Background," for descriptions of PPL's reportable segments, which are Supply, International Delivery and Pennsylvania Delivery. See Exhibit 99(a) in Item 15 for a listing of the current corporate organization. Through its subsidiaries, PPL is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in Pennsylvania, the U.K. and Latin America. PPL's overall strategy is to achieve disciplined growth in energy supply margins while limiting volatility in both cash flows and earnings and to achieve stable, long-term growth in regulated delivery businesses through efficient operations and strong customer and regulatory relations. More specifically, PPL's strategy for its electricity generation and marketing business is to match energy supply with load, or customer demand, under contracts of varying lengths with creditworthy counterparties to capture profits while effectively managing exposure to movements in energy and fuel prices and counterparty credit risk. PPL's strategy for its electricity delivery businesses is to own and operate these businesses at the most efficient cost while maintaining the highest level of customer service and reliability.

PPL faces several risks in its generation business. The principal risks are electricity wholesale price risk, fuel supply and price risk, power plant performance and counterparty credit risk. PPL attempts to manage these risks through various means. For instance, PPL operates a portfolio of generation assets that is diversified as to geography, fuel source, cost structure and operating characteristics. PPL is focused on the operating efficiency of these power plants and maintaining their availability. In addition, PPL has in place and continues to pursue contracts of varying lengths for energy sales and fuel supply, and other means, to mitigate the risks associated with adverse changes in the difference, or margin, between the cost to produce electricity and the price at which PPL sells it. Whether PPL decides to, or is able to, continue to enter into long-term or intermediate-term power sales and fuel purchase agreements or renew its existing agreements and the market conditions at that time will affect its future profitability. Currently, PPL's commitments for energy sales are substantially satisfied through its own generation assets - i.e., PPL primarily markets and trades around its physical portfolio of generating assets through integrated generation, marketing and trading functions. PPL has in place risk management programs that, among other things, are designed to monitor and manage its exposure to volatility of earnings and cash flows related to changes in energy and fuel prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operational performance of its generating units.

PPL's electricity delivery businesses are rate-regulated. Accordingly, these businesses are subject to regulatory risk in terms of the costs that they may recover and the investment returns that they may collect in customer rates. The principal challenge that PPL faces in its electricity delivery businesses is to maintain high standards of customer service and reliability in a cost-effective manner.

PPL faces additional financial risks in conducting international operations, such as fluctuations in currency exchange rates. PPL attempts to manage these financial risks through its risk management programs.

A key challenge for PPL's business as a whole is to maintain a strong credit profile. Investors, analysts and rating agencies that follow companies in the energy industry continue to be focused on the credit quality and liquidity position of these companies. PPL continually focuses on strengthening its balance sheet and improving its liquidity position, thereby improving its credit profile.

See "Item 1A. Risk Factors" for more information concerning the material risks that PPL faces in its businesses.

The purpose of "Management's Discussion and Analysis of Financial Condition and Results of Operations" is to provide information concerning PPL's past and expected future performance in implementing the strategies and managing the risks and challenges mentioned above. Specifically:

· "Results of Operations" provides an overview of PPL's operating results in 2005, 2004 and 2003, including a review of earnings, with details of results by reportable segment. It also provides a brief outlook for 2006.

· "Financial Condition - Liquidity and Capital Resources" provides an analysis of PPL's liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL's past and future liquidity position and financial condition. This subsection also includes a listing and discussion of PPL's current credit ratings.

· "Financial Condition - Risk Management - Energy Marketing & Trading and Other" provides an explanation of PPL's risk management programs relating to market risk and credit risk.

· "Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL and that require its management to make significant estimates, assumptions and other judgments. Although PPL's management believes that these estimates, assumptions and other judgments are appropriate, they relate to matters that are inherently uncertain. Accordingly, changes in the estimates, assumptions and other judgments applied to these accounting policies could have a significant impact on PPL's results of operations and financial condition as reflected in PPL's Financial Statements.

The information provided in this Item 7 should be read in conjunction with PPL's Financial Statements and the accompanying Notes.

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

Results of Operations

Earnings

Net income and the related EPS were:

	2005		2004		2003
Net income	$	678	$	698	$	734
EPS - basic	$	1.79	$	1.89	$	2.13
EPS - diluted	$	1.77	$	1.89	$	2.12

The changes in net income from year to year were, in part, attributable to several significant items that management considers unusual. Details of these unusual items are provided within the review of each segment's earnings.

The year-to-year changes in earnings components, including domestic gross energy margins by region and significant income statement line items, are explained in the "Statement of Income Analysis."

PPL's earnings beyond 2005 are subject to various risks and uncertainties. See "Forward-Looking Information," "Item 1A. Risk Factors," the rest of this Item 7 and Note 14 to the Financial Statements for a discussion of the risks, uncertainties and factors that may impact PPL's future earnings.

Segment Results

Net income by segment was:

		2005		2004		2003
Supply		$	311	$	421	$	502
International Delivery			215		197		196
Pennsylvania Delivery			152		80		36
	Total	$	678	$	698	$	734

Supply Segment

The Supply segment primarily consists of the domestic energy marketing, domestic generation and domestic development operations of PPL Energy Supply.

The Supply segment results in 2005, 2004 and 2003 reflect the reclassification of the Sundance plant operating losses from certain income statement line items to "Loss from Discontinued Operations." See Note 9 to the Financial Statements for further discussion.

Supply segment net income was:

		2005			2004			2003
Energy revenues
	External	$	1,264		$	1,360		$	1,371
	Intersegment		1,590			1,500			1,444
Energy-related businesses			550			463			417
	Total operating revenues		3,404			3,323			3,232
Fuel and energy purchases
	External		1,205			1,141			1,154
	Intersegment		152			156			161
Other operation and maintenance			737			634			608
Depreciation			144			144			120
Taxes, other than income			36			41			44
Energy-related businesses			620			523			447
	Total operating expenses		2,894			2,639			2,534
Other Income - net			(2	)		(7	)		28
Interest Expense			116			114			38
Income Taxes			20			127			186
Minority Interest			2			2
Distributions on Preferred Securities									21
Loss from Discontinued Operations			51			13			14
Cumulative Effects of Changes in Accounting Principles			(8	)					35
	Total	$	311		$	421		$	502

The after-tax change in net income was due to the following factors, including discontinued operations.

	2005 vs. 2004			2004 vs. 2003
Eastern U.S. non-trading margins	$	(45	)	$	35
Southwestern U.S. non-trading margins		(5	)		(5	)
Net energy trading margins		8			7
Operation and maintenance expenses		(26	)		(7	)
Earnings from synfuel projects		25			11
Depreciation		3			(19	)
Interest expense		(2	)		(14	)
Interest income on 2004 IRS tax settlement		(9	)		9
Energy-related businesses		6			(9	)
Realized earnings on nuclear decommissioning trust (Note 16)		7			(16	)
Contribution of property					(10	)
Income tax reserve adjustments (Note 5)		21
Intersegment interest income		3			(26	)
Other		(11	)		5
Unusual items		(85	)		(42	)
	$	(110	)	$	(81	)

The following items, that management considers unusual, had a significant impact on the Supply segment earnings.

	2005			2004			2003
Off-site remediation of ash basin leak (Note 14)	$	(27	)
Sale of the Sundance plant (Note 9)		(47	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 1)		(3	)
Settlement of NorthWestern litigation (Note 14)		(6	)
Impairment of investment in technology supplier (Note 9)				$	(6	)
Recording of AROs (Note 21)		(8	)				$	63
Consolidation of variable interest entities (Note 22)								(27	)
Total	$	(91	)	$	(6	)	$	36

· In May 2005, a subsidiary of PPL Generation completed the sale of its 450 MW Sundance power plant located in Pinal County, Arizona, to Arizona Public Service Company for approximately $190 million in cash. Proceeds of the sale were used to reduce PPL's outstanding debt and improve liquidity. In May 2005, PPL recognized a non-cash after-tax loss on the sale of $47 million (or $0.12 per share).

· In August 2005, a leak from a disposal basin containing fly ash and water at the coal-fired Martins Creek generating station caused the discharge of approximately 100 million gallons of water containing ash from the basin onto adjacent roadways and fields and into a nearby creek and the Delaware River. In 2005, PPL recognized a charge of $31 million after tax (or $0.08 per share), in connection with the current expected on-site costs ($27 million after tax) and off-site costs ($4 million after tax) relating to the leak. PPL cannot predict the final costs to be incurred as a result of this matter.

· In September 2005, PPL and NorthWestern reached a final agreement to settle litigation. In the first quarter of 2005, PPL recognized a charge of $6 million after tax (or $0.02 per share) related to the settlement agreement.

· See "Domestic Gross Energy Margins" for an explanation of non-trading margins by geographic region and for an explanation of net energy trading margins.

· Higher operation and maintenance expenses in 2005 compared with 2004 were primarily due to more planned power plant outages in 2005. Higher operation and maintenance expenses in 2004 compared with 2003 were primarily due to gains in 2003 on the settlement of various property and environmental insurance claims and the higher cost of forced outages in 2004 at the Montour facility. These increases were partially offset by a decrease in lease expense due to the consolidation of the Sundance and University Park generation facilities in accordance with FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."

· Depreciation expense increased in 2004 compared with 2003 primarily due to the consolidation of the Sundance and University Park generation facilities in accordance with FIN 46 and depreciation on the Lower Mt. Bethel plant, which began commercial operation in May 2004.

· Interest expense increased in 2004 compared with 2003 primarily due to consolidation of the lessors of the Sundance, University Park and Lower Mt. Bethel generation facilities, in accordance with FIN 46.

· The improved earnings contribution from synfuel projects for both periods resulted primarily from higher synthetic fuel tax credits due to higher output at the Tyrone facility, which went into commercial operation in August 2004. Also contributing to the 2005 synthetic fuel earnings increase were unrealized gains on options purchased to hedge the risk associated with synthetic fuel tax credits for 2006 and 2007.

2006 Outlook

Based on current forward energy prices, PPL is projecting higher energy margins for its Supply segment in 2006 compared with 2005, primarily driven by the 8.4% increase in the generation prices under the PLR contracts. Higher generation output, higher-priced wholesale energy contracts that replace expiring contracts, and lower purchased power costs also are expected to improve energy margins. These benefits are expected to be partially offset by increased fuel and fuel transportation expenses, higher operation and maintenance expenses and reduced earnings from synfuel projects.

International Delivery Segment

The International Delivery segment includes operations of the international energy businesses of PPL Global that are primarily focused on the distribution of electricity. Virtually all of PPL Global's international businesses are located in the U.K., Chile, El Salvador and Bolivia.

International Delivery segment net income was:

		2005		2004		2003
Utility revenues		$	1,130	$	1,032	$	934
Energy-related businesses			76		70		79
	Total operating revenues		1,206		1,102		1,013
Fuel and energy purchases			266		215		199
Other operation and maintenance			250		208		184
Depreciation			157		146		147
Taxes, other than income			58		56		47
Energy-related businesses			28		41		41
	Total operating expenses		759		666		618
Other Income - net			10		31		21
Interest Expense			203		203		218
Income Taxes			34		59		(30	)
Minority Interest			5		6		7
Distributions on Preferred Securities							5
Loss from Discontinued Operations					2		20
	Total	$	215	$	197	$	196

The after-tax change in net income was due to the following factors, including discontinued operations.

		2005 vs. 2004			2004 vs. 2003
U.K.
	Delivery margins	$	23		$	5
	Operation and maintenance expenses		(36	)		7
	Impact of changes in foreign currency exchange rates		2			22
	Other		5			(2	)
Latin America			1			3
U.S. income taxes			36			(22	)
Interest expense						6
Intersegment interest expense			(3	)		26
Other			4			3
Unusual items			(14	)		(47	)
		$	18		$	1

The following items, that management considers unusual, had a significant impact on the International Delivery segment earnings.

	2005	2004			2003
Sale of CGE (Note 9)		$	(7	)
Sale of CEMAR (Note 9)			23
Sale of Latin American telecommunications company (Note 9)			(2	)	$	(20	)
CEMAR - related net tax benefit (Note 5)						81
Total		$	14		$	61

· The U.K.'s 2005 earnings were positively affected by higher delivery margins, partially due to favorable customer mix and an incentive revenue award from the regulator for outstanding customer service.

· Higher operation and maintenance expenses in 2005 compared with 2004 were primarily due to increased pension costs in the U.K.

· Changes in foreign exchange rates increased WPD's portion of revenue and expense line items by about 1% in 2005 compared with 2004, and by about 12% in 2004 compared with 2003.

· U.S. income taxes decreased in 2005 compared with 2004 in part due to greater utilization of foreign tax credits. U.S. income taxes increased in 2004 compared with 2003 due to lower domestic spending in 2004 and a favorable income tax return adjustment in 2003, primarily related to 2002 foreign earnings.

2006 Outlook

PPL projects that the International Delivery segment will experience increased operation and maintenance expenses in 2006 compared with 2005, primarily due to higher pension costs at PPL's electricity distribution companies in the U.K., higher U.S. income taxes and a potential unfavorable change in foreign currency exchange rates in 2006.

Pennsylvania Delivery Segment

The Pennsylvania Delivery segment includes the regulated electric and gas delivery operations of PPL Electric and PPL Gas Utilities.

Pennsylvania Delivery segment net income was:

		2005		2004		2003
Operating revenues
	External	$	3,199	$	2,869	$	2,784
	Intersegment		152		156		161
	Total operating revenues		3,351		3,025		2,945
Fuel and energy purchases
	External		385		325		298
	Intersegment		1,590		1,500		1,444
Other operation and maintenance			414		395		385
Amortization of recoverable transition costs			268		257		260
Depreciation			119		114		109
Taxes, other than income			185		152		165
Energy-related businesses			1		2		2
Workforce reduction							9
	Total operating expenses		2,962		2,745		2,672
Other Income - net			21		15		6
Interest Expense			189		196		217
Income Taxes			67		17		23
Distributions on Preferred Securities			2		2		3
	Total	$	152	$	80	$	36

The after-tax change in net income was due to the following factors.

	2005 vs. 2004			2004 vs. 2003
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)	$	123		$	5
Operation and maintenance expenses		(9	)		(5	)
Interest expense		5			4
Taxes, other than income (excluding gross receipts tax)		(8	)		9
Depreciation		(3	)
Change in tax reserves associated with stranded costs securitization (Note 5)		(15	)		22
Interest income on 2004 IRS tax settlement		(5	)		5
Interest income on loans to affiliates		6
Income tax reserve adjustments		3
Other		4			(1	)
Unusual items		(29	)		5
	$	72		$	44

The following items, that management considers unusual, had a significant impact on the Pennsylvania Delivery segment earnings.

	2005			2004	2003
PJM billing dispute (Note 14)	$	(27	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 1)		(2	)
Workforce reduction (Note 20)					$	(5	)
Total	$	(29	)		$	(5	)

·	In December 2004, the PUC approved an increase in PPL Electric's distribution rates of approximately $137 million (based on a return on equity of 10.7%), and approved PPL Electric's proposed mechanism for collecting an additional $57 million in transmission-related charges, for a total annual increase of approximately $194 million, effective January 1, 2005.
·	Delivery revenues also increased in 2005 compared with 2004 due to a 4.3% increase in electricity delivery sales volumes.
·	In January 2005, severe ice storms hit PPL Electric's service territory. As a result, PPL Electric had to restore service to approximately 238,000 customers. The total cost of restoring service, excluding capitalized costs and regular payroll expenses, was approximately $16 million (or $0.02 per share).
	On February 11, 2005, PPL Electric filed a petition with the PUC for authority to defer and amortize for regulatory accounting and reporting purposes these storm costs. On August 26, 2005, the PUC issued an order granting PPL Electric's petition subject to certain conditions, including: (i) the PUC's authorization of deferred accounting is not an assurance of future rate recovery of the storm costs, (ii) PPL Electric must request recovery of the deferred storm costs in its next distribution base rate case, and (iii) PPL Electric must begin immediately to expense the deferred storm costs on a ten-year amortization schedule for regulatory accounting and reporting purposes. As a result of the PUC Order and in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation," in the third quarter of 2005, PPL Electric deferred approximately $12 million (or $0.02 per share) of its previously expensed storm costs. The deferral was based on its assessment of the timing and likelihood of recovering the deferred costs in PPL Electric's next distribution base rate case. At this time, PPL Electric cannot be certain that it will recover the storm costs, nor can it predict whether future incidents of severe weather will cause significant facility damage and service disruptions that would also result in significant costs.
·	PPL Electric recognized an after-tax charge of $27 million (or $0.07 per share) in the first quarter of 2005 for a loss contingency related to the PJM billing dispute. See Note 14 for information concerning the proposed settlement agreement reached by PPL Electric and Exelon Corporation, which is subject to approval by the FERC. PPL cannot be certain of the outcome of this matter or the impact on PPL and its subsidiaries.

· Operation and maintenance expense increased in 2005 compared with 2004, primarily due to increased system reliability work and tree trimming costs. Operation and maintenance expenses increased in 2004 compared with 2003, primarily due to the write-off of certain Hurricane Isabel costs not approved for recovery by the PUC, and higher pension costs.

2006 Outlook

PPL projects the Pennsylvania Delivery segment will have flat delivery revenues in 2006 compared with 2005 due to projected modest load growth in 2006 and because of higher sales in 2005 as a result of unusually warm weather. This segment is expected to experience increased operation and maintenance expenses in 2006.

Statement of Income Analysis --

Domestic Gross Energy Margins

The following table provides pre-tax changes in the income statement line items that comprise domestic gross energy margins.

			2005 vs. 2004			2004 vs. 2003
Utility			$	429		$	183
Unregulated retail electric and gas				(13	)		(34	)
Wholesale energy marketing				(96	)		10
Net energy trading margins				13			13
Other revenue adjustments (a)				(309	)		(115	)
	Total revenues			24			57
Fuel				162			122
Energy purchases				13			(92	)
Other cost adjustments (a)				(78	)		(34	)
	Total cost of sales			97			(4	)
		Domestic gross energy margins	$	(73	)	$	61

(a) Adjusted to exclude the impact of any revenues and costs not associated with domestic gross energy margins, in particular, revenues and energy costs related to the international operations of PPL Global, the domestic delivery operations of PPL Electric and PPL Gas Utilities and an accrual for the loss contingency related to the PJM billing dispute in 2005 (see Note 14 to the Financial Statements for additional information). Also adjusted to include the margins of PPL's Sundance plant, which are included in "Loss from Discontinued Operations," and gains or losses on sales of emission allowances, which are included in "Other operation and maintenance" expenses, on the Statement of Income. Also, 2003 includes a reduction of the reserve for Enron receivables.

Changes in Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL's normal hedging (non-trading) activities, as well as trading activities. PPL manages its non-trading energy business on a geographic basis that is aligned with its generation assets. In the second quarter of 2005, PPL also began participating in the Midwest ISO (MISO), an independent transmission system operator that serves the electric transmission needs of much of the Midwest. PPL records its business activities within MISO consistent with its accounting for activities in other RTOs.

		2005 vs. 2004			2004 vs. 2003
Eastern U.S.		$	(77	)	$	58
Northwestern U.S.			(1	)		(2	)
Southwestern U.S.			(8	)		(8	)
Net energy trading			13			13
	Domestic gross energy margins	$	(73	)	$	61

Eastern U.S.

Eastern U.S. non-trading margins were lower in 2005 compared with 2004, primarily due to higher fuel costs. Average coal prices increased by 12% over last year, while average gas and oil prices increased by 24%. Despite record high generation in 2005, the increased use of higher-cost oil and gas units to cover retail volumes, which were up 5% over 2004, and generation output lost during coal and nuclear plant outages contributed to lower margins. Due to market price increases and changes in fuel mix, average fuel prices increased 22% over 2004. Partially offsetting the effects of higher supply costs was a 2% increase in retail energy prices, in accordance with the schedule established by the PUC Final Order.

Eastern U.S. non-trading margins were higher in 2004 compared with 2003, primarily due to 3% higher generation, as well as higher prices and slightly higher sales volumes. In PJM, where the majority of PPL's Eastern wholesale activity occurs, average spot prices rose 15% in 2004 over 2003. PPL also benefited from favorable transmission congestion positions. In addition, retail energy prices increased by approximately 1% in 2004 in accordance with the schedule established by the PUC. The higher sales volumes reflect the return of customers who had previously shopped for electricity, as well as new load obligations in Connecticut and New Jersey, partially offset by lower wholesale sales. Partially offsetting these improvements were increased supply costs driven by increased fossil fuel and purchased power prices.

Southwestern U.S.

Southwestern U.S. non-trading margins were lower in 2005 compared with 2004, primarily due to the sale of PPL's Sundance plant in May 2005 and the cost to terminate a tolling arrangement on the Griffith plant during the second quarter of 2005.

Southwestern U.S. non-trading margins were lower in 2004 compared with 2003, primarily due to a 17% decrease in wholesale volumes. Also contributing to the decrease in margins was a $3 million positive impact to 2003 margins related to a partial reversal of a reserve against Enron receivables.

Net Energy Trading

PPL enters into certain energy contracts that meet the criteria of trading derivatives as defined by EITF Issue 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." These physical and financial contracts cover trading activity associated with electricity, gas and oil.

Net energy trading margins increased by $13 million in 2005 compared with 2004, primarily due to the inclusion of FTRs. As of July 1, 2005, FTRs were deemed to meet the definition of a derivative and were accounted for as such prospectively. Therefore, the forward and realized value for FTRs entered into for speculative purposes is accounted for as part of "Net energy trading margins" on the Statement of Income. From July 1 through December 31, 2005, gains on speculative FTRs totaled $10 million.

The $13 million increase in net energy trading margins in 2004 compared with 2003 was due to a $6 million increase in electricity positions and a $6 million increase in gas and oil positions.

The physical volumes for electricity and gas associated with energy trading were 5,800 GWh and 13.4 Bcf in 2005; 5,700 GWh and 11.7 Bcf in 2004; and 5,200 GWh and 12.6 Bcf in 2003. The amount of energy trading margins from unrealized mark-to-market transactions was a $5 million loss in 2005, a $13 million gain in 2004 and not significant in 2003.

Utility Revenues

The increases in utility revenues were attributable to:

			2005 vs. 2004			2004 vs. 2003
Domestic:
	Retail electric revenue (PPL Electric)
		PLR electric generation supply	$	122		$	94
		Electric delivery		201			(7	)
	Wholesale electric revenue (PPL Electric)			(2	)		(23	)
	Gas revenue (PPL Gas Utilities)			9			22
	Other			1			(1	)
International:
	Retail electric delivery (PPL Global)
		U.K.		34			70
		Chile		52			27
		El Salvador		10
		Bolivia		2			1
			$	429		$	183

The increase in utility revenues for 2005 compared with 2004 was attributable to:

· higher domestic delivery revenues resulting from higher transmission and distribution customer rates effective January 1, 2005, and a 4.3% increase in volume;

· higher PLR revenues due to higher energy and capacity rates and a 6% increase in volume, in part due to the return of customers previously served by alternate suppliers;

· higher revenues in Chile, primarily due to a 7% increase in sales volumes, higher average prices overall and a favorable change in foreign currency exchange rates;

· higher U.K. revenues, primarily due to favorable customer mix, an incentive revenue award for outstanding customer service and a favorable change in foreign currency exchange rates; and

· higher revenues in El Salvador, primarily due to a 6% increase in sales volumes and higher average prices overall.

The increase in utility revenues for 2004 compared with 2003 was attributable to:

· higher PLR revenues due to higher energy and capacity rates and a 3.6% increase in volume, in part due to the return of customers previously served by alternate suppliers;

· higher gas revenues, primarily due to sales of storage gas in the fourth quarter of 2004, and the increase in natural gas prices, which are a pass-through to customer rates, partially offset by a decrease in volume;

· higher U.K. revenues, primarily due to a favorable change in foreign currency exchange rates;

· higher revenues in Chile, due to higher energy prices, which are a pass-through to customer rates, a favorable change in foreign currency exchange rates, and a 7% increase in sales volumes; partially offset by

· lower electric delivery revenues, due to a decrease in ITC and CTC revenue as a result of lower ITC rates, and several rate groups reaching their rate cap; and

· lower wholesale electric revenues, due to the expiration of all PPL Electric municipal purchase power agreements at the end of January 2004.

Energy-related Businesses

Energy-related businesses contributed $9 million more to operating income in 2005, compared with 2004. The increase was attributable to:

· a $15 million pre-tax loss in 2004, related to the sale of CGE (see Note 9 to the Financial Statements);

· an aggregate increase of $4 million from various international subsidiary businesses; and

· a $6 million increase from PPL Telcom due to an increase in transport-related sales, as well as reduced spending on a product line; partially offset by

· additional pre-tax losses in 2005 of $16 million on synfuel projects. This reflects $26 million of additional expenses due to higher production levels, offset by a $10 million net unrealized gain on options purchased to hedge a portion of the risk associated with the phase-out of the synthetic fuel tax credits for 2006 and 2007.

Energy-related businesses contributed $39 million less to operating income in 2004 compared with 2003. The decrease was primarily attributable to:

· a $17 million higher pre-tax operating loss from synfuel projects;

· a $15 million pre-tax loss on the sale of CGE in 2004;

· an aggregate decrease of $3 million from various domestic subsidiary businesses; and

· a $3 million pre-tax decrease from Latin American subsidiaries due primarily to lower dividends received and lower construction sales.

Other Operation and Maintenance

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

	2005 vs. 2004			2004 vs. 2003
Martins Creek ash basin remediation (Note 14)	$	48
Costs associated with severe ice storms in January 2005		16
Subsequent deferral of a portion of costs associated with January 2005 ice storms (Note 1)		(12	)
Accelerated amortization of stock-based compensation (Note 1)		18
NorthWestern litigation payment (Note 14)		9
Outage costs at Eastern U.S. fossil/hydro stations		14		$	1
Outage costs at Susquehanna nuclear station		6			2
Outage costs at Western U.S. fossil/hydro stations		4
Change in foreign currency exchange rates		1			15
Reduction in WPD costs that are a pass-through to customers		(7	)		(10	)
Property damage and environmental insurance settlements which were recorded in 2003					27
Increase in domestic system reliability work and tree trimming		10
Increase in domestic and international pension costs		49			18
Additional expenses of new generating facilities					5
Increase in WPD tree trimming costs					8
Decrease in the Clean Air Act contingency relating to generating facilities recorded in 2005 and 2003		(3	)		8
Consulting and independent auditor costs to meet the requirements of Sarbanes-Oxley 404		(2	)		6
Write-off of Hurricane Isabel costs not approved for recovery by the PUC					4
Decrease in lease expense due to consolidation of the lessor of the University Park generation facility					(13	)
WPD capitalization		4			(13	)
Decrease in other postretirement benefit expense		(5	)		(12	)
Other		14			14
	$	164		$	60

The increase in net pension costs for both periods was primarily attributable to reductions in the discount rate assumption for PPL's domestic and international pension plans at December 31, 2004 and 2003. Increased WPD pension obligations as a result of the most recent actuarial valuation as of March 31, 2004, also served to increase the 2005 and ongoing net pension costs.

Although financial markets have improved and equity returns for PPL's domestic and international plans have been strong, interest rates on longer-duration, fixed-income obligations have continued to fall, requiring further reductions to the discount rates at December 31, 2005. In addition, PPL adopted the most current mortality tables and other demographic assumptions for its pension plans as of December 31, 2005. These assumptions are expected to increase PPL's pension costs for 2006 by approximately $20 million. See Note 12 to the financial statements for details on the funded status of PPL's pension plans.

Depreciation

Increases in depreciation expense were due to:

	2005 vs. 2004			2004 vs. 2003
Lower Mt. Bethel generation facility, which began commercial operation in May 2004	$	6		$	10
Other additions to PP&E		14			18
University Park generation facility - FIN 46 (a)					9
Reduction of useful lives of certain assets (Note 1)		7
Foreign currency exchange rates		1			13
2003 purchase accounting adjustments related to the 2002 acquisition of WPD assets					(22	)
Extension of useful lives of certain generation assets (Note 1)		(12	)
	$	16		$	28

(a) The lessor of this facility was consolidated under FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," effective December 31, 2003. In June 2004, a subsidiary of PPL Energy Supply purchased the University Park generation facility from the lessor that was consolidated by PPL Energy Supply under FIN 46. See Note 22 to the Financial Statements for additional information.

Taxes, Other Than Income

In 2004, PPL Electric reversed a $14 million accrued liability for 1998 and 1999 PURTA taxes that had been accrued based on potential exposure in the proceedings regarding the Susquehanna nuclear station tax assessment. The rights of third-party intervenors to further appeal expired in 2004. The reversal and a $19 million increase in domestic gross receipts tax expense, offset by an $8 million decrease in domestic capital stock expense in 2005, are the primary reasons for the $30 million increase in taxes, other than income, compared with 2004.

Taxes, other than income, decreased by $7 million in 2004 compared with 2003. The decrease was primarily due to the reversal of the PURTA tax liability and a $5 million decrease in domestic capital stock expense, partially offset by an $8 million increase in WPD's property tax, primarily from the impact of changes in foreign currency exchange rates, adjustments recorded in 2003 and an increase in property tax rates.

Workforce Reduction

See Note 20 to the Financial Statements for information on the $9 million charge recorded in 2003.

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Financing Costs

The increase (decrease) in interest expense, which includes "Interest Expense" and "Distributions on Preferred Securities," was due to:

	2005 vs. 2004			2004 vs. 2003
Interest expense related to the Lower Mt. Bethel generation facility, which began commercial operation in May 2004 (a)	$	14		$	23
Increase (decrease) in interest expense related to the University Park generation facility (b)		(13	)		13
Interest accrued for PJM billing dispute		8
Write-off of financing costs associated with PPL Energy Supply's 2.625% Convertible Senior Notes (Note 8)		6
Increase in foreign currency exchange rates		1			15
Increase (decrease) in interest expense due to hedging activities accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities"		26			(11	)
Increase (decrease) in amortization expense		9			(6	)
Increase (decrease) in short-term debt interest expense		4			(10	)
Decrease in long-term debt interest expense		(55	)		(1	)
(Increase) decrease in capitalized interest		(3	)		1
Write-off of unamortized swap costs on WPD debt restructuring in 2003					(11	)
Other		(2	)
	$	(5	)	$	13

(a)

Prior to commercial operation, interest related to the Lower Mt. Bethel financing was capitalized as part of the cost of the facility.

(b)

In June 2004, a subsidiary of PPL Energy Supply purchased the University Park generation facility from the lessor that was consolidated by PPL Energy Supply under FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." In connection with the purchase, the related financing was repaid and the deferred financing costs were written off. See Note 22 to the Financial Statements for further information.

Income Taxes

Income tax expense decreased by $82 million in 2005 compared with 2004. This decrease was primarily attributable to:

· a $22 million reduction in income taxes related to lower pre-tax book income;

· a $33 million tax benefit recognized in 2005 related to additional nonconventional fuel tax credits in excess of credits recognized in 2004;

· a $19 million decrease in tax expense on foreign earnings in 2005;

· a $12 million reduction in income tax expense related to the filing of PPL's income tax returns; offset by

· a $3 million reduction in tax benefits in 2005 related to federal and state income tax reserves that included a $15 million decrease in tax benefits associated with stranded costs securitization, offset by a $12 million increase in tax benefits associated with other income tax reserves, predicated upon management's reassessment of its best estimate of probable tax exposure relative to 2004.

Income tax expense increased by $24 million in 2004 compared with 2003. This increase was primarily attributable to:

· an $84 million tax benefit recognized in 2003 related to foreign investment losses not recurring in 2004; and

· a $9 million tax benefit recognized in 2003 related to a charitable contribution of property not recurring in 2004; offset by

· a $22 million tax benefit recognized in 2004 related to a reduction in tax reserves associated with stranded costs securitization predicated upon management's reassessment of its best estimate of probable tax exposure relative to 2003;

· a $25 million decrease in tax expense on foreign earnings in 2004; and

· a $22 million tax benefit recognized in 2004 related to additional nonconventional fuel tax credits in excess of credits recognized in 2003.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns by taxing authorities. However, the amount ultimately paid upon resolution of any issues raised by such authorities may differ materially from the amount accrued. In evaluating the exposure associated with various filing positions, PPL accounts for changes in probable exposures based on management's best estimate of the amount that should be recognized. An allowance is maintained for the tax contingencies, the balance of which management believes to be adequate. During 2004, PPL reached partial settlement with the IRS with respect to the tax years 1991 through 1995 and received a cash refund in the amount of $52 million. As a result of this settlement, the net tax impact recorded in 2004 was not significant.

See Note 5 to the Financial Statements for details on effective income tax rates and for information on the American Jobs Creation Act of 2004.

Discontinued Operations

In 2003, PPL reported a loss of $20 million in connection with the approval of a plan of sale of PPL Global's investment in a Latin American telecommunications company. In 2005, PPL recorded a $47 million loss, net of a tax benefit of $26 million, on the sale of its Sundance power plant.

See Note 9 to the Financial Statements for information on the sales, along with information regarding operating losses recorded in 2003, 2004 and 2005 for the Sundance plant prior to the sale and for operating losses recorded in 2004 related to the sale of PPL Global's investment in the Latin American telecommunications company.

Cumulative Effects of Changes in Accounting Principles

In 2003, PPL recorded a charge of $27 million, after-tax, as a cumulative effect of a change in accounting principle in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See Note 22 to the Financial Statements for additional information.

PPL adopted SFAS 143, "Accounting for Asset Retirement Obligations," in 2003 and adopted FIN 47, "Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143," in 2005. Both pronouncements address the accounting for obligations associated with the retirement of tangible long-lived assets. They require 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 cumulative effects of changes in accounting principles that increased net income by $63 million in 2003 and decreased net income by $8 million in 2005. See Note 21 to the Financial Statements for additional information.

Financial Condition

Liquidity and Capital Resources

PPL is focused on maintaining an appropriate liquidity position and strengthening its balance sheet, thereby continuing to improve its credit profile. PPL believes that its cash on hand, short-term investments, operating cash flows, access to debt and equity capital markets and borrowing capacity, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, future security maturities and estimated future capital expenditures. PPL currently expects cash, cash equivalents and short-term investments at the end of 2006 to be approximately $400 million, while maintaining approximately $3.3 billion in credit facilities. However, PPL's cash flows from operations and its access to cost effective bank and capital markets are subject to risks and uncertainties, including but not limited to:

· changes in market prices for electricity;

· changes in commodity prices that may increase the cost of producing power or decrease the amount PPL receives from selling power;

· price and credit risks associated with selling and marketing products in the wholesale power markets;

· significant switching by customers to or from alternative suppliers that would impact the level of sales under the PLR contracts;

· ineffectiveness of the trading, marketing and risk management policy and programs used to mitigate PPL's risk exposure to adverse energy and fuel prices, interest rates, foreign currency exchange rates and counterparty credit;

· unusual or extreme weather that may damage PPL's transmission and distribution facilities or affect energy sales to customers;

· reliance on transmission and distribution facilities that PPL does not own or control to deliver its electricity and natural gas;

· unavailability of generating units (due to unscheduled or longer-than-anticipated generation outages) and the resulting loss of revenues and additional costs of replacement electricity;

· ability to recover and the timeliness and adequacy of recovery of costs associated with regulated utility businesses;

· costs of compliance with existing and new environmental laws and with new safety requirements for nuclear facilities;

· any adverse outcome of legal proceedings and investigations currently being conducted with respect to PPL's current and past business activities;

· a phase-out of the significant tax credits that PPL receives based on the sale of synthetic fuel; and

· a downgrade in PPL's or its subsidiaries' credit ratings that could negatively affect their ability to access capital and increase the cost of maintaining credit facilities and any new debt.

At December 31, 2005, PPL had $618 million of cash, cash equivalents and short-term investments and $214 million of short-term debt, compared with $682 million in cash, cash equivalents and short-term investments and $42 million of short-term debt at December 31, 2004, and $476 million in cash, cash equivalents and short-term investments and $56 million of short-term debt at December 31, 2003. The changes in PPL's cash and cash equivalents position resulted from:

	2005			2004 (a)			2003 (a)
Net Cash Provided by Operating Activities	$	1,388		$	1,497		$	1,355
Net Cash Used in Investing Activities		(779	)		(778	)		(754	)
Net Cash Used in Financing Activities		(676	)		(578	)		(387	)
Effect of Exchange Rates on Cash and Cash Equivalents		6			9			7
Net Increase (Decrease) in Cash and Cash Equivalents	$	(61	)	$	150		$	221

(a) See Note 1 to the Financial Statements for an explanation of prior year reclassifications.

Operating Activities

Net cash from operating activities decreased by 7%, or $109 million, in 2005 compared with 2004, primarily as a result of increased income tax payments and fuel expenditures, partially offset by favorable margin impacts attributable to the 7.1% increase in distribution rates and transmission cost recoveries effective January 1, 2005. Income tax payments increased primarily due to favorable impacts of tax credits and refunds realized in 2004. Fuel expenditures increased $115 million due to increased prices and inventory build-up in anticipation of price increases in 2006. Net cash from operating activities increased by 10%, or $142 million, in 2004 compared with 2003, reflecting higher energy margins and other improvements in cash-adjusted net income.

PPL expects to continue to maintain stable cash provided by operating activities as a result of its long-term and intermediate-term power sales commitments from wholesale and retail customers and long-term fuel purchase contracts. PPL estimates that, on average, approximately 84% of its expected annual generation output for the period 2006 through 2009 is committed under long-term and intermediate-term power sales contracts. PPL currently estimates that approximately 5% of its expected generation output for 2010 is committed under power sales contracts, due to the expiration of the PLR contracts at the end of 2009. Consistent with its business strategy, PPL expects that the capacity and energy currently committed to long-term power sales contracts will be contracted in the wholesale markets during the next few years. Based on the way in which the wholesale markets have developed to this point, new contracts may be of a shorter duration than the PLR supply contracts with PPL Electric, which at inception had terms of approximately nine years.

PPL's contracts for the sale and purchase of electricity and fuel often require cash collateral or other credit enhancement, or reductions or terminations of a portion of the entire contract through cash settlement, in the event of a downgrade of PPL's or its subsidiaries' credit ratings or adverse changes in market prices. For example, in addition to limiting its trading ability, if PPL's or its subsidiaries' ratings were lowered to below "investment grade" and energy prices increased by 10%, PPL estimates that, based on its December 31, 2005 positions, it would have had to post additional collateral of approximately $611 million, compared with $280 million at December 31, 2004. PPL has in place risk management programs that are designed to monitor and manage its exposure to volatility of cash flows related to changes in energy prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operational performance of its generating units.

Investing Activities

Although net cash used in investing activities remained stable in 2005 compared with 2004, and in 2004 compared with 2003, there were significant changes in certain components. PPL received $190 million in proceeds from the sale of the Sundance power plant in 2005, compared with $123 million of proceeds from the sale of PPL's minority interest in CGE in 2004. For 2005 compared with 2004, there was an increase of $58 million in net proceeds from the sales of auction rate securities, an increase of $77 million in capital expenditures and an increase of $63 million in net purchases of emission allowances, in anticipation of future generation. For 2004 compared with 2003, PPL received $123 million of proceeds from the sale of PPL's minority interest in CGE in 2004, which was partially offset by a net increase of $60 million in restricted cash, an increase of $46 million in net purchases of auction rate securities and an increase of $46 million in net purchases of emission allowances. The primary use of cash in investing activities is capital expenditures. See "Forecasted Uses of Cash" for detail regarding capital expenditures in 2005 and projected expenditures for the years 2006 through 2010.

Financing Activities

Net cash used in financing activities was $676 million in 2005, compared with $578 million in 2004 and $387 million in 2003. The increase from 2004 to 2005 primarily reflects the continued retirement of long-term debt and increased dividends to shareowners. In 2005, cash used in financing activities primarily consisted of net debt retirements of $340 million and common and preferred distributions paid of $349 million, partially offset by common stock sale proceeds of $37 million.

In 2004, cash used in financing activities primarily consisted of net debt retirements of $863 million and common and preferred distributions paid of $299 million, partially offset by common stock sale proceeds of $596 million, of which $575 million related to the settlement of the common stock purchase contracts that were a component of the PEPS Units and the PEPS Units, Series B.

In 2003, cash used in financing activities primarily consisted of net debt retirements of $460 million, preferred stock retirements of $31 million and common and preferred distributions paid of $287 million, partially offset by common stock sale proceeds of approximately $426 million. See "Forecasted Sources of Cash" for a discussion of PPL's plans to issue debt and equity securities, as well as a discussion of credit facility capacity available to PPL. Also see "Forecasted Uses of Cash" for a discussion of PPL's plans to pay dividends on its common and preferred securities and repurchase common stock in the future, as well as maturities of PPL's long-term debt.

PPL's debt financing activity in 2005 was:

		Issuances		Retirements
PPL Energy Supply Senior Unsecured Notes (a)		$	313
PPL Capital Funding Medium-Term Notes				$	(350	)
PPL Transition Bond Company Transition Bonds					(266	)
PPL Electric First Mortgage Bonds					(69	)
PPL Electric First Mortgage Pollution Control Bonds			224		(224	)
PPL Electric Senior Secured Bonds			200
PPL Capital Funding Subordinated Notes					(142	)
WPD Unsecured Bonds (b)					(208	)
WPD short-term debt (net change)			84
PPL Energy Supply Commercial Paper (net change)			100
Latin American companies long-term debt					(2	)
	Total	$	921	$	(1,261	)
Net reduction				$	(340	)

(a)	Includes a premium of approximately $13 million associated with the remarketing feature of the 5.70% REset Put Securities due 2035.
(b)	Repayment includes $30 million that was used to settle a related cross-currency swap.

Debt issued during 2005 had stated interest rates ranging from 2.25% to 9.0% and maturities from 2005 through 2035. See Note 8 to the Financial Statements for more detailed information regarding PPL's financing activities.

Forecasted Sources of Cash

PPL expects to continue to have significant sources of cash available in the near term, including various credit facilities, commercial paper programs, an asset-backed commercial paper program and operating leases. PPL also expects to continue to have access to debt and equity capital markets, as necessary, for its long-term financing needs.

Credit Facilities

At December 31, 2005, PPL's total committed borrowing capacity under credit facilities and the use of this borrowing capacity were:

		Committed Capacity		Borrowed		Letters of Credit Issued and Commercial Paper Backstop (d)		Available Capacity
PPL Electric Credit Facilities (a)		$	300					$	300
PPL Energy Supply Credit Facilities (b)			2,400			$	757		1,643
WPD (South West) Bank Facilities (c)			697	$	55		2		640
	Total	$	3,397	$	55	$	759	$	2,583

(a)	Borrowings under PPL Electric's credit facilities bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Electric also has the capability to cause the lenders to issue up to $300 million of letters of credit under these facilities, which issuances reduce available borrowing capacity. The credit facilities contain a financial covenant requiring debt to total capitalization to not exceed 70%. At December 31, 2005 and 2004, PPL Electric's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities, were 55% and 54%. The credit facilities also contain standard representations and warranties that must be made for PPL Electric to borrow under them.
(b)	Borrowings under PPL Energy Supply's credit facilities bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Energy Supply also has the capability to cause the lenders to issue up to $2.4 billion of letters of credit under these facilities, which issuances reduce available borrowing capacity. These credit facilities contain a financial covenant requiring debt to total capitalization to not exceed 65%. At December 31, 2005 and 2004, PPL Energy Supply's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities were 35% and 34%. The credit facilities also contain standard representations and warranties that must be made for PPL Energy Supply to borrow under them.
(c)	Borrowings under WPD (South West)'s credit facilities bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating. WPD (South West) also has the capability to cause the lenders to issue up to approximately $4 million of letters of credit under one of its facilities, which can only be used for letters of credit. These credit facilities contain financial covenants that require WPD (South West) to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and a regulatory asset base (RAB) at £150 million greater than total gross debt, in each case as calculated in accordance with the credit facilities. At December 31, 2005 and 2004, WPD (South West)'s interest coverage ratios, as calculated in accordance with its credit lines, were 6.0 and 6.8. At December 31, 2005 and 2004, WPD (South West)'s RAB, as calculated in accordance with the credit facilities, exceeded its total gross debt by £407 million and £534 million.
(d)	The Borrower under each of these facilities has a reimbursement obligation to the extent any letters of credit are drawn upon. The letters of credit issued as of December 31, 2005, expire as follows: $641 million in 2006 and $18 million in 2007. As of December 31, 2005, $100 million of PPL Energy Supply's credit facility capacity served as commercial paper backstop.

In addition to the financial covenants noted in the table above, these credit agreements contain various other covenants. Failure to meet the covenants beyond applicable grace periods could result in acceleration of due dates of borrowings and/or termination of the agreements. PPL monitors the covenants on a regular basis. At December 31, 2005, PPL was in material compliance with those covenants. At this time, PPL believes that these covenants and other borrowing conditions will not limit access to these funding sources. PPL intends to renew and extend $2.5 billion of its credit facility capacity in 2006. See Note 8 to the Financial Statements for further discussion of PPL's credit facilities.

Commercial Paper

PPL Energy Supply and PPL Electric maintain commercial paper programs for up to $500 million for PPL Energy Supply and for up to $200 million for PPL Electric to provide them each with an additional financing source to fund their short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by certain credit agreements of each company. PPL Energy Supply had $100 million of commercial paper outstanding at December 31, 2005, and no commercial paper outstanding at December 31, 2004. PPL Electric had no commercial paper outstanding at December 31, 2005 and 2004. During 2006, PPL Energy Supply and PPL Electric may issue commercial paper from time to time to facilitate short-term cash flow needs.

Asset-Backed Commercial Paper Program

PPL Electric participates in an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary pledges these assets to secure loans of up to an aggregate of $150 million from a commercial paper conduit sponsored by a financial institution. PPL Electric uses the proceeds from the program for general corporate purposes and to cash collateralize letters of credit. At December 31, 2005 and 2004, the loan balance outstanding was $42 million, all of which was being used to cash collateralize letters of credit. See Note 8 to the Financial Statements for further discussion of the asset-backed commercial paper program.

Operating Leases

PPL and its subsidiaries also have available funding sources that are provided through operating leases. PPL's subsidiaries lease vehicles, office space, land, buildings, personal computers and other equipment. These leasing structures provide PPL with additional operating and financing flexibility. The operating leases contain covenants that are typical for these agreements, such as maintaining insurance, maintaining corporate existence and timely payment of rent and other fees. Failure to meet these covenants could limit or restrict access to these funds or require early payment of obligations. At this time, PPL believes that these covenants will not limit access to these funding sources or cause acceleration or termination of the leases.

PPL, through its subsidiary PPL Montana, leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, under four 36-year, non-cancelable operating leases. These operating leases are not recorded on PPL's Balance Sheet, which is in accordance with applicable accounting guidance. The leases place certain restrictions on PPL Montana's ability to incur additional debt, sell assets and declare dividends. At this time, PPL believes that these restrictions will not limit access to these funding sources or cause acceleration or termination of the leases. See Note 8 to the Financial Statements for a discussion of other dividend restrictions related to PPL subsidiaries.

See Note 10 to the Financial Statements for further discussion of the operating leases.

Long-Term Debt and Equity Securities

Subject to market conditions in 2006, PPL and its subsidiaries currently plan to issue approximately $1.1 billion in long-term debt securities and $250 million in preferred securities. PPL expects to use the proceeds primarily to fund capital expenditures, to fund maturities of existing debt and for general corporate purposes. PPL currently does not plan to issue any significant amounts of common stock in 2006.

Forecasted Uses of Cash

In addition to expenditures required for normal operating activities, such as purchased power, payroll, fuel and taxes, PPL currently expects to incur future cash outflows for capital expenditures, various contractual obligations, payment of dividends on its common and preferred securities and possibly the repurchase of a portion of its common stock, beginning in 2009.

Capital Expenditures

The table below shows PPL's actual spending for the year 2005 and current capital expenditure projections for the years 2006 through 2010.

			Actual		Projected
			2005		2006		2007		2008		2009		2010
Construction expenditures (a) (b)
	Generating facilities		$	180	$	256	$	216	$	167	$	200	$	174
	Transmission and distribution facilities			460		511		526		511		552		615
	Environmental			48		370		567		296		64		67
	Other			59		82		76		37		29		29
		Total Construction Expenditures		747		1,219		1,385		1,011		845		885
Nuclear fuel				64		81		92		97		97		99
		Total Capital Expenditures	$	811	$	1,300	$	1,477	$	1,108	$	942	$	984

(a)	Construction expenditures include AFUDC and capitalized interest, which are expected to be approximately $151 million for the 2006-2010 period.
(b)	This information excludes any potential investments by PPL Global and PPL Development Company for new projects.

PPL's capital expenditure projections for the years 2006-2010 total approximately $5.8 billion. Capital expenditure plans are revised periodically to reflect changes in market and regulatory conditions. See Note 14 to the Financial Statements for additional information regarding the installation costs of sulfur dioxide scrubbers and other pollution control equipment, which comprise most of the "Environmental" expenditures noted above.

PPL plans to fund all of its capital expenditures in 2006 with cash on hand, cash from operations, and, when necessary, the issuance of debt securities.

Contractual Obligations

PPL has assumed various financial obligations and commitments in the ordinary course of conducting its business. At December 31, 2005, the estimated contractual cash obligations of PPL were:

Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-term Debt (a)	$	7,189	$	1,126	$	1,647	$	702	$	3,714
Capital Lease Obligations		17		1		2		2		12
Operating Leases		758		77		134		124		423
Purchase Obligations (b)		4,224		1,414		1,786		429		595
Other Long-term Liabilities Reflected on the Balance Sheet under GAAP (c)		65		27		38
Total Contractual Cash Obligations	$	12,253	$	2,645	$	3,607	$	1,257	$	4,744

(a)	Reflects principal maturities only, including maturities of consolidated lease debt. See Note 4 to the Financial Statements for a discussion of conversion triggers related to PPL Energy Supply's 2.625% Convertible Senior Notes. Also, see Note 8 for a discussion of the remarketing feature related to PPL Energy Supply's 5.70% REset Put Securities.
(b)	The payments reflected herein are subject to change, as certain purchase obligations included are estimates based on projected obligated quantities and/or projected pricing under the contracts. Purchase orders made in the ordinary course of business are excluded from the amounts presented. Includes obligations related to nuclear fuel and the installation of the scrubbers, which are also reflected in the Capital Expenditures table presented above.
(c)	The amounts reflected represent estimated deficit pension funding requirements arising from an actuarial valuation performed in March 2004 and do not include pension funding requirements for future service.

Dividends

In December 2004, PPL's Board of Directors adopted a dividend policy that provides for growing the common stock dividend in the future at a rate exceeding the projected rate of growth in earnings per share from ongoing operations until the dividend payout ratio reaches the 50 percent level, which PPL expects to occur in 2006. Earnings from ongoing operations exclude items that management considers unusual. In February 2006, PPL announced its expectation that the growth rate of its dividends over the next few years will continue to exceed the growth rate in the company's earnings per share and, therefore, result in a dividend payout ratio above 50 percent after 2006. Any future dividends are subject to the Board of Directors' quarterly dividend declarations, based on the company's financial position and other relevant considerations at the time.

PPL Electric expects to continue to pay quarterly dividends on its outstanding preferred stock, and to pay quarterly dividends on the preferred securities expected to be issued in 2006, in each case if and as declared by its Board of Directors.

Common Stock Repurchase

Given the continued improvement in its credit profile, PPL expects to be in a position to repurchase a portion of its common stock beginning in 2009.

Credit Ratings

Moody's, S&P and Fitch periodically review the credit ratings on the debt and preferred securities of PPL and its subsidiaries. Based on their respective reviews, the rating agencies may make certain ratings revisions.

A credit rating reflects an assessment by the rating agency of the credit worthiness associated with particular securities issued by PPL and its subsidiaries based on information provided by PPL and other sources. The ratings of Moody's, S&P 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. A downgrade in PPL's or its subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets.

The following table summarizes the credit ratings of PPL and its key subsidiaries at December 31, 2005.

		Moody's	S&P	Fitch (b)
PPL
	Issuer Rating		BBB	BBB
	Senior Unsecured Debt	Baa3	BBB-	BBB
	Outlook	STABLE	STABLE	STABLE
PPL Energy Supply
	Issuer Rating		BBB	BBB
	Senior Unsecured Notes	Baa2	BBB	BBB+
	Commercial Paper	P-2	A-2	F2
	Outlook	STABLE	STABLE	STABLE
PPL Capital Funding
	Issuer Rating			BBB
	Senior Unsecured Debt	Baa3	BBB-	BBB
	Subordinated Debt	Ba1	BBB-	BBB-
	Medium-Term Notes	Baa3	BBB-	BBB
	Outlook	STABLE	STABLE	STABLE
PPL Electric
	Senior Unsecured/Issuer Rating	Baa2	A-	BBB
	First Mortgage Bonds	Baa1	A-	A-
	Pollution Control Bonds (a)	Aaa	AAA
	Senior Secured Bonds	Baa1	A-	A-
	Commercial Paper	P-2	A-2	F2
	Preferred Stock	Ba1	BBB	BBB+
	Outlook	STABLE	STABLE	STABLE
PPL Transition Bond Company
	Transition Bonds	Aaa	AAA	AAA
PPL Montana
	Pass-Through Certificates	Baa3	BBB-	BBB
	Outlook	STABLE	STABLE

WPDH Limited
	Issuer Rating	Baa3	BBB-
	Senior Unsecured Debt	Baa3	BBB-	BBB-
	Short-term Debt		A-3
	Outlook	STABLE	STABLE	STABLE
WPD LLP
	Issuer Rating		BBB-
	Senior Unsecured Debt	Baa2	BBB-	BBB
	Short-term Debt		A-3
	Preferred Stock	Baa3	BB	BBB-
	Outlook	STABLE	STABLE	STABLE
WPD (South Wales)
	Issuer Rating		BBB+
	Senior Unsecured Debt	Baa1	BBB+	BBB+
	Short-term Debt		A-2	F2
	Outlook	STABLE	STABLE	STABLE
WPD (South West)
	Issuer Rating	Baa1	BBB+
	Senior Unsecured Debt	Baa1	BBB+	BBB+
	Short-term Debt	P-2	A-2	F2
	Outlook	STABLE	STABLE	STABLE

(a)	Insured as to payment of principal and interest.
(b)	All Issuer Ratings for Fitch are "Issuer Default Ratings."

The rating agencies took the following actions on the debt and preferred securities of PPL and its subsidiaries in 2005 and through February 2006:

Moody's

In June 2005, Moody's revised its outlooks to stable from negative on the senior unsecured debt and issuer ratings of WPDH Limited, the senior unsecured debt ratings of WPD LLP and the subordinated unsecured debt ratings of WPD LLP's unconsolidated subsidiary SIUK Capital Trust I. Moody's indicated that this positive change to the financial profiles resulted from a reduction in consolidated adjusted leverage at the WPD companies as a result of the redeployment to WPD of surplus cash from Latin American subsidiaries of PPL and from PPL's commitment to suspend its dividend from WPDH Limited in 2005. At the same time, Moody's affirmed the WPD companies' long-term and short-term credit rating. The outlook on the debt ratings of WPD (South Wales) and WPD (South West) was already stable.

S&P

In January 2005, S&P affirmed PPL Electric's A-/A-2 corporate credit ratings and favorably revised its outlook on the company to stable from negative following the authorization of a $194 million rate increase by the PUC. S&P indicated that the outlook revision reflects its expectations that the rate increase, effective January 1, 2005, will allow for material improvement in PPL Electric's financial profile, which had lagged S&P's expectations in recent years. S&P indicated that the stable outlook reflects its expectations that PPL Electric "will rapidly improve and then maintain financial metrics more consistent with its ratings." S&P indicated that it expects PPL Electric's operations to remain stable through the expiration of the PLR agreement.

Additionally, in January 2005, S&P revised its outlooks on the WPD companies to stable from negative. S&P attributed this positive change to financial profile improvements resulting from the final regulatory outcome published by Ofgem in November 2004. At the same time, S&P affirmed the WPD companies' long-term and short-term credit ratings.

In October 2005, S&P affirmed its BBB corporate credit rating of PPL and also affirmed its ratings of PPL Energy Supply, PPL Electric and PPL Montana. The ratings affirmation is the result of S&P's annual review of PPL, including its business and financial risk profiles.

Fitch

In January 2005, Fitch announced that it downgraded the WPD companies' senior unsecured credit ratings by one notch:

· WPDH Limited to BBB- from BBB;

· WPD LLP to BBB from BBB+; and

· WPD (South Wales) and WPD (South West) to BBB+/F2 from A-/F1.

Fitch stated that its downgrade was prompted by the high level of pension-adjusted leverage at WPD. Fitch acknowledged that WPD's funding plan should reduce its pension deficit over time, and it expects WPD to proceed with its de-leveraging program. However, Fitch indicated that it is not certain enough, due to the unpredictability in future pension valuations, that pension-adjusted leverage will support a BBB rating at WPDH Limited. Fitch indicated that WPD (South Wales) and WPD (South West) have been downgraded to maintain a two-notch differential with WPDH Limited because Fitch does not believe that WPD's financial ring-fencing is restrictive enough to support a three-notch differential.

In December 2005, Fitch affirmed PPL Montana's amortizing Pass-Through Certificates, the last of which are due 2020, at BBB. Fitch indicated that the rating reflects PPL Montana's credit quality on a stand-alone basis.

In December 2005, Fitch assigned issuer default ratings (IDRs) for its North American global power portfolio of issuers with ratings of BB- or higher. The IDR reflects Fitch's assessment of an issuer's ability to meet all of its financial commitments on a timely basis, effectively becoming its benchmark probability of default. Fitch rates securities in an issuer's capital structure higher, lower or the same as the IDR based on Fitch's assessment of a particular security's relative recovery prospects. There were no changes in Fitch's securities ratings at PPL, PPL Capital Funding, PPL Energy Supply or PPL Electric as a result of Fitch's assignment of an IDR.

In February 2006, Fitch's Europe, Middle East and Africa group implemented IDRs based on its new IDR methodology. This implementation led to Fitch's assignment of the following IDRs and Fitch's revision of its ratings on the following securities currently outstanding at WPD and its affiliates.

· WPDH Limited IDR of BBB- and senior unsecured rating to BBB from BBB-;

· WPD LLP IDR of BBB, senior unsecured rating to BBB+ from BBB and preferred stock rating to BBB from BBB-; and

· WPD (South Wales) and WPD (South West) IDR of BBB+ and senior unsecured debt rating to A- from BBB+.

Fitch's outlook for WPD and its affiliates remains stable.

Ratings Triggers

PPL Energy Supply's $400 million of 2.625% Convertible Senior Notes due 2023 are convertible upon the occurrence of certain events, including if the long-term credit ratings assigned to the notes by Moody's and S&P are lower than BB and Ba2, or either Moody's or S&P no longer rates the notes. The terms of the notes require cash settlement of the principal amount upon conversion of the notes. See Note 4 to the Financial Statements for more information concerning the Convertible Senior Notes.

PPL and its subsidiaries do not have additional material liquidity exposures caused by a ratings downgrade below "investment grade" that would accelerate the due dates of borrowings. However, if PPL's and PPL Energy Supply's debt ratings had been below investment grade at December 31, 2005, PPL and PPL Energy Supply would have had to post an additional $128 million of collateral to counterparties.

Off-Balance Sheet Arrangements

PPL provides guarantees for certain consolidated affiliate financing arrangements that enable certain transactions. Some of the guarantees contain financial and other covenants that, if not met, would limit or restrict the consolidated affiliates' access to funds under these financing arrangements, require early maturity of such arrangements or limit the consolidated affiliates' ability to enter into certain transactions. At this time, PPL believes that these covenants will not limit access to the relevant funding sources.

PPL has entered into certain guarantee agreements that are within the scope of 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 14 to the Financial Statements for a discussion on guarantees.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Background

Market risk is the potential loss PPL may incur as a result of price changes associated with a particular financial or commodity instrument. PPL is exposed to market risk from:

· commodity price risk associated with the sale and purchase of energy and energy-related products, and the purchase of fuel for the generating assets and energy trading activities;

· interest rate risk associated with variable-rate debt and the fair value of fixed-rate debt used to finance operations, as well as the fair value of debt securities invested in by PPL's nuclear decommissioning trust funds;

· foreign currency exchange rate risk associated with investments in affiliates in Latin America and Europe, as well as purchases of equipment in currencies other than U.S. dollars; and

· equity securities price risk associated with the fair value of equity securities invested in by PPL's nuclear decommissioning trust funds.

PPL has a risk management policy approved by its Board of Directors to manage market risk and counterparty credit risk. (Credit risk is discussed below.) The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function. Key risk control activities designed to monitor compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, sensitivity analyses, daily portfolio reporting, including open positions, mark-to-market valuations and other risk measurement metrics.

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

Contract Valuation

PPL utilizes forward contracts, futures contracts, options, swaps and tolling agreements as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price, interest rate and foreign currency volatility.When available, quoted market prices are used to determine the fair value of a commodity or financial instrument. This may include exchange prices, the average mid-point bid/ask spreads obtained from brokers, or an independent valuation by an external source, such as a bank. However, market prices for energy or energy-related contracts may not be readily determinable because of market illiquidity. If no active trading market exists, contracts are valued using internally developed models, which are then reviewed by an independent, internal group. Although PPL believes that its valuation methods are reasonable, changes in the underlying assumptions could result in significantly different values and realization in future periods.

To record energy derivatives at their fair value, PPL discounts the forward values using the U.S. Utility BBB+ Curve. Additionally, PPL adjusts derivative carrying values to recognize differences in counterparty credit quality and potential illiquidity in the market:

· The credit adjustment takes into account the probability of default, as calculated by an independent service, for each counterparty that has an out-of-the money position with PPL.

· The liquidity adjustment takes into account the fact that it may not be appropriate to value contracts at the midpoint of the bid/ask spread. PPL might have to accept the "bid" price if PPL wants to close an open sales position or PPL might have to accept the "ask" price if PPL wants to close an open purchase position.

· The modeling adjustment takes into account market value for certain contracts when there is no external market to value the contract or when PPL is unable to find independent confirmation of the true market value of the contract.

Accounting and Reporting

To account for and report on contracts entered into to manage market risk, 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"), EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," and EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3." 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.

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 clarified the circumstances under which a contract with an initial net investment meets the characteristics of a derivative, clarified when a derivative contains a financing component, amended the definition of an "underlying" and amended certain other existing pronouncements. Additionally, SFAS 149 placed additional limitations on the use of the normal purchase or normal sale exception. SFAS 149 was 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 did not yet exist. PPL adopted SFAS 149 as of July 1, 2003. The adoption of SFAS 149 did not have a significant impact on PPL.

In accordance with EITF 02-3, PPL reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statement of Income. Non-derivative contracts that met the definition of energy trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in 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.

PPL adopted the final provisions of EITF 03-11 prospectively as of October 1, 2003. As a result of this adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. See Note 17 to the Financial Statements for the impact of the adoption of EITF 03-11.

PPL's short-term derivative contracts are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheet. Long-term derivative contracts are included in "Regulatory and Other Noncurrent Assets - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other."

Accounting Designation

Energy contracts that do not qualify as derivatives receive accrual accounting treatment. 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. In addition to energy-related transactions, PPL enters into financial interest rate and foreign currency swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. PPL also enters into foreign currency swap contracts to hedge the fair value of firm commitments denominated in foreign currency and net investments in foreign operations. As with energy transactions, the circumstances and intent existing at the time of the transaction determine a contract's accounting designation. These designations are verified by a separate internal group on a daily basis. See Note 17 to the Financial Statements for a summary of the guidelines that have been provided to the traders who are responsible for the designation of derivative energy contracts.

Commodity Price Risk (Non-trading)

Commodity price risk is one of PPL's most significant risks due to the level of investment that PPL maintains in its generation assets, coupled with the volatility of prices for energy and energy-related products. Several factors influence price levels and volatilities. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations. To hedge the impact of market price fluctuations on PPL's energy-related assets, liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. Because PPL owns or controls generating assets, the majority of PPL's energy transactions qualify for accrual or hedge accounting. Additionally, the non-trading portfolio includes the fair value of options that are economic hedges of PPL's synthetic fuel tax credits. Although they do not receive hedge accounting treatment, these options are considered non-trading.

Within PPL's non-trading portfolio, the decision to enter into energy contracts hinges on the expected value of PPL's generation. To address this risk, PPL takes a conservative approach in determining the number of MWhs that are available to be sold forward. In this regard, PPL reduces the maximum potential output that a plant may produce by three factors - planned maintenance, unplanned outages and economic conditions. The potential output of a plant is first reduced by the amount of unavailable generation due to planned maintenance on a particular unit. Another reduction, representing the unplanned outage rate, is the amount of MWhs that historically is not produced by a plant due to such factors as equipment breakage. Finally, the potential output of certain plants (such as peaking units) is reduced because their higher cost of production will not allow them to economically run during all hours.

PPL's non-trading portfolio also includes full requirements energy contracts. The net obligation to serve these contracts changes minute by minute. PPL analyzes historical on-peak and off-peak usage patterns, as well as spot prices and weather patterns, to determine a monthly level of a block of electricity that best fits the usage patterns in order to minimize earnings volatility. On a forward basis, PPL reserves a block amount of generation for full requirements energy contracts that is expected to be the best match with their anticipated usage patterns and energy peaks. Anticipated usage patterns and energy peaks are affected by expected load changes, regional economic drivers and seasonality.

PPL's non-trading commodity derivative contracts mature at various times through 2010. The following chart sets forth PPL's net fair market value of these contracts as of December 31.

	Gains (Losses)
	2005			2004
Fair value of contracts outstanding at the beginning of the period	$	(11	)	$	86
Contracts realized or otherwise settled during the period		(21	)		(66	)
Fair value of new contracts at inception		27
Other changes in fair values		(279	)		(31	)
Fair value of contracts outstanding at the end of the period	$	(284	)	$	(11	)

The following chart segregates estimated fair values of PPL's non-trading commodity derivative contracts at December 31, 2005, 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			Maturity 1-3 Years			Maturity 4-5 Years			Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	21		$	7		$	3			$	31
Prices provided by other external sources		(82	)		(235	)		(36	)			(353	)
Prices based on models and other valuation methods		21			17							38
Fair value of contracts outstanding at the end of the period	$	(40	)	$	(211	)	$	(33	)		$	(284	)

The "Prices actively quoted" category includes the fair value of exchange-traded natural gas futures contracts quoted on the NYMEX, which has currently quoted prices through 2011.

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.

Because of PPL's efforts to hedge the value of the energy from its generation assets, PPL sells electricity and buys fuel on a forward basis, resulting in open contractual positions. If PPL were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price volatility in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, non-performance by counterparties (or their own counterparties) with which it has energy contracts and other factors could affect PPL's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty non-performance in the future.

As of December 31, 2005, 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 $275 million, compared with a decrease of $165 million at December 31, 2004. For purposes of this calculation, an increase in the market price for electricity is considered an adverse movement because PPL's electricity portfolio is generally in a net sales position, and the decrease in the market price for fuel is considered an adverse movement because PPL's commodity fuels portfolio is generally in a net purchase position. PPL enters into those commodity contracts to reduce the market risk inherent in the generation of electricity.

In accordance with its marketing strategy, PPL does not completely hedge its generation output or fuel requirements. PPL estimates that for its entire portfolio, including all generation, emissions and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2006 gross margins by $18 million. Similarly, a 10% adverse movement in all fossil fuel prices would decrease 2006 gross margins by $10 million.

Commodity Price Risk (Trading)

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 2009. The following chart sets forth PPL's net fair market value of trading contracts as of December 31.

	Gains (Losses)
	2005			2004
Fair value of contracts outstanding at the beginning of the period	$	10		$	3
Contracts realized or otherwise settled during the period		(30	)		(12	)
Fair value of new contracts at inception		3			1
Other changes in fair values		22			18
Fair value of contracts outstanding at the end of the period	$	5		$	10

PPL will reverse approximately $1 million of the $5 million unrealized trading gains over the first three months of 2006 as the transactions are realized.

The following chart segregates estimated fair values of PPL's trading portfolio at December 31, 2005, 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			Maturity 1-3 Years			Maturity 4-5 Years		Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	8		$	(2	)				$	6
Prices provided by other external sources		(1	)				$	2			1
Prices based on models and other valuation methods		(1	)		(1	)					(2	)
Fair value of contracts outstanding at the end of the period	$	6		$	(3	)	$	2		$	5

See "Commodity Price Risk (Non-trading)" for information on the various sources of fair value.

As of December 31, 2005, 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 $23 million, compared with a decrease of $5 million at December 31, 2004.

Interest Rate Risk

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

At December 31, 2005, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $7 million, compared with a $4 million exposure at December 31, 2004.

PPL is also exposed to changes in the fair value of its domestic and international debt portfolios. At December 31, 2005, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $200 million, compared with $216 million at December 31, 2004.

PPL utilizes various risk management instruments to reduce its exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL is exposed to changes in the fair value of these instruments, any changes in the fair value of these instruments are recorded in equity and then reclassified into earnings in the same period during which the item being hedged affects earnings. At December 31, 2005, the market value of these instruments, representing the amount PPL would receive upon their termination, was approximately $6 million. At December 31, 2005, PPL estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in the hedged exposure, was approximately $7 million, compared with a $2 million exposure at December 31, 2004.

PPL also utilizes various risk management instruments to adjust the mix of fixed and floating interest rates in its debt portfolio. While PPL is exposed to changes in the fair value of these instruments, any change in market value is recorded with an equal and offsetting change in the value of the debt being hedged. At December 31, 2005, 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 $12 million, compared with a $19 million exposure at December 31, 2004.

Foreign Currency Risk

PPL is exposed to foreign currency risk, primarily through investments in affiliates in the U.K. and Latin America. 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.

To protect expected income in Chilean pesos, PPL entered into an average rate forward for 8 billion Chilean pesos. The settlement date of this forward is November 2006. At December 31, 2005, the market value of this position, representing the amount PPL would pay upon its termination, was insignificant. PPL estimated that its potential exposure to a change in the market value of these instruments, through a 10% adverse movement in foreign exchange rates, was insignificant at December 31, 2005.

WPDH Limited holds a net position in cross-currency swaps totaling $1.1 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds with maturity dates ranging from December 2006 to December 2028. The estimated value of this position at December 31, 2005, being the amount PPL would pay to terminate it, including accrued interest, was approximately $164 million. PPL estimated that its potential exposure to a change in the market value of these instruments, through a 10% adverse movement in foreign exchange rates, was approximately $140 million at December 31, 2005.

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

Nuclear Decommissioning Trust Funds - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of December 31, 2005, 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 December 31, 2005, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $33 million reduction in the fair value of the trust assets, compared with a $30 million reduction at December 31, 2004. See Note 21 to the Financial Statements for more information regarding the nuclear decommissioning trust funds.

Synthetic Fuel Tax Credit Risk

Recent increases in and the volatility of crude oil prices threaten to reduce the amount of synthetic fuel tax credits that PPL expects to receive through its synthetic fuel production. The tax credits are reduced if the annual average wellhead price of domestic crude oil falls within a phase-out range. The tax credits are eliminated if this reference price exceeds the phase-out range. See "Regulatory Issues - IRS Synthetic Fuels Tax Credits" in Note 14 to the Financial Statements for more information regarding the phase-out of the tax credits.

PPL implemented a risk management objective to hedge a portion of the variability of cash flows associated with its 2006 and 2007 synthetic fuel tax credits by hedging the risk that the 2006 and 2007 annual average wellhead price for domestic crude oil will be within the phase-out range.

PPL purchased options in 2005 to mitigate some of the reductions in synthetic fuel tax credits if the annual average wellhead price for 2006 and 2007 falls within the applicable phase-out range. These positions did not qualify for hedge accounting treatment. The mark-to-market value of these positions as of December 31, 2005, was a gain of $10 million, and is reflected in "Energy-related businesses" revenues on the Statement of Income.

As of December 31, 2005, PPL estimated that a 10% adverse movement in market prices of crude oil would have decreased the value of the synthetic fuel hedges by $24 million. For purposes of this calculation, a decrease in the market price for crude oil is considered an adverse movement.

Credit Risk

Credit risk relates to the risk of loss that PPL would incur as a result of non-performance by counterparties of their contractual obligations. PPL maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL has concentrations of suppliers and customers among electric utilities, natural gas distribution companies and other energy marketing and trading companies. These concentrations of counterparties may impact PPL's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. As discussed above in "Contract Valuation," PPL records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance. In this case, PPL would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the Balance Sheet. PPL also records reserves to reflect the probability that a counterparty will not make payments for deliveries PPL has made but not yet billed. These reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL also has established a reserve with respect to certain sales to the California ISO for which PPL has not yet been paid, as well as a reserve related to PPL's exposure as a result of the Enron bankruptcy, which are reflected in "Accounts receivable" on the Balance Sheet. See Notes 1 and 14 to the Financial Statements.

Related Party Transactions

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

For additional information on related party transactions, see Note 15 to the Financial Statements.

Acquisitions, Development and Divestitures

From time to time, PPL and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets, joint ventures and development projects, which may or may not result in definitive agreements. Any such transactions may impact future financial results. See Note 9 to the Financial Statements for information regarding recent acquisitions and development activities.

At December 31, 2005, PPL Global had investments in foreign facilities, including consolidated investments in WPD, Emel, EC and others. See Note 3 to the Financial Statements for information on unconsolidated investments accounted for under the equity method.

In connection with the ongoing review of its non-core international minority ownership investments, PPL Global sold certain minority interests in 2005 and 2004. See Note 9 to the Financial Statements for additional information.

PPL is currently planning incremental capacity increases of 258 MW at several existing domestic generating facilities.

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

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

See "Item 1. Business - Competition" and "Item 1A. Risk Factors" for a discussion of competitive factors affecting PPL.

New Accounting Standards

See Note 23 to the Financial Statements for a discussion of new accounting standards recently adopted 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. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the financial statements. (These accounting policies are also discussed in Note 1 to the Financial Statements.) 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 has reviewed the following disclosures regarding the application of these critical accounting policies with the Audit Committee.

1)Price Risk Management

See "Risk Management - Energy Marketing & Trading and Other" in Financial Condition.

2)Pension and Other Postretirement Benefits

PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these pension and other postretirement benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions are:

· Discount Rate - The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future. The objective in selecting the discount rate is to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments, would provide the necessary future cash flows to pay the accumulated benefits when due.

· Expected Return on Plan Assets - Management projects the future return on plan assets considering prior performance, but primarily based upon the plans' mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs PPL records currently.

· Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement.

· Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care.

In selecting a discount rate for its domestic pension and other postretirement plans, PPL starts with an analysis of the expected benefit payment stream for its plans. This information is first matched against a spot-rate yield curve. A portfolio of nearly 600 Moody's Aa-graded non-callable corporate bonds, with a total outstanding float in excess of $300 billion, serves as the base from which those with the lowest and highest yields are eliminated to develop the ultimate yield curve. The results of this analysis are considered in conjunction with other economic data and consideration of movements in the Moody's Aa bond index to determine the discount rate assumption. At December 31, 2005, PPL decreased the discount rate for its domestic plans from 5.75% to 5.70% as a result of this assessment.

The selection of a discount rate for the international pension plans of WPD again starts with an analysis of the expected benefit payment streams. This information is analyzed against yields on long-term high-quality corporate bonds within the iBoxx index. Due to the flatness of U.K. yield curves, the duration-weighted discount rate is approximately the same. At December 31, 2005, PPL decreased the discount rate for its international pension plans from 5.50% to 4.75% as a result of this assessment.

In selecting an expected return on plan assets, PPL considers tax implications, past performance and economic forecasts for the types of investments held by the plans. At December 31, 2005, PPL's expected return on plan assets was decreased from 8.75% to 8.50% for its domestic pension plans and increased to 8.00% from 7.90% for its other postretirement benefit plans. For its international plans, PPL's expected return on plan assets was reduced from 8.30% to 8.09% at December 31, 2005. Both PPL's domestic and international pension plans have significantly exceeded the expected return on plan assets for 2004 and 2005. However, the expected return on plan assets assumption was decreased to reflect a long-term view of equity markets and an expected increase in long-term bond yields.

In selecting a rate of compensation increase, PPL considers past experience in light of movements in inflation rates. At December 31, 2005, PPL's rate of compensation increase was changed to 4.75% from 4.00% for its domestic plans. For its international plans, PPL's rate of compensation increase remained at 3.75% at December 31, 2005.

In selecting health care cost trend rates, PPL considers past performance and forecasts of health care costs. At December 31, 2005, PPL's health care cost trend rates were 10.0% for 2006, gradually declining to 5.5% for 2011.

A variance in the assumptions listed above could have a significant impact on projected benefit obligations, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and other comprehensive income (OCI). The following chart reflects the sensitivities in the 2005 financial statements associated with a change in certain assumptions. While the chart below reflects either an increase or decrease in each assumption, the inverse of this change would impact the projected benefit obligation, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and OCI by a similar amount in the opposite direction. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Increase (Decrease)
Actuarial Assumption	Change in Assumption		Impact on Obligation		Impact on Liabilities (a)		Impact on Cost		Impact on OCI
Discount Rate		(0.25)%	$	165	$	2	$	2	$	80
Expected Return on Plan Assets		(0.25)%		N/A		11		11		(6	)
Rate of Compensation Increase		0.25%		28		3		3		(1	)
Health Care Cost Trend Rate (b)		1.0%		13		1		1		N/A

(a)	Excludes the impact of additional minimum liability.
(b)	Only impacts other postretirement benefits.

PPL's total net pension and other postretirement benefit obligation as of December 31, 2005, was $853 million. PPL recognized an aggregate net accrued pension and other postretirement benefit liability of $429 million on its Balance Sheet as of December 31, 2005. The total obligation is not fully reflected in the current financial statements due to the delayed recognition criteria of the accounting standards for these obligations.

In 2005, PPL recognized net periodic pension and other postretirement costs charged to operating expenses of $51 million. This amount represents a $44 million increase from 2004. This increase in expense was primarily attributable to PPL's international plans and was the result of the decrease in the discount rate at December 31, 2004, and recognition of prior losses.

The pension plans of WPD have accumulated deferred losses of $721 million as of December 31, 2005, as a result of changes in the discount rate assumption, expected compared with actual asset returns and changes in demographic assumptions and experience. The losses, to the extent not offset by future gains, will be amortized in accordance with PPL's policy regarding recognition of gains and losses as detailed in Note 1 to the Financial Statements.

Strong asset returns and falling foreign currency conversion rates offset the impact of the decrease in the discount rate, allowing PPL to reduce its additional minimum pension liability for its international pension plans, offset by a modest increase for PPL's domestic pension plans. Recording the change in the additional minimum liability resulted in a $19 million decrease to the pension-related charge to OCI, net of taxes, translation adjustment and unrecognized prior service costs, with no effect on net income. The pension-related balance in OCI, which is a reduction to shareowners' equity, was reduced from $368 million at December 31, 2004, to $349 million at December 31, 2005. The charges to OCI will reverse in future periods if the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding pension and other postretirement benefits.

3)   Asset Impairment

PPL performs impairment analyses for long-lived assets, including intangibles, that are subject to depreciation or amortization in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." PPL tests for impairment whenever events or changes in circumstances indicate that a long-lived asset's carrying value may not be recoverable. Examples of such events or changes in circumstances are:

· a significant decrease in the market price of an asset;

· a significant adverse change in the manner in which an asset is being used or in its physical condition;

· a significant adverse change in legal factors or in the business climate;

· an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset;

· a current-period operating or cash flow loss combined with a history of losses or a forecast that demonstrates continuing losses; or

· a current expectation that, more likely than not, an asset will be sold or otherwise disposed of before the end of its previously estimated useful life.

For a long-lived asset, an impairment exists when the carrying value exceeds the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the asset is impaired, an impairment loss is recorded to adjust the asset's carrying value to its estimated fair value.

In determining asset impairments, management must make significant judgments to estimate future cash flows, the useful lives of long-lived assets, the fair value of the assets and management's intent to use the assets. Changes in assumptions and estimates included within the impairment reviews could result in significantly different results than those identified and recorded in the financial statements. For determining fair value, the FASB has indicated that quoted market prices in active markets are the best evidence of fair value. However, when market prices are unavailable, other valuation techniques may be used. PPL has generally used a present value technique (i.e., discounted cash flow). Discounted cash flow is calculated by estimating future cash flow streams and applying appropriate discount rates to determine the present value of the cash flow streams.

PPL has determined that, when alternative courses of action to recover the carrying value of a long-lived asset are being considered, it uses estimated cash flows from the most likely approach to assess impairment whenever one scenario is clearly the most likely outcome. If no scenario is clearly most likely, then a probability-weighted approach is used taking into consideration estimated cash flows from the alternative scenarios. For assets tested for impairment as of the balance sheet date, the estimates of future cash flows used in that test consider the likelihood of possible outcomes that existed at the balance sheet date, including the assessment of the likelihood of the future sale of the assets. That assessment made as of the balance sheet date is not revised based on events that occur after the balance sheet date.

During 2005, PPL and its subsidiaries evaluated certain gas-fired generation assets for impairment, as events and circumstances indicated that the carrying value of these assets may not be recoverable. PPL did not record an impairment of these gas-fired generation assets in 2005. For these impairment analyses, the most significant assumption was the estimate of future cash flows. PPL estimates future cash flows using information from its corporate business plan adjusted for any recent sale or purchase commitments. Key factors that impact cash flows include projected prices for electricity and gas as well as firm sale and purchase commitments. A 10% decrease in estimated future cash flows for the gas-fired generation assets would not have resulted in an impairment charge.

PPL performs impairment analyses for goodwill in accordance with SFAS 142, "Goodwill and Other Intangible Assets." PPL performs an annual impairment test for goodwill, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

SFAS 142 requires goodwill to be tested for impairment at the reporting unit level. PPL has determined its reporting units to be one level below its operating segments.

Goodwill is tested for impairment using a two-step approach. The first step of the goodwill impairment test compares the estimated fair value of a reporting unit with its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired. If the carrying value exceeds the estimated fair value of the reporting unit, the second step is performed to measure the amount of impairment loss, if any.

The second step requires a calculation of the implied fair value of goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill in a business combination. That is, the estimated fair value of a reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the estimated fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the estimated fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The implied fair value of the reporting unit goodwill is then compared with the carrying value of that goodwill. If the carrying value exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying value of the reporting unit's goodwill.

PPL completed its annual goodwill impairment test in the fourth quarter of 2005. This test did not require any second-step assessments and did not result in any impairments. PPL's most significant assumptions surrounding the goodwill impairment test relate to the estimates of reporting unit fair values. PPL estimated fair values primarily based upon discounted cash flows. Although a full two-step evaluation was not completed, a decrease in the forecasted cash flows of 10% or an increase of the discount rates by 50 basis points would have resulted in the carrying value of certain reporting units exceeding their estimated fair values, indicating a potential impairment of goodwill.

4)   Leasing

PPL applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL applies the provisions of numerous other accounting pronouncements issued by the FASB and the EITF that provide specific guidance and additional requirements related to accounting for various leasing arrangements. In general, there are two types of leases from a lessee's perspective: operating leases - leases accounted for off-balance sheet; and capital leases - leases capitalized on the balance sheet.

In accounting for leases, management makes various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in determining whether a lease should be classified as operating or capital. Changes in these assumptions could result in the difference between whether a lease is determined to be an operating lease or a capital lease, thus significantly impacting the amounts to be recognized in the financial statements.

In addition to uncertainty inherent in management's assumptions, leasing transactions and the related accounting rules become increasingly complex when they involve: real estate and/or related integral equipment; sale/leaseback accounting (leasing transactions where the lessee previously owned the leased assets); synthetic leases (leases that qualify for operating lease treatment for book accounting purposes and financing treatment for tax accounting purposes); and lessee involvement in the construction of leased assets.

At December 31, 2005, PPL continued to participate in a significant sale/leaseback transaction. In July 2000, PPL Montana sold its interest in the Colstrip generating plant to owner lessors who are leasing the assets back to PPL Montana under four 36-year operating leases. This transaction is accounted for as an operating lease in accordance with current rules related to sale/leaseback arrangements. If for any reason this transaction did not meet the requirements for off-balance sheet operating lease treatment as a sale/leaseback, PPL would have recorded approximately $270 million of additional assets and approximately $318 million of additional liabilities on its balance sheet at December 31, 2005, and would have recorded additional expenses currently estimated at $7 million, after-tax, in 2005.

See Note 10 to the Financial Statements for additional information related to operating leases.

5)   Loss Accruals

PPL periodically accrues losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies," and other related accounting guidance. SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains. PPL continuously assesses potential loss contingencies for environmental remediation, litigation claims, income taxes, regulatory penalties and other events.

PPL also has accrued estimated losses on long-term purchase commitments when significant events have occurred. For example, estimated losses were accrued when long-term purchase commitments were assumed under asset acquisition agreements and when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above-market cost of energy purchases from NUGs as part of its purchased power costs on an as-incurred basis, since these costs were recovered in regulated rates. When the generation business was deregulated, the estimated loss associated with these long-term purchase commitments to make above-market NUG purchases was recorded because PPL Electric was committed to purchase electricity at above market prices but it could no longer recover these costs in regulated rates.

The accounting aspects of estimated loss accruals include: (1) the initial identification and recording of the loss; (2) the determination of triggering events for reducing a recorded loss accrual; and (3) the ongoing assessment as to whether a recorded loss accrual is sufficient. All three of these aspects of accounting for loss accruals require significant judgment by PPL's management.

Initial Identification and Recording of the Loss Accrual

PPL uses its internal expertise and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss.

Two significant loss accruals were recorded in 2005. The first was the loss accrual related to the PJM billing dispute. The second involved the accrual of remediation expenses in connection with the ash basin leak at the Martins Creek generating station. Significant judgment was required by PPL's management to perform the initial assessment of these contingencies.

·	In December 2004, Exelon Corporation, on behalf of its subsidiary, PECO Energy, Inc. (PECO), filed a complaint against PJM and PPL Electric with the FERC, alleging that PJM had overcharged PECO from April 1998 through May 2003 as a result of an error by PJM. The complaint requested the FERC, among other things, to direct PPL Electric to refund to PJM $39 million, plus interest of approximately $8 million, and for PJM to refund these same amounts to PECO. In April 2005, the FERC issued an Order Establishing Hearing and Settlement Judge Proceedings (the Order). In the Order, the FERC determined that PECO was entitled to reimbursement for the transmission congestion charges that PECO asserted PJM erroneously billed. The FERC ordered settlement discussions, before a judge, to determine the amount of the overcharge to PECO and the parties responsible for reimbursement to PECO.
	Based on an evaluation of FERC's Order, PPL's management concluded that it was probable that a loss had been incurred in connection with the PJM billing dispute. PPL Electric recorded a loss accrual of $47 million, the amount of PECO's claim, in the first quarter of 2005.
·	In August 2005, a leak from a disposal basin containing fly ash and water at the Martins Creek generating station caused a discharge from the basin onto adjacent roadways and fields, and into a nearby creek and the Delaware River. PPL immediately began to work with the Pennsylvania DEP and appropriate agencies and consultants to assess the extent of environmental damage caused by the discharge and to remediate the damage. At that time, PPL had, and still has, no reason to believe that the Martins Creek leak has caused any danger to human health or any adverse biological impact on the river aquatic life. However, at that time, PPL expected that it would be subject to an enforcement action by the Pennsylvania DEP and that claims may be brought against it by several state agencies and private litigants.
	PPL's management assessed the contingency in the third quarter of 2005. The ultimate cost of the remediation effort was difficult to estimate due to a number of uncertainties, such as the scope of the project, the impact of weather conditions on the ash recovery effort, and the ultimate outcome of enforcement actions and private litigation. PPL's management concluded, at the time, that $33 million was the best estimate of the cost of the remediation effort. PPL recorded this loss accrual in the third quarter of 2005.

See Note 14 to the Financial Statements for additional information on both of these contingencies and see "Ongoing Assessment of Recorded Loss Accruals" for a discussion of the year-end 2005 assessments of these contingencies.

PPL has identified certain other events that could give rise to a loss, but that do not meet the conditions for accrual under SFAS 5. SFAS 5 requires disclosure, but not a recording, of potential losses when it is "reasonably possible" that a loss has been incurred. The FASB defines "reasonably possible" as cases in which "the chance of the future event or events occurring is more than remote but less than likely." See Note 14 to the Financial Statements for disclosure of other potential loss contingencies that have not met the criteria for accrual under SFAS 5.

Reducing Recorded Loss Accruals

When an estimated loss is accrued, PPL identifies, where applicable, the triggering events for subsequently reducing the loss accrual. The triggering events generally occur when the contingency has been resolved and the actual loss is incurred, or when the risk of loss has diminished or been eliminated. The following are some of the triggering events that provide for the reduction of certain recorded loss accruals:

· Certain loss accruals are systematically reduced based on the expiration of contract terms. An example of this is the loss accrual for above-market NUG purchase commitments, which is described below. This loss accrual is being reduced over the lives of the NUG purchase contracts.

· Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed.

· Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted or when underlying amounts are ultimately collected.

· Environmental and other litigation contingencies are reduced when the contingency is resolved and PPL makes actual payments or the loss is no longer considered probable.

The largest loss accrual on PPL's balance sheet, and the loss accrual that changed most significantly in 2005, was for an impairment of above-market NUG purchase commitments. This loss accrual reflects the estimated difference between the above-market contract terms, under the purchase commitments, and the fair value of the electricity to be purchased. This loss accrual was originally recorded at $854 million in 1998, when PPL Electric's generation business was deregulated.

When the loss accrual related to NUG purchases was recorded in 1998, PPL Electric established the triggering events for when the loss accrual would be reduced. A schedule was established to reduce the liability based on projected purchases over the lives of the NUG contracts. This loss accrual was transferred to PPL EnergyPlus in the July 1, 2000, corporate realignment. PPL EnergyPlus continues to reduce the above-market NUG liability based on the aforementioned schedule. As PPL EnergyPlus reduces the liability for the above-market NUG purchases, it offsets the actual cost of NUG purchases, thereby bringing the net power purchase expense more in line with expected market prices. The above-market loss accrual was $206 million at December 31, 2005. This loss accrual will be significantly reduced by 2009, when all but one of the NUG contracts expires. The then-remaining NUG contract will expire in 2014.

Ongoing Assessment of Recorded Loss Accruals

PPL reviews its loss accruals on a regular basis to assure that the recorded potential loss exposures are sufficient. This involves ongoing communication and analyses with internal and external legal counsel, engineers, tax specialists, operation management and other parties.

Significant management judgment is required in developing PPL's contingencies, or reserves, for income taxes and valuation allowances for deferred tax assets. The ongoing assessment of tax contingencies is intended to result in management's best estimate of the ultimate settled tax position for each tax year. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns by taxing authorities. However, the amount ultimately paid upon resolution of any issues raised by such authorities may differ from the amount accrued. In evaluating the exposure associated with various filing positions, PPL accounts for changes in probable exposures based on management's best estimate of the amount that should be recognized. An allowance is maintained for the tax contingencies, the balance of which management believes to be adequate. The ongoing assessment of valuation allowances is based on an assessment of whether deferred tax assets will ultimately be realized. Management considers a number of factors in assessing the ultimate realization of deferred tax assets, including forecasts of taxable income in future periods.

As part of the year-end preparation of its financial statements, PPL's management re-assessed the loss accruals recorded earlier in the year for the two contingencies described above under "Initial Identification and Recording of the Loss Accrual." See Note 14 to the Financial Statements for additional information.

· In re-assessing the PJM billing dispute, PPL's management considered the proposed settlement agreement that was filed with FERC in September 2005. Under the settlement agreement, PPL Electric would pay $33 million plus interest over a four-year period to PJM through a new transmission charge that, under applicable law, is recoverable from PPL Electric's retail customers. Also, all PJM market participants would pay approximately $8 million plus interest over a four-year period to PJM through a new market adjustment charge. PJM would forward amounts collected under the two new charges to PECO. Numerous parties filed comments with the FERC opposing the settlement agreement, and the FERC has not yet acted on the proposed settlement agreement. Accordingly, PPL's management had no basis to revise the loss accrual that was recorded in the first quarter of 2005. PPL's management will continue to assess the loss accrual for this contingency in future periods.

· PPL also re-assessed the contingency for the Martins Creek ash basin remediation. Based on the ongoing remediation efforts and communications with the Pennsylvania DEP and other appropriate agencies, PPL's management concluded that $48 million was currently the best estimate of the cost of the remediation effort. Therefore, PPL revised the loss accrual in the fourth quarter of 2005. PPL cannot predict the final cost of assessment and remediation of the leak, the outcome of the action initiated by the Pennsylvania DEP or the action initiated by the Delaware Riverside Conservancy and several citizens, the outcome of the natural resource damage assessment, the exact nature of any other regulatory or other legal actions that may be initiated against PPL as a result of the disposal basin leak, the extent of the fines or damages that may be sought in connection with any such actions or the ultimate financial impact on PPL. PPL's management will continue to assess the loss accrual for this contingency in future periods.

6)   Asset Retirement Obligations

SFAS 143, "Accounting for Asset Retirement Obligations," 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.

FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143," which was issued in March 2005, and adopted by PPL effective December 31, 2005, clarified the term conditional ARO as used in SFAS 143. FIN 47 specified that a conditional ARO must be recognized when incurred if the fair value of the ARO can be reasonably estimated. See Note 21 for further discussion of the impact of FIN 47 on PPL.

In determining AROs, 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 ARO was incurred. Changes in assumptions and estimates included within the calculations of the fair value of AROs could result in significantly different results than those identified and recorded in the financial statements.

At December 31, 2005, PPL had AROs totaling $298 million recorded on the Balance Sheet. PPL's most significant assumptions surrounding AROs are the forecasted retirement costs, the discount rates and the inflation rates. A variance in the forecasted retirement costs, the discount rates or the inflation rates could have a significant impact on the ARO liabilities.

The following chart reflects the sensitivities related to the ARO liabilities as of December 31, 2005, associated with a change in these assumptions at the time of initial recognition. There is no significant change to the ARO asset values, depreciation expense of the ARO assets or accretion expense of the ARO liabilities as a result of changing the assumptions. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Change in Assumption	Impact on ARO Liabilities
Retirement Cost	10%/(10)%	$27/$(27)
Discount Rate	0.25%/(0.25)%	$(26)/$29
Inflation Rate	0.25%/(0.25)%	$31/$(28)

Other Information

PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services and other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, employee benefit plan audits and internal control reviews.

PPL ENERGY SUPPLY, LLC

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PPL Energy Supply is an energy company with headquarters in Allentown, PA. See "Item 1. Business - Background," for descriptions of PPL Energy Supply's domestic and international businesses. PPL Energy Supply's reportable segments are Supply and International Delivery. See Exhibit 99(a) in Item 15 for a listing of its principal subsidiaries. Through its subsidiaries, PPL Energy Supply is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in the U.K. and Latin America. PPL Energy Supply's overall strategy is to achieve disciplined growth in energy supply margins while limiting volatility in both cash flows and earnings and to achieve stable, long-term growth in regulated international delivery businesses through efficient operations and strong customer and regulatory relations. More specifically, PPL Energy Supply's strategy for its electricity generation and marketing business is to match energy supply with load, or customer demand, under contracts of varying lengths with creditworthy counterparties to capture profits while effectively managing exposure to movements in energy and fuel prices and counterparty credit risk. PPL Energy Supply's strategy for its international electricity delivery businesses is to own and operate these businesses at the most efficient cost while maintaining the highest level of customer service and reliability.

PPL Energy Supply faces several risks in its generation business. The principal risks are electricity wholesale price risk, fuel supply and price risk, power plant performance and counterparty credit risk. PPL Energy Supply attempts to manage these risks through various means. For instance, PPL Energy Supply operates a portfolio of generation assets that is diversified as to geography, fuel source, cost structure and operating characteristics. PPL Energy Supply is focused on the operating efficiency of these power plants and maintaining their availability. In addition, PPL Energy Supply has in place and continues to pursue contracts of varying lengths for energy sales and fuel supply, and other means, to mitigate the risks associated with adverse changes in the difference, or margin, between the cost to produce electricity and the price at which PPL Energy Supply sells it. Whether PPL Energy Supply decides to, or is able to, continue to enter into long-term or intermediate-term power sales and fuel purchase agreements or renew its existing agreements and the market conditions at that time will affect its future profitability. Currently, PPL Energy Supply's commitments for energy sales are substantially satisfied through its own generation assets - i.e., PPL Energy Supply primarily markets and trades around its physical portfolio of generating assets through integrated generation, marketing and trading functions. PPL Energy Supply has in place risk management programs that, among other things, are designed to monitor and manage its exposure to volatility of earnings and cash flows related to changes in energy and fuel prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operational performance of its generating units.

PPL Energy Supply's international electricity delivery businesses are rate-regulated. Accordingly, these businesses are subject to regulatory risk in terms of the costs that they may recover and the investment returns that they may collect in customer rates. The principal challenge that PPL Energy Supply faces in its international electricity delivery businesses is to maintain high standards of customer service and reliability in a cost-effective manner. PPL Energy Supply faces additional financial risks in conducting international operations, such as fluctuations in currency exchange rates. PPL Energy Supply attempts to manage these financial risks through its risk management programs.

A key challenge for PPL Energy Supply's business as a whole is to maintain a strong credit profile. Investors, analysts and rating agencies that follow companies in the energy industry continue to be focused on the credit quality and liquidity position of these companies. PPL Energy Supply continually focuses on strengthening its balance sheet and improving its liquidity position, thereby improving its credit profile.

See "Item 1A. Risk Factors" for more information concerning the material risks that PPL Energy Supply faces in its businesses.

The purpose of "Management's Discussion and Analysis of Financial Condition and Results of Operations" is to provide information concerning PPL Energy Supply's past and expected future performance in implementing the strategies and managing the risks and challenges mentioned above. Specifically:

· "Results of Operations" provides an overview of PPL Energy Supply's operating results in 2005, 2004 and 2003, including a review of earnings, with details of results by reportable segment. It also provides a brief outlook for 2006.

· "Financial Condition - Liquidity and Capital Resources" provides an analysis of PPL Energy Supply's liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL Energy Supply's past and future liquidity position and financial condition. This subsection also includes a listing and discussion of PPL Energy Supply's current credit ratings.

· "Financial Condition - Risk Management - Energy Marketing & Trading and Other" provides an explanation of PPL Energy Supply's risk management programs relating to market risk and credit risk.

· "Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL Energy Supply and that require its management to make significant estimates, assumptions and other judgments. Although PPL Energy Supply's management believes that these estimates, assumptions and other judgments are appropriate, they relate to matters that are inherently uncertain. Accordingly, changes in the estimates, assumptions and other judgments applied to these accounting policies could have a significant impact on PPL Energy Supply's results of operations and financial condition as reflected in PPL Energy Supply's Financial Statements.

The information provided in this Item 7 should be read in conjunction with PPL Energy Supply's Financial Statements and the accompanying Notes.

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

Results of Operations

Earnings

Net income was:

2005		2004		2003
$	542	$	651	$	727

The changes in net income from year to year were, in part, attributable to several significant items that management considers unusual. Details of these unusual items are provided within the review of each segment's earnings.

The year-to-year changes in earnings components, including domestic gross energy margins by region and significant income statement line items, are explained in the "Statement of Income Analysis."

PPL Energy Supply's earnings beyond 2005 are subject to various risks and uncertainties. See "Forward-Looking Information," "Item 1A. Risk Factors," the rest of this Item 7 and Note 14 to the Financial Statements for a discussion of the risks, uncertainties and factors that may impact PPL Energy Supply's future earnings.

Segment Results

Net income by segment was:

		2005		2004		2003
Supply		$	327	$	454	$	531
International Delivery			215		197		196
	Total	$	542	$	651	$	727

Supply Segment

The Supply segment primarily consists of the domestic energy marketing, domestic generation and domestic development operations of PPL Energy Supply.

The Supply segment results in 2005, 2004 and 2003 reflect the reclassification of the Sundance plant operating losses from certain income statement line items to "Loss from Discontinued Operations." See Note 9 to the Financial Statements for further discussion.

Supply segment net income was:

		2005			2004		2003
Energy revenues		$	2,854		$	2,860	$	2,815
Energy-related businesses			521			445		405
	Total operating revenues		3,375			3,305		3,220
Fuel and energy purchases			1,354			1,295		1,307
Other operation and maintenance			777			672		663
Depreciation			136			138		116
Taxes, other than income			36			39		42
Energy-related businesses			589			498		426
	Total operating expenses		2,892			2,642		2,554
Other Income - net			27			18		49
Interest Expense			81			64		(19	)
Income Taxes			41			148		224
Minority Interest			2			2
Loss from Discontinued Operations			51			13		14
Cumulative Effects of Changes in Accounting Principles			(8	)				35
	Total	$	327		$	454	$	531

The after-tax change in net income was due to the following factors, including discontinued operations.

	2005 vs. 2004			2004 vs. 2003
Eastern U.S. non-trading margins	$	(45	)	$	35
Southwestern U.S. non-trading margins		(5	)		(5	)
Net energy trading margins		8			7
Energy-related businesses					(9	)
Realized earnings on nuclear decommissioning trust (Note 16)		7			(16	)
Depreciation		4			(18	)
Trademark license fees from affiliate					3
Interest income on 2004 IRS tax settlement		(9	)		9
Operation and maintenance expenses		(26	)		(1	)
Interest expense		(5	)		(29	)
Earnings from synfuel projects		25			11
Income tax reserve and intercompany state tax allocation adjustments (Note 5)		15
Intersegment interest income		3			(26	)
Other		(8	)		(2	)
Unusual items		(91	)		(36	)
	$	(127	)	$	(77	)

The following items, that management considers unusual, had a significant impact on the Supply segment earnings.

	2005			2004	2003
Off-site remediation of ash basin leak (Note 14)	$	(27	)
Sale of the Sundance plant (Note 9)		(47	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 1)		(3	)
Settlement of NorthWestern litigation (Note 14)		(6	)
Recording of AROs (Note 21)		(8	)		$	63
Consolidation of variable interest entities (Note 22)						(27	)
Total	$	(91	)		$	36

· In May 2005, a subsidiary of PPL Generation completed the sale of its 450 MW Sundance power plant located in Pinal County, Arizona, to Arizona Public Service Company for approximately $190 million in cash. Proceeds of the sale were used to reduce PPL Energy Supply's outstanding debt and improve liquidity. In May 2005, PPL Energy Supply recognized a non-cash after-tax loss on the sale of $47 million.

· In August 2005, a leak from a disposal basin containing fly ash and water at the coal-fired Martins Creek generating station caused the discharge of approximately 100 million gallons of water containing ash from the basin onto adjacent roadways and fields and into a nearby creek and the Delaware River. In 2005, PPL Energy Supply recognized a charge of $31 million after tax in connection with the current expected on-site costs ($27 million after tax) and off-site costs ($4 million after tax) relating to the leak. PPL Energy Supply cannot predict the final costs to be incurred as a result of this matter.

· In September 2005, PPL Energy Supply and NorthWestern reached a final agreement to settle litigation. In the first quarter of 2005, PPL Energy Supply recognized a charge of $6 million after tax related to the settlement agreement.

· See "Domestic Gross Energy Margins" for an explanation of non-trading margins by geographic region and for an explanation of net energy trading margins.

· Higher operation and maintenance expenses in 2005 compared with 2004 were primarily due to more planned power plant outages in 2005.

· Depreciation expense increased in 2004 compared with 2003 primarily due to the consolidation of the Sundance and University Park generation facilities in accordance with FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," and depreciation on the Lower Mt. Bethel plant, which began commercial operation in May 2004.

· Interest expense increased in 2004 compared with 2003 primarily due to consolidation of the lessors of the Sundance, University Park and Lower Mt. Bethel generation facilities, in accordance with FIN 46 and higher long-term interest expense.

· The improved earnings contribution from synfuel projects for both periods resulted primarily from higher synthetic fuel tax credits due to higher output at the Tyrone facility, which went into commercial operation in August 2004. Also contributing to the 2005 synthetic fuel earnings increase were unrealized gains on options purchased to hedge the risk associated with synthetic fuel tax credits for 2006 and 2007.

2006 Outlook

Based on current forward energy prices, PPL Energy Supply is projecting higher energy margins for the Supply segment in 2006 compared with 2005, primarily driven by the 8.4% increase in the generation prices under the PLR contracts. Higher generation output, higher-priced wholesale energy contracts that replace expiring contracts, and lower purchased power costs also are expected to improve energy margins. These benefits are expected to be partially offset by increased fuel and fuel transportation expenses, higher operation and maintenance expenses and reduced earnings from synfuel projects.

International Delivery Segment

The International Delivery segment includes operations of the international energy businesses of PPL Global that are primarily focused on the distribution of electricity. Virtually all of PPL Global's international businesses are located in the U.K., Chile, El Salvador and Bolivia.

International Delivery segment net income was:

		2005		2004		2003
Utility revenues		$	1,130	$	1,032	$	934
Energy-related businesses			76		70		79
	Total operating revenues		1,206		1,102		1,013
Fuel and energy purchases			266		215		199
Other operation and maintenance			250		208		184
Depreciation			157		146		147
Taxes, other than income			58		56		47
Energy-related businesses			28		41		41
	Total operating expenses		759		666		618
Other Income - net			10		31		21
Interest Expense			203		203		218
Income Taxes			34		59		(30	)
Minority Interest			5		6		7
Distributions on Preferred Securities							5
Loss from Discontinued Operations					2		20
	Total	$	215	$	197	$	196

The after-tax change in net income was due to the following factors, including discontinued operations.

		2005 vs. 2004			2004 vs. 2003
U.K.
	Delivery margins	$	23		$	5
	Operation and maintenance expenses		(36	)		7
	Impact of changes in foreign currency exchange rates		2			22
	Other		5			(2	)
Latin America			1			3
U.S. income taxes			36			(22	)
Interest expense						6
Intersegment interest expense			(3	)		26
Other			4			3
Unusual items			(14	)		(47	)
		$	18		$	1

The following items, that management considers unusual, had a significant impact on the International Delivery segment earnings.

	2005	2004			2003
Sale of CGE (Note 9)		$	(7	)
Sale of CEMAR (Note 9)			23
Sale of Latin American telecommunications company (Note 9)			(2	)	$	(20	)
CEMAR - related net tax benefit (Note 5)						81
Total		$	14		$	61

· The U.K.'s 2005 earnings were positively affected by higher delivery margins, partially due to favorable customer mix and an incentive revenue award from the regulator for outstanding customer service.

· Higher operation and maintenance expenses in 2005 compared with 2004 were primarily due to increased pension costs in the U.K.

· Changes in foreign exchange rates increased WPD's portion of revenue and expense line items by about 1% in 2005 compared with 2004, and by about 12% in 2004 compared with 2003.

· U.S. income taxes decreased in 2005 compared with 2004 in part due to greater utilization of foreign tax credits. U.S. income taxes increased in 2004 compared with 2003 due to lower domestic spending in 2004 and a favorable income tax return adjustment in 2003, primarily related to 2002 foreign earnings.

2006 Outlook

PPL Energy Supply projects that the International Delivery segment will experience increased operation and maintenance expenses in 2006 compared with 2005, primarily due to higher pension costs at PPL Energy Supply's electricity distribution companies in the U.K., higher U.S. income taxes and a potential unfavorable change in foreign currency exchange rates in 2006.

Statement of Income Analysis --

Domestic Gross Energy Margins

The following table provides pre-tax changes in the income statement line items that comprise domestic gross energy margins.

			2005 vs. 2004			2004 vs. 2003
Wholesale energy marketing			$	(96	)	$	10
Wholesale energy marketing to affiliate				90			56
Unregulated retail electric and gas				(13	)		(34	)
Net energy trading margins				13			13
Other revenue adjustments (a)				30			12
	Total revenues			24			57
Fuel				149			102
Energy purchases				(33	)		(100	)
Energy purchases from affiliate				(6	)		2
Other cost adjustments (a)				(13	)		(8	)
	Total cost of sales			97			(4	)
		Domestic gross energy margins	$	(73	)	$	61

(a) Adjusted to exclude the impact of any revenues and costs not associated with domestic gross energy margins, in particular, revenues and energy costs related to the international operations of PPL Global. Also adjusted to include the margins of PPL's Sundance plant, which are included in "Loss from Discontinued Operations," and gains or losses on sales of emission allowances, which are included in "Other operation and maintenance" expenses, on the Statement of Income. Also, 2003 includes a reduction of the reserve for Enron receivables.

Changes in Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL Energy Supply's normal hedging (non-trading) activities, as well as trading activities. PPL Energy Supply manages its non-trading energy business on a geographic basis that is aligned with its generation assets. In the second quarter of 2005, PPL Energy Supply also began participating in the Midwest ISO (MISO), an independent transmission system operator that serves the electric transmission needs of much of the Midwest. PPL Energy Supply records its business activities within MISO consistent with its accounting for activities in other RTOs.

		2005 vs. 2004			2004 vs. 2003
Eastern U.S.		$	(77	)	$	58
Northwestern U.S.			(1	)		(2)
Southwestern U.S.			(8	)		(8)
Net energy trading			13			13
	Domestic gross energy margins	$	(73	)	$	61

Eastern U.S.

Eastern U.S. non-trading margins were lower in 2005 compared with 2004, primarily due to higher fuel costs. Average coal prices increased by 12% over last year, while average gas and oil prices increased by 24%. Despite record high generation in 2005, the increased use of higher-cost oil and gas units to cover retail volumes, which were up 5% over 2004, and generation output lost during coal and nuclear plant outages contributed to lower margins. Due to market price increases and changes in fuel mix, average fuel prices increased 22% over 2004. Partially offsetting the effects of higher supply costs was a 2% increase in retail energy prices, in accordance with the schedule established by the PUC Final Order.

Eastern U.S. non-trading margins were higher in 2004 compared with 2003, primarily due to 3% higher generation, as well as higher prices and slightly higher sales volumes. In PJM, where the majority of PPL Energy Supply's Eastern wholesale activity occurs, average spot prices rose 15% in 2004 over 2003. PPL Energy Supply also benefited from favorable transmission congestion positions. In addition, retail energy prices increased by approximately 1% in 2004 in accordance with the schedule established by the PUC. The higher sales volumes reflect the return of customers who had previously shopped for electricity, as well as new load obligations in Connecticut and New Jersey, partially offset by lower wholesale sales. Partially offsetting these improvements were increased supply costs driven by increased fossil fuel and purchased power prices.

Southwestern U.S.

Southwestern U.S. non-trading margins were lower in 2005 compared with 2004, primarily due to the sale of PPL Energy Supply's Sundance plant in May 2005 and the cost to terminate a tolling arrangement on the Griffith plant during the second quarter of 2005.

Southwestern U.S. non-trading margins were lower in 2004 compared with 2003, primarily due to a 17% decrease in wholesale sales volumes. Also contributing to the decrease in margins was a $3 million positive impact to 2003 margins related to a partial reversal of a reserve against Enron receivables.

Net Energy Trading

PPL Energy Supply enters into certain energy contracts that meet the criteria of trading derivatives as defined by EITF Issue 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." These physical and financial contracts cover trading activity associated with electricity, gas and oil.

Net energy trading margins increased by $13 million in 2005 compared with 2004, primarily due to the inclusion of FTRs. As of July 1, 2005, FTRs were deemed to meet the definition of a derivative and were accounted for as such prospectively. Therefore, the forward and realized value for FTRs entered into for speculative purposes is accounted for as part of "Net energy trading margins" on the Statement of Income. From July 1 through December 31, 2005, gains on speculative FTRs totaled $10 million.

The $13 million increase in net energy trading margins in 2004 compared with 2003 was due to a $6 million increase in electricity positions and a $6 million increase in gas and oil positions.

The physical volumes for electricity and gas associated with energy trading were 5,800 GWh and 13.4 Bcf in 2005; 5,700 GWh and 11.7 Bcf in 2004; and 5,200 GWh and 12.6 Bcf in 2003. The amount of energy trading margins from unrealized mark-to-market transactions was a $5 million loss in 2005, a $13 million gain in 2004 and not significant in 2003.

Utility Revenues

The increases in utility revenues were attributable to:

			2005 vs. 2004		2004 vs. 2003
International:
	Retail electric delivery (PPL Global)
		U.K.	$	34	$	70
		Chile		52		27
		El Salvador		10
		Bolivia		2		1
			$	98	$	98

The increase in utility revenues for 2005 compared with 2004 was attributable to:

· higher revenues in Chile, primarily due to a 7% increase in sales volumes, higher average prices overall and a favorable change in foreign currency exchange rates;

· higher U.K. revenues, primarily due to favorable customer mix, an incentive revenue award for outstanding customer service and a favorable change in foreign currency exchange rates; and

· higher revenues in El Salvador, primarily due to a 6% increase in sales volumes and higher average prices overall.

The increase in utility revenues for 2004 compared with 2003 was primarily due to:

· higher U.K. revenues, primarily due to a favorable change in foreign currency exchange rates; and

· higher revenues in Chile, due to higher energy prices, which are a pass-through to customer rates, a favorable change in foreign currency exchange rates, and a 7% increase in sales volumes.

Energy-related Businesses

Energy-related businesses contributed $4 million more to operating income in 2005 compared with 2004. The increase was attributable to:

· a $15 million pre-tax loss in 2004, related to the sale of CGE (see Note 9 to the Financial Statements); and

· an aggregate increase of $4 million from various international subsidiary businesses; partially offset by

· additional pre-tax losses in 2005 of $16 million on synfuel projects. This reflects $26 million of additional expenses due to higher production levels, offset by a $10 million net unrealized gain on options purchased to hedge a portion of the risk associated with the phase-out of the synthetic fuel tax credits for 2006 and 2007.

Energy-related businesses contributed $41 million less to operating income in 2004 compared with 2003. The decrease was attributable to:

· a $17 million higher pre-tax operating loss from synfuel projects;

· a $15 million pre-tax loss on the sale of CGE in 2004;

· an aggregate decrease of $3 million from various domestic subsidiary businesses; and

· a $3 million pre-tax decrease from Latin American subsidiaries due primarily to lower dividends received and lower construction sales.

Other Operation and Maintenance

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

	2005 vs. 2004			2004 vs. 2003
Martins Creek ash basin remediation (Note 14)	$	48
Increase in domestic and international pension costs		44		$	8
Accelerated amortization of stock-based compensation (Note 1)		13
Increase (decrease) in allocation of corporate service costs (Note 15)		(1	)		14
NorthWestern litigation payment (Note 14)		9
Outage costs at Eastern U.S. fossil/hydro stations		14			1
Outage costs at Susquehanna nuclear station		6			2
Outage costs at Western U.S. fossil/hydro stations		4
Change in foreign currency exchange rates		1			15
Reduction in WPD costs that are a pass-through to customers		(7	)		(10	)
Property damage and environmental insurance settlements which were recorded in 2003					26
Additional expenses of new generating facilities					5
Increase in WPD tree trimming costs					8
Decrease in the Clean Air Act contingency relating to generating facilities recorded in 2005 and 2003		(3	)		8
Decrease in lease expense due to consolidation of the lessor of the University Park generation facility					(13	)
WPD capitalization		4			(13	)
Trademark license fees from a PPL subsidiary (Note 15)		(3	)		(5	)
Increase in employee benefits due to transfer of field services employees from PPL Electric		7
Decrease in other postretirement benefit expense		(1	)		(2	)
Other		12			(11	)
	$	147		$	33

The increase in net pension costs for both periods was primarily attributable to reductions in the discount rate assumption for PPL Energy Supply's domestic and international pension plans at December 31, 2004 and 2003. Increased WPD pension obligations as a result of the most recent actuarial valuation as of March 31, 2004, also served to increase the 2005 and ongoing net pension costs.

Although financial markets have improved and equity returns for PPL Energy Supply's domestic and international plans have been strong, interest rates on longer-duration, fixed-income obligations have continued to fall, requiring further reductions to the discount rates at December 31, 2005. In addition, PPL Energy Supply adopted the most current mortality tables and other demographic assumptions for its pension plans as of December 31, 2005. These assumptions are expected to increase PPL Energy Supply's pension costs for 2006 by approximately $17 million. See Note 12 to the Financial Statements for details on the funded status of PPL Energy Supply's pension plans.

Depreciation

Increases in depreciation expense were due to:

	2005 vs. 2004			2004 vs. 2003
Lower Mt. Bethel generation facility, which began commercial operation in May 2004	$	6		$	10
Other additions to PP&E		7			11
University Park generation facility - FIN 46 (a)					9
Reduction of useful lives of certain assets (Note 1)		7
Foreign currency exchange rates		1			13
2003 purchase accounting adjustments related to the 2002 acquisition of WPD assets					(22	)
Extension of useful lives of certain generation assets (Note 1)		(12	)
	$	9		$	21

(a) The lessor of this facility was consolidated under FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," effective December 31, 2003. In June 2004, a subsidiary of PPL Energy Supply purchased the University Park generation facility from the lessor that was consolidated by PPL Energy Supply under FIN 46. See Note 22 to the Financial Statements for additional information.

Taxes, Other Than Income

Taxes, other than income, decreased by $1 million in 2005 compared with 2004. The decrease was primarily due to a $4 million decrease in domestic capital stock tax expense, partially offset by a $2 million increase in local real estate taxes.

Taxes, other than income, increased by $6 million in 2004 compared with 2003. The increase was primarily due to an $8 million increase in WPD's property taxes primarily from the impact of changes in foreign currency exchange rates, adjustments recorded in 2003 and an increase in property tax rates.

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Financing Costs

The increases in interest expense, which includes "Interest Expense," "Interest Expense with Affiliates" and "Distributions on Preferred Securities," were due to:

	2005 vs. 2004			2004 vs. 2003
Interest expense related to the Lower Mt. Bethel generation facility, which began commercial operation in May 2004 (a)	$	14		$	23
Increase (decrease) in interest expense related to the University Park generation facility (b)		(13	)		13
Write-off of financing costs associated with PPL Energy Supply's 2.625% Convertible Senior Notes (Note 8)		6
Increase in long-term debt interest expense					36
Increase in foreign currency exchange rates		1			15
Increase in interest expense with affiliate		1			7
Increase (decrease) in amortization expense		6			(11	)
Increase (decrease) in short-term debt interest expense		5			(10	)
(Increase) decrease in capitalized interest		(3	)		1
Write-off of unamortized swap costs on WPD debt restructuring in 2003					(11	)
	$	17		$	63

(a)

Prior to commercial operation, interest related to the Lower Mt. Bethel financing was capitalized as part of the cost of the facility.

(b)

In June 2004, a subsidiary of PPL Energy Supply purchased the University Park generation facility from the lessor that was consolidated by PPL Energy Supply under FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." In connection with the purchase, the related financing was repaid and the deferred financing costs were written off. See Note 22 to the Financial Statements for further information.

Income Taxes

Income tax expense decreased by $132 million in 2005 compared with 2004. This decrease was primarily attributable to:

· a $63 million reduction in income taxes related to lower pre-tax book income;

· a $33 million tax benefit recognized in 2005 related to additional nonconventional fuel tax credits in excess of credits recognized in 2004;

· a $19 million decrease in tax expense on foreign earnings in 2005;

· a $6 million reduction in income tax expense related to the filing of PPL Energy Supply's income tax returns; and

· a $14 million additional tax benefit recognized in 2005 related to reductions in federal and state income tax reserves, predicated upon management's reassessment of its best estimate of probable tax exposure relative to 2004.

Income tax expense increased by $13 million in 2004 compared with 2003. This increase was primarily attributable to:

· an $84 million tax benefit recognized in 2003 related to foreign investment losses not recurring in 2004; offset by

· a $22 million tax benefit recognized in 2004 related to additional nonconventional fuel tax credits in excess of credits recognized in 2003;

· a $25 million decrease in tax expense on foreign earnings in 2004; and

· a $28 million reduction in income taxes related to lower pre-tax book income.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns by taxing authorities. However, the amount ultimately paid upon resolution of any issues raised by such authorities may differ materially from the amount accrued. In evaluating the exposure associated with various filing positions, PPL Energy Supply accounts for changes in probable exposures based on management's best estimate of the amount that should be recognized. An allowance is maintained for the tax contingencies, the balance of which management believes to be adequate. During 2004, PPL Energy Supply reached partial settlement with the IRS with respect to the tax years 1991 through 1995 and received a cash refund in the amount of $7 million. As a result of this settlement, the net tax impact recorded in 2004 was not significant.

See Note 5 to the Financial Statements for details on effective income tax rates and for information on the American Jobs Creation Act of 2004.

Discontinued Operations

In 2003, PPL Energy Supply reported a loss of $20 million in connection with the approval of a plan of sale of PPL Global's investment in a Latin American telecommunications company. In 2005, PPL Energy Supply recorded a $47 million loss, net of a tax benefit of $26 million, on the sale of its Sundance power plant.

See Note 9 to the Financial Statements for information on the sales, along with information regarding operating losses recorded in 2003, 2004 and 2005 for the Sundance plant prior to the sale and for operating losses recorded in 2004 related to the sale of PPL Global's investment in the Latin American telecommunications company.

Cumulative Effects of Changes in Accounting Principles

In 2003, PPL Energy Supply recorded a charge of $27 million, after-tax, as a cumulative effect of a change in accounting principle in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See Note 22 to the Financial Statements for additional information.

PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement Obligations," in 2003 and adopted FIN 47, "Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143," in 2005. Both pronouncements address the accounting for obligations associated with the retirement of tangible long-lived assets. They require 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 cumulative effects of changes in accounting principles that increased net income by $63 million in 2003 and decreased net income by $8 million in 2005. See Note 21 to the Financial Statements for additional information.

Financial Condition

Liquidity and Capital Resources

PPL Energy Supply is focused on maintaining an appropriate liquidity position and strengthening its balance sheet, thereby continuing to improve its credit profile. PPL Energy Supply believes that its cash on hand, short-term investments, operating cash flows, access to debt and equity capital markets and borrowing capacity, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, future security maturities and estimated future capital expenditures. PPL Energy Supply currently expects cash, cash equivalents and short-term investments at the end of 2006 to be approximately $300 million, while maintaining approximately $3.1 billion in credit facilities. However, PPL Energy Supply's cash flows from operations and its access to cost effective bank and capital markets are subject to risks and uncertainties, including but not limited to:

· changes in market prices for electricity;

· changes in commodity prices that may increase the cost of producing power or decrease the amount PPL Energy Supply receives from selling power;

· price and credit risks associated with selling and marketing products in the wholesale power markets;

· significant switching by PPL Electric's customers to or from alternative suppliers that would impact the level of sales under the PLR contracts;

· ineffectiveness of the trading, marketing and risk management policy and programs used to mitigate PPL Energy Supply's risk exposure to adverse energy and fuel prices, interest rates, foreign currency exchange rates and counterparty credit;

· unusual or extreme weather that may damage PPL Energy Supply's international transmission and distribution facilities or affect energy sales to customers;

· reliance on transmission and distribution facilities that PPL Energy Supply does not own or control to deliver its electricity and natural gas;

· unavailability of generating units (due to unscheduled or longer-than-anticipated generation outages) and the resulting loss of revenues and additional costs of replacement electricity;

· ability to recover and the timeliness and adequacy of recovery of costs associated with international electricity delivery businesses;

· costs of compliance with existing and new environmental laws and with new safety requirements for nuclear facilities;

· any adverse outcome of legal proceedings and investigations currently being conducted with respect to PPL Energy Supply's current and past business activities;

· a phase-out of the significant tax credits that PPL Energy Supply receives based on the sale of synthetic fuel; and

· a downgrade in PPL Energy Supply's or its rated subsidiaries' credit ratings that could negatively affect their ability to access capital and increase the cost of maintaining credit facilities and any new debt.

At December 31, 2005, PPL Energy Supply had $260 million of cash, cash equivalents and short-term investments and $180 million of short-term debt (including a note payable to an affiliate), compared with $408 million in cash, cash equivalents and short-term investments and no short-term debt at December 31, 2004, and $227 million in cash, cash equivalents and short-term investments and $56 million of short-term debt at December 31, 2003. The changes in PPL Energy Supply's cash and cash equivalents resulted from:

	2005			2004 (a)			2003 (a)
Net Cash Provided by Operating Activities	$	838		$	616		$	919
Net Cash Provided by (Used in) Investing Activities		(537	)		(525	)		190
Net Cash Provided by (Used in) Financing Activities		(437	)		35			(1,043	)
Effect of Exchange Rates on Cash and Cash Equivalents		6			9			7
Net Increase (Decrease) in Cash and Cash Equivalents	$	(130	)	$	135		$	73

(a) See Note 1 to the Financial Statements for an explanation of prior year reclassifications.

Operating Activities

Net cash from operating activities increased by 36%, or $222 million, in 2005 compared with 2004, primarily as a result of the posting of $300 million in cash collateral to PPL Electric in 2004 related to the PLR energy supply agreements and a decrease in income tax payments, partially offset by an increase of $95 million in fuel expenditures due to increased prices and inventory build-up in anticipation of price increases in 2006. Net cash from operating activities decreased by 33%, or $303 million, in 2004 compared with 2003, reflecting the posting of $300 million in cash collateral to PPL Electric related to the PLR energy supply agreements and higher cash taxes in 2004, partially offset by higher energy margins.

PPL Energy Supply expects to continue to maintain stable cash provided by operating activities as a result of its long-term and intermediate-term power sales commitments from wholesale and retail customers and long-term purchase contracts. PPL Energy Supply estimates that, on average, approximately 84% of its expected annual generation output for the period 2006 through 2009 is committed under long-term and intermediate-term power sales contracts. PPL Energy Supply currently estimates that approximately 5% of its expected generation output for 2010 is committed under power sales contracts, due to the expiration of the PLR contracts at the end of 2009. Consistent with its business strategy, PPL Energy Supply expects that the capacity and energy currently committed to long-term power sales contracts will be contracted in the wholesale markets during the next few years. Based on the way in which the wholesale markets have developed to this point, new contracts may be of a shorter duration than the PLR supply contracts with PPL Electric, which at inception had terms of approximately nine years.

PPL Energy Supply's contracts for the sale and purchase of electricity and fuel often require cash collateral or other credit enhancement, or reductions or terminations of a portion of the entire contract through cash settlement, in the event of a downgrade of PPL Energy Supply's or its subsidiary's credit ratings or adverse changes in market prices. For example, in addition to limiting its trading ability, if PPL Energy Supply's or its subsidiary's ratings were lowered to below "investment grade" and energy prices increased by 10%, PPL Energy Supply estimates that, based on its December 31, 2005 positions, it would have had to post additional collateral of approximately $611 million, compared with $280 million at December 31, 2004. PPL Energy Supply has in place risk management programs that are designed to monitor and manage its exposure to volatility of cash flows related to changes in energy prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operational performance of its generating units.

Investing Activities

Although net cash used in investing activities remained stable in 2005 compared with 2004, there were significant changes in the components. PPL Energy Supply received $190 million in proceeds from the sale of the Sundance power plant in 2005, compared to $123 million of proceeds from the sale of PPL Energy Supply's minority interest in CGE in 2004. For 2005 compared with 2004, there was an increase of $63 million in net proceeds from sales of auction rate securities, an increase of $72 million in capital expenditures and an increase of $63 million in net purchases of emission allowances, in anticipation of future generation.

Net cash used in investing activities increased by $715 million in 2004 compared with 2003. The primary reason for the increase was the repayment of a $653 note receivable from an affiliate in 2003, in addition to an increase of $41 million in net purchases of auction rate securities and an increase of $46 million in net purchases of emission allowances. The primary use of cash in investing activities is capital expenditures. See "Forecasted Uses of Cash" for detail regarding capital expenditures in 2005 and projected expenditures for the years 2006 through 2010.

Financing Activities

Net cash used in financing activities increased by $472 million in 2005 compared with 2004, primarily as a result of the repayment in 2005 of a $495 million note that was issued to an affiliate in 2004 and a decrease of $308 million of contributions from Member, partially offset by an increase of $692 million in net proceeds from nonaffiliate debt and a decrease of $132 million in distributions to Member. Net cash from financing activities in 2004 increased by $1.1 billion compared with 2003. The primary reasons for this increase in cash from financing activities was due to a net reduction of $758 million in distributions to Member and a $495 million note issued to an affiliate. See "Forecasted Sources of Cash" for a discussion of PPL Energy Supply's plans to issue debt securities, as well as a discussion of credit facility capacity available to PPL Energy Supply. Also see "Forecasted Uses of Cash" for information regarding maturities of PPL Energy Supply's long-term debt.

PPL Energy Supply's debt financing activity in 2005 was:

		Issuances		Retirements
PPL Energy Supply Senior Unsecured Notes (a)		$	313
PPL Energy Supply Notes Payable to Affiliates			8	$	(495	)
WPD Unsecured Bonds (b)					(208	)
WPD short-term debt (net change)			84
PPL Energy Supply Commercial Paper (net change)			100
Latin American companies long-term debt					(2	)
	Total	$	505	$	(705	)
Net reduction				$	(200	)

(a)	Includes a premium of approximately $13 million associated with the remarketing feature of the 5.70% REset Put Securities due 2035.
(b)	Repayment includes $30 million that was used to settle a related cross-currency swap.

Debt issued during 2005 had stated interest rates ranging from 2.9% to 9.0% and maturities from 2005 through 2035. See Note 8 to the Financial Statements for more detailed information regarding PPL Energy Supply's financing activities.

Forecasted Sources of Cash

PPL Energy Supply expects to continue to have significant sources of cash available in the near term, including various credit facilities, a commercial paper program, operating leases and contributions from Member. PPL Energy Supply also expects to continue to have access to debt capital markets, as necessary, for its long-term financing needs.

Credit Facilities

At December 31, 2005, PPL Energy Supply's total committed borrowing capacity under credit facilities and the use of this borrowing capacity were:

		Committed Capacity		Borrowed		Letters of Credit Issued and Commercial Paper Backstop (c)		Available Capacity
PPL Energy Supply Credit Facilities (a)		$	2,400			$	757	$	1,643
WPD (South West) Bank Facilities (b)			697	$	55		2		640
	Total	$	3,097	$	55	$	759	$	2,283

(a)	Borrowings under PPL Energy Supply's credit facilities bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Energy Supply also has the capability to cause the lenders to issue up to $2.4 billion of letters of credit under these facilities, which issuances reduce available borrowing capacity. These credit facilities contain a financial covenant requiring debt to total capitalization to not exceed 65%. At December 31, 2005 and 2004, PPL Energy Supply's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities, were 35% and 34%. The credit facilities also contain standard representations and warranties that must be made for PPL Energy Supply to borrow under them.
(b)	Borrowings under WPD (South West)'s credit facilities bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating. WPD (South West) also has the capability to cause the lenders to issue up to approximately $4 million of letters of credit under one of its facilities, which can only be used for letters of credit. These credit facilities contain financial covenants that require WPD (South West) to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and a regulatory asset base (RAB) at £150 million greater than total gross debt, in each case as calculated in accordance with the credit facilities. At December 31, 2005 and 2004, WPD (South West)'s interest coverage ratios, as calculated in accordance with its credit lines, were 6.0 and 6.8. At December 31, 2005 and 2004, WPD (South West)'s RAB, as calculated in accordance with the credit facilities, exceeded its total gross debt by £407 million and £534 million.
(c)	PPL Energy Supply and WPD (South West) have a reimbursement obligation to the extent any letters of credit are drawn upon. The letters of credit issued as of December 31, 2005, expire as follows: $641 million in 2006 and $18 million in 2007. As of December 31, 2005, $100 million of PPL Energy Supply's credit facilities capacity served as commercial paper backstop.

In addition to the financial covenants noted in the table above, these credit agreements contain various other covenants. Failure to meet the covenants beyond applicable grace periods could result in acceleration of due dates of borrowings and/or termination of the agreements. PPL Energy Supply monitors the covenants on a regular basis. At December 31, 2005, PPL Energy Supply was in material compliance with those covenants. At this time, PPL Energy Supply believes that these covenants and other borrowing conditions will not limit access to these funding sources. PPL Energy Supply intends to renew and extend $2.3 billion of its credit facility capacity in 2006. See Note 8 to the Financial Statements for further discussion of PPL Energy Supply's credit facilities.

Commercial Paper

PPL Energy Supply maintains a commercial paper program for up to $500 million to provide it with an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by certain credit agreements of PPL Energy Supply. PPL Energy Supply had $100 million of commercial paper outstanding at December 31, 2005, and no commercial paper outstanding at December 31, 2004. During 2006, PPL Energy Supply may issue commercial paper from time to time to facilitate short-term cash flow needs.

Operating Leases

PPL Energy Supply and its subsidiaries also have available funding sources that are provided through operating leases. PPL Energy Supply's subsidiaries lease vehicles, office space, land, buildings, personal computers and other equipment. These leasing structures provide PPL Energy Supply with additional operating and financing flexibility. The operating leases contain covenants that are typical for these agreements, such as maintaining insurance, maintaining corporate existence and timely payment of rent and other fees. Failure to meet these covenants could limit or restrict access to these funds or require early payment of obligations. At this time, PPL Energy Supply believes that these covenants will not limit access to these funding sources or cause acceleration or termination of the leases.

PPL Energy Supply, through its subsidiary PPL Montana, leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, under four 36-year, non-cancelable operating leases. These operating leases are not recorded on PPL Energy Supply's Balance Sheet, which is in accordance with applicable accounting guidance. The leases place certain restrictions on PPL Montana's ability to incur additional debt, sell assets and declare dividends. At this time, PPL Energy Supply believes that these restrictions will not limit access to these funding sources or cause acceleration or termination of the leases. See Note 8 to the Financial Statements for a discussion of other dividend restrictions related to PPL Global subsidiaries.

See Note 10 to the Financial Statements for further discussion of the operating leases.

Long-Term Debt Securities and Contributions from Member

Subject to market conditions in 2006, PPL Energy Supply currently plans to issue approximately $1.1 billion in long-term debt securities. PPL Energy Supply expects to use the proceeds primarily to fund capital expenditures, to fund maturities of existing debt and for general corporate purposes.

From time to time, as determined by its Board of Directors, PPL Energy Supply's Member, PPL Energy Funding, makes capital contributions to PPL Energy Supply. PPL Energy Supply uses these contributions for general corporate purposes, including funding maturities of existing debt.

Forecasted Uses of Cash

In addition to expenditures required for normal operating activities, such as purchased power, payroll, fuel and taxes, PPL Energy Supply currently expects to incur future cash outflows for capital expenditures, various contractual obligations and distributions to Member.

Capital Expenditures

The table below shows PPL Energy Supply's actual spending for the year 2005 and current capital expenditure projections for the years 2006 through 2010.

				Actual		Projected
				2005		2006		2007		2008		2009		2010
Construction expenditures (a) (b)
	Generating facilities			$	180	$	256	$	216	$	167	$	200	$	174
	Transmission and distribution facilities				288		288		285		290		298		310
	Environmental				48		370		567		296		64		67
	Other				13		34		38		1
		Total Construction Expenditures			529		948		1,106		754		562		551
Nuclear fuel					64		81		92		97		97		99
			Total Capital Expenditures	$	593	$	1,029	$	1,198	$	851	$	659	$	650

(a)	Construction expenditures include capitalized interest, which is expected to be approximately $136 million for the 2006-2010 period.
(b)	This information excludes any potential investments by PPL Global for new projects.

PPL Energy Supply's capital expenditure projections for the years 2006-2010 total approximately $4.4 billion. Capital expenditure plans are revised periodically to reflect changes in market and asset regulatory conditions. See Note 14 to the Financial Statements for additional information regarding the installation costs of sulfur dioxide scrubbers and other pollution control equipment, which comprise most of the "Environmental" expenditures noted above.

PPL Energy Supply plans to fund all of its capital expenditures in 2006 with cash on hand, cash from operations, and, when necessary, the issuance of debt securities.

Contractual Obligations

PPL Energy Supply has assumed various financial obligations and commitments in the ordinary course of conducting its business. At December 31, 2005, the estimated contractual cash obligations of PPL Energy Supply were:

Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-term Debt (a)	$	4,036	$	445	$	415	$	15	$	3,161
Capital Lease Obligations
Operating Leases		695		61		112		110		412
Purchase Obligations (b)		4,040		1,308		1,741		415		576
Other Long-term Liabilities Reflected on the Balance Sheet under GAAP (c)		65		27		38
Total Contractual Cash Obligations	$	8,836	$	1,841	$	2,306	$	540	$	4,149

(a)	Reflects principal maturities only, including maturities of consolidated lease debt. See Note 4 to the Financial Statements for a discussion of conversion triggers related to PPL Energy Supply's 2.625% Convertible Senior Notes. Also, see Note 8 for a discussion of the remarketing feature related to PPL Energy Supply's 5.70% REset Put Securities.
(b)	The payments reflected herein are subject to change, as certain purchase obligations included are estimates based on projected obligated quantities and/or projected pricing under the contracts. Purchase orders made in the ordinary course of business are excluded from the amounts presented. Includes obligations related to nuclear fuel and the installation of the scrubbers, which are also reflected in the Capital Expenditures table presented above.
(c)	The amounts reflected represent estimated deficit pension funding requirements arising from an actuarial valuation performed in March 2004 and do not include pension funding requirements for future service.

Distributions to Member

From time to time, as determined by its Board of Managers, PPL Energy Supply makes return of capital distributions to its Member, which uses the distributions for general corporate purposes, including meeting its cash flow needs.

Credit Ratings

Moody's, S&P and Fitch periodically review the credit ratings on the debt and preferred securities of PPL Energy Supply and its subsidiaries. Based on their respective reviews, the rating agencies may make certain ratings revisions.

A credit rating reflects an assessment by the rating agency of the credit worthiness associated with particular securities issued by PPL Energy Supply and its subsidiaries based on information provided by PPL Energy Supply and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL Energy Supply or its subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to their securities. A downgrade in PPL Energy Supply's or its subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets.

The following table summarizes the credit ratings of PPL Energy Supply and its subsidiaries at December 31, 2005.

		Moody's	S&P	Fitch (a)
PPL Energy Supply
	Issuer Rating		BBB	BBB
	Senior Unsecured Notes	Baa2	BBB	BBB+
	Commercial Paper	P-2	A-2	F2
	Outlook	STABLE	STABLE	STABLE
PPL Montana
	Pass-Through Certificates	Baa3	BBB-	BBB
	Outlook	STABLE	STABLE
WPDH Limited
	Issuer Rating	Baa3	BBB-
	Senior Unsecured Debt	Baa3	BBB-	BBB-
	Short-term Debt		A-3
	Outlook	STABLE	STABLE	STABLE
WPD LLP
	Issuer Rating		BBB-
	Senior Unsecured Debt	Baa2	BBB-	BBB
	Short-term Debt		A-3
	Preferred Stock	Baa3	BB	BBB-
	Outlook	STABLE	STABLE	STABLE
WPD (South Wales)
	Issuer Rating		BBB+
	Senior Unsecured Debt	Baa1	BBB+	BBB+
	Short-term Debt		A-2	F2
	Outlook	STABLE	STABLE	STABLE
WPD (South West)
	Issuer Rating	Baa1	BBB+
	Senior Unsecured Debt	Baa1	BBB+	BBB+
	Short-term Debt	P-2	A-2	F2
	Outlook	STABLE	STABLE	STABLE

(a) All Issuer Ratings for Fitch are "Issuer Default Ratings."

The rating agencies took the following actions on the debt and preferred securities of PPL Energy Supply and its subsidiaries in 2005 and through February 2006.

Moody's

In June 2005, Moody's revised its outlooks to stable from negative on the senior unsecured debt and issuer ratings of WPDH Limited, the senior unsecured debt ratings of WPD LLP and the subordinated unsecured debt ratings of WPD LLP's unconsolidated subsidiary SIUK Capital Trust I. Moody's indicated that this positive change to the financial profiles resulted from a reduction in consolidated adjusted leverage at the WPD companies as a result of the redeployment to WPD of surplus cash from Latin American subsidiaries of PPL Energy Supply and from PPL Energy Supply's commitment to suspend its dividend from WPDH Limited in 2005. At the same time, Moody's affirmed the WPD companies' long-term and short-term credit rating. The outlook on the debt ratings of WPD (South Wales) and WPD (South West) was already stable.

S&P

In January 2005, S&P revised its outlooks on the WPD companies to stable from negative. S&P attributes this positive change to financial profile improvements resulting from the final regulatory outcome published by Ofgem in November 2004. At the same time, S&P affirmed the WPD companies' long-term and short-term credit ratings.

In October 2005, S&P affirmed its ratings of PPL Energy Supply and PPL Montana. The ratings affirmation is the result of S&P's annual review of PPL Energy Supply, including its business and financial risk profiles.

Fitch

In January 2005, Fitch announced that it downgraded the WPD companies' senior unsecured credit ratings by one notch:

· WPDH Limited to BBB- from BBB;

· WPD LLP to BBB from BBB+; and

· WPD (South Wales) and WPD (South West) to BBB+/F2 from A-/F1.

Fitch stated that its downgrade was prompted by the high level of pension-adjusted leverage at WPD. Fitch acknowledged that WPD's funding plan should reduce its pension deficit over time, and it expects WPD to proceed with its de-leveraging program. However, Fitch indicated that it is not certain enough, due to the unpredictability in future pension valuations, that pension-adjusted leverage will support a BBB rating at WPDH Limited. Fitch indicated that WPD (South Wales) and WPD (South West) have been downgraded to maintain a two-notch differential with WPDH Limited because Fitch does not believe that WPD's financial ring-fencing is restrictive enough to support a three-notch differential.

In December 2005, Fitch affirmed PPL Montana's amortizing Pass-Through Certificates, the last of which are due 2020, at BBB. Fitch indicated that the rating reflects PPL Montana's credit quality on a stand-alone basis.

In December 2005, Fitch assigned issuer default ratings (IDRs) for its North American global power portfolio of issuers with ratings of BB- or higher. The IDR reflects Fitch's assessment of an issuer's ability to meet all of its financial commitments on a timely basis, effectively becoming its benchmark probability of default. Fitch rates securities in an issuer's capital structure higher, lower or the same as the IDR based on Fitch's assessment of a particular security's relative recovery prospects. There were no changes in Fitch's securities ratings at PPL Energy Supply as a result of Fitch's assignment of an IDR.

In February 2006, Fitch's Europe, Middle East and Africa group implemented IDRs based on its new IDR methodology. This implementation led to Fitch's assignment of the following IDRs and Fitch's revision of its ratings on the following securities currently outstanding at WPD and its affiliates.

· WPDH Limited IDR of BBB- and senior unsecured rating to BBB from BBB-;

· WPD LLP IDR of BBB, senior unsecured rating to BBB+ from BBB and preferred stock rating to BBB from BBB-; and

· WPD (South Wales) and WPD (South West) IDR of BBB+ and senior unsecured debt rating to A- from BBB+.

Fitch's outlook for WPD and its affiliates remains stable.

Ratings Triggers

PPL Energy Supply's $400 million of 2.625% Convertible Senior Notes due 2023 are convertible upon the occurrence of certain events, including if the long-term credit ratings assigned to the notes by Moody's and S&P are lower than BB and Ba2, or either Moody's or S&P no longer rates the notes. The terms of the notes require cash settlement of the principal amount upon conversion of the notes. See Note 4 to the Financial Statements for more information concerning the Convertible Senior Notes.

PPL Energy Supply and its subsidiaries do not have additional material liquidity exposures caused by a ratings downgrade below "investment grade" that would accelerate the due dates of borrowings. However, if PPL Energy Supply's debt ratings had been below investment grade at December 31, 2005, PPL Energy Supply and its subsidiaries would have had to post an additional $120 million of collateral to counterparties.

Off-Balance Sheet Arrangements

PPL Energy Supply provides guarantees for certain consolidated affiliate financing arrangements that enable certain transactions. Some of the guarantees contain financial and other covenants that, if not met, would limit or restrict the consolidated affiliates' access to funds under these financing arrangements, require early maturity of such arrangements or limit the consolidated affiliates' ability to enter into certain transactions. At this time, PPL Energy Supply believes that these covenants will not limit access to the relevant funding sources.

PPL Energy Supply has entered into certain guarantee agreements that are within the scope of 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 14 to the Financial Statements for a discussion on guarantees.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Background

Market risk is the potential loss PPL Energy Supply may incur as a result of price changes associated with a particular financial or commodity instrument. PPL Energy Supply is exposed to market risk from:

· commodity price risk associated with the sale and purchase of energy and energy-related products, and the purchase of fuel for the generating assets and energy trading activities;

· interest rate risk associated with variable-rate debt and the fair value of fixed-rate debt used to finance operations, as well as the fair value of debt securities invested in by PPL Energy Supply's nuclear decommissioning trust funds;

· foreign currency exchange rate risk associated with investments in affiliates in Latin America and Europe, as well as purchases of equipment in currencies other than U.S. dollars; and

· equity securities price risk associated with the fair value of equity securities invested in by PPL Energy Supply's nuclear decommissioning trust funds.

PPL Energy Supply has a risk management policy approved by PPL's Board of Directors to manage market risk and counterparty credit risk. (Credit risk is discussed below.) The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function. Key risk control activities designed to monitor compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, sensitivity analyses, daily portfolio reporting, including open positions, mark-to-market valuations and other risk measurement metrics.

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

Contract Valuation

PPL Energy Supply utilizes forward contracts, futures contracts, options, swaps and tolling agreements as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price, interest rate and foreign currency volatility.When available, quoted market prices are used to determine the fair value of a commodity or financial instrument. This may include exchange prices, the average mid-point bid/ask spreads obtained from brokers, or an independent valuation by an external source, such as a bank. However, market prices for energy or energy-related contracts may not be readily determinable because of market illiquidity. If no active trading market exists, contracts are valued using internally developed models, which are then reviewed by an independent, internal group. Although PPL Energy Supply believes that its valuation methods are reasonable, changes in the underlying assumptions could result in significantly different values and realization in future periods.

To record energy derivatives at their fair value, PPL Energy Supply discounts the forward values using the U.S. Utility BBB+ Curve. Additionally, PPL Energy Supply adjusts derivative carrying values to recognize differences in counterparty credit quality and potential illiquidity in the market:

· The credit adjustment takes into account the probability of default, as calculated by an independent service, for each counterparty that has an out-of-the money position with PPL Energy Supply.

· The liquidity adjustment takes into account the fact that it may not be appropriate to value contracts at the midpoint of the bid/ask spread. PPL Energy Supply might have to accept the "bid" price if PPL Energy Supply wants to close an open sales position or PPL Energy Supply might have to accept the "ask" price if PPL Energy Supply wants to close an open purchase position.

· The modeling adjustment takes into account market value for certain contracts when there is no external market to value the contract or when PPL Energy Supply is unable to find independent confirmation of the true market value of the contract.

Accounting and Reporting

To account for and report on contracts entered into to manage market risk, 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"), EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," and EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3." 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.

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 clarified the circumstances under which a contract with an initial net investment meets the characteristics of a derivative, clarified when a derivative contains a financing component, amended the definition of an "underlying" and amended certain other existing pronouncements. Additionally, SFAS 149 placed additional limitations on the use of the normal purchase or normal sale exception. SFAS 149 was 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 did not yet exist. PPL Energy Supply adopted SFAS 149 as of July 1, 2003. The adoption of SFAS 149 did not have a significant impact on PPL Energy Supply.

In accordance with EITF 02-3, PPL Energy Supply reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statement of Income. Non-derivative contracts that met the definition of energy trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in 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.

PPL Energy Supply adopted the final provisions of EITF 03-11 prospectively as of October 1, 2003. As a result of this adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. See Note 17 to the Financial Statements for the impact of the adoption of EITF 03-11.

PPL Energy Supply's short-term derivative contracts are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheet. Long-term derivative contracts are included in "Other Noncurrent Assets - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other."

Accounting Designation

Energy contracts that do not qualify as derivatives receive accrual accounting treatment. 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. In addition to energy-related transactions, PPL Energy Supply enters into financial interest rate and foreign currency swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. PPL Energy Supply also enters into foreign currency swap contracts to hedge the fair value of firm commitments denominated in foreign currency and net investments in foreign operations. As with energy transactions, the circumstances and intent existing at the time of the transaction determine the contract's accounting designation. These designations are verified by a separate internal group on a daily basis. See Note 17 to the Financial Statements for a summary of the guidelines that have been provided to the traders who are responsible for the designation of derivative energy contracts.

Commodity Price Risk (Non-Trading)

Commodity price risk is one of PPL Energy Supply's most significant risks due to the level of investment that PPL Energy Supply maintains in its generation assets, coupled with the volatility of prices for energy and energy-related products. Several factors influence price levels and volatilities. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations. To hedge the impact of market price fluctuations on PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. Because PPL Energy Supply owns or controls generating assets, the majority of PPL Energy Supply's energy transactions qualify for accrual or hedge accounting. Additionally, the non-trading portfolio includes the fair value of options that are economic hedges of PPL Energy Supply's synthetic fuel tax credits. Although they do not receive hedge accounting treatment, these options are considered non-trading.

Within PPL Energy Supply's non-trading portfolio, the decision to enter into energy contracts hinges on the expected value of PPL Energy Supply's generation. To address this risk, PPL Energy Supply takes a conservative approach in determining the number of MWhs that are available to be sold forward. In this regard, PPL Energy Supply reduces the maximum potential output that a plant may produce by three factors - planned maintenance, unplanned outages and economic conditions. The potential output of a plant is first reduced by the amount of unavailable generation due to planned maintenance on a particular unit. Another reduction, representing the unplanned outage rate, is the amount of MWhs that historically are not produced by a plant due to such factors as equipment breakage. Finally, the potential output of certain plants (such as peaking units) is reduced because their higher cost of production will not allow them to economically run during all hours.

PPL Energy Supply's non-trading portfolio also includes full requirements energy contracts. The net obligation to serve these contracts changes minute by minute. PPL Energy Supply analyzes historical on-peak and off-peak usage patterns, as well as spot prices and weather patterns, to determine a monthly level of a block of electricity that best fits the usage patterns in order to minimize earnings volatility. On a forward basis, PPL Energy Supply reserves a block amount of generation for full requirements energy contracts that is expected to be the best match with their anticipated usage patterns and energy peaks. Anticipated usage patterns and energy peaks are affected by expected load changes, regional economic drivers and seasonality.

PPL Energy Supply's non-trading commodity derivative contracts mature at various times through 2010. The following chart sets forth PPL Energy Supply's net fair market value of these contracts as of December 31.

	Gains (Losses)
	2005			2004
Fair value of contracts outstanding at the beginning of the period	$	(9	)	$	86
Contracts realized or otherwise settled during the period		(26	)		(66	)
Fair value of new contracts at inception		27
Other changes in fair values		(270	)		(29	)
Fair value of contracts outstanding at the end of the period	$	(278	)	$	(9	)

The following chart segregates estimated fair values of PPL Energy Supply's non-trading commodity derivative contracts at December 31, 2005, 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			Maturity 1-3 Years			Maturity 4-5 Years			Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	21		$	7		$	3			$	31
Prices provided by other external sources		(76	)		(234	)		(36	)			(346	)
Prices based on models and other valuation methods		21			16							37
Fair value of contracts outstanding at the end of the period	$	(34	)	$	(211	)	$	(33	)		$	(278	)

The "Prices actively quoted" category includes the fair value of exchange-traded natural gas futures contracts quoted on the NYMEX, which has currently quoted prices through 2011.

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.

Because of PPL Energy Supply's efforts to hedge the value of the energy from its generation assets, PPL Energy Supply sells electricity and buys fuel on a forward basis, resulting in open contractual positions. If PPL Energy Supply were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price volatility in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, non-performance by counterparties (or their own counterparties) with which it has energy contracts and other factors could affect PPL Energy Supply's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL Energy Supply attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty non-performance in the future.

As of December 31, 2005, 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 $275 million, compared with a decrease of $165 million at December 31, 2004. For purposes of this calculation, an increase in the market price for electricity is considered an adverse movement because PPL Energy Supply's electricity portfolio is generally in a net sales position, and a decrease in the market price for fuel is considered an adverse movement because PPL Energy Supply's commodity fuels portfolio is generally in a net purchase position. PPL Energy Supply enters into those commodity contracts to reduce the market risk inherent in the generation of electricity.

In accordance with its marketing strategy, PPL Energy Supply does not completely hedge its generation output or fuel requirements. PPL Energy Supply estimates that for its entire portfolio, including all generation, emissions and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2006 gross margins by $18 million. Similarly, a 10% adverse movement in all fossil fuel prices would decrease 2006 gross margins by $10 million.

Commodity Price Risk (Trading)

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 2009. The following chart sets forth PPL Energy Supply's net fair market value of trading contracts as of December 31.

	Gains (Losses)
	2005			2004
Fair value of contracts outstanding at the beginning of the period	$	9		$	3
Contracts realized or otherwise settled during the period		(29	)		(14	)
Fair value of new contracts at inception		3			1
Other changes in fair values		22			19
Fair value of contracts outstanding at the end of the period	$	5		$	9

PPL Energy Supply will reverse approximately $1 million of the $5 million unrealized trading gains over the first three months of 2006 as the transactions are realized.

The following chart segregates estimated fair values of PPL Energy Supply's trading portfolio at December 31, 2005, 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			Maturity 1-3 years			Maturity 4-5 years		Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	8		$	(2	)				$	6
Prices provided by other external sources		(1	)				$	2			1
Prices based on models and other valuation methods		(1	)		(1	)					(2	)
Fair value of contracts outstanding at the end of the period	$	6		$	(3	)	$	2		$	5

See "Commodity Price Risk (Non-trading)" for information on the various sources of fair value.

As of December 31, 2005, 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 $23 million, compared with a decrease of $5 million at December 31, 2004.

Interest Rate Risk

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

At December 31, 2005, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $2 million, compared with $1 million at December 31, 2004.

PPL Energy Supply is also exposed to changes in the fair value of its domestic and international debt portfolios. At December 31, 2005, PPL Energy Supply estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $151 million, compared with $156 million at December 31, 2004.

PPL and PPL Energy Supply utilize various risk management instruments to reduce PPL Energy Supply's exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL Energy Supply is exposed to changes in the fair value of these instruments, any changes in the fair value of these instruments are recorded in equity and then reclassified into earnings in the same period during which the item being hedged affects earnings. At December 31, 2005, the market value of these instruments, representing the amount PPL Energy Supply would receive upon their termination, was approximately $2 million. At December 31, 2005, PPL Energy Supply estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in the hedged exposure, was $2 million. At December 31, 2004, PPL Energy Supply had none of these instruments outstanding.

PPL and PPL Energy Supply also utilize various risk management instruments to adjust the mix of fixed and floating interest rates in PPL Energy Supply's debt portfolio. While PPL Energy Supply is exposed to changes in the fair value of these instruments, any change in market value is recorded with an equal and offsetting change in the value of the debt being hedged. At December 31, 2005, 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 approximately $2 million, compared with an exposure of $2 million at December 31, 2004.

Foreign Currency Risk

PPL Energy Supply is exposed to foreign currency risk, primarily through investments in affiliates in the U.K. and Latin America. 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 and PPL Energy Supply enter into financial instruments to protect against foreign currency translation risk.

To protect expected income in Chilean pesos, PPL entered into an average rate forward for 8 billion Chilean pesos. The settlement date of this forward is November 2006. At December 31, 2005, the market value of this position, representing the amount PPL would pay upon its termination, was insignificant. PPL Energy Supply estimated that its potential exposure to a change in the market value of these instruments, through a 10% adverse movement in foreign exchange rates, was insignificant at December 31, 2005.

WPDH Limited holds a net position in cross-currency swaps totaling $1.1 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds with maturity dates ranging from December 2006 to December 2028. The estimated value of this position at December 31, 2005, being the amount PPL would pay to terminate it, including accrued interest, was approximately $164 million. PPL Energy Supply estimated that its potential exposure to a change in the market value of these instruments, through a 10% adverse movement in foreign exchange rates, was $140 million at December 31, 2005.

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

Nuclear Decommissioning Trust Funds - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of December 31, 2005, 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 December 31, 2005, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $33 million reduction in the fair value of the trust assets, compared with a $30 million reduction at December 31, 2004. See Note 21 to the Financial Statements for more information regarding the nuclear decommissioning trust funds.

Synthetic Fuel Tax Credit Risk

Recent increases in and the volatility of crude oil prices threaten to reduce the amount of synthetic fuel tax credits that PPL Energy Supply expects to receive through its synthetic fuel production. The tax credits are reduced if the annual average wellhead price of domestic crude oil falls within a phase-out range. The tax credits are eliminated if this reference price exceeds the phase-out range. See "Regulatory Issues - IRS Synthetic Fuels Tax Credits" in Note 14 to the Financial Statements for more information regarding the phase-out of the tax credits.

PPL Energy Supply implemented a risk management objective to hedge a portion of the variability of cash flows associated with its 2006 and 2007 synthetic fuel tax credits by hedging the risk that the 2006 and 2007 annual average wellhead price for domestic crude oil will be within the phase-out range.

PPL Energy Supply purchased options in 2005 to mitigate some of the reductions in synthetic fuel tax credits if the annual average wellhead price for 2006 and 2007 falls within the applicable phase-out range. These positions did not qualify for hedge accounting treatment. The mark-to-market value of these positions as of December 31, 2005, was a gain of $10 million, and is reflected in "Energy-related businesses" revenues on the Statement of Income.

As of December 31, 2005, PPL Energy Supply estimated that a 10% adverse movement in market prices of crude oil would have decreased the value of the synthetic fuel hedges by $24 million. For purposes of this calculation, a decrease in the market price for crude oil is considered an adverse movement.

Credit Risk

Credit risk relates to the risk of loss that PPL Energy Supply would incur as a result of non-performance by counterparties of their contractual obligations. PPL Energy Supply maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL Energy Supply has concentrations of suppliers and customers among electric utilities, natural gas distribution companies and other energy marketing and trading companies. These concentrations of counterparties may impact PPL Energy Supply's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. As discussed above in "Contract Valuation," PPL Energy Supply records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance. In this case, PPL Energy Supply would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the Balance Sheet. PPL Energy Supply also records reserves to reflect the probability that a counterparty will not make payments for deliveries PPL Energy Supply has made but not yet billed. These reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL Energy Supply also has established a reserve with respect to certain sales to the California ISO for which PPL Energy Supply has not yet been paid, as well as a reserve related to PPL Energy Supply's exposure as a result of the Enron bankruptcy, which are reflected in "Accounts receivable" on the Balance Sheet. See Notes 1 and 14 to the Financial Statements.

Related Party Transactions

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

For additional information on related party transactions, see Note 15 to the Financial Statements.

Acquisitions, Development and Divestitures

From time to time, PPL Energy Supply and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets, joint ventures and development projects which may or may not result in definitive agreements. Any such transactions may impact future financial results. See Note 9 to the Financial Statements for information regarding recent acquisitions and development activities.

At December 31, 2005, PPL Global had investments in foreign facilities, including consolidated investments in WPD, Emel, EC and others. See Note 3 to the Financial Statements for information on unconsolidated investments accounted for under the equity method.

In connection with the ongoing review of its non-core international minority ownership investments, PPL Global sold certain minority interests in 2005 and 2004. See Note 9 to the Financial Statements for additional information.

PPL Energy Supply is currently planning incremental capacity increases of 258 MW at several existing domestic generating facilities.

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

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

See "Item 1. Business - Competition" and "Item 1A. Risk Factors" for a discussion of competitive factors affecting PPL Energy Supply.

New Accounting Standards

See Note 23 to the Financial Statements for a discussion of new accounting standards recently adopted 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. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the financial statements. (These accounting policies are also discussed in Note 1 to the Financial Statements.) 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 has reviewed the following disclosures regarding the application of these critical accounting policies with the Audit Committee.

1)Price Risk Management

See "Risk Management - Energy Marketing & Trading and Other" in Financial Condition.

2)Pension and Other Postretirement Benefits

As described in Note 12 to the Financial Statements, PPL Energy Supply subsidiaries sponsor various pension and other postretirement plans and participate in, and are allocated a significant portion of the liability and net periodic pension cost of the PPL Retirement Plan and the PPL Postretirement Benefit Plan. PPL and PPL Energy Supply follow the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these pension and other postretirement benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions are:

· Discount Rate - The discount rate is used in calculating the present value of benefits, which are based on projections of benefit payments to be made in the future. The objective in selecting the discount rate is to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments, would provide the necessary future cash flows to pay the accumulated benefits when due.

· Expected Return on Plan Assets - Management projects the future return on plan assets considering prior performance, but primarily based upon the plans' mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs PPL Energy Supply records currently.

· Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement.

· Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care.

In selecting a discount rate for its domestic pension and other postretirement plans, PPL Energy Supply starts with an analysis of the expected benefit payment stream for its plans. This information is first matched against a spot-rate yield curve. A portfolio of nearly 600 Moody's Aa-graded non-callable corporate bonds, with a total outstanding float in excess of $300 billion, serves as the base from which those with the lowest and highest yields are eliminated to develop the ultimate yield curve. The results of this analysis are considered in conjunction with other economic data and consideration of movements in the Moody's Aa bond index to determine the discount rate assumption. At December 31, 2005, PPL Energy Supply decreased the discount rate for its domestic plans from 5.75% to 5.70% as a result of this assessment.

The selection of a discount rate for the international pension plans of WPD again starts with an analysis of the expected benefit payment streams. This information is analyzed against yields on long-term high-quality corporate bonds within the iBoxx index. Due to the flatness of U.K. yield curves, the duration-weighted discount rate is approximately the same. At December 31, 2005, PPL Energy Supply decreased the discount rate for its international pension plans from 5.50% to 4.75% as a result of this assessment.

In selecting an expected return on plan assets, PPL and PPL Energy Supply consider tax implications, past performance and economic forecasts for the types of investments held by the plans. At December 31, 2005, PPL's and PPL Energy Supply's expected return on plan assets was decreased from 8.75% to 8.50% for their domestic pension plans. For its international plans, PPL Energy Supply's expected return on plan assets was reduced from 8.30% to 8.09% at December 31, 2005. Both PPL's and PPL Energy Supply's domestic and international pension plans have significantly exceeded the expected return on plan assets for 2004 and 2005. However, the expected return on plan assets assumption was decreased to reflect a long-term view of equity markets and an expected increase in long-term bond yields.

In selecting a rate of compensation increase, PPL and PPL Energy Supply consider past experience in light of movements in inflation rates. At December 31, 2005, PPL's and PPL Energy Supply's rate of compensation increase was changed to 4.75% from 4.00% for their domestic plans. For the international plans, the rate of compensation increase remained at 3.75% at December 31, 2005.

In selecting health care cost trend rates, PPL and PPL Energy Supply consider past performance and forecasts of health care costs. At December 31, 2005, the health care cost trend rates were 10.0% for 2006, gradually declining to 5.5% for 2011.

A variance in the assumptions listed above could have a significant impact on projected benefit obligations, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and other comprehensive income (OCI). The following chart reflects the sensitivities in the 2005 financial statements associated with a change in certain assumptions. While the chart below reflects either an increase or decrease in each assumption, the inverse of this change would impact the projected benefit obligation, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and OCI by a similar amount in the opposite direction. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Increase (Decrease)
Actuarial Assumption	Change in Assumption		Impact on Obligation		Impact on Liabilities (a)		Impact on Cost		Impact on OCI
Discount Rate		(0.25)%	$	117	$	1	$	1	$	80
Expected Return on Plan Assets		(0.25)%		N/A		8		8		(6	)
Rate of Compensation Increase		0.25%		18		2		2		(1	)
Health Care Cost Trend Rate (b)		1.0%		5						N/A

(a)	Excludes the impact of additional minimum liability.
(b)	Only impacts other postretirement benefits.

The total net pension and other postretirement benefit obligation for PPL Energy Supply's plans was $373 million as of December 31, 2005. PPL Energy Supply recognized an aggregate net accrued pension and other postretirement benefit liability of $228 million on its Balance Sheet as of December 31, 2005, for its plans. The total obligation is not fully reflected in the current financial statements due to the delayed recognition criteria of the accounting standards for these obligations. At December 31, 2005, PPL Energy Supply also reflected a net liability of $59 million on its Balance Sheet for pension liabilities and prepaid other postretirement benefit costs allocated from plans sponsored by PPL Services.

In 2005, PPL Energy Supply was allocated and recognized net periodic pension and other postretirement costs charged to operating expenses of $25 million. This amount represents a $43 million increase compared with the credit recognized during 2004. This increase in expense was primarily attributable to PPL's international plans and was the result of the decrease in the discount rate at December 31, 2004, and recognition of prior losses.

The pension plans of WPD have accumulated deferred losses of $721 million as of December 31, 2005, as a result of changes in the discount rate assumption, expected compared with actual asset returns and changes in demographic assumptions and experience.  The losses, to the extent not offset by future gains, will be amortized in accordance with PPL Energy Supply's policy regarding recognition of gains and losses as detailed in Note 1 to the Financial Statements.

Strong asset returns and falling foreign currency conversion rates offset the impact of the decrease in the discount rate, allowing PPL Energy Supply to reduce its additional minimum pension liability for its international pension plans, offset by a modest increase for it's domestic pension plans. Recording the change in the additional minimum liability resulted in a $21 million decrease to the pension-related charge to OCI, net of taxes, translation adjustment and unrecognized prior service costs, with no effect on net income. The pension-related balance in OCI, which is a reduction to shareowners' equity, was reduced from $360 million at December 31, 2004, to $339 million at December 31, 2005. The charges to OCI will reverse in future periods if the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding pension and other postretirement benefits.

3)Asset Impairment

PPL Energy Supply performs impairment analyses for long-lived assets, including intangibles, that are subject to depreciation or amortization in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." PPL Energy Supply tests for impairment whenever events or changes in circumstances indicate that a long-lived asset's carrying value may not be recoverable. Examples of such events or changes in circumstances are:

· a significant decrease in the market price of an asset;

· a significant adverse change in the manner in which an asset is being used or in its physical condition;

· a significant adverse change in legal factors or in the business climate;

· an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of an asset;

· a current-period operating or cash flow loss combined with a history of losses or a forecast that demonstrates continuing losses; or

· a current expectation that, more likely than not, an asset will be sold or otherwise disposed of before the end of its previously estimated useful life.

For a long-lived asset, an impairment exists when the carrying value exceeds the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the asset is impaired, an impairment loss is recorded to adjust the asset's carrying value to its estimated fair value.

In determining asset impairments, management must make significant judgments to estimate future cash flows, the useful lives of long-lived assets, the fair value of the assets and management's intent to use the assets. Changes in assumptions and estimates included within the impairment reviews could result in significantly different results than those identified and recorded in the financial statements. For determining fair value, the FASB has indicated that quoted market prices in active markets are the best evidence of fair value. However, when market prices are unavailable, other valuation techniques may be used. PPL Energy Supply has generally used a present value technique (i.e., discounted cash flow). Discounted cash flow is calculated by estimating future cash flow streams and applying appropriate discount rates to determine the present value of the cash flow streams.

PPL Energy Supply has determined that, when alternative courses of action to recover the carrying value of a long-lived asset are being considered, it uses estimated cash flows from the most likely approach to assess impairment whenever one scenario is clearly the most likely outcome. If no scenario is clearly most likely, then a probability-weighted approach is used taking into consideration estimated cash flows from the alternative scenarios. For assets tested for impairment as of the balance sheet date, the estimates of future cash flows used in that test consider the likelihood of possible outcomes that existed at the balance sheet date, including the assessment of the likelihood of the future sale of the assets. That assessment made as of the balance sheet date is not revised based on events that occur after the balance sheet date.

During 2005, PPL Energy Supply and its subsidiaries evaluated certain gas-fired generation assets for impairment, as events and circumstances indicated that the carrying value of these assets may not be recoverable. PPL Energy Supply did not record an impairment of these gas-fired generation assets in 2005. For these impairment analyses, the most significant assumption was the estimate of future cash flows. PPL Energy Supply estimates future cash flows using information from its corporate business plan adjusted for any recent sale or purchase commitments. Key factors that impact cash flows include projected prices for electricity and gas as well as firm sale and purchase commitments. A 10% decrease in estimated future cash flows for the gas-fired generation assets would not have resulted in an impairment charge.

PPL Energy Supply performs impairment analyses for goodwill in accordance with SFAS 142, "Goodwill and Other Intangible Assets." PPL Energy Supply performs an annual impairment test for goodwill, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

SFAS 142 requires goodwill to be tested for impairment at the reporting unit level. PPL Energy Supply has determined its reporting units to be one level below its operating segments.

Goodwill is tested for impairment using a two-step approach. The first step of the goodwill impairment test compares the estimated fair value of a reporting unit with its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired. If the carrying value exceeds the estimated fair value of the reporting unit, the second step is performed to measure the amount of impairment loss, if any.

The second step requires a calculation of the implied fair value of goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill in a business combination. That is, the estimated fair value of a reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the estimated fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the estimated fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The implied fair value of the reporting unit goodwill is then compared with the carrying value of that goodwill. If the carrying value exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying value of the reporting unit's goodwill.

PPL Energy Supply completed its annual goodwill impairment test in the fourth quarter of 2005. This test did not require any second-step assessments and did not result in any impairments. PPL Energy Supply's most significant assumptions surrounding the goodwill impairment test relate to the estimates of reporting unit fair values. PPL Energy Supply estimated fair values primarily based upon discounted cash flows. Although a full two-step evaluation was not completed, a decrease in the forecasted cash flows of 10% or an increase of the discount rates by 50 basis points would have resulted in the carrying value of certain reporting units exceeding their estimated fair values, indicating a potential impairment of goodwill.

4)Leasing

PPL Energy Supply applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL Energy Supply applies the provisions of numerous other accounting pronouncements issued by the FASB and the EITF that provide specific guidance and additional requirements related to accounting for various leasing arrangements. In general, there are two types of leases from a lessee's perspective: operating leases - leases accounted for off-balance sheet; and capital leases - leases capitalized on the balance sheet.

In accounting for leases, management makes various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in determining whether a lease should be classified as operating or capital. Changes in these assumptions could result in the difference between whether a lease is determined to be an operating lease or a capital lease, thus significantly impacting the amounts to be recognized in the financial statements.

In addition to uncertainty inherent in management's assumptions, leasing transactions and the related accounting rules become increasingly complex when they involve: real estate and/or related integral equipment; sale/leaseback accounting (leasing transactions where the lessee previously owned the leased assets); synthetic leases (leases that qualify for operating lease treatment for book accounting purposes and financing treatment for tax accounting purposes); and lessee involvement in the construction of leased assets.

At December 31, 2005, PPL Energy Supply continued to participate in a significant sale/leaseback transaction. In July 2000, PPL Montana sold its interest in the Colstrip generating plant to owner lessors who are leasing the assets back to PPL Montana under four 36-year operating leases. This transaction is accounted for as an operating lease in accordance with current rules related to sale/leaseback arrangements. If for any reason this transaction did not meet the requirements for off-balance sheet operating lease treatment as a sale/leaseback, PPL Energy Supply would have recorded approximately $270 million of additional assets and approximately $318 million of additional liabilities on its balance sheet at December 31, 2005, and would have recorded additional expenses currently estimated at $7 million, after-tax, in 2005.

See Note 10 to the Financial Statements for additional information related to operating leases.

5)Loss Accruals

PPL Energy Supply periodically accrues losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL Energy Supply's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies," and other related accounting guidance. SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains. PPL Energy Supply continuously assesses potential loss contingencies for environmental remediation, litigation claims, income taxes, regulatory penalties and other events.

PPL Energy Supply also has accrued estimated losses on long-term purchase commitments when significant events have occurred. For example, estimated losses were accrued when long-term purchase commitments were assumed under asset acquisition agreements and when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above-market cost of energy purchases from NUGs as part of its purchased power costs on an as-incurred basis, since these costs were recovered in regulated rates. When the generation business was deregulated, the estimated loss associated with these long-term purchase commitments to make above-market NUG purchases was recorded because PPL Electric was committed to purchase electricity at above market prices but it could no longer recover these costs in regulated rates. As described below, this loss accrual was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment.

The accounting aspects of estimated loss accruals include: (1) the initial identification and recording of the loss; (2) the determination of triggering events for reducing a recorded loss accrual; and (3) the ongoing assessment as to whether a recorded loss accrual is sufficient. All three of these aspects of accounting for loss accruals require significant judgment by PPL Energy Supply's management.

Initial Identification and Recording of the Loss Accrual

PPL Energy Supply uses its internal expertise and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss.

In 2005, a loss accrual was recorded for the remediation expenses in connection with the ash basin leak at the Martins Creek generating station. Significant judgment was required by PPL Energy Supply's management to perform the initial assessment of this contingency. In August 2005, a leak from a disposal basin containing fly ash and water at the Martins Creek generating station caused a discharge from the basin onto adjacent roadways and fields, and into a nearby creek and the Delaware River. PPL Energy Supply immediately began to work with the Pennsylvania DEP and appropriate agencies and consultants to assess the extent of environmental damage caused by the discharge and to remediate the damage. At that time, PPL Energy Supply had, and still has, no reason to believe that the Martins Creek leak has caused any danger to human health or any adverse biological impact on the river aquatic life. However, at that time, PPL Energy Supply expected that it would be subject to an enforcement action by the Pennsylvania DEP and that claims may be brought against it by several state agencies and private litigants. See Note 14 to the Financial Statements for additional information.

PPL Energy Supply's management assessed the contingency in the third quarter of 2005. The ultimate cost of the remediation effort was difficult to estimate due to a number of uncertainties, such as the scope of the project, the impact of weather conditions on the ash recovery effort, and the ultimate outcome of enforcement actions and private litigation. PPL Energy Supply's management concluded, at the time, that $33 million was the best estimate of the cost of the remediation effort. PPL Energy Supply recorded this loss accrual in the third quarter of 2005.

See "Ongoing Assessment of Recorded Loss Accruals" for a discussion of the year-end 2005 assessment of this contingency.

PPL Energy Supply has identified certain other events that could give rise to a loss, but that do not meet the conditions for accrual under SFAS 5. SFAS 5 requires disclosure, but not a recording, of potential losses when it is "reasonably possible" that a loss has been incurred. The FASB defines "reasonably possible" as cases in which "the chance of the future event or events occurring is more than remote but less than likely." See Note 14 to the Financial Statements for disclosure of other potential loss contingencies that have not met the criteria for accrual under SFAS 5.

Reducing Recorded Loss Accruals

When an estimated loss is accrued, PPL Energy Supply identifies, where applicable, the triggering events for subsequently reducing the loss accrual. The triggering events generally occur when the contingency has been resolved and the actual loss is incurred, or when the risk of loss has diminished or been eliminated. The following are some of the triggering events that provide for the reduction of certain recorded loss accruals:

· Certain loss accruals are systematically reduced based on the expiration of contract terms. An example of this is the loss accrual for above-market NUG purchase commitments, which is described below. This loss accrual is being reduced over the lives of the NUG purchase contracts.

· Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed.

· Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted or when underlying amounts are ultimately collected.

· Environmental and other litigation contingencies are reduced when the contingency is resolved and PPL Energy Supply makes actual payments or the loss is no longer considered probable.

The largest loss accrual on PPL Energy Supply 's balance sheet, and the loss accrual that changed most significantly in 2005, was for an impairment of above-market NUG purchase commitments. This loss accrual reflects the estimated difference between the above-market contract terms, under the purchase commitments, and the fair value of the electricity to be purchased. This loss accrual was originally recorded at $854 million in 1998, when PPL Electric's generation business was deregulated.

When the loss accrual related to NUG purchases was recorded in 1998, PPL Electric established the triggering events for when the loss accrual would be reduced. A schedule was established to reduce the liability based on projected purchases over the lives of the NUG contracts. This loss accrual was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment. PPL EnergyPlus continues to reduce the above-market NUG liability based on the aforementioned schedule. As PPL EnergyPlus reduces the liability for the above-market NUG purchases, it offsets the actual cost of NUG purchases, thereby bringing the net power purchase expense more in line with expected market prices. The above-market loss accrual was $206 million at December 31, 2005. This loss accrual will be significantly reduced by 2009, when all but one of the NUG contracts expires. The then-remaining NUG contract will expire in 2014.

Ongoing Assessment of Recorded Loss Accruals

PPL Energy Supply reviews its loss accruals on a regular basis to assure that the recorded potential loss exposures are sufficient. This involves ongoing communication and analyses with internal and external legal counsel, engineers, tax specialists, operation management and other parties.

Significant management judgment is required in developing PPL Energy Supply's contingencies, or reserves, for income taxes and valuation allowances for deferred tax assets. The ongoing assessment of tax contingencies is intended to result in management's best estimate of the ultimate settled tax position for each tax year. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns by taxing authorities. However, the amount ultimately paid upon resolution of any issues raised by such authorities may differ from the amount accrued. In evaluating the exposure associated with various filing positions, PPL Energy Supply accounts for changes in probable exposures based on management's best estimate of the amount that should be recognized. An allowance is maintained for the tax contingencies, the balance of which management believes to be adequate. The ongoing assessment of valuation allowances is based on an assessment of whether deferred tax assets will ultimately be realized. Management considers a number of factors in assessing the ultimate realization of deferred tax assets, including forecasts of taxable income in future periods.

As part of the year-end preparation of its financial statements, PPL Energy Supply's management re-assessed the loss accrual related to the ash basin leak at Martins Creek, described above under "Initial Identification and Recording of the Loss Accrual." Based on the ongoing remediation efforts and communications with the Pennsylvania DEP and other appropriate agencies, PPL Energy Supply's management concluded that $48 million was currently the best estimate of the cost of the remediation effort. Therefore, PPL Energy Supply revised the loss accrual in the fourth quarter of 2005. See Note 14 to the Financial Statements for additional information. PPL Energy Supply cannot predict the final cost of assessment and remediation of the leak, the outcome of the action initiated by the Pennsylvania DEP or the action initiated by the Delaware Riverside Conservancy and several citizens, the outcome of the natural resource damage assessment, the exact nature of any other regulatory or other legal actions that may be initiated against PPL Energy Supply as a result of the disposal basin leak, the extent of the fines or damages that may be sought in connection with any such actions or the ultimate financial impact on PPL Energy Supply. PPL Energy Supply's management will continue to assess the loss accrual for this contingency in future periods.

6)Asset Retirement Obligations

SFAS 143, "Accounting for Asset Retirement Obligations," 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.

FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143," which was issued in March 2005, and adopted by PPL effective December 31, 2005, clarified the term conditional ARO as used in SFAS 143. FIN 47 specified that a conditional ARO must be recognized when incurred if the fair value of the ARO can be reasonably estimated. See Note 21 for further discussion of the impact of FIN 47 on PPL Energy Supply.

In determining AROs, 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 ARO was incurred. Changes in assumptions and estimates included within the calculations of the fair value of AROs could result in significantly different results than those identified and recorded in the financial statements.

At December 31, 2005, PPL Energy Supply had AROs totaling $298 million recorded on the Balance Sheet. PPL Energy Supply's most significant assumptions surrounding AROs are the forecasted retirement costs, the discount rates and the inflation rates. A variance in the forecasted retirement costs, the discount rates or the inflation rates could have a significant impact on the ARO liabilities.

The following chart reflects the sensitivities related to the ARO liabilities as of December 31, 2005, associated with a change in these assumptions at the time of initial recognition. There is no significant change to the ARO asset values, depreciation expense of the ARO assets or accretion expense of the ARO liabilities as a result of changing the assumptions. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Change in Assumption	Impact on ARO Liabilities
Retirement Cost	10%/(10)%	$27/$(27)
Discount Rate	0.25%/(0.25)%	$(26)/$29
Inflation Rate	0.25%/(0.25)%	$31/$(28)

Other Information

PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services and other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, employee benefit plan audits and internal control reviews. See "Item 14. Principal Accounting Fees and Services" for more information.

PPL ELECTRIC UTILITIES CORPORATION

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PPL Electric provides electricity delivery service in eastern and central Pennsylvania. Its headquarters are in Allentown, PA. See "Item 1. Business - Background," for a description of PPL Electric's business. PPL Electric's strategy and principal challenge is to own and operate its electricity delivery business at the highest level of customer service and reliability and at the most efficient cost.

PPL Electric's electricity delivery business is rate-regulated. Accordingly, PPL Electric is subject to regulatory risks in terms of the costs that it may recover and the investment returns that it may collect in customer rates.

A key challenge for PPL Electric is to maintain a strong credit profile. Investors, analysts and rating agencies that follow companies in the energy industry continue to be focused on the credit quality and liquidity position of these companies. PPL Electric continually focuses on strengthening its balance sheet and improving its liquidity position, thereby improving its credit profile.

See "Item 1A. Risk Factors" for more information concerning material risks PPL Electric faces in its business.

The purpose of "Management's Discussion and Analysis of Financial Condition and Results of Operations" is to provide information concerning PPL Electric's past and expected future performance in implementing the strategy and challenges mentioned above. Specifically:

· "Results of Operations" provides an overview of PPL Electric's operating results in 2005, 2004 and 2003, including a review of earnings. It also provides a brief outlook for 2006.

· "Financial Condition - Liquidity and Capital Resources" provides an analysis of PPL Electric's liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL Electric's past and future liquidity position and financial condition. This subsection also includes a listing of PPL Electric's current credit ratings.

· "Financial Condition - Risk Management" includes an explanation of PPL Electric's risk management activities regarding commodity price risk and interest rate risk.

· "Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL Electric and that require its management to make significant estimates, assumptions and other judgments. Although PPL Electric's management believes that these estimates, assumptions and other judgments are appropriate, they relate to matters that are inherently uncertain. Accordingly, changes in the estimates, assumptions and other judgments applied to these accounting policies could have a significant impact on PPL Electric's results of operations and financial condition, as reflected in PPL Electric's Financial Statements.

The information provided in this Item 7 should be read in conjunction with PPL Electric's Financial Statements and the accompanying Notes.

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

Results of Operations

Earnings

Income available to PPL was:

2005		2004		2003
$	145	$	74	$	25

The after-tax changes in income available to PPL were due to:

	2005 vs. 2004			2004 vs. 2003
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)	$	123		$	5
Operation and maintenance expenses		(6	)		(3	)
Taxes, other than income (excluding gross receipts tax)		(9	)		9
Change in tax reserves associated with stranded costs securitization (Note 5)		(15	)		22
Interest income on 2004 IRS tax settlement		(5	)		5
Financing costs (excluding transition bond interest expense)		4			2
Interest income on loans to affiliates		6
Other		2			4
Unusual items		(29	)		5
	$	71		$	49

The following items, that management considers unusual, had a significant impact on earnings.

	2005			2004	2003
PJM billing dispute (Note 14)	$	(27	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 1)		(2	)
Workforce reduction (Note 20)					$	(5	)
Total	$	(29	)		$	(5	)

The year-to-year changes in significant earnings components are explained in the "Statement of Income Analysis."

PPL Electric's 2005 earnings were impacted by a number of key factors, including:

·	In December 2004, the PUC approved an increase in PPL Electric's distribution rates of approximately $137 million (based on a return on equity of 10.7%), and approved PPL Electric's proposed mechanism for collecting an additional $57 million in transmission-related charges, for a total annual increase of approximately $194 million, effective January 1, 2005.
·	Delivery revenues also increased in 2005 compared with 2004 due to a 4.3% increase in electricity delivery sales volumes.
·	In January 2005, severe ice storms hit PPL Electric's service territory. As a result, PPL Electric had to restore service to approximately 238,000 customers. The total cost of restoring service, excluding capitalized costs and regular payroll expenses, was approximately $16 million.
	On February 11, 2005, PPL Electric filed a petition with the PUC for authority to defer and amortize for regulatory accounting and reporting purposes these storm costs. On August 26, 2005, the PUC issued an order granting PPL Electric's petition subject to certain conditions, including: (i) the PUC's authorization of deferred accounting is not an assurance of future rate recovery of the storm costs, (ii) PPL Electric must request recovery of the deferred storm costs in its next distribution base rate case, and (iii) PPL Electric must begin immediately to expense the deferred storm costs on a ten-year amortization schedule for regulatory accounting and reporting purposes. As a result of the PUC Order and in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation," in the third quarter of 2005, PPL Electric deferred approximately $12 million of its previously expensed storm costs. The deferral was based on its assessment of the timing and likelihood of recovering the deferred costs in PPL Electric's next distribution base rate case. At this time, PPL Electric cannot be certain that it will recover the storm costs, nor can it predict whether future incidents of severe weather will cause significant facility damage and service disruptions that would also result in significant costs.
·	Operation and maintenance expense increased in 2005 compared with 2004, primarily due to increased system reliability work and tree trimming costs.
·	PPL Electric recognized an after-tax charge of $27 million in the first quarter of 2005 for a loss contingency related to the PJM billing dispute. See Note 14 for information concerning the settlement agreement reached by PPL Electric and Exelon Corporation to settle this litigation, which is subject to approval by the FERC. PPL Electric cannot be certain of the outcome of this matter or the impact on PPL Electric and its subsidiaries.

PPL Electric's earnings beyond 2005 are subject to various risks and uncertainties. See "Forward-Looking Information," "Item 1A. Risk Factors," the rest of this Item 7 and Note 14 to the Financial Statements for a discussion of the risks, uncertainties and factors that may impact PPL Electric's future earnings.

2006 Outlook

PPL Electric is projecting flat delivery revenues due to projected modest load growth in 2006 compared with 2005 and because of higher sales in 2005 as a result of unusually warm weather. PPL Electric is also expecting to experience increased operation and maintenance expenses in 2006.

Statement of Income Analysis --

Operating Revenues

Retail Electric

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

	2005 vs. 2004		2004 vs. 2003
PLR electric generation supply	$	122	$	94
Electric delivery		201		(7	)
Delivery and PLR supply to PPL Generation				(5	)
Other		1		(2	)
	$	324	$	80

The increase in revenues from retail electric operations for 2005 compared with 2004 was primarily due to:

· higher PLR revenues due to higher energy and capacity rates and a 6% increase in volume, in part due to the return of customers previously served by alternate suppliers; and

· higher electric delivery revenues resulting from higher transmission and distribution customer rates effective January 1, 2005, and a 4.3% increase in volume.

The increase in revenues from retail electric operations for 2004 compared with 2003 was primarily due to:

· higher PLR revenues due to higher energy and capacity rates and a 3.6% increase in volume, in part due to the return of customers previously served by alternate suppliers; partially offset by

· lower electric delivery revenues due to a decrease in ITC and CTC revenue as a result of lower ITC rates, and several rate groups reaching their cap; and

· lower sales to PPL Generation. PPL Generation's power plants began self-supplying their station use in April 2003, rather than taking supply from PPL Electric.

Wholesale Electric

PPL Electric wholesale revenues were previously derived primarily from sales to municipalities. The $23 million decrease in wholesale electric revenues in 2004 compared with 2003 was due to the expiration of all municipal purchase power agreements at the end of January 2004.

Wholesale Electric to Affiliate

PPL Electric has a contract to sell to PPL EnergyPlus the electricity that PPL Electric purchases under contracts with NUGs. The $6 million decrease in wholesale revenue to affiliate in 2005 compared with 2004 was primarily due to an unplanned outage at a NUG facility during the second quarter of 2005. PPL Electric therefore had less electricity to sell to PPL EnergyPlus.

Energy Purchases

Energy purchases increased by $47 million in 2005 compared with 2004 primarily due to the $39 million accrual for the PJM billing dispute. See Note 14 to the Financial Statements for additional information regarding the loss accrual recorded for the PJM billing dispute. Also, the increase reflects a $10 million charge to load-serving entities which began in May 2005, retroactive to December 2004. This charge minimizes the revenue impacts to transmission owners that result from the integration of the Midwest ISO and PJM markets and will continue until March 2006. These increases were partially offset by a $7 million decrease due to an unplanned NUG outage in the second quarter of 2005.

Energy Purchases from Affiliate

Energy purchases from affiliate increased by $90 million in 2005 compared with 2004 and by $56 million in 2004 compared with 2003. The increases reflect an increase in PLR load, as well as higher prices for energy purchased under the power supply contracts with PPL EnergyPlus that was needed to support the PLR load.

Other Operation and Maintenance

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

	2005 vs. 2004			2004 vs. 2003
Costs associated with severe ice storms in January 2005	$	16
Subsequent deferral of a portion of costs associated with January 2005 ice storms (Note 1)		(12	)
Increase in domestic system reliability work and tree trimming		10
Accelerated amortization of stock-based compensation (Note 1)		5
Increase in domestic pension costs		3		$	5
Increase in allocation of certain corporate service costs (Note 15)		1			5
Write-off of Hurricane Isabel costs not approved for recovery by the PUC					4
Decrease in employee benefits due to transfer of field services employees to PPL Generation		(7	)
Decrease in other postretirement benefit expense		(2	)		(11	)
Other		(2	)		5
	$	12		$	8

Depreciation

Depreciation increased by $5 million in 2005 compared with 2004 and by $4 million in 2004 compared with 2003 due to plant additions, including the Automated Meter Reading project.

Taxes, Other Than Income

In 2004, PPL Electric reversed a $14 million accrued liability for 1998 and 1999 PURTA taxes that had been accrued based on potential exposure in the proceedings regarding the Susquehanna nuclear station tax assessment. The rights of third-party intervenors to further appeal expired in 2004. The reversal and a $19 million increase in domestic gross receipts tax expense in 2005 are the primary reasons for the $33 million increase in taxes, other than income, compared with 2004.

The reversal of the PURTA tax liability is the primary reason for the $12 million decrease in taxes, other than income in 2004, compared with 2003. Also contributing to the decrease was lower capital stock tax expense. These decreases were partially offset by higher gross receipts tax expense.

Workforce Reduction

See Note 20 to the Financial Statements for information on the $9 million charge recorded in 2003.

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Interest Expense

Interest expense, including interest expense with affiliate, decreased by $8 million in 2005 compared with 2004 and by $21 million in 2004 compared with 2003. These decreases primarily reflect the net impact of long-term debt retirements and new issuances. Over the past two years, $953 million of long-term debt retirements have occurred, while new issuances over the same period totaled $424 million. The decrease in 2005 was partially offset by $8 million of interest accrued for the PJM billing dispute and $9 million of additional interest paid on collateral held by PPL Electric relating to the PLR contract. See Note 15 to the Financial Statements for further discussion of collateral held under the PLR contract.

Income Taxes

Income tax expense increased by $61 million in 2005 compared with 2004. This increase was primarily attributable to:

· a $50 million increase in income tax expense related to higher pre-tax book income; and

· a $10 million reduction in tax benefits in 2005 related to federal and state income tax reserves that included a $15 million decrease in tax benefits associated with stranded costs securitization, offset by a $5 million increase in tax benefits associated with other income tax reserves, predicated upon management's reassessment of its best estimate of probable tax exposure relative to 2004.

Income tax expense decreased by $10 million in 2004 compared with 2003. This decrease was primarily attributable to:

· a $22 million tax benefit recognized in 2004 related to a reduction in tax reserves associated with stranded costs securitization predicated upon management's reassessment of its best estimate of probable tax exposure relative to 2003; offset by

· a $15 million increase in income tax expense related to higher pre-tax book income.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns by taxing authorities. However, the amount ultimately paid upon resolution of any issues raised by such authorities may differ materially from the amount accrued. In evaluating the exposure associated with various filing positions, PPL Electric accounts for changes in probable exposures based on management's best estimate of the amount that should be recognized. An allowance is maintained for the tax contingencies, the balance of which management believes to be adequate. During 2004, PPL Electric reached partial settlement with the IRS with respect to the tax years 1991 through 1995 and received a cash refund in the amount of $45 million. As a result of this settlement, the net tax impact recorded in 2004 was not significant.

See Note 5 to the Financial Statements for details on effective income tax rates and other income tax related matters.

Financial Condition

Liquidity and Capital Resources

PPL Electric is focused on maintaining an appropriate liquidity position and strengthening its balance sheet, thereby continuing to improve its credit profile. PPL Electric believes that its cash on hand, short-term investments, operating cash flows, access to debt and equity capital markets and borrowing capacity, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, future security maturities and estimated future capital expenditures. PPL Electric currently expects cash, cash equivalents and short-term investments at the end of 2006 to be approximately $100 million, while maintaining approximately $200 million in credit facilities and up to $150 million in short-term debt capacity related to an asset-backed commercial paper program. However, PPL Electric's cash flows from operations and its access to cost effective bank and capital markets are subject to risks and uncertainties, including but not limited to:

· unusual or extreme weather that may damage PPL Electric's transmission and distribution facilities or affect energy sales to customers;

· ability to recover and the timeliness and adequacy of recovery of costs associated with regulated utility businesses;

· any adverse outcome of legal proceedings and investigations currently being conducted with respect to PPL Electric's current and past business activities; and

· a downgrade in PPL Electric's or its subsidiary's credit ratings that could negatively affect their ability to access capital and increase the cost of maintaining credit facilities and any new debt.

At December 31, 2005, PPL Electric had $323 million of cash, cash equivalents and short-term investments and $42 million in short-term debt, compared with $161 million in cash, cash equivalents and short-term investments and $42 million of short-term debt at December 31, 2004, and $162 million in cash and cash equivalents and no short-term investments or short-term debt at December 31, 2003. The $42 million of short-term debt at December 31, 2005 and 2004, is entirely from loan proceeds attributable to the asset-backed commercial paper program, of which the full amount was used to cash collateralize letters of credit. The changes in cash and cash equivalents resulted from:

	2005			2004			2003
Net Cash Provided by Operating Activities	$	580		$	898		$	528
Net Cash Used in Investing Activities		(193	)		(523	)		(145	)
Net Cash Used in Financing Activities		(240	)		(386	)		(250	)
Net Increase (Decrease) in Cash and Cash Equivalents	$	147		$	(11	)	$	133

Operating Activities

Net cash provided by operating activities decreased by $318 million in 2005 compared with 2004 and increased by $370 million in 2004 compared with 2003, primarily as a result of receipts in 2004 of $300 million in cash collateral related to the PLR energy supply agreements and a federal income tax refund in 2004. The decrease for 2005 compared with 2004 was partially mitigated by the 7.1% increase in distribution rates and transmission cost recoveries effective January 1, 2005.

An important element supporting the stability of PPL Electric's cash from operations is its long-term purchase contracts with PPL EnergyPlus. These contracts provide sufficient energy for PPL Electric to meet its PLR obligation through 2009, at the predetermined capped rates it is entitled to charge its customers over this period. These contracts require cash collateral or other credit enhancement, or reductions or terminations of a portion of the entire contract through cash settlement, in the event of adverse changes in market prices. Also under the contracts, PPL Energy Supply may request cash collateral or other credit enhancement, or reductions or terminations of a portion of the entire contract through cash settlement, in the event of a downgrade of PPL Electric's credit ratings. The maximum amount that PPL Electric would have to post under these contracts is $300 million, and PPL Electric estimates that it would not have had to post any collateral if energy prices decreased by 10% from year-end 2005 or 2004 levels.

Investing Activities

Net cash used in investing activities decreased by $330 million in 2005 compared with 2004, and increased by $378 million in 2004 compared with 2003, primarily as a result of initiating a $300 million demand loan to an affiliate in 2004. The primary use of cash in investing activities is capital expenditures. See "Forecasted Uses of Cash" for detail regarding capital expenditures in 2005 and projected expenditures for the years 2006 through 2010.

Financing Activities

Net cash used in financing activities decreased by $146 million in 2005 compared with 2004, primarily due to a decrease of $217 million in net debt retirements, partially offset by an increase of $69 million in dividends paid to PPL Corporation. Net cash used in financing activities increased by $136 million in 2004 compared with 2003, due to higher net retirements of long-term debt in 2004. See "Forecasted Sources of Cash" for a discussion of PPL Electric's plans to issue debt and equity securities, as well as a discussion of credit facility capacity available to PPL Electric. Also see "Forecasted Uses of Cash" for a discussion of PPL Electric's plans to pay dividends on its common and preferred securities, as well as maturities of PPL Electric's long-term debt.

PPL Electric's debt financing activity in 2005 was:

		Issuances		Retirements
PPL Transition Bond Company Transition Bonds				$	(266	)
PPL Electric First Mortgage Bonds					(69	)
PPL Electric First Mortgage Pollution Control Bonds		$	224		(224	)
PPL Electric Senior Secured Bonds			200
	Total	$	424	$	(559	)
Net reduction				$	(135	)

Debt issued during 2005 had stated interest rates ranging from 2.25% to 5.15% and with maturities from 2005 through 2029. See Note 8 to the Financial Statements for more detailed information regarding PPL Electric's financing activities.

Forecasted Sources of Cash

PPL Electric expects to continue to have significant sources of cash available in the near term, including various credit facilities, a commercial paper program, an asset-backed commercial paper program and operating leases. PPL Electric also expects to continue to have access to debt and equity capital markets, as necessary, for its long-term financing needs.

Credit Facilities

At December 31, 2005, PPL Electric's total committed borrowing capacity under credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed	Letters of Credit Issued (b)	Available Capacity
PPL Electric Credit Facilities (a)	$	300			$	300

(a)

Borrowings under PPL Electric's credit facilities bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Electric also has the capability to cause the lenders to issue up to $300 million of letters of credit under these facilities, which issuances reduce available borrowing capacity. The credit facilities contain a financial covenant requiring debt to total capitalization to not exceed 70%. At December 31, 2005 and 2004, PPL Electric's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities, were 55% and 54%. The credit facilities also contain standard representations and warranties that must be made for PPL Electric to borrow under them.

(b)

PPL Electric has a reimbursement obligation to the extent any letters of credit are drawn upon.

In addition to the financial covenants noted in the table above, these credit agreements contain various other covenants. Failure to meet the covenants beyond applicable grace periods could result in acceleration of due dates of borrowings and/or termination of the agreements. PPL Electric monitors the covenants on a regular basis. At December 31, 2005, PPL Electric was in material compliance with those covenants. At this time PPL Electric believes that these covenants and other borrowing conditions will not limit access to these funding sources. PPL Electric intends to renew and extend $200 million of its credit facility capacity in 2006. See Note 8 to the Financial Statements for further discussion of PPL Electric's credit facilities.

Commercial Paper

PPL Electric maintains a commercial paper program for up to $200 million to provide it with an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by credit agreements of PPL Electric. PPL Electric had no commercial paper outstanding at December 31, 2005 and 2004. During 2006, PPL Electric may issue commercial paper from time to time to facilitate short-term cash flow needs.

Asset-Backed Commercial Paper Program

PPL Electric participates in an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary pledges these assets to secure loans of up to an aggregate of $150 million from a commercial paper conduit sponsored by a financial institution. PPL Electric uses the proceeds from the program for general corporate purposes and to cash collateralize letters of credit. At December 31, 2005 and 2004, the loan balance outstanding was $42 million, all of which was being used to cash collateralize letters of credit. See Note 8 to the Financial Statements for further discussion of the asset-backed commercial paper program.

Operating Leases

PPL Electric also has available funding sources that are provided through operating leases. PPL Electric leases vehicles, office space, land, buildings, personal computers and other equipment. These leasing structures provide PPL Electric with additional operating and financing flexibility. The operating leases contain covenants that are typical for these agreements, such as maintaining insurance, maintaining corporate existence and timely payment of rent and other fees. Failure to meet these covenants could limit or restrict access to these funds or require early payment of obligations. At this time, PPL Electric believes that these covenants will not limit access to these funding sources or cause acceleration or termination of the leases.

See Note 10 to the Financial Statements for further discussion of the operating leases.

Long-Term Debt and Equity Securities

PPL Electric currently does not plan to issue any long-term debt securities in 2006. Subject to market conditions in 2006, PPL Electric currently plans to sell $250 million in preferred securities. PPL Electric expects to use the proceeds primarily to repurchase securities, including stock from its parent, and for general corporate purposes.

Forecasted Uses of Cash

In addition to expenditures required for normal operating activities, such as purchased power, payroll, and taxes, PPL Electric currently expects to incur future cash outflows for capital expenditures, various contractual obligations, payment of dividends on its common and preferred securities and the repurchase of a portion of its common stock.

Capital Expenditures

The table below shows PPL Electric's current capital expenditure projections for the years 2006 through 2010 and actual spending for the year 2005.

		Actual		Projected
		2005		2006		2007		2008		2009		2010
Construction expenditures (a)
	Transmission and distribution facilities	$	164	$	213	$	231	$	211	$	246	$	296
Other			10		13		13		15		11		13
	Total Capital Expenditures	$	174	$	226	$	244	$	226	$	257	$	309

(a) Construction expenditures include AFUDC, which is expected to be approximately $15 million for the 2006-2010 period.

PPL Electric's capital expenditure projections for the years 2006-2010 total approximately $1.3 billion. Capital expenditure plans are revised periodically to reflect changes in market and regulatory conditions.

PPL Electric plans to fund all of its capital expenditures in 2006 with cash on hand and cash from operations.

Contractual Obligations

PPL Electric has assumed various financial obligations and commitments in the ordinary course of conducting its business. At December 31, 2005, the estimated contractual cash obligations of PPL Electric were:

Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-term Debt (a)	$	2,412	$	434	$	950	$	486	$	542
Capital Lease Obligations
Operating Leases		54		14		20		12		8
Purchase Obligations (b)		9,443		1,704		3,558		4,181
Other Long-term Liabilities Reflected on the Balance Sheet under GAAP
Total Contractual Cash Obligations	$	11,909	$	2,152	$	4,528	$	4,679	$	550

(a)	Reflects principal maturities only. Includes $892 million of transition bonds issued by PPL Transition Bond Company in 1999 to securitize a portion of PPL Electric's stranded costs. This debt is non-recourse to PPL Electric.
(b)	The payments reflected herein are subject to change, as the purchase obligation reflected is an estimate based on projected obligated quantities and projected pricing under the contract. Purchase orders made in the ordinary course of business are excluded from the amounts presented.

Dividends

From time to time, as determined by its Board of Directors, PPL Electric pays dividends on its common stock to its parent, PPL, which uses the dividends for general corporate purposes, including meeting its cash flow needs. PPL Electric expects to continue to pay quarterly dividends on its outstanding preferred stock, and to pay quarterly dividends on the preferred securities expected to be issued in 2006, in each case if and as declared by its Board of Directors.

PPL Electric's 2001 Senior Secured Bond Indenture restricts dividend payments in the event that PPL Electric fails to meet interest coverage ratios or fails to comply with certain requirements included in its Articles of Incorporation and Bylaws to maintain its separateness from PPL and PPL's other subsidiaries. PPL Electric does not, at this time, expect that any of such limitations would significantly impact its ability to declare dividends.

Common Stock Repurchase

PPL Electric plans to repurchase approximately $200 million of common stock from its parent in 2006. The repurchase is expected to be funded with proceeds received from the sale of preferred securities.

Credit Ratings

Moody's, S&P and Fitch periodically review the credit ratings on the debt and preferred securities of PPL Electric and PPL Transition Bond Company. Based on their respective reviews, the rating agencies may make certain ratings revisions.

A credit rating reflects an assessment by the rating agency of the credit worthiness associated with particular securities issued by PPL Electric and PPL Transition Bond Company, based on information provided by PPL Electric and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL Electric or PPL Transition Bond Company. 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. A downgrade in PPL Electric's or PPL Transition Bond Company's credit ratings could result in higher borrowing costs and reduced access to capital markets.

The following table summarizes the credit ratings of PPL Electric and PPL Transition Bond Company at December 31, 2005.

		Moody's	S&P	Fitch (b)
PPL Electric
	Senior Unsecured/Issuer Rating	Baa2	A-	BBB
	First Mortgage Bonds	Baa1	A-	A-
	Pollution Control Bonds (a)	Aaa	AAA
	Senior Secured Bonds	Baa1	A-	A-
	Commercial Paper	P-2	A-2	F2
	Preferred Stock	Ba1	BBB	BBB+
	Outlook	STABLE	STABLE	STABLE
PPL Transition Bond Company
	Transition Bonds	Aaa	AAA	AAA

(a)	Insured as to payment of principal and interest.
(b)	Issuer Rating for Fitch is an "Issuer Default Rating."

Moody's did not take any actions on the debt and preferred securities of PPL Electric and PPL Transition Bond Company in 2005.

In January 2005, S&P affirmed PPL Electric's A-/A-2 corporate credit ratings and favorably revised its outlook on the company to stable from negative following the authorization of a $194 million rate increase by the PUC. S&P indicated that the outlook revision reflects its expectations that the rate increase, effective January 1, 2005, will allow for material improvement in PPL Electric's financial profile, which had lagged S&P's expectations in recent years. S&P indicated that the stable outlook reflects its expectations that PPL Electric "will rapidly improve and then maintain financial metrics more consistent with its ratings." S&P indicated that it expects PPL Electric's operations to remain stable through the expiration of the PLR agreement.

In October 2005, S&P affirmed its ratings of PPL Electric. The ratings affirmation is the result of S&P's annual review of PPL Electric, including its business and financial risk profiles.

In December 2005, Fitch assigned issuer default ratings (IDRs) for its North American global power portfolio of issuers with ratings of BB- or higher. The IDR reflects Fitch's assessment of an issuer's ability to meet all of its financial commitments on a timely basis, effectively becoming its benchmark probability of default. Fitch rates securities in an issuer's capital structure higher, lower or the same as the IDR based on Fitch's assessment of a particular security's relative recovery prospects. There were no changes in Fitch's securities ratings at PPL Electric as a result of Fitch's assignment of an IDR.

Off-Balance Sheet Arrangements

PPL Electric has entered into certain guarantee agreements that are within the scope of 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 14 to the Financial Statements for a discussion on guarantees.

Risk Management

Market Risk

Commodity Price Risk - PLR Contracts

PPL Electric and PPL EnergyPlus have power supply agreements under which PPL EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement) energy and capacity to fulfill PPL Electric's PLR obligation through 2009. As a result, PPL Electric has shifted any electric price risk relating to its PLR obligation to PPL EnergyPlus through 2009. See Note 15 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 December 31, 2005 and 2004, PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Electric is also exposed to changes in the fair value of its debt portfolio. At December 31, 2005, 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 $43 million, compared with $50 million at December 31, 2004.

Related Party Transactions

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

For additional information on related party transactions, see Note 15 to the Financial Statements.

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

See "Item 1. Business - Competition" and "Item 1A. Risk Factors" for a discussion of competitive factors affecting PPL Electric.

New Accounting Standards

See Note 23 to the Financial Statements for a discussion of new accounting standards recently adopted 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. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the financial statements. (These accounting policies are also discussed in Note 1 to the Financial Statements.) 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 has reviewed the following disclosures regarding the application of these critical accounting policies with the Audit Committee.

1)Pension and Other Postretirement Benefits

As described in Note 12 to the Financial Statements, PPL Electric participates in, and is allocated a significant portion of the liability and net periodic pension cost of the PPL Retirement Plan and the PPL Postretirement Benefit Plan. PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions are:

· Discount Rate - The discount rate is used in calculating the present value of benefits, which are based on projections of benefit payments to be made in the future. The objective in selecting the discount rate is to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments, would provide the necessary future cash flows to pay the accumulated benefits when due.

· Expected Return on Plan Assets - Management projects the future return on plan assets considering prior performance, but primarily based upon the plans' mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs PPL Electric records currently.

· Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement.

· Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care.

In selecting discount rates, PPL considers the expected cash outflows of its plans matched against appropriate fixed-income security yield rates. This information is first matched against a spot-rate yield curve. A portfolio of nearly 600 Moody's Aa-graded non-callable corporate bonds, with a total outstanding float in excess of $300 billion, serves as the base from which those with the lowest and highest yields are eliminated to develop the ultimate yield curve. The results of this analysis are considered in conjunction with other economic data and consideration of movements in the Moody's Aa bond index to determine the discount rate assumption. At December 31, 2005, PPL decreased the discount rate for its domestic plans from 5.75% to 5.70% as a result of decreased long duration fixed-income security returns.

In selecting an expected return on plan assets, PPL considers tax implications, past performance and economic forecasts for the types of investments held by the plans. At December 31, 2005, PPL's expected return on plan assets was decreased from 8.75% to 8.50% for its domestic pension plans and increased to 8.00% from 7.90% for its other postretirement benefit plans. PPL's domestic pension plans have significantly exceeded the expected return on plan assets for 2004 and 2005. However, the expected return on plan assets assumption was decreased to reflect a long-term view of equity markets and an expected increase in long-term bond yields.

In selecting a rate of compensation increase, PPL considers past experience in light of movements in inflation rates. At December 31, 2005, PPL's rate of compensation increase was moved to 4.75% from 4.00% for its domestic plans.

In selecting health care cost trend rates, PPL considers past performance and forecasts of health care costs. At December 31, 2005, PPL's health care cost trend rates were 10.0% for 2006, gradually declining to 5.5% for 2011.

A variance in the assumptions listed above could have a significant impact on the accrued pension and other postretirement benefit liabilities and reported annual net periodic pension and other postretirement benefit cost allocated to PPL Electric. The following chart reflects the sensitivities in the 2005 financial statements associated with a change in certain assumptions. While the chart below reflects either an increase or decrease in each assumption, the inverse of this change would impact the accrued pension and other postretirement benefit liabilities and reported annual net periodic pension and other postretirement benefit cost by a similar amount in the opposite direction. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Increase (Decrease)
Actuarial Assumption	Change in Assumption		Impact on Liabilities		Impact on Cost
Discount Rate		(0.25)%	$	1	$	1
Expected Return on Plan Assets		(0.25)%		2		2
Rate of Compensation Increase		0.25%		1		1

At December 31, 2005, PPL Electric's Balance Sheet reflected a net liability of $75 million for pension liabilities and prepaid other postretirement benefit costs allocated from plans sponsored by PPL Services.

In 2005, PPL Electric was allocated net periodic pension and other postretirement costs charged to operating expense of $11 million. This amount represents a $1 million increase compared with the charge recognized during 2004. This increase was primarily due to the decrease in the discount rate at December 31, 2004.

Refer to Note 12 to the Financial Statements for additional information regarding pension and other postretirement benefits.

2)Loss Accruals

PPL Electric periodically accrues losses for the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL Electric's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies," and other related accounting guidance. SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains. PPL Electric continuously assesses potential loss contingencies for environmental remediation, litigation claims, income taxes, regulatory penalties and other events.

The accounting aspects of estimated loss accruals include: (1) the initial identification and recording of the loss; (2) the determination of triggering events for reducing a recorded loss accrual; and (3) the ongoing assessment as to whether a recorded loss accrual is sufficient. All three of these aspects of accounting for loss accruals require significant judgment by PPL Electric's management.

Initial Identification and Recording of the Loss Accrual

PPL Electric uses its internal expertise and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss.

In 2005, a significant loss accrual was recorded for the PJM billing dispute. Significant judgment was required by PPL Electric's management to perform the initial assessment of this contingency. In December 2004, Exelon Corporation, on behalf of its subsidiary, PECO Energy, Inc. (PECO), filed a complaint against PJM and PPL Electric with the FERC, alleging that PJM had overcharged PECO from April 1998 through May 2003 as a result of an error by PJM. The complaint requested the FERC, among other things, to direct PPL Electric to refund to PJM $39 million, plus interest of approximately $8 million, and for PJM to refund these same amounts to PECO. In April 2005, the FERC issued an Order Establishing Hearing and Settlement Judge Proceedings (the Order). In the Order, the FERC determined that PECO was entitled to reimbursement for the transmission congestion charges that PECO asserted PJM erroneously billed. The FERC ordered settlement discussions, before a judge, to determine the amount of the overcharge to PECO and the parties responsible for reimbursement to PECO.

Based on an evaluation of FERC's Order, PPL Electric's management concluded that it was probable that a loss had been incurred in connection with the PJM billing dispute. PPL Electric recorded a loss accrual of $47 million, the amount of PECO's claim, in the first quarter of 2005. See Note 14 to the Financial Statements for additional information.

See "Ongoing Assessment of Recorded Loss Accruals" for a discussion of the year-end 2005 assessment of this contingency.

PPL Electric has identified certain other events that could give rise to a loss, but that do not meet the conditions for accrual under SFAS 5. SFAS 5 requires disclosure, but not a recording, of potential losses when it is "reasonably possible" that a loss has been incurred. The FASB defines "reasonably possible" as cases in which "the chance of the future event or events occurring is more than remote but less than likely." See Note 14 to the Financial Statements for disclosure of other potential loss contingencies that have not met the criteria for accrual under SFAS 5.

Reducing Recorded Loss Accruals

When an estimated loss is accrued, PPL Electric identifies, where applicable, the triggering events for subsequently reducing the loss accrual. The triggering events generally occur when the contingency has been resolved and the actual loss is incurred, or when the risk of loss has diminished or been eliminated. The following are some of the triggering events that provide for the reduction of certain recorded loss accruals:

· Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed.

· Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted or when underlying amounts are ultimately collected.

· Environmental and other litigation contingencies are reduced when the contingency is resolved and PPL Electric makes actual payments or the loss is no longer considered probable.

Ongoing Assessment of Recorded Loss Accruals

PPL Electric reviews its loss accruals on a regular basis to assure that the recorded potential loss exposures are sufficient. This involves ongoing communication and analyses with internal and external legal counsel, engineers, tax specialists, operation management and other parties.

Significant management judgment is required in developing PPL Electric's contingencies, or reserves, for income taxes and valuation allowances for deferred tax assets. The ongoing assessment of tax contingencies is intended to result in management's best estimate of the ultimate settled tax position for each tax year. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns by taxing authorities. However, the amount ultimately paid upon resolution of any issues raised by such authorities may differ from the amount accrued. In evaluating the exposure associated with various filing positions, PPL Electric accounts for changes in probable exposures based on management's best estimate of the amount that should be recognized. An allowance is maintained for the tax contingencies, the balance of which management believes to be adequate. The ongoing assessment of valuation allowances is based on an assessment of whether deferred tax assets will ultimately be realized. Management considers a number of factors in assessing the ultimate realization of deferred tax assets, including forecasts of taxable income in future periods.

As part of the year-end preparation of its financial statements, PPL Electric's management re-assessed the loss accrual related to the PJM billing dispute, described above under "Initial Identification and Recording of the Loss Accrual." In re-assessing the PJM billing dispute, PPL Electric's management considered the proposed settlement agreement that was filed with FERC in September 2005. Under the settlement agreement, PPL Electric would pay $33 million plus interest over a four-year period to PJM through a new transmission charge that, under applicable law, is recoverable from PPL Electric's retail customers. Also, all PJM market participants would pay approximately $8 million plus interest over a four-year period to PJM through a new market adjustment charge. PJM would forward amounts collected under the two new charges to PECO. See Note 14 to the Financial Statements for additional information. Numerous parties filed comments with the FERC opposing the settlement agreement, and the FERC has not yet acted on the proposed settlement agreement. Accordingly, PPL Electric's management had no basis to revise the loss accrual that was recorded in the first quarter of 2005. PPL Electric's management will continue to assess the loss accrual for this contingency for future periods.

Other Information

PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services and other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, employee benefit plan audits and internal control reviews.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation

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

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareowners of PPL Corporation:

We have completed integrated audits of PPL Corporation's 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying indexpresent fairly, in all material respects, the financial position of PPL Corporation and its subsidiaries (the "Company") at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidatedfinancial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedulebased on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Emerging Issues Task Force Issue No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not "Held for Trading Purposes" as Defined in Issue No. 02-3 in 2003. As discussed in Note 8 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, in 2003. As discussed in Note 21 to the consolidated financial statements, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations, in 2003. As discussed in Note 22 to the consolidated financial statements, the Company adopted FASB Interpretation ("FIN") No. 46, Consolidation of Variable Interest Entities -- an interpretation of ARB 51, as amended by FIN No. 46(R), in 2003. As discussed in Note 21 to the consolidated financial statements, the Company adopted FIN No. 47, Accounting for Conditional Asset Retirement Obligations, in 2005.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in "Management's Report on Internal Control Over Financial Reporting"appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 24, 2006

Report of Independent Registered Public Accounting Firm

To the Board of Managers and Sole Member

of PPL Energy Supply, LLC:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of PPL Energy Supply, LLC and its subsidiaries the "Company" at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Emerging Issues Task Force Issue No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not "Held for Trading Purposes" as Defined in Issue No. 02-3 in 2003. As discussed in Note 8 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, in 2003. As discussed in Note 21 to the consolidated financial statements, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations, in 2003. As discussed in Note 22 to the consolidated financial statements, the Company adopted FASB Interpretation ("FIN") No. 46, Consolidation of Variable Interest Entities -- an interpretation of ARB 51, as amended by FIN No. 46(R), in 2003. As discussed in Note 21 to the consolidated financial statements, the Company adopted FIN No. 47, Accounting for Conditional Asset Retirement Obligations, in 2005.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 24, 2006

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareowner

of PPL Electric Utilities Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of PPL Electric Utilities Corporation and its subsidiaries (the "Company") at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 21 to the consolidated financial statements, the Company adopted FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, in 2005.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 24, 2006

INDEX TO ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
			Page
FINANCIAL STATEMENTS
	PPL Corporation
		Consolidated Statement of Income for the years ended December 31, 2005, 2004 and 2003	92
		Consolidated Statement of Cash Flows for the years ended December 31, 2005, 2004 and 2003	93
		ConsolidatedBalance Sheet at December 31, 2005 and 2004	94
		Consolidated Statement of Shareowners' Common Equity and Comprehensive Income for the years   ended December 31, 2005, 2004 and 2003	96
		Consolidated Statement of Long-term Debt at December 31, 2005 and 2004	97
	PPL Energy Supply, LLC
		Consolidated Statement of Income for the years ended December 31, 2005, 2004 and 2003	98
		ConsolidatedStatement of Cash Flows for the years ended December 31, 2005, 2004 and 2003	99
		Consolidated Balance Sheet at December 31, 2005 and 2004	100
		Consolidated Statement of Member's Equity and Comprehensive Income for the years   ended December 31, 2005, 2004 and 2003	102
		Consolidated Statement of Long-term Debt at December 31, 2005 and 2004	103
	PPL Electric Utilities Corporation
		Consolidated Statement of Income for the years ended December 31, 2005, 2004 and 2003	104
		Consolidated Statement of Cash Flows for the years ended December 31, 2005, 2004 and 2003	105
		Consolidated Balance Sheet at December 31, 2005 and 2004	106
		Consolidated Statement of Shareowner's Common Equity for the years ended December 31, 2005, 2004 and 2003	108
		Consolidated Statement of Long-term Debt at December 31, 2005 and 2004	109
COMBINED NOTESTOCONSOLIDATED FINANCIAL STATEMENTS			110
FINANCIAL STATEMENT SCHEDULES
	Schedule II - Valuation and Qualifying Accounts and Reserves		169
	Quarterly Financial, Common Stock Price and Dividend Data - PPL Corporation		170
	Quarterly Financial Data - PPL Electric Utilities Corporation		171

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share data)
				2005			2004		2003
Operating Revenues
	Utility			$	4,329		$	3,900	$	3,717
	Unregulated retail electric and gas				101			114		148
	Wholesale energy marketing				1,128			1,224		1,214
	Net energy trading margins				35			22		9
	Energy-related businesses				626			534		497
	Total				6,219			5,794		5,585
Operating Expenses
	Operation
			Fuel		933			771		649
			Energy purchases		923			910		1,002
			Other operation and maintenance		1,401			1,237		1,177
			Amortization of recoverable transition costs		268			257		260
	Depreciation (Note 1)				420			404		376
	Taxes, other than income (Note 5)				279			249		256
	Energy-related businesses				649			566		490
	Workforce reduction (Note 20)									9
	Total				4,873			4,394		4,219
Operating Income					1,346			1,400		1,366
Other Income - net (Note 16)					29			39		55
Interest Expense					508			513		473
Income from Continuing Operations Before Income Taxes, Minority Interest   and Distributions on Preferred Securities					867			926		948
Income Taxes (Note 5)					121			203		179
Minority Interest					7			8		7
Distributions on Preferred Securities (Note 8)					2			2		29
Income from Continuing Operations					737			713		733
Loss from Discontinued Operations (net of income taxes) (Note 9)					51			15		34
Income Before Cumulative Effects of Changes in Accounting   Principles					686			698		699
Cumulative Effects of Changes in Accounting Principles (net of income taxes)   (Notes 21 and 22)					(8	)				35
Net Income				$	678		$	698	$	734
Earnings Per Share of Common Stock (Note 4) (a)
	Income from Continuing Operations:
			Basic	$	1.94		$	1.93	$	2.12
			Diluted	$	1.92		$	1.93	$	2.12
	Net Income:
			Basic	$	1.79		$	1.89	$	2.13
			Diluted	$	1.77		$	1.89	$	2.12
Dividends Declared Per Share of Common Stock (a)				$	0.96		$	0.82	$	0.77
(a)		Prior periods have been adjusted to reflect PPL's 2-for-1 common stock split completed in August 2005. See Note 4 to the Financial Statements for additional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
				2005			2004			2003
Cash Flows from Operating Activities
	Net income			$	678		$	698		$	734
	Adjustments to reconcile net income to net cash provided by operating activities
		Cumulative effects of changes in accounting principles			8						(35	)
		Pre-tax loss from the sale of the Sundance plant			72
		Depreciation			423			412			380
		Stock compensation expense			32			12			11
		Amortizations - recoverable transition costs and other			298			279			256
		Pension expense (income) - net			26			(24	)		(41	)
		Pension funding			(67	)		(10	)		(18	)
		Deferred income taxes (benefits) and investment tax credits			(66	)		155			96
		Accrual for PJM billing dispute			47
		Accrual for remediation of ash basin leak - net of cash paid			32
		Unrealized gain on derivatives and other hedging activities			(1	)		(15	)		(38	)
		Write-off (deferral) of storm-related costs			(12	)		4			(15	)
		Interest accretion on asset retirement obligation and other			24			23			22
		Other			2			14			33
	Change in current assets and current liabilities
		Accounts receivable			(93	)		109			11
		Accounts payable			141			(49	)		7
		Fuel, materials and supplies			(38	)		(52	)		(13	)
		Other			(101	)		3			(10	)
	Other operating activities
		Other assets			18			(4	)		51
		Other liabilities			(35	)		(58	)		(76	)
			Net cash provided by operating activities		1,388			1,497			1,355
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(811	)		(734	)		(767	)
	Proceeds from the sale of the Sundance plant				190
	Proceeds from the sale of minority interest in CGE							123
	Purchases of emission allowances				(169	)		(109	)		(68	)
	Proceeds from the sale of emission allowances				64			67			72
	Purchases of nuclear decommissioning trust investments				(239	)		(134	)		(161	)
	Proceeds from the sale of nuclear decommissioning trust investments				223			113			140
	Purchases of auction rate securities				(116	)		(130	)		(15	)
	Proceeds from the sale of auction rate securities				118			74			5
	Net (increase) decrease in restricted cash				(34	)		(48	)		12
	Other investing activities				(5	)					28
			Net cash used in investing activities		(779	)		(778	)		(754	)
Cash Flows from Financing Activities
	Issuance of long-term debt				737			322			992
	Retirement of long-term debt				(1,261	)		(1,171	)		(575	)
	Issuance of common stock				37			596			426
	Payment of common dividends				(347	)		(297	)		(260	)
	Payment of preferred distributions				(2	)		(2	)		(27	)
	Net increase (decrease) in short-term debt				184			(14	)		(877	)
	Other financing activities				(24	)		(12	)		(66	)
			Net cash used in financing activities		(676	)		(578	)		(387	)
Effect of Exchange Rates on Cash and Cash Equivalents					6			9			7
Net Increase (Decrease) in Cash and Cash Equivalents					(61	)		150			221
	Cash and Cash Equivalents at Beginning of Period				616			466			245
	Cash and Cash Equivalents at End of Period			$	555		$	616		$	466
Supplemental Disclosures of Cash Flow Information
	Cash paid (received) during the period for:
		Interest		$	466		$	488		$	456
		Income taxes - net		$	149		$	14		$	(23	)
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
			2005		2004
Assets
Current Assets
	Cash and cash equivalents		$	555	$	616
	Restricted cash (Note 18)			93		50
	Accounts receivable (less reserve: 2005, $87; 2004, $88)			544		459
	Unbilled revenues			479		407
	Fuel, materials and supplies (Note 1)			346		309
	Prepayments			53		56
	Deferred income taxes (Note 5)			192		134
	Price risk management assets (Note 17)			488		115
	Other			160		130
	Total Current Assets			2,910		2,276
Investments
	Investment in unconsolidated affiliates - at equity (Note 3)			56		51
	Nuclear plant decommissioning trust funds (Note 21)			444		409
	Other			8		12
	Total Investments			508		472
Property, Plant and Equipment (Note 1)
	Electric plant in service
		Transmission and distribution		7,984		7,936
		Generation		8,761		8,946
		General		646		666
				17,391		17,548
	Construction work in progress			259		148
	Nuclear fuel			327		314
		Electric plant		17,977		18,010
	Gas and oil plant			349		336
	Other property			289		285
				18,615		18,631
	Less: accumulated depreciation			7,699		7,482
	Total Property, Plant and Equipment			10,916		11,149
Regulatory and Other Noncurrent Assets (Note 1)
	Recoverable transition costs			1,165		1,431
	Goodwill (Note 19)			1,070		1,127
	Other acquired intangibles (Note 19)			412		336
	Other			945		942
	Total Regulatory and Other Noncurrent Assets			3,592		3,836
	Total Assets		$	17,926	$	17,733
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
		2005			2004
Liabilities and Equity
Current Liabilities
	Short-term debt (Note 8)	$	214		$	42
	Long-term debt		1,126			866
	Accounts payable		542			407
	Above market NUG contracts (Note 14)		70			73
	Taxes		168			164
	Interest		112			129
	Dividends		96			79
	Price risk management liabilities (Note 17)		533			167
	Other		479			368
	Total Current Liabilities		3,340			2,295
Long-term Debt			5,955			6,792
Long-term Debt with Affiliate Trust (Notes 15 and 22)			89			89
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 5)		2,197			2,398
	Accrued pension obligations (Note 12)		374			476
	Asset retirement obligations (Note 21)		298			257
	Above market NUG contracts (Note 14)		136			206
	Other (Note 12)		1,012			874
	Total Deferred Credits and Other Noncurrent Liabilities		4,017			4,211
Commitments and Contingent Liabilities (Note 14)
Minority Interest			56			56
Preferred Stock (Note 7)			51			51
Shareowners' Common Equity
	Common stock - $0.01 par value (a)		4			2
	Capital in excess of par value		3,623			3,577
	Treasury stock		(838	)		(838	)
	Earnings reinvested		2,182			1,870
	Accumulated other comprehensive loss (Note 1)		(532	)		(323	)
	Capital stock expense and other		(21	)		(49	)
	Total Shareowners' Common Equity		4,418			4,239
	Total Liabilities and Equity	$	17,926		$	17,733

(a)	780 million shares authorized; 380 million shares outstanding at December 31, 2005, and 378 million shares outstanding at December 31, 2004.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY
AND COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share amounts)
				2005			2004			2003
Common stock at beginning of year				$	2		$	2		$	2
	Common stock split				2
Common stock at end of year					4			2			2
Capital in excess of par value at beginning of year					3,577			2,977			2,543
	Common stock split				(2	)
	Common stock issued				42			596			426
	Other				6			4			8
Capital in excess of par value at end of year					3,623			3,577			2,977
Treasury stock at beginning of year					(838	)		(837	)		(836	)
	Treasury stock purchased							(1	)		(1	)
Treasury stock at end of year					(838	)		(838	)		(837	)
Earnings reinvested at beginning of year					1,870			1,478			1,013
	Net income (b)				678			698			734
	Dividends declared on common stock and restricted stock units				(366	)		(306	)		(269	)
Earnings reinvested at end of year					2,182			1,870			1,478
Accumulated other comprehensive loss at beginning of year (c)					(323	)		(297	)		(446	)
	Other comprehensive income (loss) (b)				(209	)		(26	)		149
Accumulated other comprehensive loss at end of year					(532	)		(323	)		(297	)
Capital stock expense and other at beginning of year					(49	)		(64	)		(52	)
	Issuance costs and other charges to issue common stock										(9	)
	Other				28			15			(3	)
Capital stock expense and other at end of year					(21	)		(49	)		(64	)
Total Shareowners' Common Equity				$	4,418		$	4,239		$	3,259
Common stock shares at beginning of year (a)					378,143			354,723			331,472
	Common stock issued through the DRIP, ICP, ICPKE, PEPS Units    conversion, directors retirement plan, structured equity program and public    offering				2,024			23,473			23,303
	Treasury stock purchased				(22	)		(53	)		(52	)
Common stock shares at end of year					380,145			378,143			354,723
(a)		Shares in thousands. Each share entitles the holder to one vote on any question presented to any shareowners' meeting. Prior periods have been adjusted to reflect PPL's 2-for-1 common stock split completed in August 2005. See Note 4 to the Financial Statements for additional information.
(b)		Statement of Comprehensive Income (Note 1):
		Net income		$	678		$	698		$	734
		Other comprehensive income (loss):
			Foreign currency translation adjustments		(53	)		110			104
			Net unrealized gains on available-for-sale securities, net of tax expense    of $5, $18, $14		8			20			24
			Additional minimum pension liability adjustments, net of tax expense     (benefit) of $8, $(24), $(4)		19			(52	)		(10	)
			Net unrealized gains (losses) on qualifying derivatives, net of tax expense    (benefit) of $(115), $(60), $15		(183	)		(104	)		31
		Total other comprehensive income (loss)			(209	)		(26	)		149
		Comprehensive Income		$	469		$	672		$	883
(c)		See Note 1 for disclosure of balances for each component of Accumulated Other Comprehensive Loss.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
			Outstanding
			2005				2004			Maturity (a)
Bonds:
	6-1/2% - 7.7% First Mortgage Bonds (b)		$	156			$	225		2005-2014
	3.125% - 6.40% First Mortgage Pollution Control Bonds (b)			314				314		2008-2029
	4.30% - 6-1/4% Senior Secured Bonds (b)			1,041				841		2007-2020
	6.83% - 7.15% Series 1999-1 Transition Bonds			892				1,159		2005-2008
	5.875% - 9.25% Unsecured Bonds			1,784		(g)		2,051		2004-2028
	6.107% - 6.40% Inflation-linked Bonds			190		(g)		161		2006-2022
	Floating Rate Pollution Control Revenue Bonds (c)			9				9		2027
	6.8% - 9.0% Bolivian Bonds			23		(h)		22		2005-2010
Notes:
	6.17% - 8.375% Medium-term Notes			283				632		2005-2007
	4.33% - 6.40% Senior Unsecured Notes			1,301				1,001		2009-2035
	8.05% - 8.30% Senior Secured Notes (d)			437				437		2013
	2.625% Convertible Senior Notes			400				400		2023
	7.29% Subordinated Notes			148				290		2006
	8.70% Unsecured Promissory Notes			10				10		2022
	Senior Floating Rate Notes (e)			99				99		2006
Other Long-term Debt				13				15		2011-2013
				7,100				7,666
Fair value adjustments from hedging activities				(15	)			17
Unamortized premium				13
Unamortized discount				(17	)			(25	)
				7,081				7,658
Less amount due within one year				(1,126	)			(866	)
		Total Long-term Debt	$	5,955			$	6,792
Long-term Debt with Affiliate Trusts:
	8.23% Subordinated Debentures (f)		$	89			$	89		2027
See Note 8 for information on debt issuances, debt retirements and other changes in long-term debt.
(a)		Aggregate maturities of long-term debt through 2010 are (millions of dollars): 2006, $1,126; 2007, $1,020; 2008, $627; 2009, $692; and 2010, $10.
(b)		The First Mortgage Bonds and the First Mortgage Pollution Control Bonds were issued under, and are secured by, the lien of the 1945 First Mortgage Bond Indenture. The lien of the 1945 First Mortgage Bond Indenture covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric. The Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture. The Senior Secured Bonds are secured by (i) an equal principal amount of First Mortgage Bonds issued under the 1945 First Mortgage Bond Indenture and (ii) the lien of the 2001 Senior Secured Bond Indenture, which covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture.
(c)		Rate at December 31, 2005, was 3.58% and at December 31, 2004, was 2.0%.
(d)		Represents lease financing consolidated through a variable interest entity. See Note 22 for additional information.
(e)		Rate at December 31, 2005, was 5.42% and at December 31, 2004, was 3.36%.
(f)		Represents debt with a wholly owned trust that was deconsolidated effective December 31, 2003, as a result of the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See Notes 8 and 22 for further discussion.
(g)		Increase is due to or partially due to an increase in foreign currency exchange rates.
(h)		A portion of the bonds have interest rates that are inflation-linked.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
			2005			2004		2003
Operating Revenues
	Wholesale energy marketing		$	1,128		$	1,224	$	1,214
	Wholesale energy marketing to affiliate (Note 15)			1,590			1,500		1,444
	Utility			1,130			1,032		934
	Unregulated retail electric and gas			101			114		148
	Net energy trading margins			35			22		9
	Energy-related businesses			597			515		484
	Total			4,581			4,407		4,233
Operating Expenses
	Operation
		Fuel		814			665		563
		Energy purchases		658			691		791
		Energy purchases from affiliate (Note 15)		148			154		152
		Other operation and maintenance		1,027			880		847
	Depreciation (Note 1)			293			284		263
	Taxes, other than income (Note 5)			94			95		89
	Energy-related businesses			617			539		467
	Total			3,651			3,308		3,172
Operating Income				930			1,099		1,061
Other Income - net (Note 16)				37			49		70
Interest Expense				263			247		193
Interest Expense with Affiliates (Note 15)				21			20		6
Income from Continuing Operations Before Income Taxes, Minority Interest   and Distributions on Preferred Securities				683			881		932
Income Taxes (Note 5)				75			207		194
Minority Interest				7			8		7
Distributions on Preferred Securities (Note 8)									5
Income from Continuing Operations				601			666		726
Loss from Discontinued Operations (net of income taxes) (Note 9)				51			15		34
Income Before Cumulative Effects of Changes in Accounting Principles				550			651		692
Cumulative Effects of Changes in Accounting Principles (net of income taxes)   (Notes 21 and 22)				(8	)				35
Net Income			$	542		$	651	$	727
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
				2005			2004			2003
Cash Flows from Operating Activities
	Net income			$	542		$	651		$	727
	Adjustments to reconcile net income to net cash provided by operating activities
		Cumulative effects of changes in accounting principles			8						(35	)
		Pre-tax loss from the sale of the Sundance plant			72
		Depreciation			295			292			266
		Stock compensation expense			21			9			8
		Amortizations - energy commitments and other			5			(3	)		(26	)
		Pension expense (income) - net			15			(30	)		(39	)
		Pension funding			(56	)		(7	)		(15	)
		Deferred income taxes and investment tax credits			30			155			154
		Accrual for remediation of ash basin leak - net of cash paid			32
		Unrealized gain on derivatives and other hedging activities			(1	)		(13	)		(16	)
		Interest accretion on asset retirement obligation and other			24			23			22
		Other			(1	)		(2	)		(3	)
	Change in current assets and current liabilities
		Accounts receivable			(54	)		14			(50	)
		Accounts payable			88			(54	)		(29	)
		Collateral on PLR energy supply (Note 15)						(302	)		2
		Fuels, materials and supplies			(40	)		(57	)		8
		Other			(106	)		(22	)		(39	)
	Other operating activities
		Other assets			13			(5	)		31
		Other liabilities			(49	)		(33	)		(47	)
			Net cash provided by operating activities		838			616			919
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(593	)		(521	)		(502	)
	Proceeds from the sale of the Sundance plant				190
	Proceeds from the sale of minority interest in CGE							123
	Purchases of emission allowances				(169	)		(109	)		(68	)
	Proceeds from the sale of emission allowances				64			67			72
	Purchases of nuclear decommissioning trust investments				(239	)		(134	)		(161	)
	Proceeds from the sale of nuclear decommissioning trust investments				223			113			140
	Purchases of auction rate securities				(73	)		(60	)		(5	)
	Proceeds from the sale of auction rate securities				90			14
	Net decrease in notes receivable from affiliates							2			653
	Net (increase) decrease in restricted cash				(17	)		(15	)		20
	Other investing activities				(13	)		(5	)		41
			Net cash provided by (used in) investing activities		(537	)		(525	)		190
Cash Flows from Financing Activities
	Issuance of long-term debt				313			322			802
	Retirement of long-term debt				(210	)		(671	)		(60	)
	Contributions from Member				50			358			261
	Distributions to Member				(278	)		(410	)		(1,168	)
	Net increase (decrease) in short-term debt				184			(56	)		(862	)
	Net increase (decrease) in note payable to affiliate				(487	)		495
	Other financing activities				(9	)		(3	)		(16	)
			Net cash provided by (used in) financing activities		(437	)		35			(1,043	)
Effect of Exchange Rates on Cash and Cash Equivalents					6			9			7
Net Increase (Decrease) in Cash and Cash Equivalents					(130	)		135			73
	Cash and Cash Equivalents at Beginning of Period				357			222			149
	Cash and Cash Equivalents at End of Period			$	227		$	357		$	222
Supplemental Disclosures of Cash Flow Information
	Cash paid (received) during the period for:
		Interest		$	234		$	209		$	171
		Income taxes - net		$	30		$	34		$	(25	)
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
			2005		2004
Assets
Current Assets
	Cash and cash equivalents		$	227	$	357
	Restricted cash (Note 18)			39		3
	Accounts receivable (less reserve: 2005, $65; 2004, $68)			291		259
	Unbilled revenues			300		250
	Accounts receivable from affiliates (Note 15)			149		152
	Collateral on PLR energy supply to affiliate (Note 15)			300		300
	Fuel, materials and supplies (Note 1)			295		256
	Prepayments			39		42
	Deferred income taxes (Note 5)			166		109
	Price risk management assets (Note 17)			487		113
	Other			91		97
	Total Current Assets			2,384		1,938
Investments
	Investment in unconsolidated affiliates - at equity (Note 3)			56		51
	Nuclear plant decommissioning trust funds (Note 21)			444		409
	Other			3		5
	Total Investments			503		465
Property, Plant and Equipment (Note 1)
	Electric plant in service
		Transmission and distribution		3,950		4,032
		Generation		8,761		8,946
		General		272		303
				12,983		13,281
	Construction work in progress			210		115
	Nuclear fuel			327		314
		Electric plant		13,520		13,710
	Gas and oil plant			64		64
	Other property			198		210
				13,782		13,984
	Less: accumulated depreciation			5,871		5,755
	Total Property, Plant and Equipment			7,911		8,229
Other Noncurrent Assets
	Goodwill (Note 19)			1,015		1,072
	Other acquired intangibles (Note 19)			283		202
	Other			568		559
	Total Other Noncurrent Assets			1,866		1,833
	Total Assets		$	12,664	$	12,465
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
		2005		2004
Liabilities and Equity
Current Liabilities
	Short-term debt (Note 8)	$	172
	Note payable to affiliate (Note 15)		8
	Long-term debt		445	$	181
	Accounts payable		445		338
	Accounts payable to affiliates (Note 15)		27		52
	Above market NUG contracts (Note 14)		70		73
	Taxes		72		101
	Interest		79		87
	Deferred revenue on PLR energy supply to affiliate (Note 15)		12		12
	Price risk management liabilities (Note 17)		519		163
	Other		313		262
	Total Current Liabilities		2,162		1,269
Long-term Debt			3,506		3,694
Note Payable to Affiliate (Note 15)					495
Long-term Debt with Affiliate Trust (Notes 15 and 22)			89		89
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 5)		1,157		1,242
	Accrued pension obligations (Note 12)		232		341
	Asset retirement obligations (Note 21)		298		257
	Above market NUG contracts (Note 14)		136		206
	Deferred revenue on PLR energy supply to affiliate (Note 15)		35		46
	Other (Note 12)		844		720
	Total Deferred Credits and Other Noncurrent Liabilities		2,702		2,812
Commitments and Contingent Liabilities (Note 14)
Minority Interest			56		56
Member's Equity			4,149		4,050
Total Liabilities and Equity		$	12,664	$	12,465
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
					2005			2004			2003
Member's Equity at beginning of year					$	4,050		$	3,478		$	3,507
	Comprehensive income (Note 1):
			Net income			542			651			727
			Other comprehensive income (loss) (a)
				Foreign currency translation adjustments		(53	)		110			104
				Net unrealized gains (losses) on qualifying derivatives, net of tax    expense(benefit) of $(121), $(61), $17		(192	)		(105	)		35
				Additional minimum pension liability adjustments, net of tax expense    (benefit) of $9, $(23), $(5)		21			(51	)		(12	)
				Net unrealized gains on available-for-sale securities, net of tax expense of $6, $16, $12		8			17			24
	Total Comprehensive income					326			622			878
	Member's Contributions					50			358			261
	Distributions to Member					(278	)		(410	)		(1,168	)
	Other					1			2
Member's Equity at end of year					$	4,149		$	4,050		$	3,478
(a)		See Note 1 for disclosure of balances for each component of Accumulated Other Comprehensive Loss.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
		Outstanding
		2005				2004			Maturity (a)
5.40% - 6.40% Senior Unsecured Notes		$	1,100			$	800		2011-2035
2.625% Convertible Senior Notes			400				400		2023
5.875% - 9.25% Unsecured Bonds			1,784				2,051		2004-2028
8.05% Senior Secured Notes (b)			284				284		2013
8.30% Senior Secured Notes (b)			153		(d)		153		2013
6.107% - 6.40% Inflation-linked bonds			190		(d)		161		2006-2022
6.8% - 9.0% Bolivian Bonds			23		(e)		22		2005-2010
Other Long-term Debt			13				14		2011-2013
			3,947				3,885
Fair value adjustments from hedging activities			(3	)			(2	)
Unamortized premium			13
Unamortized discount			(6	)			(8	)
			3,951				3,875
Less amount due within one year			(445	)			(181	)
	Total Long-term Debt	$	3,506			$	3,694
Long-term Debt with Affiliate Trust:
	8.23% Subordinated Debentures (c)	$	89			$	89		2027
See Note 8 for information on debt issuances, debt retirements and other changes in long-term debt.
(a)	Aggregate maturities of long-term debt through 2010 are (millions of dollars): 2006, $445; 2007, $183; 2008, $232; 2009, $5; and 2010, $10. There are no debt securities outstanding that have sinking fund requirements.
(b)	Represents lease financing consolidated through a variable interest entity. See Note 22 for additional information.
(c)	Represents debt with a wholly owned trust that was deconsolidated effective December 31, 2003, as a result of the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See Notes 8 and 22 for further discussion.
(d)	Increase is due to or partially due to an increase in foreign currency exchange rates.
(e)	A portion of the bonds have interest rates that are inflation-linked.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
			2005		2004		2003
Operating Revenues
	Retail electric		$	3,011	$	2,687	$	2,607
	Wholesale electric			4		6		29
	Wholesale electric to affiliate (Note 15)			148		154		152
	Total			3,163		2,847		2,788
Operating Expenses
	Operation
		Energy purchases		266		219		212
		Energy purchases from affiliate (Note 15)		1,590		1,500		1,444
		Other operation and maintenance		365		353		345
		Amortization of recoverable transition costs		268		257		260
	Depreciation (Note 1)			112		107		103
	Taxes, other than income (Note 5)			185		152		164
	Workforce reduction (Note 20)							9
	Total			2,786		2,588		2,537
Operating Income				377		259		251
Other Income - net (Note 16)				21		15		6
Interest Expense				170		187		211
Interest Expense with Affiliate (Note 15)				12		3
Income Before Income Taxes				216		84		46
Income Taxes (Note 5)				69		8		18
Income Before Distributions on Preferred Securities				147		76		28
Distributions on Preferred Securities				2		2		3
Income Available to PPL Corporation			$	145	$	74	$	25
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
				2005			2004			2003
Cash Flows from Operating Activities
	Net income			$	145		$	74		$	25
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			112			107			103
		Stock compensation expense			7			3			2
		Accrual for PJM billing dispute			47
		Amortizations - recoverable transition costs and other			289			278			281
		Deferred income taxes and investment tax credits			9			81			17
		Workforce reduction - net of cash paid									9
		Write-off (deferral) of storm-related costs			(12	)		4			(15	)
	Change in current assets and current liabilities
		Accounts receivable			(38	)		40			19
		Accounts payable			11			50			70
		Collateral on PLR energy supply (Note 15)						302			(2	)
		Other			4			(5	)		8
	Other operating activities
		Other assets			(6	)		(3	)		(4	)
		Other liabilities			12			(33	)		15
			Net cash provided by operating activities		580			898			528
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(174	)		(179	)		(235	)
	Purchases of auction rate securities				(32	)		(60	)
	Proceeds from the sale of auction rate securities				17			50
	Net (increase) decrease in notes receivable from affiliate							(300	)		90
	Net increase in restricted cash				(10	)		(35	)		(2	)
	Other investing activities				6			1			2
			Net cash used in investing activities		(193	)		(523	)		(145	)
Cash Flows from Financing Activities
	Issuance of long-term debt				424						190
	Contribution from parent										75
	Retirement of long-term debt				(559	)		(394	)		(430	)
	Retirement of preferred stock										(31	)
	Payment of common dividends to PPL Corporation				(93	)		(24	)		(29	)
	Net increase (decrease) in short-term debt							42			(15	)
	Other financing activities				(12	)		(10	)		(10	)
			Net cash used in financing activities		(240	)		(386	)		(250	)
Net Increase (Decrease) in Cash and Cash Equivalents					147			(11	)		133
	Cash and Cash Equivalents at Beginning of Period				151			162			29
	Cash and Cash Equivalents at End of Period			$	298		$	151		$	162
Supplemental Disclosures of Cash Flow Information
	Cash paid (received) during the period for:
		Interest		$	156		$	180		$	204
		Income taxes - net		$	21		$	(69	)	$	(17	)
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
			2005		2004
Assets
Current Assets
	Cash and cash equivalents		$	298	$	151
	Restricted cash (Note 18)			42		42
	Accounts receivable (less reserve: 2005, $20; 2004, $18)			224		179
	Unbilled revenues			174		148
	Accounts receivable from affiliates (Note 15)			10		17
	Note receivable from affiliate (Note 15)			300		300
	Prepayments			4		6
	Prepayment on PLR energy supply from affiliate (Note 15)			12		12
	Other			87		66
	Total Current Assets			1,151		921
Property, Plant and Equipment (Note 1)
	Electric plant in service
		Transmission and distribution		4,034		3,904
		General		356		352
				4,390		4,256
	Construction work in progress			43		29
		Electric plant		4,433		4,285
	Other property			3		4
				4,436		4,289
	Less: accumulated depreciation			1,720		1,632
	Total Property, Plant and Equipment			2,716		2,657
Regulatory and Other Noncurrent Assets (Note 1)
	Recoverable transition costs			1,165		1,431
	Acquired intangibles (Note 19)			114		117
	Prepayment on PLR energy supply from affiliate (Note 15)			35		46
	Other			356		354
	Total Regulatory and Other Noncurrent Assets			1,670		1,948
	Total Assets		$	5,537	$	5,526
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
		2005			2004
Liabilities and Equity
Current Liabilities
	Short-term debt	$	42		$	42
	Long-term debt		434			336
	Accounts payable		42			39
	Accounts payable to affiliates (Note 15)		183			168
	Taxes		76			46
	Collateral on PLR energy supply from affiliate (Note 15)		300			300
	Other		147			98
	Total Current Liabilities		1,224			1,029
Long-term Debt			1,977			2,208
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 5)		771			776
	Other (Note 12)		190			190
	Total Deferred Credits and Other Noncurrent Liabilities		961			966
Commitments and Contingent Liabilities (Note 14)
Preferred Stock(Note 7)			51			51
Shareowner's Common Equity
	Common stock - no par value (a)		1,476			1,476
	Additional paid-in capital		361			361
	Treasury stock		(912	)		(912	)
	Earnings reinvested		406			354
	Capital stock expense and other		(7	)		(7	)
	Total Shareowner's Common Equity		1,324			1,272
	Total Liabilities and Equity	$	5,537		$	5,526

(a)	170 million shares authorized; 78 million shares outstanding at December 31, 2005 and 2004.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars, except share amounts)
		2005			2004			2003
Common stock at beginning of year		$	1,476		$	1,476		$	1,476
Common stock at end of year			1,476			1,476			1,476
Additional paid-in capital at beginning of year			361			361			282
	Capital contribution from PPL								75
	Other								4
Additional paid-in capital at end of year			361			361			361
Treasury stock at beginning of year			(912	)		(912	)		(912	)
Treasury stock at end of year			(912	)		(912	)		(912	)
Earnings reinvested at beginning of year			354			304			308
	Net income (a)		145			74			25
	Cash dividends declared on common stock		(93	)		(24	)		(29	)
Earnings reinvested at end of year			406			354			304
Capital stock expense and other at beginning of year			(7	)		(7	)		(7	)
Capital stock expense and other at end of year			(7	)		(7	)		(7	)
Total Shareowner's Common Equity		$	1,324		$	1,272		$	1,222
Common stock shares at beginning of year (b)			78,030			78,030			78,030
Common stock shares at end of year			78,030			78,030			78,030
(a)	PPL Electric's net income approximates comprehensive income.
(b)	Shares in thousands. All common shares of PPL Electric stock are owned by PPL.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
		Outstanding
		2005			2004			Maturity (a)
First Mortgage Bonds (b)
	6-1/2%				$	69		April 1, 2005
	6.55%	$	146			146		March 1, 2006
	7-3/8%		10			10		March 1, 2014
			156			225
First Mortgage Pollution Control Bonds (b)
	3.125% Series		90			90		November 1, 2008
	5.50% Series I					53		February 15, 2027
	4.75% Series		108					February 15, 2027
	4.70% Series		116					September 1, 2029
	6.40% Series J					116		September 1, 2029
	6.15% Series K					55		August 1, 2029
			314			314
Senior Secured Bonds (b)
	5-7/8%		255			255		August 15, 2007
	6-1/4%		486			486		August 15, 2009
	4.30%		100			100		June 1, 2013
	4.95%		100					December 15, 2015
	5.15%		100					December 15, 2020
			1,041			841
Series 1999-1 Transition Bonds
	6.83% - 7.15%		892			1,159		2005-2008
Floating Rate Pollution Control Revenue Bonds (c)			9			9		June 1, 2027
			2,412			2,548
Unamortized discount			(1	)		(4	)
			2,411			2,544
Less amount due within one year			(434	)		(336	)
	Total Long-term Debt	$	1,977		$	2,208

See Note 8 for information on debt issuances, debt retirements and other changes in long-term debt.
(a)	Aggregate maturities of long-term debt through 2010 are (millions of dollars): 2006, $434; 2007, $555; 2008, $395; 2009, $486; and 2010, $0. There are no bonds outstanding that have sinking fund requirements.
(b)	The First Mortgage Bonds and the First Mortgage Pollution Control Bonds were issued under, and are secured by, the lien of the 1945 First Mortgage Bond Indenture. The lien of the 1945 First Mortgage Bond Indenture covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric. The Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture. The Senior Secured Bonds are secured by (i) an equal principal amount of First Mortgage Bonds issued under the 1945 First Mortgage Bond Indenture and (ii) the lien of the 2001 Senior Secured Bond Indenture, which covers substantially all electric distribution plant and certain transmission plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture.
(c)	Rate at December 31, 2005, was 3.58% and at December 31, 2004, was 2.0%.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.Summary of Significant Accounting Policies

General

Business and Consolidation

(PPL, PPL Energy Supply and PPL Electric)

PPL is an energy and utility holding company that, through its subsidiaries, is primarily engaged in the generation and marketing of electricity in the northeastern and western U.S. and in the delivery of electricity in Pennsylvania, the U.K. and Latin America. Based in Allentown, PA, PPL's principal direct subsidiaries are PPL Energy Funding, PPL Electric, PPL Gas Utilities, PPL Services and PPL Capital Funding.

(PPL and PPL Energy Supply)

PPL Energy Funding is the parent of PPL Energy Supply, which serves as the holding company for PPL's principal unregulated subsidiaries. PPL Energy Supply is the parent of PPL Generation, PPL EnergyPlus and PPL Global.

PPL Generation owns and operates a portfolio of domestic power generating assets. These power plants are located in Pennsylvania, Montana, Arizona, Illinois, Connecticut, New York and Maine and use well-diversified fuel sources including coal, uranium, natural gas, oil and water. PPL EnergyPlus markets or brokers electricity produced by PPL Generation, along with purchased power, natural gas and oil, in competitive wholesale and deregulated retail markets, primarily in the northeastern and western portions of the U.S. PPL Global owns and operates international energy businesses that are primarily focused on the distribution of electricity.

(PPL and PPL Electric)

PPL Electric is a rate-regulated subsidiary of PPL. PPL Electric's principal businesses are the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in that territory as a PLR.

(PPL, PPL Energy Supply and PPL Electric)

The consolidated financial statements of PPL, PPL Energy Supply and PPL Electric include each company's own accounts as well as the accounts of all entities in which the company has a controlling financial interest. Investments in entities in which the company has the ability to exercise significant influence but does not have a controlling financial interest are accounted for under the equity method. See Note 3 for further discussion. All other investments are carried at cost or fair value. All significant intercompany transactions have been eliminated. Any minority interests are reflected in the consolidated financial statements.

(PPL and PPL Energy Supply)

It is the policy of PPL and PPL Energy Supply to consolidate or record equity in earnings of foreign entities on a lag, based on the availability of financial data on a U.S. GAAP basis:

· PPL and PPL Energy Supply consolidate the results of foreign entities in which they have a controlling financial interest (WPD, Emel, EC, the Bolivian subsidiaries and other investments) on a one-month lag.

· Earnings from foreign equity method investments are recorded on a three-month lag.

Effective December 31, 2003, PPL's and PPL Energy Supply's consolidated financial statements include the accounts of the lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities. In June 2004, PPL Energy Supply subsidiaries purchased the Sundance and University Park generation assets from the lessor. See Note 22 for further discussion. In May 2005, a subsidiary of PPL Generation completed the sale of its Sundance generation assets to Arizona Public Service Company. See Note 9 for further discussion.

Effective December 31, 2003, PPL deconsolidated PPL Capital Funding Trust I, a wholly owned trust. PPL and PPL Energy Supply deconsolidated SIUK Capital Trust I, also a wholly owned trust. See Note 22 for further discussion.

The consolidated financial statements of PPL and PPL Energy Supply include their share of undivided interests in jointly-owned facilities, as well as their share of the related operating costs of those facilities. See Note 13 for additional information.

Regulation

(PPL and PPL Electric)

PPL Electric and PPL Gas Utilities account for regulated operations in accordance with the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," which requires rate-regulated entities to reflect the effects of regulatory decisions in their financial statements.

The following regulatory assets were included in the "Regulatory and Other Noncurrent Assets" section of the Balance Sheet at December 31.

	PPL				PPL Electric
	2005		2004		2005		2004
Recoverable transition costs	$	1,165	$	1,431	$	1,165	$	1,431
Taxes recoverable through future rates		250		276		242		261
Other		29		20		27		17
	$	1,444	$	1,727	$	1,434	$	1,709

Based on the PUC Final Order, PPL Electric began amortizing its competitive transition (or stranded) costs, $2.97 billion, over an 11-year transition period effective January 1, 1999. In August 1999, competitive transition costs of $2.4 billion were converted to intangible transition costs when they were securitized by the issuance of transition bonds. The intangible transition costs are being amortized over the life of the transition bonds, through December 2008, in accordance with an amortization schedule filed with the PUC. The assets of PPL Transition Bond Company, including the intangible transition property, are not available to creditors of PPL or PPL Electric. The transition bonds are obligations of PPL Transition Bond Company and are non-recourse to PPL and PPL Electric. The remaining competitive transition costs are also being amortized based on an amortization schedule previously filed with the PUC, adjusted for those competitive transition costs that were converted to intangible transition costs. As a result of the conversion of a significant portion of the competitive transition costs into intangible transition costs, amortization of substantially all of the remaining competitive transition costs will occur in 2009.

Included in "Other" above as of December 31, 2005 and 2004, were approximately $10 million and $11 million of storm restoration costs associated with the September 2003 Hurricane Isabel. PPL Electric deferred these costs based on assessment of the PUC declaratory order of January 2004. The costs are being recovered through customer transmission and distribution rates, and are being amortized over ten years effective January 1, 2005.

Also included in "Other" at December 31, 2005, were approximately $12 million of costs associated with severe ice storms in PPL Electric's service territory in January 2005. These costs have been deferred based on an assessment of an order issued by the PUC on August 26, 2005. The ratemaking treatment of these costs will be addressed in PPL Electric's next distribution base rate case. PPL and PPL Electric believe there is a reasonable basis for recovery of all regulatory assets.

(PPL and PPL Energy Supply)

Elfec accounts for regulated operations in accordance with the provisions of SFAS 71. Regulatory assets as of December 31, 2005 and 2004 were insignificant.

Accounting Records(PPL and PPL Electric)

The system of accounts for PPL Electric and PPL Gas Utilities are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the PUC.

Use of Estimates(PPL, PPL Energy Supply and PPL Electric)

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Loss Accruals(PPL, PPL Energy Supply and PPL Electric)

Loss accruals are recorded in accordance with SFAS 5, "Accounting for Contingencies," and other related accounting guidance. Potential losses are accrued when (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains. PPL continuously assesses potential loss contingencies for environmental remediation, litigation claims, income taxes, regulatory penalties and other events.

PPL also has accrued estimated losses on long-term purchase commitments when significant events have occurred. For example, estimated losses were accrued when long-term purchase commitments were assumed under asset acquisition agreements and when PPL Electric's generation business was deregulated.

Changes in Classification

(PPL, PPL Energy Supply and PPL Electric)

The classification of certain amounts in the 2004 and 2003 financial statements have been changed to conform to the current presentation. The changes in classification did not affect net income or total equity.

(PPL and PPL Energy Supply)

In addition, based on recent clarifications of accounting guidance, the Statement of Cash Flows has been revised to reflect the purchases and sales of emission allowances, and the purchases and sales of investments in the nuclear decommissioning trust, on a gross basis within "Cash Flows from Investing Activities." Previously, these cash flows were presented on a net basis within "Cash Flows from Operating Activities." The net impact of this revised presentation was to increase "Cash Flows from Operating Activities" and to decrease "Cash Flows from Investing Activities" by $63 million in 2004 and $17 million in 2003. This revision had no impact on "Cash and Cash Equivalents" for the periods reported. This revision is not considered by management as material to the Financial Statements.

See Note 19 for additional information regarding emission allowances and Note 21 for additional information regarding investments in the nuclear decommissioning trust.

Comprehensive Income(PPL and PPL Energy Supply)

Comprehensive income consists of net income and other comprehensive income, defined as changes in common equity from transactions not related to shareowners. Comprehensive income is shown on PPL's Statement of Shareowners' Common Equity and Comprehensive Income and PPL Energy Supply's Statement of Member's Equity and Comprehensive Income.

Accumulated other comprehensive loss, which is presented on the Balance Sheet of PPL and included in Member's Equity on the PPL Energy Supply Balance Sheet, consisted of these after-tax amounts at December 31.

	2005			2004
PPL
Foreign currency translation adjustments	$	15		$	68
Net unrealized gains on available-for-sale securities		48			40
Additional minimum pension liability		(349	)		(368	)
Net unrealized losses on qualifying derivatives		(246	)		(63	)
	$	(532	)	$	(323	)

PPL Energy Supply
Foreign currency translation adjustments	$	15		$	68
Net unrealized gains on available-for-sale securities		48			40
Additional minimum pension liability		(339	)		(360	)
Net unrealized losses on qualifying derivatives		(237	)		(45	)
	$	(513	)	$	(297	)

Price Risk Management (PPL and PPL Energy Supply)

PPL and PPL Energy Supply enter into energy and energy-related contracts to hedge the variability of expected cash flows associated with their generating units and marketing activities, as well as for trading purposes. PPL and PPL Energy Supply enter into interest rate derivative contracts to hedge their exposure to changes in the fair value of their debt instruments and to hedge their exposure to variability in expected cash flows associated with existing debt instruments or forecasted transactions. PPL and PPL Energy Supply also enter into foreign currency derivative contracts to hedge foreign currency exposures, including firm commitments, recognized assets or liabilities, forecasted transactions, net investments, or foreign earnings translation.

Contracts that meet the definition of a derivative are accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted. Certain energy contracts have been excluded from the requirements of SFAS 133 because they meet the definition of a "normal purchase or normal sale." These contracts are reflected in the financial statements using the accrual method of accounting.

Additionally, PPL and PPL Energy Supply adopted SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," as of July 1, 2003. The requirements of SFAS 149, which required prospective application, placed additional limitations on the use of the normal purchase or normal sale exception.

All derivative contracts that are subject to the requirements of SFAS 133 and its amendments are reflected on the balance sheet at their fair value. On the date the derivative contract is executed, PPL may designate the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), a foreign currency fair value or cash flow hedge ("foreign currency" hedge), or a hedge of a net investment in a foreign operation ("net investment" hedge). Changes in the fair value of derivatives are recorded in either other comprehensive income or in current-period earnings in accordance with SFAS 133.

Unrealized gains and losses from changes in market prices of energy contracts accounted for as fair value hedges are reflected in "Energy purchases" on the Statement of Income, as are changes in the underlying positions. Realized gains and losses from energy contracts accounted for as fair value hedges or cash flow hedges, when recognized on the Statement of Income, are reflected in "Fuel" or "Energy purchases," consistent with the hedged item. Changes in the fair value of derivatives that are not designated as hedging instruments are reflected in "Net energy trading margins" revenues. However, unrealized gains and losses on FTRs and options to hedge synthetic fuel tax credits, which are not designated as hedging instruments, are reflected in "Energy purchases" and "Energy-related business" revenues, respectively. Gains and losses from interest rate and foreign currency derivative contracts that hedge interest payments, when recognized on the Statement of Income, are accounted for in "Interest Expense." Gains and losses from foreign currency derivative contracts that economically hedge foreign earnings translation are recognized in "Other Income - net." Gains and losses from foreign currency derivative contracts that hedge foreign currency payments for equipment, when recognized on the Statement of Income, are accounted for in "Depreciation."

Under EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," PPL reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in "Net energy trading margins" revenues on the Statement of Income. The physical volumes for electricity and gas associated with energy trading were 5,800 GWh and 13.4 Bcf in 2005; 5,700 GWh and 11.7 Bcf in 2004; and 5,200 GWh and 12.6 Bcf in 2003.

PPL Energy Supply adopted the final provisions of EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," prospectively as of October 1, 2003. As a result of the adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available.

See Note 17 for additional information on SFAS 133, its amendments and related accounting guidance.

Revenue

Utility Revenue

(PPL and PPL Energy Supply)

The Statement of Income "Utility" line item contains revenues from domestic and international rate-regulated delivery operations.

WPD revenues are stated net of value-added tax.

(PPL Electric)

Since most of PPL Electric's operations are regulated, it is not meaningful to use a "Utility" caption. Therefore, the revenues of PPL Electric are presented according to specific types of revenue.

Revenue Recognition(PPL, PPL Energy Supply and PPL Electric)

Operating revenues, except for "Energy-related businesses," are recorded based on energy deliveries through the end of the calendar month. Unbilled retail revenues result because customers' meters are read and bills are rendered throughout the month, rather than all being read at the end of the month. Unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh by the estimated average cents per kWh. Unbilled wholesale energy revenues are recorded at month-end to reflect estimated amounts until actual dollars and MWhs are confirmed and invoiced. At that time, unbilled revenue is reversed and actual revenue is recorded.

PPL records energy marketing activity in the period when the energy is delivered. The wholesale sales and purchases that meet the criteria in EITF 03-11 are reported net on the Statement of Income within "Wholesale energy marketing." Additionally, the bilateral sales and purchases that are designated as trading activities are also reported net, in accordance with EITF 02-3 and are reported on the Statement of Income within "Net energy trading margins." Spot market activity that balances PPL's physical trading positions is included on the Statement of Income in "Net energy trading margins."

Certain PPL subsidiaries participate in RTOs, primarily in PJM, but also in the surrounding regions of New York (NYISO), New England (ISO-NE) and the Midwest (MISO). In PJM, PPL EnergyPlus is a marketer, a load-serving entity to its customers who have selected it as a supplier and a seller for PPL's generation subsidiaries. PPL Electric is a transmission owner and PLR in PJM. In ISO-NE, PPL EnergyPlus is a marketer, a load-serving entity, and a seller for PPL's New England generating assets. In the NYISO and MISO regions, PPL EnergyPlus acts as a marketer. PPL Electric does not participate in ISO-NE, NYISO or MISO. A function of interchange accounting is to match participants' MWh entitlements (generation plus scheduled bilateral purchases) against their MWh obligations (load plus scheduled bilateral sales) during every hour of every day. If the net result during any given hour is an entitlement, the participant is credited with a spot-market sale to the ISO at the respective market price for that hour; if the net result is an obligation, the participant is charged with a spot-market purchase from the ISO at the respective market price for that hour. ISO purchases and sales are not allocated to individual customers. PPL records the hourly net sales and purchases in its financial statements as sales to and purchases from the respective ISOs.

"Energy-related businesses" revenue includes revenues from the mechanical contracting and engineering subsidiaries, WPD's telecommunications and property subsidiaries and PPL Global's proportionate share of affiliate earnings under the equity or cost method of accounting, as described in the "Business and Consolidation" section of Note 1. The mechanical contracting and engineering subsidiaries record profits from construction contracts on the percentage-of-completion method of accounting. Income from time and material contracts is recognized currently as the work is performed.

Allowance for Doubtful Accounts

(PPL, PPL Energy Supply and PPL Electric)

Accounts receivable collectibility is evaluated using a combination of factors. Reserve balances are analyzed to assess the reasonableness of the balances in comparison to the actual accounts receivable balances and write-offs. Adjustments are made to reserve balances based on the results of analysis, the aging of receivables, and historical and industry trends.

Additional specific reserves for uncollectible accounts receivable, such as bankruptcies, are recorded on a case-by-case basis after having been researched and reviewed by management. Unusual items, trends in write-offs, the age of the receivable, counterparty creditworthiness and economic conditions are considered as a basis for determining the adequacy of the reserve for uncollectible account balances.

(PPL and PPL Energy Supply)

PPL's and PPL Energy Supply's significant specific reserves relate to receivables from Enron, which filed for bankruptcy in 2001, and from the California ISO, which has withheld payment pending the outcome of regulatory proceedings arising from the California electricity supply situation that began in 2000. At December 31, 2005 and 2004, these two reserves accounted for 60% and 59% of PPL's total allowance for doubtful accounts and 80% and 76% of PPL Energy Supply's total allowance for doubtful accounts.

Cash and Investments (PPL, PPL Energy Supply and PPL Electric)

Cash Equivalents

All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents.

PPL invests in auction rate and similar securities which provide for periodic reset of interest rates and are highly liquid. Even though PPL considers these debt securities as part of its liquid portfolio, it does not include these securities in cash and cash equivalents due to the stated maturity of the securities. These securities are included in "Current Assets - Other" on the Balance Sheet.

Restricted Cash

Bank deposits that are restricted by agreement or that have been designated for a specific purpose are classified as restricted cash. The change in restricted cash is reported as an investing activity in the Statement of Cash Flows. On the Balance Sheet, the current portion of restricted cash is shown as "Restricted cash" within current assets, while the noncurrent portion is included in "Other" within other noncurrent assets. See Note 18 for the components of restricted cash.

Investments in Debt and Marketable Equity Securities

Investments in debt securities are classified as held-to-maturity, and measured at amortized cost, when there is an intent and ability to hold the securities to maturity. Debt securities and marketable equity securities that are acquired and held principally for the purpose of selling them in the near-term are classified as trading. All other investments in debt and marketable equity securities are classified as available-for-sale. Both trading and available-for-sale securities are carried at fair value. Any unrealized gains and losses for trading securities are included in earnings. Unrealized gains and losses for available-for-sale securities are reported, net of tax, in other comprehensive income or are recognized currently in earnings when a decline in fair value is determined to be other than temporary. The specific identification method is used to calculate realized gains and losses on debt and marketable equity securities. See Note 21 for additional information on securities held in the nuclear decommissioning trusts.

Long-Lived and Intangible Assets

Property, Plant and Equipment(PPL, PPL Energy Supply and PPL Electric)

PP&E is recorded at original cost, unless impaired. If impaired, the asset is written down to fair value at that time, which becomes the asset's new cost basis. Original cost includes material, labor, contractor costs, construction overheads and financing costs, where applicable. The cost of repairs and minor replacements are charged to expense as incurred. PPL records costs associated with planned major maintenance projects in the period in which the costs are incurred. No costs are accrued in advance of the period in which the work is performed.

AFUDC is capitalized as part of the construction costs for regulated projects. Interest is capitalized as part of construction costs for non-regulated projects.

(PPL)

Included in PP&E on the balance sheet are capitalized costs of software projects that were developed or obtained for internal use. At December 31, 2005 and 2004, capitalized software costs were $92 million and $83 million, and there was $57 million and $46 million of accumulated amortization. Such capitalized amounts are amortized ratably over the expected lives of the projects when they become operational, generally not to exceed 10 years. During 2005, 2004 and 2003, PPL amortized capitalized software costs of $13 million, $11 million and $14 million.

(PPL Energy Supply)

Included in PP&E on the balance sheet are capitalized costs of software projects that were developed or obtained for internal use. At December 31, 2005 and 2004, capitalized software costs were $54 million and $52 million, and there was $38 million and $33 million of accumulated amortization. Such capitalized amounts are amortized ratably over the expected lives of the projects when they become operational, generally not to exceed 10 years. During 2005, 2004 and 2003, PPL Energy Supply amortized capitalized software costs of $6 million, $5 million and $7 million.

(PPL Electric)

Included in PP&E on the balance sheet are capitalized costs of software projects that were developed or obtained for internal use. At December 31, 2005 and 2004, capitalized software costs were $21 million and $20 million. At December 31, 2005 and 2004, accumulated amortization was $12 million and $8 million. Such capitalized amounts are amortized ratably over the expected lives of the projects when they become operational, generally not to exceed 5 years. During 2005, 2004 and 2003, PPL Electric amortized capitalized software costs of $4 million, $4 million and $5 million.

Depreciation(PPL, PPL Energy Supply and PPL Electric)

Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite and group methods. When a component of PP&E is retired that was depreciated under the composite or group method, the original cost is charged to accumulated depreciation. When all or a significant portion of an operating unit that was depreciated under the composite or group method is retired or sold, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income, unless otherwise required by regulators.

PPL and its subsidiaries periodically review the useful lives of their fixed assets. In light of significant planned environmental capital expenditures, PPL Generation conducted studies of the useful lives of Montour Units 1 and 2 and Brunner Island Unit 3 during the first quarter of 2005. Based on these studies, the useful lives of these units were extended from 2025 to 2035, effective January 1, 2005. In the second quarter of 2005, PPL Generation conducted additional studies of the useful lives of certain Eastern fossil-fuel and hydroelectric generation plants. The most significant change related to the useful lives of Brunner Island Units 1 and 2 and Martins Creek Units 3 and 4, which were extended from 2025 to 2035, effective July 1, 2005. The effect of these changes in useful lives for 2005 was to increase net income, as a result of lower depreciation, by approximately $7 million.

As a result of the final regulatory outcome published by Ofgem of the most recent price control review and an assessment of the economic life of meters, WPD reduced the remaining depreciable lives of its existing meter stock to approximately nine years. The lives of new meters were reduced from 40 years to 19 years. The effect for 2005 was to decrease net income, as a result of higher depreciation, by approximately $5 million.

Following are the weighted-average rates of depreciation at December 31.

	2005
	PPL		PPL Energy Supply		PPL Electric
Generation		2.01%		2.02%
Transmission and distribution		3.03%		3.89%		2.23%
General		3.78%		4.12%		2.87%

	2004
	PPL		PPL Energy Supply		PPL Electric
Generation		2.11%		2.11%
Transmission and distribution		2.86%		3.49%		2.22%
General		3.41%		3.75%		3.19%

The annual provisions for depreciation have been computed principally in accordance with the following ranges, in years, of assets lives.

	PPL		PPL Energy Supply		PPL Electric
Generation		2-50		2-50
Transmission and distribution		5-70		5-50		10-70
General		3-80		3-60		10-80

Goodwill and Other Acquired Intangible Assets(PPL, PPL Energy Supply and PPL Electric)

Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of a business. In accordance with SFAS 142, "Goodwill and Other Intangible Assets," PPL and its subsidiaries do not amortize goodwill.

Other acquired intangible assets that have finite useful lives are valued at cost and amortized over their useful lives based upon the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up.

Asset Impairment(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries review long-lived assets, including intangibles, that are subject to depreciation or amortization for impairment when events or circumstances indicate carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of long-lived assets is not recoverable from undiscounted future cash flow. The impairment charge is measured by the difference between the carrying amount of the asset and its fair value. See Note 9 for a discussion of asset impairment charges recorded.

Goodwill is reviewed for impairment, at the reporting unit level, annually or more frequently when events or circumstances indicate that the carrying value may be greater than the implied fair value. PPL's reporting units are one level below its operating segments. If the carrying value of the reporting unit exceeds its fair value, the implied fair value of goodwill must be calculated. If the implied fair value of goodwill is less than its carrying value, the difference represents the amount of impairment.

Asset Retirement Obligations(PPL, PPL Energy Supply and PPL Electric)

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 is measured at the estimated fair value. An equivalent amount is 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 is increased, through the recognition of accretion expense in the income statement, for changes in the obligation due to the passage of time.

In 2005, the FASB issued FIN No. 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" that clarifies certain aspects of SFAS 143 related to conditional AROs.

See Note 21 for a discussion of accounting for AROs.

Compensation and Benefits

Pension and Other Postretirement Benefits(PPL, PPL Energy Supply and PPL Electric)

PPL and certain of its subsidiaries sponsor various pension and other postretirement and postemployment benefit plans. PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these benefits.

PPL uses a market-related value of plan assets in accounting for its pension plans. The market-related value of assets is calculated by rolling forward the prior year market-related value with contributions, disbursements and expected return on investments. One-fifth of the difference between the actual value and the expected value is added (or subtracted if negative) to the expected value to determine the new market-related value.

PPL uses an accelerated amortization method for the recognition of gains and losses for its pension plans. Under the accelerated method, gains and losses in excess of 10% but less than 30% of the greater of the plan's projected benefit obligation or the market-related value of plan assets are amortized on a straight-line basis over the estimated average future service period of plan participants. Gains and losses in excess of 30% of the plan's projected benefit obligation are amortized on a straight-line basis over a period equal to one-half of the average future service period of the plan participants.

See Note 12 for a discussion of pension and other postretirement benefits.

Stock-Based Compensation

(PPL, PPL Energy Supply and PPL Electric)

PPL grants stock options, restricted stock, restricted stock units and stock units to employees and directors under several stock-based compensation plans. SFAS 123, "Accounting for Stock-Based Compensation," encourages entities to record compensation expense for stock-based compensation plans at fair value but provides the option of measuring compensation expense using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The fair value method under SFAS 123 is the preferable method of accounting for stock-based compensation, as it provides a consistent basis of accounting for all stock-based awards, thereby facilitating a better measure of compensation cost and improved financial reporting.

Prior to 2003, PPL and its subsidiaries 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." 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, were accounted for under the intrinsic value method of APB Opinion No. 25, to the extent such awards are not modified or settled.

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. Stock options with graded vesting (i.e., that vest in installments) are valued as a single award.

PPL and its subsidiaries were not required to recognize compensation expense for stock options issued and accounted for under the intrinsic value method of APB Opinion No. 25, since PPL grants stock options with an exercise price that is not less than the fair market value of PPL's common stock on the date of grant. As currently structured, awards of restricted stock, restricted stock units and stock units 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. See Note 11 for a discussion of stock-based compensation. Stock-based compensation is included in "Other operation and maintenance" expense on the Statement of Income.

The table below illustrates 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 2004 and 2003. For 2005, the difference between the pro forma and reported amounts would have been insignificant.

(PPL)

		2004		2003
Net Income
Net Income - as reported		$	698	$	734
	Add: Stock-based employee compensation expense included in reported net income, net of tax		8		5
	Deduct: Total stock-based compensation expense determined under the fair value method for all awards, net of tax		10		9
Pro forma Net Income		$	696	$	730
EPS
Basic - as reported		$	1.89	$	2.13
Basic - pro forma		$	1.89	$	2.12
Diluted - as reported		$	1.89	$	2.12
Diluted - pro forma		$	1.88	$	2.11

(PPL Energy Supply)

		2004		2003
Net Income
Net Income - as reported		$	651	$	727
	Add: Stock-based employee compensation expense included in reported net income, net of tax		5		3
	Deduct: Total stock-based compensation expense determined under the fair value method for all awards, net of tax		7		6
Pro forma Net Income		$	649	$	724

PPL Energy Supply's stock-based compensation expense includes an allocation of PPL Services' expense.

(PPL Electric)

PPL Electric's 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 each of 2005, 2004 and 2003.

(PPL, PPL Energy Supply and PPL Electric)

In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment," which is known as SFAS 123(R) and replaces SFAS 123, "Accounting for Stock-Based Compensation," as amended by SFAS 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." PPL and its subsidiaries adopted SFAS 123(R) effective January 1, 2006. See Note 23 for a discussion of SFAS 123(R).

In SFAS 123(R), the FASB provided additional guidance on the requirement to accelerate expense recognition for employees who are at or near retirement age and who are under a plan that allows for accelerated vesting upon an employee's retirement. Such guidance is relevant to prior accounting for stock-based compensation under other accounting guidance. PPL's stock-based compensation plans allow for accelerated vesting upon an employee's retirement. Thus, for employees who are retirement eligible when stock-based awards are granted, PPL will recognize the expense immediately. For employees who are not retirement eligible when stock-based awards are granted, PPL will amortize the awards on a straight-line basis over the shorter of the vesting period or the period up to the employee's attainment of retirement age. Retirement eligible has been defined by PPL as the early retirement age of 55. The adjustments below related to retirement-eligible employees were recorded based on the aforementioned clarification of existing guidance and are not related to the adoption of SFAS 123(R).

(PPL)

In 2005, PPL recorded a charge of approximately $10 million after tax, or $0.03 per share, to accelerate stock-based compensation expense for retirement-eligible employees. Approximately $5 million of the after-tax total, or $0.01 per share, was related to periods prior to 2005. The prior period amounts were not material to previously issued financial statements.

(PPL Energy Supply)

In 2005, PPL Energy Supply recorded a charge of approximately $7 million after tax to accelerate stock-based compensation expense for retirement-eligible employees. Approximately $3 million of the after-tax total was related to periods prior to 2005. The prior period amounts were not material to previously issued financial statements.

(PPL Electric)

In 2005, PPL Electric recorded a charge of approximately $3 million after tax to accelerate stock-based compensation expense for retirement-eligible employees. Approximately $2 million of the after-tax total was related to periods prior to 2005. The prior period amounts were not material to previously issued financial statements.

Other

Income Taxes

(PPL, PPL Energy Supply and PPL Electric)

The income tax provision for PPL and its subsidiaries is calculated in accordance with SFAS 109, "Accounting for Income Taxes." PPL and its domestic subsidiaries file a consolidated U.S. federal income tax return.

Significant management judgment is required in developing PPL's provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets, as well as estimating the phase-out range for synthetic fuel tax credits that is not published by the IRS until April of the following year. PPL and its subsidiaries record valuation allowances to reduce deferred tax assets to the amounts that are more likely than not to be realized. PPL and its subsidiaries have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances. If PPL and its subsidiaries determined that they would be able to realize deferred tax assets in the future in excess of net deferred tax assets, adjustments to the deferred tax assets would increase income by reducing tax expense in the period that such determination was made. Likewise, if PPL and its subsidiaries determined that they would not be able to realize all or part of net deferred tax assets in the future, adjustments to the deferred tax assets would decrease income by increasing tax expense in the period that such determination was made.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination by taxing authorities of prior year tax returns; the amount ultimately paid upon resolution of issues raised by such authorities may differ materially from the amount accrued and may materially impact PPL's financial statements. In evaluating the exposure associated with various tax filing positions, PPL and its subsidiaries accrue charges for probable exposures based on management's best estimate of the amount that should be recognized. PPL and its subsidiaries maintain an allowance for tax contingencies, the balance of which management believes to be adequate.

The provision for PPL Energy Supply and PPL Electric is calculated in accordance with an intercompany tax sharing policy which provides that the taxable income be calculated as if PPL Energy Supply and PPL Electric and its domestic subsidiaries each filed a separate consolidated return. PPL Energy Supply's intercompany tax liability was $40 million and $44 million at December 31, 2005 and 2004. PPL Electric's intercompany tax liability was $6 million at December 31, 2005, and the intercompany receivable was $5 million at December 31, 2004.

PPL Energy Supply and PPL Electric deferred investment tax credits when they were utilized and are amortizing the deferrals over the average lives of the related assets. See Note 5 for additional discussion regarding income taxes.

(PPL and PPL Electric)

The provision for PPL Electric's deferred income taxes for regulated assets is based upon the ratemaking principles reflected in rates established by the PUC and the FERC. The difference in the provision for deferred income taxes for regulated assets and the amount that otherwise would be recorded under U.S. GAAP is deferred and included in taxes recoverable through future rates in "Regulatory and Other Noncurrent Assets - Other" on the Balance Sheet. See Note 5 for additional information.

Leases

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries apply the provisions of SFAS 13, "Accounting for Leases," as amended and interpreted, to all transactions that qualify for lease accounting. See Note 10 for a discussion of accounting for leases under which PPL, PPL Energy Supply and PPL Electric are lessees.

(PPL and PPL Energy Supply)

In 2002, PPL began commercial operation of its 79.9 MW oil-powered station in Shoreham, New York. The Long Island Power Authority has contracted to purchase all of the plant's capacity and ancillary services as part of a 15-year power purchase agreement with PPL EnergyPlus. The capacity payments in the power purchase agreement result in the plant being classified as a direct-financing lease, under which PPL EnergyPlus is the lessor.

In December 2004, PPL and PPL Energy Supply recorded a sales-type lease related to an 8 MW on-site electrical generation plant, under which a subsidiary of PPL Energy Supply is the lessor.

As of December 31, 2005 and 2004, PPL and PPL Energy Supply had receivable balances of $256 million and $273 million (included in "Current Assets - Other" and "Regulatory and Other Noncurrent Assets - Other" for PPL and "Current Assets - Other" and "Other Noncurrent Assets - Other" for PPL Energy Supply) and unearned revenue balances of $143 million and $158 million (included in "Deferred Credits and Other Noncurrent Liabilities - Other"). The receivable balances include $65 million of an unguaranteed residual value. Rental income received during 2005, 2004 and 2003 was $15 million, $14 million and $15 million. Total future minimum lease payments expected to be received on both leases are estimated at $16 million for each of the years from 2006 through 2010.

Fuel, Materials and Supplies

(PPL)

PPL and its subsidiaries value inventory at the lower of cost or market, primarily using the average-cost method. At December 31, 2005, PPL Gas Utilities valued all of its natural gas inventory using the last-in, first-out method (LIFO). The carrying value of that inventory was $16 million and $5 million at December 31, 2005 and 2004, and the excess of replacement cost over carrying value was $15 million and $7 million at December 31, 2005 and 2004.

(PPL Energy Supply and PPL Electric)

Fuel, materials and supplies are valued at the lower of cost or market using the average-cost method.

Guarantees(PPL, PPL Energy Supply and PPL Electric)

In accordance with the provisions of 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," 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. See Note 14 for further discussion of recorded and unrecorded guarantees.

Treasury Stock(PPL and PPL Electric)

Treasury shares are reflected on the balance sheet as an offset to common equity under the cost method of accounting. Management has no definitive plans for the future use of these shares. Treasury shares are not considered outstanding in calculating EPS.

At December 31, 2005 and 2004, PPL held 62,113,489 and 62,091,706 shares of treasury stock. At December 31, 2005 and 2004, PPL Electric held 79,270,519 shares of treasury stock.

Foreign Currency Translation and Transactions(PPL and PPL Energy Supply)

Assets and liabilities of international operations, where the local currency is the functional currency, are translated at year-end exchange rates, and related revenues and expenses are translated at average exchange rates prevailing during the year. Adjustments resulting from translation are recorded in accumulated other comprehensive loss.

Gains or losses relating to foreign currency transactions are recognized currently in income. The aggregate transaction losses were insignificant in 2005, 2004 and 2003.

New Accounting Standards (PPL, PPL Energy Supply and PPL Electric)

See Note 23 for a discussion of new accounting standards recently adopted or pending adoption.

2.Segment and Related Information

(PPL and PPL Energy Supply)

PPL's reportable segments are Supply, International Delivery (formerly International) and Pennsylvania Delivery (formerly Delivery). In 2005, there were no changes to the reportable segments except that the segments were renamed to more specifically describe their businesses. The Supply segment primarily consists of the domestic energy marketing, domestic generation and domestic development operations of PPL Energy Supply. The International Delivery segment includes operations of the international energy businesses of PPL Global that are primarily focused on the distribution of electricity. The majority of PPL Global's international businesses are located in the U.K., Chile, El Salvador and Bolivia. The Pennsylvania Delivery segment includes the regulated electric and gas delivery operations of PPL Electric and PPL Gas Utilities.

PPL Energy Supply's reportable segments are Supply and International Delivery. The International Delivery segment at the PPL Energy Supply level is consistent with the International Delivery segment at the PPL level. The Supply segment information reported at the PPL Energy Supply level will not agree with the Supply segment information reported at the PPL level. Additional Supply segment functions, including telecommunications and acquisition, divestiture and development activities, exist at PPL that are outside of PPL Energy Supply. Furthermore, certain income items, including PLR revenue and certain interest income, exist at the PPL Energy Supply level, but are eliminated in consolidation at the PPL level. Finally, certain expense items are fully allocated to the segments at the PPL level only.

Segments include direct charges, as well as an allocation of indirect corporate costs, for services provided by PPL Services. These service costs include functions such as financial, legal, human resources and information services.

Financial data for the segments are:

		PPL									PPL Energy Supply
		2005			2004			2003			2005			2004			2003
Income Statement Data
Revenues from external customers
	Supply	$	1,814		$	1,823		$	1,788		$	3,375		$	3,305		$	3,220
	International Delivery		1,206			1,102			1,013			1,206			1,102			1,013
	Pennsylvania Delivery		3,199			2,869			2,784
			6,219			5,794			5,585			4,581			4,407			4,233
Intersegment revenues (a)
	Supply		1,590			1,500			1,444
	Pennsylvania Delivery		152			156			161
Equity in earnings of unconsolidated affiliates
	Supply		(12	)		(10	)		(14	)		(12	)		(9	)		(11	)
	International Delivery		3			2			3			3			2			3
			(9	)		(8	)		(11	)		(9	)		(7	)		(8	)
Depreciation
	Supply		144			144			120			136			138			116
	International Delivery		157			146			147			157			146			147
	Pennsylvania Delivery		119			114			109
			420			404			376			293			284			263
Amortizations - recoverable transition costs and other
	Supply		33			14			(15	)		18			(1	)		(26	)
	International Delivery		(13	)		(2	)					(13	)		(2	)
	Pennsylvania Delivery		278			267			271
			298			279			256			5			(3	)		(26	)
Interest income
	Supply		(6	)		15			(2	)		21			23			17
	International Delivery		8			8			7			8			8			7
	Pennsylvania Delivery		21			16			7
			23			39			12			29			31			24
Interest expense
	Supply		116			114			38			81			64			(19	)
	International Delivery		203			203			218			203			203			218
	Pennsylvania Delivery		189			196			217
			508			513			473			284			267			199

		PPL								PPL Energy Supply
		2005			2004		2003			2005		2004		2003
Income tax expense
	Supply		20			127		186			41		148		224
	International Delivery		34			59		(30	)		34		59		(30	)
	Pennsylvania Delivery		67			17		23
			121			203		179			75		207		194
Deferred income taxes and investment tax credits
	Supply		(92	)		18		13			14		105		93
	International Delivery		18			50		55			18		50		55
	Pennsylvania Delivery		10			87		22
			(64	)		155		90			32		155		148
Net Income
	Supply (b) (c)		311			421		502			327		454		531
	International Delivery (d)		215			197		196			215		197		196
	Pennsylvania Delivery		152			80		36
		$	678		$	698	$	734		$	542	$	651	$	727
Cash Flow Data
Expenditures for property, plant and equipment
	Supply	$	332		$	259	$	270		$	304	$	242	$	256
	International Delivery		289			279		246			289		279		246
	Pennsylvania Delivery		190			196		251
		$	811		$	734	$	767		$	593	$	521	$	502

		PPL				PPL Energy Supply
		As of December 31,				As of December 31,
		2005		2004		2005		2004
Balance Sheet Data
Net investment in unconsolidated affiliates - at equity
	Supply	$	41	$	36	$	41	$	36
	International Delivery		15		15		15		15
			56		51		56		51
Total assets
	Supply		7,118		6,645		7,575		7,075
	International Delivery		5,089		5,390		5,089		5,390
	Pennsylvania Delivery		5,719		5,698
		$	17,926	$	17,733	$	12,664	$	12,465

	PPL						PPL Energy Supply
	2005		2004		2003		2005		2004		2003
Geographic Data
Revenues from external customers
U.S.	$	5,013	$	4,692	$	4,572	$	3,375	$	3,305	$	3,220
Foreign:
U.K.		750		715		651		750		715		651
Latin America		456		387		362		456		387		362
		1,206		1,102		1,013		1,206		1,102		1,013
	$	6,219	$	5,794	$	5,585	$	4,581	$	4,407	$	4,233

	PPL				PPL Energy Supply
	As of December 31,				As of December 31,
	2005		2004		2005		2004
Property, Plant and Equipment
U.S.	$	7,292	$	7,359	$	4,287	$	4,439
Foreign:
U.K.		3,162		3,373		3,162		3,373
Latin America		462		417		462		417
		3,624		3,790		3,624		3,790
	$	10,916	$	11,149	$	7,911	$	8,229

(a)	See "PLR Contracts" and "NUG Purchases" in Note 15 for the basis of accounting between reportable segments.
(b)	2005 and 2003 include cumulative effects of changes in accounting principles. See Notes 21 and 22 for additional information.
(c)	2005, 2004 and 2003 include the operating results of the Sundance plant recorded in "Loss from Discontinued Operations." 2005 also includes the loss on the sale of the Sundance plant that is recorded in "Loss from Discontinued Operations." See Note 9 for additional information.
(d)	2004 includes the operating results of a Latin American telecommunications company, as well as an insignificant write-down of its net assets, recorded in "Loss from Discontinued Operations." See Note 9 for additional information.

3.Investment in Unconsolidated Affiliates - at Equity

(PPL and PPL Energy Supply)

Investment in unconsolidated affiliates accounted for under the equity method at December 31 (equity ownership percentages as of December 31, 2005) was:

	2005		2004
Aguaytia Energy, LLC - 11.4%	$	10	$	9
Bangor-Pacific Hydro Associates - 50.0%		17		15
Safe Harbor Water Power Corporation - 33.3%		15		15
Other		14		12
	$	56	$	51

In January 2006, PPL Global entered into an agreement to sell its minority interest in Aguaytia Energy, LLC.

A PPL Energy Supply subsidiary has a 50% interest in a partnership that owns the Griffith gas-fired generation station. The partnership arrangement is essentially a cost-sharing arrangement, in that each of the partners has rights to one-half of the plant capacity and energy, and an obligation to cover one-half of the operating costs of the station. Accordingly, the equity investment is not reflected in the table above and is classified as "Electric plant in service - Generation" on the Balance Sheet.

4.Earnings Per Share

(PPL)

In August 2005, PPL completed a 2-for-1 split of its common stock. The record date for the stock split was August 17, 2005, and the distribution date was August 24, 2005. As a result of the stock split, approximately 190 million shares were issued to shareholders, and approximately 31 million shares were issued as treasury shares as of the record date. The par value of the stock remains at $0.01 per share and, accordingly, $2 million was transferred from "Capital in excess of par value" to "Common stock" on the Balance Sheet. The number of shares, the market price, and earnings and dividends per share amounts, as well as PPL's stock-based compensation awards, the conversion rate and market price trigger of PPL Energy Supply's 2.625% Convertible Senior Notes due 2023 and the threshold appreciation price and shares issued under the PEPS Units transaction, included in these financial statements have been adjusted for all periods presented to reflect the stock split.

Basic EPS is calculated using the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated using weighted average shares outstanding that are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock. Potentially dilutive securities consist of:

· stock options, restricted stock and restricted stock units granted under the incentive compensation plans;

· stock units representing common stock granted under the directors compensation programs;

· common stock purchase contracts that were a component of the PEPS Units and PEPS Units, Series B; and

· convertible senior notes.

The basic and diluted EPS calculations, and the reconciliation of the shares (in thousands) used in the calculations, are:

		2005			2004		2003
Income (Numerator)
Income from continuing operations		$	737		$	713	$	733
	Loss from discontinued operations (net of tax)		51			15		34
	Cumulative effects of changes in accounting principles (net of tax)		(8	)				35
Net Income		$	678		$	698	$	734
Shares (Denominator)
Shares for Basic EPS			379,132			368,456		345,589
Add incremental shares
	Convertible Senior Notes		2,263			134
	Restricted stock, stock options and other share-based awards		2,342			1,396		1,194
Shares for Diluted EPS			383,737			369,986		346,783

		2005			2004		2003
Basic EPS
Income from continuing operations		$	1.94		$	1.93	$	2.12
	Loss from discontinued operations (net of tax)		0.13			0.04		0.09
	Cumulative effects of changes in accounting principles (net of tax)		(0.02	)				0.10
Net Income		$	1.79		$	1.89	$	2.13
Diluted EPS
Income from continuing operations		$	1.92		$	1.93	$	2.12
	Loss from discontinued operations (net of tax)		0.13			0.04		0.10
	Cumulative effects of changes in accounting principles (net of tax)		(0.02	)				0.10
Net Income		$	1.77		$	1.89	$	2.12

In May 2001, PPL and PPL Capital Funding Trust I issued 23 million PEPS Units that contained a purchase contract component for PPL's common stock. The purchase contracts were only dilutive if the average price of PPL's common stock exceeded a threshold appreciation price, which was adjusted for cash distributions on PPL common stock. The threshold appreciation price was initially set at $32.52 and was adjusted to $31.69 as of April 1, 2004, based on dividends paid on PPL's common stock since issuance. The purchase contracts were settled in May 2004. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculations for 2004 and 2003.

In January 2004, PPL completed an exchange offer resulting in the exchange of approximately four million PEPS Units for PEPS Units, Series B. The primary difference in the units related to the debt component. The purchase contract components of both units, which were potentially dilutive, were identical. The threshold appreciation price for the purchase contract component of the PEPS Units, Series B was adjusted in the same manner as that of the PEPS Units and was $31.69 as a result of the adjustment as of April 1, 2004. These purchase contracts were settled in May 2004. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculations for 2004.

In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible Senior Notes due 2023. The notes are guaranteed by PPL and, as originally issued, could be converted into shares of PPL common stock if:

· during any fiscal quarter starting after June 30, 2003, the market price of PPL's common stock trades at or above $29.84 per share over a certain period during the preceding fiscal quarter;

· PPL calls the debt for redemption;

· the holder exercises its right to put the debt on any five-year anniversary of the offering;

· the long-term credit rating assigned to the notes by Moody's Investors Service, Inc. and Standard & Poor's Ratings Services falls below Ba2 and BB or the notes are not rated; or

· certain specified corporate transactions occur, e.g., change in control and certain distributions to the holders of PPL common stock.

The conversion rate is 40.2212 shares per $1,000 principal amount of notes. It will be adjusted if certain specified distributions, whether in the form of cash, stock, other equity interests, evidence of indebtedness or assets, are made to holders of PPL common stock. Additionally, the conversion rate can be increased by PPL if its Board of Directors has made a determination that to do so would be in the best interests of either PPL or holders of PPL common stock.

Depending upon which of the conversion events identified above occurs, the Convertible Senior Notes, as originally issued, could have been settled in cash or shares. However, the notes were modified in November 2004 to require cash settlement of the principal amount, permit settlement of any conversion premium in cash or stock and eliminate a provision that required settlement in stock in the event of default. These modifications were made in response to the FASB's ratification of EITF Issue 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share," as well as other anticipated rules relating to EPS. EITF Issue 04-8 requires contingently convertible instruments to be included in diluted EPS. It also requires restatement of prior-period diluted EPS, in certain circumstances, based upon the terms of the contingently convertible instruments as of the date of adoption, which was December 31, 2004, for PPL.

The Convertible Senior Notes have a dilutive impact when the average market price of PPL common stock exceeds the conversion price of $24.87. The Convertible Senior Notes did not have a dilutive impact on EPS for 2003.

The maximum number of shares that could potentially be issued to settle the conversion premium, based upon the current conversion rate, is 16,088,480 shares. Based on PPL's common stock price at December 31, 2005, the conversion premium equated to 2,483,038 shares, or approximately $73 million.

See Note 8 for discussion of attainment of the market price trigger related to the Convertible Senior Notes in the third quarter of 2005 and the related conversion requests that PPL received in the fourth quarter.

The following number of stock options to purchase PPL common shares were excluded in the periods' computations of diluted EPS because the effect would have been antidilutive.

(Thousands of Shares)	2005		2004		2003
Antidilutive stock options		402		2,266		3,366

5.Income and Other Taxes

For 2005, 2004 and 2003, the statutory U.S. corporate federal income tax rate was 35%. The statutory corporate net income tax rate for Pennsylvania was 9.99%.

(PPL)

"Income from Continuing Operations Before Income Taxes, Minority Interest and Distributions on Preferred Securities" included the following components for the years ended December 31.

	2005		2004		2003
Domestic income	$	613	$	662	$	750
Foreign income		254		264		198
	$	867	$	926	$	948

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards.

Net deferred tax assets have been recognized based on management's estimates of future taxable income for U.S. and certain foreign jurisdictions in which PPL's operations have historically been profitable.

Significant components of PPL's deferred income tax assets and liabilities from continuing operations were:

		2005			2004
Deferred Tax Assets
	Deferred investment tax credits	$	36		$	42
	NUG contracts and buybacks		102			135
	Unrealized loss on qualifying derivatives		139			30
	Accrued pension costs		80			86
	Federal tax credit carryforwards		112			58
	Foreign loss carryforwards		140			152
	Foreign - pensions		53			51
	Foreign - other		36			26
	Contribution in aid of construction		78			65
	Other		195			189
	Valuation allowance		(148	)		(164	)
			823			670

Deferred Tax Liabilities
	Plant - net		1,316		1,291
	Restructuring - CTC		434		526
	Taxes recoverable through future rates		106		115
	Reacquired debt costs		16		14
	Foreign - plant		692		770
	Foreign - other		98		55
	Other domestic		78		62
			2,740		2,833
Net deferred tax liability		$	1,917	$	2,163

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are:

		2005			2004			2003
Income Tax Expense
	Current-Federal	$	122		$	52		$	39
	Current-State		(1	)		(31	)		15
	Current-Foreign		64			27			35
			185			48			89
	Deferred-Federal		(83	)		102			34
	Deferred-State		17			17			23
	Deferred-Foreign		17			51			48
			(49	)		170			105
	Investment tax credit, net-federal		(15	)		(15	)		(15	)
	Total income tax expense from continuing operations (a)	$	121		$	203		$	179
Total income tax expense-Federal		$	24		$	139		$	58
Total income tax expense-State			16			(14	)		38
Total income tax expense-Foreign			81			78			83
	Total income tax expense from continuing operations (a)	$	121		$	203		$	179

(a) Excludes $6 million of deferred federal, state and foreign tax benefit in 2005 and $26 million of current and deferred federal and state tax expense in 2003 related to the cumulative effect of changes in accounting principles, recorded net of tax. Excludes current and deferred federal and state tax benefits of $28 million in 2005, $8 million in 2004 and $10 million in 2003 related to loss from discontinued operations, recorded net of tax.

In 2005, 2004 and 2003, PPL realized tax benefits related to stock-based compensation, recorded as an increase to capital in excess of par value of approximately $7 million, $3 million and $5 million.

		2005			2004			2003
Reconciliation of Income Tax Expense
	Indicated federal income tax on Income from Continuing Operations Before Income Taxes, Minority Interest and Distributions on Preferred Securities at statutory tax rate - 35%	$	303		$	324		$	332
Increase (decrease) due to:
	State income taxes		21			12			26
	Amortization of investment tax credit		(10	)		(10	)		(10	)
	Write-down of international energy projects								(83	)
	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(55	)		(36	)		(11	)
	Stranded cost securitization		(7	)		(22	)
	Federal income tax credits		(107	)		(74	)		(52	)
	Contribution of property					(2	)		(9	)
	Federal income tax return adjustments		(16	)		(1	)		(11	)
	Other		(8	)		12			(3	)
			(182	)		(121	)		(153	)
Total income tax expense from continuing operations		$	121		$	203		$	179
Effective income tax rate			14.0%			21.9%			18.9%

During 2005, PPL recorded a $13 million benefit from the reduction of state and federal income taxes from filing the 2004 income tax returns. The $13 million benefit included in the Reconciliation of Income Tax Expense consisted of a $16 million federal benefit reflected in "Federal income tax return adjustments," offset by a $3 million state expense reflected in "State income taxes."

During 2005, PPL recorded a $12 million benefit related to federal and state income tax reserve changes. The $12 million benefit included in the Reconciliation of Income Tax Expense consisted of a $7 million benefit reflected in "Stranded cost securitization," a $2 million state benefit reflected in "State income taxes" and a $3 million federal benefit reflected in "Other."

During 2004, PPL recorded a $1 million benefit from the reduction of state and federal income taxes from filing the 2003 income tax returns. The $1 million benefit included in the Reconciliation of Income Tax Expense consisted of a $2 million federal benefit reflected in "Contribution of property" and a $1 million federal benefit reflected in "Federal income tax return adjustments," offset by a $2 million state expense reflected in "State income taxes."

During 2004, PPL recorded a $15 million benefit related to federal and state income tax reserve changes. The $15 million benefit included in the Reconciliation of Income Tax Expense consisted of a $22 million benefit reflected in "Stranded cost securitization" and a $2 million state benefit reflected in "State income taxes," offset by a $9 million federal expense reflected in "Other."

		2005		2004			2003
Taxes, Other than Income
	State gross receipts	$	175	$	156		$	155
	State utility realty		6		(10	)		3
	State capital stock		14		22			27
	Property - foreign		57		55			47
	Other - foreign		1		1
	Domestic property and other		26		25			24
		$	279	$	249		$	256

PPL had federal alternative minimum tax credit carryforwards with an indefinite carryforward period of $111 million and $58 million at December 31, 2005 and 2004. PPL also had state net operating loss carryforwards that expire between 2006 and 2024 of approximately $97 million and $77 million at December 31, 2005 and 2004. Valuation allowances have been established for the amount that, more likely than not, will not be realized.

PPL Global had foreign net operating loss carryforwards of approximately $50 million and $27 million at December 31, 2005 and 2004. PPL Global also had foreign capital loss carryforwards of $439 million and $486 million at December 31, 2005 and 2004. All of these losses have an unlimited carryforward period. However, it is more likely than not that these losses will not be utilized and, as such, a full valuation allowance has been provided against the related deferred tax asset.

PPL Global does not pay or record U.S. income taxes on the undistributed earnings of its foreign subsidiaries where management has determined that the earnings are permanently reinvested. The cumulative undistributed earnings are included in "Earnings reinvested" on the Balance Sheet. The amounts considered permanently reinvested at December 31, 2005 and 2004, were $650 million and $406 million. If the earnings were remitted as dividends, PPL Global may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practical to estimate the amount of additional taxes that might be payable on these foreign earnings.

(PPL Energy Supply)

"Income From Continuing Operations Before Income Taxes, Minority Interest and Distributions on Preferred Securities" included the following components for the years ended December 31.

	2005		2004		2003
Domestic income	$	429	$	617	$	734
Foreign income		254		264		198
	$	683	$	881	$	932

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards.

Net deferred tax assets have been recognized based on management's estimates of future taxable income for U.S. and certain foreign jurisdictions in which PPL's operations have historically been profitable.

Significant components of PPL Energy Supply's deferred income tax assets and liabilities from continuing operations were:

		2005			2004
Deferred Tax Assets
	Deferred investment tax credits	$	28		$	33
	NUG contracts and buybacks		102			135
	Unrealized loss on qualifying derivatives		133			17
	Accrued pension costs		23			29
	Federal tax credit carryforwards		112			58
	Foreign loss carryforwards		140			152
	Foreign - pensions		53			51
	Foreign - other		36			26
	Other domestic		92			115
	Valuation allowance		(144	)		(160	)
			575			456
Deferred Tax Liabilities
	Plant - net		654			644
	Foreign investments		5			7
	Foreign - plant		692			770
	Foreign - other		98			55
	Other domestic		48			32
			1,497			1,508
Net deferred tax liability		$	922		$	1,052

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are:

		2005			2004			2003
Income Tax Expense
	Current-Federal	$	(48	)	$	15		$	(2	)
	Current-State		27			10			13
	Current-Foreign		64			27			35
			43			52			46
	Deferred-Federal		6			101			89
	Deferred-State		21			15			23
	Deferred-Foreign		17			51			48
			44			167			160
	Investment tax credit, net-federal		(12	)		(12	)		(12	)
	Total income tax expense from continuing operations (a)	$	75		$	207		$	194
Total income tax expense-Federal		$	(54	)	$	104		$	75
Total income tax expense-State			48			25			36
Total income tax expense-Foreign			81			78			83
	Total income tax expense from continuing operations (a)	$	75		$	207		$	194

(a) Excludes $6 million of deferred federal, state and foreign tax benefit in 2005 and $26 million of current and deferred federal and state tax expense in 2003 related to the cumulative effect of changes in accounting principles, recorded net of tax. Excludes current and deferred federal and state tax benefits of $28 million in 2005, $8 million in 2004 and $10 million in 2003 related to loss from discontinued operations, recorded net of tax.

In 2005, 2004 and 2003, PPL Energy Supply realized tax benefits related to stock-based compensation, recorded as an increase to member's equity of approximately $1 million, $1 million and $2 million.

		2005			2004			2003
Reconciliation of Income Tax Expense
	Indicated federal income tax on Income from Continuing Operations Before Income Taxes, Minority Interest and Distributions on Preferred Securities at statutory tax rate - 35%	$	239		$	308		$	326
Increase (decrease) due to:
	State income taxes		40			20			28
	Amortization of investment tax credit		(8	)		(8	)		(8	)
	Write-down of international energy projects								(83	)
	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(55	)		(36	)		(11	)
	Federal income tax credits		(107	)		(74	)		(52	)
	Federal income tax return adjustments		(22	)		(9	)		(11	)
	Other		(12	)		6			5
			(164	)		(101	)		(132	)
Total income tax expense from continuing operations		$	75		$	207		$	194
Effective income tax rate			11.0%			23.5%			20.8%

During 2005, PPL Energy Supply recorded $3 million in state and federal income tax expense from filing the 2004 income tax returns. The $3 million tax expense included in the Reconciliation of Income Tax Expense consisted of a $25 million state expense reflected in "State income taxes," offset by a $22 million federal benefit reflected in "Federal income tax return adjustments."

During 2005, PPL Energy Supply recorded an $8 million benefit related to federal income tax reserve changes. The $8 million benefit is included in "Other" in the Reconciliation of Income Tax Expense.

During 2004, PPL Energy Supply recorded $9 million in state and federal income tax expense from filing the 2003 income tax returns. The $9 million tax expense included in the Reconciliation of Income Tax Expense consisted of an $18 million state expense reflected in "State income taxes," offset by a $9 million federal benefit reflected in "Federal income tax return adjustments."

During 2004, PPL Energy Supply recorded a $6 million expense related to federal income tax reserve changes. The $6 million expense is included in "Other" in the Reconciliation of Income Tax Expense.

		2005		2004		2003
Taxes, Other than Income
	State gross receipts	$	1	$	2	$	3
	State capital stock		9		13		14
	Property - foreign		57		55		47
	Foreign - other		1		1
	Domestic property and other		26		24		25
		$	94	$	95	$	89

PPL Energy Supply had federal alternative minimum tax credit carryforwards with an indefinite carryforward period of $111 million and $58 million at December 31, 2005 and 2004. PPL Energy Supply also had state net operating loss carryforwards that expire between 2006 and 2024 of approximately $6 million and $4 million at December 31, 2005 and 2004. Valuation allowances have been established for the amount that, more likely than not, will not be realized.

PPL Global had foreign net operating loss carryforwards of approximately $50 million and $27 million at December 31, 2005 and 2004. PPL Global also had foreign capital loss carryforwards of $439 million and $486 million at December 31, 2005 and 2004. All of these losses have an unlimited carryforward period. However, it is more likely than not that these losses will not be utilized and, as such, a full valuation allowance has been provided against the related deferred tax asset.

PPL Global does not pay or record U.S. income taxes on the undistributed earnings of its foreign subsidiaries where management has determined that the earnings are permanently reinvested. The cumulative undistributed earnings are included in "Member's Equity" on the Balance Sheet. The amounts considered permanently reinvested at December 31, 2005 and 2004, were $650 million and $406 million. If the earnings were remitted as dividends, PPL Global may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practical to estimate the amount of additional taxes that might be payable on these foreign earnings.

(PPL Electric)

The provision for PPL Electric's deferred income taxes for regulated assets is based upon the ratemaking principles reflected in rates established by the PUC and the FERC. The difference in the provision for deferred income taxes for regulated assets and the amount that otherwise would be recorded under U.S. GAAP is deferred and included in taxes recoverable through future rates in "Regulatory and Other Noncurrent Assets - Other" on the Balance Sheet.

The tax effects of significant temporary differences comprising PPL Electric's net deferred income tax liability were:

		2005		2004
Deferred Tax Assets
	Deferred investment tax credits	$	7	$	8
	Accrued pension costs		32		35
	Contribution in aid of construction		73		62
	Other		48		39
			160		144
Deferred Tax Liabilities
	Electric utility plant - net		615		603
	Restructuring - CTC		144		142
	Taxes recoverable through future rates		100		108
	Reacquired debt costs		15		13
	Other		19		21
			893		887
Net deferred tax liability		$	733	$	743

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are:

		2005			2004			2003
Income Tax Expense
	Current-Federal	$	66		$	(33	)	$	(2	)
	Current-State		(5	)		(40	)		3
			61			(73	)		1
	Deferred-Federal		12			79			22
	Deferred-State		(1	)		5			(2	)
			11			84			20
	Investment tax credit, net-federal		(3	)		(3	)		(3	)
	Total	$	69		$	8		$	18
Total income tax expense-Federal		$	75		$	43		$	17
Total income tax expense-State			(6	)		(35	)		1
	Total	$	69		$	8		$	18

In 2005, 2004 and 2003, PPL Electric realized tax benefits related to stock-based compensation, recorded as an increase to additional paid-in-capital, which were insignificant.

		2005			2004			2003
Reconciliation of Income Tax Expense
	Indicated federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	76		$	30		$	16
Increase (decrease) due to:
	State income taxes		4			(1	)		1
	Flow-through of depreciation differences not previously normalized		1			1			1
	Stranded cost securitization		(7	)		(22	)
	Amortization of investment tax credit		(2	)		(2	)		(2	)
	Other		(3	)		2			2
			(7	)		(22	)		2
Total income tax expense		$	69		$	8		$	18
Effective income tax rate			31.9%			9.4%			39.1%

During 2005, PPL Electric recorded a $10 million benefit related to federal and state income tax reserve changes. The $10 million benefit included in the Reconciliation of Income Tax Expense consisted of a $7 million benefit reflected in "Stranded cost securitization," a $2 million state benefit reflected in "State income taxes" and a $1 million federal benefit reflected in "Other."

During 2004, PPL Electric recorded a $20 million benefit related to federal and state income tax reserve changes. The $20 million benefit included in the Reconciliation of Income Tax Expense consisted of a $22 million benefit reflected in "Stranded cost securitization" and a $2 million state benefit reflected in "State income taxes," offset by a $4 million federal provision reflected in "Other."

		2005		2004			2003
Taxes, Other than Income
	State gross receipts	$	174	$	155		$	152
	State utility realty		6		(10	)		3
	State capital stock		5		7			10
	Property and other							(1	)
		$	185	$	152		$	164

PPL Electric had state net operating loss carryforwards that expire in 2024 of approximately $13 million at December 31, 2005. Valuation allowances have been established for the amount that, more likely than not, will not be realized.

(PPL, PPL Energy Supply and PPL Electric)

In October 2004, President Bush signed the American Jobs Creation Act of 2004 (the Act). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. During 2005, PPL and PPL Energy Supply did not repatriate any foreign earned income subject to the Act.

The Act also provides, beginning in 2005, a tax deduction from income for certain qualified domestic production activities. FSP FAS 109-1, "Application of FASB Statement No. 109, 'Accounting for Income Taxes,' to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004," specifies that this tax deduction will be treated as a special deduction and not as a tax rate reduction. For 2005, PPL and PPL Energy Supply recognized a $3 million tax benefit related to this new deduction. Additionally, as the Act specifically excludes the gross receipts from the transmission of electricity from the definition of qualifying domestic production gross receipts, PPL Electric will not receive a tax benefit from this new deduction.

6.Financial Instruments

(PPL, PPL Energy Supply and PPL Electric)

At December 31, 2005 and 2004, the carrying value of cash and cash equivalents, investments in the nuclear decommissioning trust funds, other investments and short-term debt approximated fair value due to the short-term nature of the instruments, variable interest rates associated with the financial instruments or the carrying value of the instruments being based on established market prices. Price risk management assets and liabilities are recorded at fair value using exchange-traded market quotes, prices obtained through third-party brokers or internally developed price curves. Financial instruments where the carrying amount on the Balance Sheet and the estimated fair value (based on quoted market prices for the securities where available and estimates based on current rates where quoted market prices are not available) are different, are set forth below:

		December 31, 2005				December 31, 2004
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
PPL
	Long-term debt	$	7,081	$	7,585	$	7,658	$	8,242
	Long-term debt with affiliate trust		89		84		89		84
PPL Energy Supply
	Long-term debt	$	3,951	$	4,340	$	3,875	$	4,227
	Long-term debt with affiliate trust		89		84		89		84
PPL Electric
	Long-term debt	$	2,411	$	2,496	$	2,544	$	2,711

7.Preferred Stock

(PPL and PPL Electric)

Presented below are the details of PPL Electric's $100 par value cumulative preferred stock, without sinking fund requirements, that were outstanding as of December 31, 2005 and 2004.

Dividend	Outstanding		Issued and Outstanding Shares	Shares Authorized	Optional Redemption Price Per Share at 12/31/2005
4-1/2%	$	25	247,524	629,936	$	110.00
Series Preferred
3.35%		2	20,605			103.50
4.40%		12	117,676			102.00
4.60%		3	28,614			103.00
6.75%		9	90,770			102.70
Total Series Preferred		26	257,665	10,000,000
Total Preferred Stock	$	51	505,189

The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock and the 6.75% Series Preferred Stock for which such price is $100 per share (plus, in each case, any unpaid dividends in arrears).

Holders of the outstanding preferred stock are entitled to one vote per share on matters on which PPL Electric's shareowners are entitled to vote.

The following are decreases in preferred stock due to the redemption of previously outstanding preferred stock with sinking fund requirements.

	2005		2004		2003
	Shares	Amount	Shares	Amount	Shares	Amount
Series Preferred
6.125%					(167,500)	$	(17)
6.15%					(97,500)		(10)
6.33%					(46,000)		(4)

PPL Electric is authorized to issue 5 million shares of preference stock. No preference stock had been issued or was outstanding at December 31, 2005.

(PPL)

PPL is authorized to issue up to 10 million shares of preferred stock. No preferred stock had been issued or was outstanding at December 31, 2005.

8.Credit Arrangements and Financing Activities

Credit Arrangements

(PPL and PPL Electric)

PPL Electric maintains credit facilities in order to enhance liquidity and provide credit support, and as a backstop to its commercial paper program. At December 31, 2005, no cash borrowings were outstanding under any PPL Electric credit facilities.

In June 2005, PPL Electric extended to June 2010 its $200 million five-year facility originally set to expire in 2009. PPL Electric also maintains a $100 million three-year credit facility maturing in June 2006. PPL Electric has the ability to cause the lenders under its facilities to issue letters of credit. At December 31, 2005, PPL Electric had less than $1 million of letters of credit outstanding under its credit facilities.

PPL Electric maintains a commercial paper program for up to $200 million to provide it with an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by certain credit agreements of PPL Electric. PPL Electric had no commercial paper outstanding at December 31, 2005 and 2004.

PPL Electric participates in an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary has pledged these assets to secure loans from a commercial paper conduit sponsored by a financial institution. PPL Electric uses the proceeds from the credit agreement for general corporate purposes and to cash collateralize letters of credit. The subsidiary's borrowing limit under this credit agreement is $150 million, and interest under the credit agreement varies based on the commercial paper conduit's actual cost to issue commercial paper that supports the debt. At December 31, 2005 and 2004, $131 million and $96 million of accounts receivable and $142 million and $128 million of unbilled revenue were pledged under the credit agreement. At December 31, 2005 and 2004, there was $42 million of short-term debt outstanding under the credit agreement at an interest rate of 4.3% for 2005 and 2.33% for 2004, all of which was being used to cash collateralize letters of credit issued on PPL Electric's behalf. At December 31, 2005, based on the accounts receivable and unbilled revenue pledged, an additional $108 million was available for borrowing. The funds used to cash collateralize the letters of credit are reported in "Restricted cash" on the Balance Sheet. PPL Electric's sale to its subsidiary of the accounts receivable and unbilled revenue is an absolute sale of the assets, and PPL Electric does not retain an interest in these assets. However, for financial reporting purposes, the subsidiary's financial results are consolidated in PPL Electric's financial statements. PPL Electric performs certain record-keeping and cash collection functions with respect to the assets in return for a servicing fee from the subsidiary. PPL Electric currently expects the subsidiary to renew the credit agreement on an annual basis.

(PPL and PPL Energy Supply)

PPL Energy Supply maintains credit facilities in order to enhance liquidity and provide credit support, and as a backstop to its commercial paper program. PPL Energy Supply increased its facility capacity in 2005 in order to provide more liquidity capacity.

In March 2005, PPL Energy Supply entered into a 364-day reimbursement agreement with a bank for the purpose of issuing letters of credit. Under the agreement, PPL Energy Supply can cause the bank to issue up to $200 million of letters of credit. At December 31, 2005, there were $199 million of letters of credit and no cash borrowings outstanding under this agreement.

In June 2005, PPL Energy Supply extended to June 2010 its $800 million five-year facility originally set to expire in 2009 and entered into a new $600 million five-year credit facility expiring in June 2010, which replaced its $300 million three-year facility due to expire in 2006. PPL Energy Supply has the ability to cause the lenders under these facilities to issue letters of credit. At December 31, 2005, PPL Energy Supply had $172 million of letters of credit and no cash borrowings outstanding under these credit facilities.

In December 2005, PPL Energy Supply entered into a new $500 million five-year credit facility expiring in December 2010. The credit agreement allows for cash borrowings and issuances of letters of credit. PPL Energy Supply expects that this facility will be used primarily as a commercial paper backstop and for issuing letters of credit to satisfy collateral requirements of PPL Energy Supply's affiliates. At December 31, 2005, no cash borrowings or letters of credit were outstanding under this facility.

Also, in December 2005, PPL Energy Supply entered into a new $300 million five-year letter of credit and revolving credit facility expiring in March 2011. The credit agreement allows for cash borrowings and issuances of letters of credit. PPL Energy Supply expects that this facility will be used primarily for issuing letters of credit to satisfy collateral requirements of PPL Energy Supply's affiliates. At December 31, 2005, there were no cash borrowings and $286 million of letters of credit outstanding under this facility. PPL Energy Supply's obligations under this facility are supported by a $300 million letter of credit issued on PPL Energy Supply's behalf under a separate $300 million five-year letter of credit and reimbursement agreement also expiring in March 2011.

PPL Energy Supply maintains a commercial paper program for up to $500 million to provide it with an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by certain credit arrangements of PPL Energy Supply. PPL Energy Supply had $100 million of commercial paper outstanding at December 31, 2005 with a weighted-average interest rate of 4.51% and no commercial paper outstanding at December 31, 2004.

WPD (South West) maintains three committed credit facilities: a £100 million 364-day facility, a £150 million three-year facility and a £150 million five-year facility. In October 2005, WPD (South West) extended the £100 million 364-day facility until October 2006 and the £150 million three-year facility until October 2008. The £150 million five-year facility expires in October 2009. At December 31, 2005, WPD (South West) also has uncommitted credit facilities of £65 million. The balance outstanding under the WPD (South West) credit facilities at December 31, 2005, was £41 million (approximately $71 million at current exchange rates) with a weighted-average interest rate of 4.98% .

(PPL, PPL Energy Supply and PPL Electric)

In 2001, PPL Electric completed a strategic initiative to confirm its legal separation from PPL and PPL's other affiliated companies. This initiative was designed to enable PPL Electric to substantially reduce its exposure to volatility in energy prices and supply risks through 2009 and to reduce its business and financial risk profile by, among other things, limiting its business activities to the transmission and distribution of electricity and businesses related to or arising out of the electric transmission and distribution businesses. In connection with this initiative, PPL Electric:

· obtained long-term electric supply contracts to meet its PLR obligations (with its affiliate PPL EnergyPlus) through 2009, as further described in Note 15 under "PLR Contracts";

· agreed to limit its businesses to electric transmission and distribution and related activities;

· adopted amendments to its Articles of Incorporation and Bylaws containing corporate governance and operating provisions designed to clarify and reinforce its legal and corporate separateness from PPL and its other affiliated companies;

· appointed an independent director to its board of directors and required the unanimous approval of the board of directors, including the consent of the independent director, to amendments to these corporate governance and operating provisions or to the commencement of any insolvency proceedings, including any filing of a voluntary petition in bankruptcy or other similar actions; and

· appointed an independent compliance administrator to review, on a semi-annual basis, its compliance with the corporate governance and operating requirements contained in its Articles of Incorporation and Bylaws.

The enhancements to PPL Electric's legal separation from its affiliates are intended to minimize the risk that a court would order PPL Electric's assets and liabilities to be substantively consolidated with those of PPL or another affiliate of PPL in the event that PPL or another PPL affiliate were to become a debtor in a bankruptcy case. Based on these various measures, PPL Electric was able to issue and maintain a higher level of debt and use it to replace higher cost equity, thereby maintaining a lower total cost of capital. Nevertheless, if PPL or another PPL affiliate were to become a debtor in a bankruptcy case, there can be no assurance that a court would not order PPL Electric's assets and liabilities to be consolidated with those of PPL or such other PPL affiliate.

The subsidiaries of PPL are separate legal entities. PPL's subsidiaries are not liable for the debts of PPL. Accordingly, creditors of PPL may not satisfy their debts from the assets of the subsidiaries absent a specific contractual undertaking by a subsidiary to pay PPL's creditors or as required by applicable law or regulation. Similarly, absent a specific contractual undertaking or as required by applicable law or regulation, PPL is not liable for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries may not satisfy their debts from the assets of PPL absent a specific contractual undertaking by PPL to pay the creditors of its subsidiaries or as required by applicable law or regulation.

Similarly, the subsidiaries of PPL Energy Supply and PPL Electric are separate legal entities. These subsidiaries are not liable for the debts of PPL Energy Supply and PPL Electric. Accordingly, creditors of PPL Energy Supply and PPL Electric may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. In addition, absent a specific contractual undertaking or as required by applicable law or regulation, PPL Energy Supply and PPL Electric are not liable for the debts of their subsidiaries. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Energy Supply or PPL Electric absent a specific contractual undertaking by that parent to pay the creditors of its subsidiaries or as required by applicable law or regulation.

Financing Activities

(PPL)

In April 2005, PPL Capital Funding retired all $320 million of its 7-3/4% Medium-term Notes due April 2005 upon maturity. The funds for the retirement were primarily obtained from PPL Energy Supply's August 2004 issuance of $300 million of 5.40% Senior Notes maturing in August 2014.

In July 2005, PPL Capital Funding retired $142 million of its 7.29% Subordinated Notes due May 2006 at a market value of $145 million. PPL recorded a loss of $3 million related to this transaction in 2005.

PPL Capital Funding retired all $10 million of its 6.17% Medium-term Notes due September 2005 and retired all $20 million of its 6.39% Medium-term Notes due October 2005 upon maturity.

(PPL and PPL Energy Supply)

In December 2004, WPD borrowed £108 million (approximately $208 million at December 2004 exchange rates) under its credit facilities to retire $178 million of 6.75% Unsecured Bonds due December 2004 and settle the related $30 million cross-currency swap. The total amount is included on the Statement of Cash Flows as "Retirement of long-term debt." This bond retirement was recorded in 2005, due to the one-month reporting lag.

In October 2005, PPL Energy Supply issued $300 million aggregate principal amount of 5.70% REset Put Securities due 2035 (REPS^SM). The REPS bear interest at a rate of 5.70% per annum to, but excluding, October 15, 2015 (Remarketing Date). The REPS are required to be put by existing holders on the Remarketing Date either for (a) purchase and remarketing by a designated remarketing dealer, or (b) repurchase by PPL Energy Supply. If the remarketing dealer elects to purchase the REPS for remarketing, it will purchase the REPS at 100% of the principal amount, and the REPS will bear interest on and after the Remarketing Date at a new fixed rate per annum determined in the remarketing. PPL Energy Supply has the right to terminate the remarketing process. If the remarketing is terminated at the option of PPL Energy Supply, or under certain other circumstances, including the occurrence of an event of default by PPL Energy Supply under the related indenture or a failed remarketing for certain specified reasons, PPL Energy Supply will be required to pay the remarketing dealer a settlement amount. The settlement amount will be the present value of an annuity equal to the positive difference, if any, between (a) a stream of interest payments that would have been due on the REPS after the Remarketing Date, assuming the REPS were to bear interest at a rate based on the 20-year swap rate in effect on October 20, 2005, and (b) a stream of interest payments that would have been due on the REPS after the Remarketing Date, assuming the REPS were to bear interest at a rate based on the 20-year swap rate in effect on the date of calculation of the settlement amount. Also, if the remarketing is terminated for any reason, PPL Energy Supply must repurchase the entire principal amount of the REPS on the Remarketing Date at 100% of the principal amount. PPL Energy Supply received net proceeds of approximately $311 million from the issuance of the REPS, which includes a premium of approximately $13 million, associated with the remarketing feature. These proceeds will be used by PPL Energy Supply's affiliates to repay indebtedness and by PPL Energy Supply for capital expenditures and/or general corporate purposes.

In November 2005, Emel entered into a contract that established the fixed terms under which Emel will borrow UF 2,535,000 (approximately $73 million at current exchange rates) in July 2006 to partially finance the UF 3 million bond maturity due August 1, 2006. Any borrowing will be recorded when drawn.

The terms of PPL Energy Supply's 2.625% Convertible Senior Notes due 2023 include a market price trigger that permits holders to convert the notes during any fiscal quarter if the closing sale price of PPL's common stock exceeds $29.83 for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter. This market price trigger was met in the third quarter of 2005. Therefore, holders of the Convertible Senior Notes were entitled to convert their notes at any time during the fourth quarter of 2005. As discussed in Note 4, when holders elect to convert the Convertible Senior Notes, PPL Energy Supply is required to settle the principal amount in cash and any conversion premium in cash or PPL common stock. In December 2005, an insignificant amount of bonds was presented for conversion and settled in January 2006 with the issuance of PPL common stock and the payment by PPL Energy Supply of an insignificant amount of cash. As a result of the market price trigger being met in the third quarter, PPL Energy Supply wrote-off $6 million of unamortized debt issuance costs during 2005, which is included in "Interest Expense" on the Statement of Income. The market price trigger was not met in the fourth quarter of 2005.

In 2005, PPL Energy Supply repaid its $495 million note payable to an affiliate. PPL Energy Supply may still reborrow up to $650 million under the note until maturity of the note in May 2006, with interest payable monthly in arrears at LIBOR plus 1%.

During 2005, PPL Energy Supply distributed $278 million to its parent company and received capital contributions of $50 million.

(PPL and PPL Electric)

In February 2005, the Lehigh County Industrial Development Authority (LCIDA) issued $116 million of 4.70% Pollution Control Revenue Refunding Bonds due 2029 on behalf of PPL Electric. The proceeds of the LCIDA bonds were used in March 2005 to refund the LCIDA's $116 million of 6.40% Pollution Control Revenue Refunding Bonds due 2029, previously issued on behalf of PPL Electric. A $2 million premium was paid to redeem these bonds.

In May 2005, the LCIDA issued $108 million of 4.75% Pollution Control Revenue Refunding Bonds due 2027 on behalf of PPL Electric. The proceeds of these LCIDA bonds were used in June 2005 to refund the LCIDA's $53 million of 5.50% Pollution Control Revenue Refunding Bonds due 2027 and in August 2005 to refund the LCIDA's $55 million of 6.15% Pollution Control Revenue Refunding Bonds due 2029, previously issued on behalf of PPL Electric. A $1 million premium was paid as part of each bond redemption.

In connection with the issuance of each of these new series of LCIDA bonds, PPL Electric entered into a loan agreement with the LCIDA pursuant to which the LCIDA has loaned to PPL Electric the proceeds of the LCIDA bonds on payment terms that correspond to the LCIDA bonds. The scheduled principal and interest payments on the LCIDA bonds are insured. In order to secure its obligations to the insurance provider, PPL Electric issued $224 million aggregate principal amount of its Senior Secured Bonds (under its 2001 Senior Secured Bond Indenture), which also have payment terms that correspond to the LCIDA bonds.

In April 2005, PPL Electric retired all $69 million of its 6-1/2% First Mortgage Bonds due April 2005 upon maturity.

In December 2005, PPL Electric sold $200 million of Senior Secured Bonds to certain institutional buyers in a private placement. The bonds were issued in two tranches: $100 million of bonds maturing in December 2015 with a coupon of 4.95%, and $100 million of bonds maturing in December 2020 with a coupon of 5.15%. PPL Electric will use the proceeds from the bonds to refund maturing First Mortgage Bonds.

During 2005, PPL Transition Bond Company made principal payments on transition bonds of $266 million.

During 2005, PPL Electric paid common dividends of $93 million to PPL.

Dividends and Dividend Restrictions

(PPL)

There were two common stock dividend increases in 2005. In February 2005, PPL announced an increase to its quarterly common stock dividend to 23 cents per share (equivalent to $0.92 per annum) and in August 2005, PPL announced an increase, effective October 1, 2005, to 25 cents per share (equivalent to $1.00 per annum). In February 2006, PPL announced an increase to its quarterly common stock dividend, payable April 1, 2006, to 27.5 cents per share (equivalent to $1.10 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.

(PPL and PPL Energy Supply)

The PPL Montana Colstrip lease places certain restrictions on PPL Montana's ability to declare dividends. At this time, PPL believes that these covenants will not limit PPL's or PPL Energy Supply's ability to operate as desired and will not affect their ability to meet any of their cash obligations. Certain of PPL Global's international subsidiaries also have financing arrangements which limit their ability to pay dividends. However, PPL does not, at this time, expect that any of such limitations would significantly impact PPL's or PPL Energy Supply's ability to meet their cash obligations.

(PPL and PPL Electric)

PPL Electric's 2001 Senior Secured Bond Indenture restricts dividend payments in the event that PPL Electric fails to meet interest coverage ratios or fails to comply with certain requirements included in its Articles of Incorporation and Bylaws to maintain its separateness from PPL and PPL's other subsidiaries. PPL Electric does not, at this time, expect that any of such limitations would significantly impact its ability to declare dividends.

Mandatorily Redeemable Securities (PPL, PPL Energy Supply and PPL Electric)

On July 1, 2003, PPL adopted the provisions of SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." As a result, 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. Under SFAS 150, these securities were required to be classified as liabilities instead of "mezzanine" equity on the balance sheet because they were considered mandatorily redeemable securities. As of December 31, 2005 and 2004, no amounts were included in long-term debt for any of these securities because of the following: PPL deconsolidated PPL Capital Funding Trust I in accordance with FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," effective December 31, 2003, and terminated the trust in 2004; PPL Energy Supply deconsolidated SIUK Capital Trust I in accordance with FIN 46, effective December 31, 2003; and there was no preferred stock with sinking fund requirements of PPL Electric outstanding (due to preferred stock redemptions). See Note 22 for a discussion of the deconsolidation of the trusts. As a result of the deconsolidation and continued existence of SIUK Capital Trust I, the subordinated debt securities that support the SIUK Capital Trust I preferred securities, rather than the trust preferred securities themselves, are reflected in long-term debt as of December 31, 2005 and 2004.

SFAS 150 also required the distributions on these mandatorily redeemable securities to be included as a component of "Interest Expense" instead of "Distributions on Preferred Securities" in the Statement of Income, effective July 1, 2003. "Interest Expense" for 2003 includes distributions on these securities totaling $27 million for PPL, $5 million for PPL Energy Supply and an insignificant amount for PPL Electric. "Distributions on Preferred Securities" for 2003 includes distributions on these securities totaling $27 million for PPL, $5 million for PPL Energy Supply and $1 million for PPL Electric. As a result of the adoption of FIN 46 by PPL and PPL Energy Supply and the redemption of the preferred stock with sinking fund requirements by PPL Electric, no amounts are reflected in "Interest Expense" for these mandatorily redeemable securities in 2005 and 2004.

9.Acquisitions, Development and Divestitures

From time to time, PPL and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets, joint ventures and development projects. Any such transactions may impact future financial results.

Domestic Generation Projects (PPL and PPL Energy Supply)

In January 2003, PPL announced that it had decided not to proceed with development of a 300 MW project at the Kings Park site on Long Island, New York. In March 2003, PPL Global sold its interest in Kings Park Energy, LLC. At that time, six unassigned gas combustion turbine generators and other related equipment to be used at the Kings Park site were transferred to PPL Generation and retained as spare parts.

In November 2003, PPL Generation sold four of the six spare gas combustion turbine generators and related equipment for approximately $33 million. The pre-tax loss on the sale of approximately $3 million is included in "Other Income - net" on the Statement of Income in 2003. In 2004, a subsidiary of PPL Generation sold the remaining two spare gas combustion turbine generators and related equipment for approximately $18 million. The net loss from these two sales was insignificant.

In 2004, PPL Maine entered into an agreement with a coalition of government agencies and private groups to sell three of its nine hydroelectric dams in Maine. Under the agreement, a non-profit organization designated by the coalition would have a five-year option to purchase the dams for approximately $25 million, and PPL Maine would receive rights to increase energy output at its other hydroelectric dams in Maine. The coalition has announced plans to remove or bypass the dams subject to the agreement in order to restore runs of Atlantic salmon and other migratory fish to the Penobscot River. The agreement requires several approvals by the FERC. Certain of these regulatory approvals have been obtained, but PPL cannot predict whether or when all of them will be obtained.

International Energy Projects(PPL and PPL Energy Supply)

Sale of CEMAR

In June 2002, PPL made a decision to exit its CEMAR investment after a series of impairment losses were recorded. At that time, PPL Global's remaining portion of its CEMAR investment was written-off.

In April 2004, PPL Global transferred its interest in CEMAR to two companies controlled by a private equity fund managed by GP Investimentos, a Brazilian private equity firm. The sale resulted in a credit of approximately $23 million as a result of the reversal of the negative carrying value and the associated cumulative translation adjustment, which is included in "Other Income - net" on the Statement of Income.

Sale of CGE

In March 2004, PPL Global completed the sale of its minority interest in shares of CGE for approximately $123 million. The sale resulted in a pre-tax charge of approximately $15 million ($7 million after tax), which is included in operating expenses as "Energy-related businesses" on the Statement of Income. This charge was due to the write-off of the associated cumulative translation adjustment, primarily as a result of the devaluation of the Chilean peso since the original acquisition in 2000.

Other Sales

In 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 approximately $2 million. This gain is included in "Other Income - net" on the Statement of Income.

In January 2006, PPL Global executed an agreement for the sale of its minority interest in Aguaytia Energy, LLC, a combined generating and natural gas facility in Peru.

Discontinued Operations (PPL and PPL Energy Supply)

Sale of Sundance Plant

In May 2005, a subsidiary of PPL Generation completed the sale of its 450 MW Sundance power plant located in Pinal County, Arizona, to Arizona Public Service Company for approximately $190 million in cash. Proceeds from the sale were used to reduce PPL's and PPL Energy Supply's outstanding debt and improve liquidity. The book value of the plant was approximately $260 million on the sale date. PPL and PPL Energy Supply recorded a loss on the sale in May 2005 of approximately $47 million, or $0.12 per share for PPL, net of a tax benefit of $26 million. The loss on the sale is reflected as "Loss from Discontinued Operations," along with operating losses of the Sundance plant of $4 million, $13 million, and $14 million in 2005, 2004 and 2003. The 2003 operating loss excludes a charge of $9 million due to a cumulative effect of a change in accounting principle discussed in Note 22. At December 31, 2004, the Sundance plant had a book value of $263 million, which was recorded in "Electric plant in service - Generation" on the Balance Sheet. The plant had been included in the total assets of the Supply segment prior to the sale.

Sale of Latin American Telecommunications Company

In December 2003, PPL Global's Board of Managers authorized PPL Global to sell its investment in a Latin American telecommunications company, and approved a plan of sale. It was determined that the viability of this non-strategic business was not economical. As a result, PPL Global recorded an $18 million write-down in the carrying value of the company's net assets to their estimated fair value of approximately $1 million as of December 31, 2003.

In June 2004, PPL Global sold this investment to local management for a nominal amount. The operating results of the Latin American telecommunications company, which was a loss of approximately $2 million in 2004 and 2003, as well as the write-down of its net assets, which was an insignificant amount in 2004 and approximately $18 million in 2003, are reflected as "Loss from Discontinued Operations" on the Statement of Income.

Other (PPL)

In 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.

In June 2004, a PPL subsidiary evaluated its investment in a technology supplier for impairment. As a result of the evaluation, the subsidiary recorded a pre-tax impairment charge of approximately $10 million ($6 million after tax), which is included in "Other Income - net" on the Statement of Income.

10.Leases

Colstrip Generating Plant (PPL and PPL Energy Supply)

PPL Montana leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, under four 36-year non-cancelable operating leases. These leases provide two renewal options based on the economic useful life of the generation assets. PPL Montana is required to pay all expenses associated with the operations of the generation units. The leases place certain restrictions on PPL Montana's ability to incur additional debt, sell assets and declare dividends and require PPL Montana to maintain certain financial ratios related to cash flow and net worth. There are no residual value guarantees in these leases. However, upon an event of default or an event of loss, the lessee could be required to pay a termination value of amounts sufficient to allow the lessor to repay amounts owing on the lessor notes and make the lessor whole for its equity investment and anticipated return on investment. The events of default include payment defaults, breaches of representations or covenants, acceleration of other indebtedness of PPL Montana, change in control of PPL Montana and certain bankruptcy events. The termination value was estimated to be $637 million at December 31, 2005.

Other Leases

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries have leases for vehicles, office space, land, buildings, personal computers and other equipment. The following rental expense for all operating leases, including the Colstrip generating plant, was primarily included in "Operation and maintenance" on the Statement of Income.

	PPL		PPL Energy Supply		PPL Electric
2005	$	68	$	44	$	23
2004		65		44		21
2003		85		63		21

Total future minimum rental payments for all operating leases, including those with cancelable terms but covered by residual value guarantees, are estimated to be:

	PPL		PPL Energy Supply		PPL Electric
2006	$	77	$	61	$	14
2007		68		56		11
2008		66		56		9
2009		63		55		7
2010		61		55		5
Thereafter		423		412		8
	$	758	$	695	$	54

(PPL)

In connection with the acquisition of the fiber optic network discussed in Note 9, a subsidiary of PPL Telcom assumed a capital lease obligation through 2020 for the right to use portions of the fiber optic network. The balance outstanding at December 31, 2005 and 2004 was $11 million. Total future minimum rental payments for this capital lease are estimated at $1 million for each of the years from 2006 through 2010, and $12 million thereafter.

11.Stock-Based Compensation

(PPL, PPL Energy Supply and PPL Electric)

Under the PPL Incentive Compensation Plan (ICP) and the Incentive Compensation Plan for Key Employees (ICPKE) (together, the Plans), restricted shares of PPL common stock, restricted stock units and stock options may be granted to officers and other key employees of PPL, PPL Energy Supply, PPL Electric and other affiliated companies. Awards under the Plans are made by the Compensation and Corporate Governance Committee (CCGC) of the PPL Board of Directors, in the case of the ICP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE. The ICP limits the total number of awards that may be granted under it after April 23, 1999, to 15,769,430 awards, or 5% of the total shares of common stock that were outstanding at April 23, 1999. The ICPKE limits the total number of awards that may be granted under it after April 25, 2003, to 16,573,608 awards, or 5% of the total shares of common stock that were outstanding at January 1, 2003, reduced by outstanding awards for which common stock was not yet issued as of April 25, 2003. In addition, each Plan limits the number of shares available for awards in any calendar year to 2% of the outstanding common stock of PPL on the first day of such calendar year. The maximum number of options that can be awarded under each Plan to any single eligible employee in any calendar year is three million shares. Any portion of these options that has not been granted may be carried over and used in any subsequent year. If any award lapses, is forfeited or the rights of the participant terminate, the shares of common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued common stock, common stock held in treasury by PPL or common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.

Restricted Stock

Restricted shares of PPL common stock are outstanding shares with full voting and dividend rights. Restricted stock awards are subject to a restriction or vesting period as determined by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE. In addition, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death of employees. Restricted shares vest fully if control of PPL changes, as defined by the plans.

Restricted Stock Units

The Plans allow for the grant of restricted stock units. Restricted stock units are awards based on the fair market value of PPL common stock. Actual PPL common shares will be issued upon completion of a restriction or vesting period as determined by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE. Recipients of restricted stock units may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock units are subject to forfeiture or accelerated payout under the Plan provisions for termination, retirement, disability and death of employees. Restricted stock units vest fully if control of PPL changes, as defined by the Plans.

A summary of restricted stock/unit grants follows.

		Restricted Shares Granted	Weighted Average Fair Value		Restricted Units Granted	Weighted Average Fair Value
2005
	PPL				509,105		$27.08
	PPL Energy Supply				191,065		$27.27
	PPL Electric				44,880		$27.11
2004
	PPL				466,110		$23.03
	PPL Energy Supply				187,870		$23.14
	PPL Electric				43,080		$23.13
2003
	PPL	84,180		$18.12	279,464		$17.55
	PPL Energy Supply	20,220		$18.12	154,612		$17.56
	PPL Electric	5,700		$18.12	42,340		$17.54

At December 31, 2005, PPL had 417,740 restricted shares and 1,139,383 restricted units outstanding. These awards currently vest from three to 25 years from the date of grant.

Compensation expense related to restricted stock and restricted stock unit awards was $18 million, $6 million and $5 million for PPL for 2005, 2004 and 2003.

Compensation expense related to restricted stock and restricted stock unit awards for PPL Energy Supply in 2005, 2004 and 2003 was $13 million, $5 million and $4 million.

Compensation expense related to restricted stock and restricted stock unit awards for PPL Electric was $4 million for 2005 and $1 million for 2004 and 2003.

Compensation expense for 2005 included an adjustment to record accelerated recognition of expense for employees at or near retirement age. See Note 1 for additional details.

Stock Options (PPL, PPL Energy Supply and PPL Electric)

Under the Plans, stock options may also be granted with an option exercise price per share not less than the fair market value of PPL's common stock on the date of grant. The options are exercisable beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary, in installments as determined by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE. Options outstanding at December 31, 2005, become exercisable over a three-year period from the date of grant in equal installments. The CCGC and CLC have discretion to accelerate the exercisability of the options, except that the exercisability of an option issued under the ICP may not be accelerated unless the individual remains employed by PPL or a subsidiary for one year from the date of grant. All options expire no later than ten years from the grant date. The options become exercisable immediately if control of PPL changes, as defined by the Plans.

PPL recorded compensation expense related to stock options of $12 million, $6 million and $3 million for 2005, 2004 and 2003.

PPL Energy Supply recorded compensation expense related to stock options of $8 million, $4 million and $2 million for 2005, 2004 and 2003.

PPL Electric recorded compensation expense related to stock options of $3 million, $2 million and $1 million for 2005, 2004 and 2003.

Compensation expense for 2005 included an adjustment to record accelerated recognition of expense for employees at or near retirement age. See Note 1 for additional details.

A summary of stock option activity follows.

		2005					2004					2003
		Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
PPL
Outstanding at beginning of year			5,961,950			$19.42		5,824,516			$17.78		6,017,370			$16.05
	Granted		1,607,140			26.66		1,520,880			22.59		1,632,220			18.12
	Exercised		(1,983,018	)		18.56		(1,307,306	)		15.70		(1,721,830	)		12.05
	Forfeited							(76,140	)		21.37		(103,244	)		17.66
Outstanding at end of year			5,586,072			21.81		5,961,950			19.42		5,824,516			17.78
Options exercisable at end of year			2,741,033			19.36		3,100,674			18.77		2,708,150			17.32
Weighted-average fair value of options granted			$3.99					$6.16					$5.96
PPL Energy Supply
Outstanding at beginning of year			1,369,702			19.42		1,729,764			18.07		1,807,098			16.39
	Granted		446,180			26.66		406,320			22.59		533,520			18.12
	Transferred		(130,440	)		20.07		(193,126	)		17.69
	Exercised		(459,940	)		20.11		(523,996	)		17.96		(507,610	)		12.21
	Forfeited							(49,260	)		20.71		(103,244	)		17.66
Outstanding at end of year			1,225,502			21.72		1,369,702			19.42		1,729,764			18.07
Options exercisable at end of year			519,209			18.22		587,050			18.55		732,418			17.95
Weighted-average fair value of options granted			$3.99					$6.16					$5.96
PPL Electric
Outstanding at beginning of year			463,760			20.04		452,386			18.71		464,752			17.20
	Granted		85,680			26.66		96,360			22.59		133,260			18.12
	Transferred												6,228			13.42
	Exercised		(264,068	)		19.05		(84,986	)		17.06		(151,854	)		13.34
Outstanding at end of year			285,372			22.95		463,760			20.04		452,386			18.71
Options exercisable at end of year			135,414			21.29		343,654			19.83		174,976			19.88
Weighted-average fair value of options granted			$3.99					$6.16					$5.96

The estimated fair value of each option granted was calculated using a Black-Scholes option-pricing model. The weighted average assumptions used in the model were:

	2005	2004	2003
Risk-free interest rate	4.09%	3.79%	3.81%
Expected option life	7.00 yrs.	7.47 yrs.	7.75 yrs.
Expected stock volatility	18.09%	32.79%	39.94%
Dividend yield	3.88%	3.51%	3.48%

The following tables summarize information about stock options at December 31, 2005.

PPL

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Avg. Remaining Contractual Life	Weighted- Avg. Exercise Price	Number Exercisable	Weighted- Avg. Exercise Price
$9.00-$14.99	99,600	3.7	$12.25	99,600	$12.25
$15.00-$19.99	1,719,420	6.6	17.54	1,286,568	17.35
$20.00-$24.99	2,194,612	6.6	22.10	1,354,865	21.80
$25.00-$29.99	1,572,440	9.1	26.66

Total options outstanding had a weighted-average remaining life of 7.2 years at December 31, 2005.

PPL Energy Supply

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Avg. Remaining Contractual Life	Weighted- Avg. Exercise Price	Number Exercisable	Weighted- Avg. Exercise Price
$9.00-$14.99	79,980	3.8	$11.96	79,980	$11.96
$15.00-$19.99	346,020	6.7	17.58	241,694	17.35
$20.00-$24.99	388,022	6.9	22.20	197,535	21.81
$25.00-$29.99	411,480	9.1	26.66

Total options outstanding had a weighted-average remaining life of 7.3 years at December 31, 2005.

PPL Electric

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Avg. Remaining Contractual Life	Weighted- Avg. Exercise Price	Number Exercisable	Weighted- Avg. Exercise Price
$15.00-$19.99	31,760	7.1	$18.12	15,987	$18.12
$20.00-$24.99	167,932	6.2	21.97	119,427	21.71
$25.00-$29.99	85,680	9.1	26.66

Total options outstanding had a weighted-average remaining life of 7.1 years at December 31, 2005.

Directors Stock Units(PPL)

Under the Directors Deferred Compensation Plan, stock units are used to compensate members of PPL's Board of Directors who are not employees of PPL. Such stock units represent shares of PPL's common stock to which board members are entitled after they cease serving as a member of the Board of Directors. Board members are also entitled to defer any or all of their cash compensation into stock units. The stock unit accounts of each board member are increased based on dividends paid or other distributions on PPL's common stock. There were 273,775 stock units outstanding at December 31, 2005. Compensation expense was $2 million for 2005 and insignificant for 2004 and 2003.

Stock Appreciation Rights(PPL and PPL Energy Supply)

WPD uses stock appreciation rights to compensate senior management employees. Stock appreciation rights are granted with a reference price to PPL's common stock at the date of grant. These awards vest over a three-year period and have a 10-year term, during which time employees are entitled to receive a cash payment of any appreciation in the price of PPL's common stock over the grant date value. At December 31, 2005, there were 294,060 stock appreciation rights outstanding. Compensation expense for all periods reported was insignificant.

12.Retirement and Postemployment Benefits

(PPL, PPL Energy Supply and PPL Electric)

Pension and Other Postretirement Benefits

PPL and certain of its subsidiaries sponsor various pension and other postretirement and postemployment benefit plans. PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS 112, "Employers Accounting for Postemployment Benefits," when accounting for these benefits.

The majority of PPL's domestic employees are eligible for pension benefits under non-contributory defined benefit pension plans with benefits based on length of service and final average pay, as defined by the plans. Employees of PPL Montana are eligible for pension benefits under a cash balance pension plan and employees of certain of PPL's mechanical contracting companies are eligible for benefits under multi-employer plans sponsored by various unions. The employees of PPL's U.K. subsidiary, WPD, are eligible for benefits from one pension scheme with benefits based on length of service and final average pay. Retirees of PPL's Latin American subsidiaries may be eligible for coverage under government-sponsored and administered programs.

PPL and certain of its subsidiaries also provide supplemental retirement benefits to directors, executives and other key management employees through unfunded nonqualified retirement plans.

The majority of employees of PPL's domestic subsidiaries will become eligible for certain health care and life insurance benefits upon retirement through contributory plans. Postretirement benefits under the PPL Retiree Health Plan and PPL Gas Retiree Health Plan are paid from funded VEBA trusts sponsored by the respective companies. Postretirement benefits under the PPL Montana Retiree Health Plan are paid from company assets.

The following disclosures distinguish between PPL's domestic and international pension plans.

PPL uses a December 31 measurement date for its domestic pension and other postretirement benefit plans and its international pension plans.

Net periodic pension and other postretirement benefit costs (credits) were:

	Pension Benefits
	Domestic									International									Other Postretirement Benefits
	2005			2004			2003			2005			2004			2003			2005			2004			2003
PPL
Service cost	$	56		$	49		$	42		$	17		$	15		$	14		$	7		$	6		$	7
Interest cost		114			112			105			150			139			124			26			29			31
Expected return on plan assets		(158	)		(151	)		(143	)		(202	)		(205	)		(188	)		(19	)		(17	)		(13	)
Net amortization and deferral		13			4			(6	)		34			11			4			16			19			25
Net periodic pension and postretirement costs (credits) prior to special termination benefits		25			14			(2	)		(1	)		(40	)		(46	)		30			37			50
Special termination benefits (a)								9			5
Net periodic pension and postretirement benefit costs (credits)	$	25		$	14		$	7		$	4		$	(40	)	$	(46	)	$	30		$	37		$	50
PPL Energy Supply
Service cost	$	4		$	3		$	3		$	17		$	15		$	14
Interest cost		4			4			4			150			139			124		$	1		$	1		$	1
Expected return on plan assets		(6	)		(5	)		(4	)		(202	)		(205	)		(188	)
Net amortization and deferral		1			1			1			34			11			4
Net periodic pension and postretirement costs (credits) prior to special termination benefits		3			3			4			(1	)		(40	)		(46	)		1			1			1
Special termination benefits (a)											5
Net periodic pension and postretirement benefit costs (credits)	$	3		$	3		$	4		$	4		$	(40	)	$	(46	)	$	1		$	1		$	1

(a)	The $9 million cost of special termination benefits for 2003 was the final cost recorded to complete PPL's 2002 workforce reduction program. See Note 20 for additional information.
	The $5 million cost of special termination benefits for 2005 was related to the WPD approved staff reduction plan as a result of the merger of its two control rooms, metering reorganization and other staff efficiencies. Additional pension costs were recognized due to early retirement and pension enhancement provisions granted to the employees.

Net periodic pension and other postretirement benefits costs charged (credited) to operating expense, excluding amounts charged to construction and other non-expense accounts, were:

	Pension Benefits
	Domestic							International								Other Postretirement Benefits
	2005		2004		2003			2005		2004			2003			2005		2004		2003
PPL (a)	$	21	$	12	$	(2	)	$	4	$	(36	)	$	(40	)	$	26	$	31	$	43
PPL Energy Supply (b)		10		6		2			4		(36	)		(40	)		11		12		14
PPL Electric (a) (c)		4		1		(4	)										7		9		20

(a)	The domestic amount for 2003 excludes the $9 million cost of special termination benefits, which are included separately on the Statement of Income, within the "Workforce reduction" charge for that year.
(b)	In addition to the specific plans sponsored by PPL Energy Supply, PPL Generation subsidiaries and PPL EnergyPlus are also allocated a portion of the costs of pension plans sponsored by PPL Services, included in the PPL total cost above, based on their participation in those plans.
(c)	PPL Electric is also allocated a portion of the costs of pension plans sponsored by PPL Services, included in the PPL total cost above, based on participation in those plans.

The following assumptions were used in the valuation of the benefit obligations at December 31 and determination of net periodic benefit cost for the years ended December 31.

	Pension Benefits
	Domestic						International						Other Postretirement Benefits
	2005		2004		2003		2005		2004		2003		2005		2004		2003
PPL and PPL Energy Supply
Discount rate
- obligations
PPL		5.70%		5.75%		6.25%		4.75%		5.50%		5.50%		5.70%		5.75%		6.25%
PPL Energy Supply		5.70%		5.75%		6.25%		4.75%		5.50%		5.50%		5.55%		5.75%		6.25%
- cost
PPL		5.75%		6.25%		6.75%		5.50%		5.50%		5.75%		5.75%		6.25%		6.75%
PPL Energy Supply		5.75%		6.25%		6.75%		5.50%		5.50%		5.75%		5.75%		6.25%		6.75%
Rate of compensation increase
- obligations		4.75%		4.00%		4.00%		3.75%		3.75%		3.75%		4.75%		4.00%		4.00%
- cost		4.00%		4.00%		4.00%		3.75%		3.75%		3.75%		4.00%		4.00%		4.00%
Expected return on plan assets
- obligations
PPL (a)		8.50%		8.75%		8.75%		8.09%		8.30%		8.30%		8.00%		7.90%		7.80%
PPL Energy Supply (a)		8.22%		8.36%		8.75%		8.09%		8.30%		8.30%		N/A		N/A		N/A
- cost
PPL (a)		8.75%		8.75%		8.75%		8.30%		8.30%		8.31%		7.90%		7.80%		7.80%
PPL Energy Supply (a)		8.36%		8.75%		8.75%		8.30%		8.30%		8.31%		N/A		N/A		N/A

(a) The expected return on plan assets for PPL's and PPL Energy Supply's Domestic Pension Plans includes a 25 basis point reduction for management fees.

		Assumed Health Care Cost Trend Rates at December 31,
		2005	2004	2003
PPL and PPL Energy Supply
	Health care cost trend rate assumed for next year
	- obligations	10.0%	10.0%	11.0%
	- cost	10.0%	11.0%	12.0%
	Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
	- obligations	5.5%	5.0%	5.0%
	- cost	5.0%	5.0%	5.0%
	Year that the rate reaches the ultimate trend rate
	- obligations	2011	2010	2010
	- cost	2010	2010	2010

A one-percentage point change in the assumed health care costs trend rate assumption would have the following effects in 2005.

	One Percentage Point
	Increase		Decrease
PPL
Effect on service cost and interest cost components	$	1	$	(1	)
Effect on postretirement benefit obligation		14		(12	)
PPL Energy Supply
Effect on service cost and interest cost components		-		-
Effect on postretirement benefit obligation		1		(1	)

The expected long-term rate of return for PPL's domestic pension plans considers the plans' historical experience, but is primarily based on the plans' mix of assets and expectations for long-term returns of those asset classes.

(PPL)

The expected long-term rate of return for PPL's other postretirement benefit plans is based onthe VEBA trusts' mix of assets and expectations for long-term returns of those asset classes considering that a portion of those assets are taxable.

(PPL and PPL Energy Supply)

The expected rate of return for PPL's international pension plans considers that a portfolio largely invested in equities would be expected to achieve an average rate of return in excess of a portfolio largely invested in long-term bonds. The historical experience has been an excess return of 2% to 4% per annum on average over the return on long-term bonds.

(PPL)

The funded status of the PPL plans was as follows.

		Pension Benefits
		Domestic						International						Other Postretirement Benefits
		2005			2004			2005			2004			2005			2004
Change in Benefit Obligation
Benefit Obligation, January 1		$	1,969		$	1,772		$	2,931		$	2,474		$	485		$	512
	Service cost		56			49			17			15			7			6
	Interest cost		114			112			150			139			26			29
	Participant contributions								6			5			7			4
	Plan amendments		1						5						16			(47	)
	Actuarial loss		87			115			233			180			11			17
	Special termination benefits								5
	Actual expense paid					(1	)
	Net benefits paid		(80	)		(78	)		(165	)		(160	)		(34	)		(36	)
	Currency conversion								(291	)		278
Benefit Obligation, December 31			2,147			1,969			2,891			2,931			518			485
Change in Plan Assets
Plan assets at fair value, January 1			1,767			1,653			2,483			2,164			249			219
	Actual return on plan assets		191			184			427			232			11			20
	Employer contributions		27			9			41			3			25			42
	Participant contributions								6			5			7			4
	Actual expense paid					(1	)
	Net benefits paid		(80	)		(78	)		(165	)		(160	)		(34	)		(36	)
	Currency conversion								(252	)		239
Plan assets at fair value, December 31			1,905			1,767			2,540			2,483			258			249
Funded Status
Funded Status of Plan			(242	)		(202	)		(351	)		(448	)		(260	)		(236	)
Unrecognized actuarial (gain) loss			(49	)		(100	)		721			676			156			141
Unrecognized prior service cost			139			154			36			32			35			23
Unrecognized transition assets			(18	)		(23	)								61			69
Currency conversion									(72	)		69
Net amount recognized at end of year		$	(170	)	$	(171	)	$	334		$	329		$	(8	)	$	(3	)
Amounts recognized in the Balance Sheet consist of:
	Prepaid benefit cost	$	12		$	7		$	334		$	329		$	4		$	8
	Accrued benefit liability		(182	)		(178	)								(12	)		(11	)
	Additional minimum liability		(40	)		(37	)		(545	)		(635	)
	Intangible asset		9			9			33			36
	Accumulated other comprehensive income (pre-tax)		31			28			472			503
	Cumulative translation adjustment								40			96
Net amount recognized at end of year		$	(170	)	$	(171	)	$	334		$	329		$	(8	)	$	(3	)
Total accumulated benefit obligation for defined benefit pension plans		$	1,883		$	1,710		$	2,751		$	2,789

Information for pension plans with projected and accumulated benefit obligations in excess of plan assets follows.

	Plans With Projected Benefit Obligations in Excess of Plan Assets								Plans With Accumulated Benefit Obligations in Excess of Plan Assets
	Domestic				International				Domestic				International
	2005		2004		2005		2004		2005		2004		2005		2004
Projected benefit obligation	$	2,147	$	1,969	$	2,891	$	2,931	$	199	$	174	$	2,891	$	2,931
Accumulated benefit obligation		1,883		1,710		2,751		2,789		178		159		2,751		2,789
Fair value of assets		1,905		1,767		2,540		2,483		111		95		2,540		2,483

Other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets had accumulated postretirement benefit obligations and fair value of assets of $518 million and $258 million at December 31, 2005, and $485 million and $249 million at December 31, 2004.

(PPL Energy Supply)

The funded status of the PPL Energy Supply plans was as follows.

		Pension Benefits
		Domestic						International							Other Postretirement Benefits
		2005			2004			2005			2004				2005			2004
Change in Benefit Obligation
Benefit Obligation, January 1		$	74		$	62		$	2,931		$	2,474			$	12		$	11
	Service cost		4			3			17			15
	Interest cost		4			4			150			139				1			1
	Participant contributions								6			5
	Plan amendments								5
	Actuarial loss		2			6			233			180				1
	Special termination benefits								5
	Net benefits paid		(1	)		(1	)		(165	)		(160	)
	Currency conversion								(291	)		278
Benefit Obligation, December 31			83			74			2,891			2,931				14			12
Change in Plan Assets
Plan assets at fair value, January 1			61			53			2,483			2,164
	Actual return on plan assets		7			5			427			232
	Employer contributions		8			4			41			3
	Participant contributions								6			5
	Net benefits paid		(1	)		(1	)		(165	)		(160	)
	Currency conversion								(252	)		239
Plan assets at fair value, December 31			75			61			2,540			2,483
Funded Status
Funded Status of Plan			(8	)		(13	)		(351	)		(448	)			(14	)		(12	)
Unrecognized actuarial loss			14			14			721			676				4			4
Unrecognized prior service cost			3			3			36			32				1
Currency conversion									(72	)		69
Net amount recognized at end of year		$	9		$	4		$	334		$	329			$	(9	)	$	(8	)
Amounts recognized in the Balance Sheet consist of:
	Prepaid benefit cost	$	9		$	4		$	334		$	329
	Accrued benefit liability													$		(9	)	$	(8	)
	Additional minimum liability		(17	)		(17	)		(545	)		(635	)
	Intangible asset		3			3			33			36
	Accumulated other comprehensive income (pre-tax)		14			14			472			503
	Cumulative translation adjustment								40			96
Net amount recognized at end of year		$	9		$	4		$	334		$	329			$	(9	)	$	(8	)
Total accumulated benefit obligation for defined benefit pension plans		$	83		$	74		$	2,751		$	2,789

Information for pension plans with projected and accumulated benefit obligations in excess of plan assets follows.

	Domestic				International
	2005		2004		2005		2004
Projected benefit obligation	$	83	$	74	$	2,891	$	2,931
Accumulated benefit obligation		83		74		2,751		2,789
Fair value of assets		75		61		2,540		2,483

Other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets had accumulated postretirement benefit obligations and fair value of assets of $14 million and none at December 31, 2005, and $12 million and none at December 31, 2004.

In addition to the plans sponsored by PPL Energy Supply, PPL Generation subsidiaries and PPL EnergyPlus are allocated a portion of the liabilities and costs of the pension and other postretirement benefit plans sponsored by PPL Services based on their participation in those plans. The pension liabilities assumed by PPL Energy Supply for these plans were $60 million at December 31, 2005 and 2004. The prepaid other postretirement benefit costs assumed by PPL Energy Supply for these plans were $1 million and $2 million at December 31, 2005 and 2004.

PPL Energy Supply subsidiaries engaged in the mechanical contracting business make contributions to various multi-employer pension and health and welfare plans, depending on an employee's status. Contributions of $37 million, $28 million and $23 million were made in 2005, 2004 and 2003. The change in contributions from year to year was primarily the result of the changes in the workforce at the mechanical contracting companies. The contribution rates have also increased from year to year.

(PPL Electric)

Although PPL Electric does not directly sponsor any pension or other postretirement benefit plans, it is allocated a portion of the liabilities and costs of plans sponsored by PPL Services based on participation in those plans. At December 31, 2005 and 2004, the recorded balance of PPL Electric's allocated share of the total pension liability was $77 million and $76 million. At December 31, 2005 and 2004, the balance in PPL Electric's allocated share of the total prepaid other postretirement benefit cost was $2 million and $4 million.

At December 31, 2005, PPL Electric had a regulatory asset of $4 million relating to postretirement benefits, which is being amortized and recovered in rates, with a remaining life of seven years. PPL Electric also maintains an additional liability for the cost of health care of retired miners of former subsidiaries that had been engaged in coal mining. At December 31, 2005, the liability was $35 million. The liability is the net of $62 million of estimated future benefit payments offset by $27 million of available assets in a PPL Electric-funded VEBA trust.

Plan Assets - Domestic Pension Plans(PPL and PPL Energy Supply)

The asset allocation for the PPL Retirement Plan Master Trust and the target allocation, by asset category, is detailed below.

Asset Category		Percentage of plan assets at December 31,				Target asset allocation
		2005		2004
Equity securities			74%		73%		70%
Debt securities			21%		22%		25%
Real estate and other			5%		5%		5%
	Total		100%		100%		100%

The domestic pension plan assets are managed by outside investment managers and are rebalanced as necessary to maintain the target asset allocation ranges. PPL's investment strategy with respect to the domestic pension assets is to achieve a satisfactory risk-adjusted return on assets that, in combination with PPL's funding policy and tolerance for return volatility, will ensure that sufficient dollars are available to provide benefit payments.

Plan Assets - Domestic Other Postretirement Benefit Plans(PPL)

The asset allocation for the PPL other postretirement benefit plans by asset category is detailed below.

Asset Category		Percentage of plan assets at December 31,
		2005		2004
Equity securities			62%		60%
Debt securities			38%		40%
	Total		100%		100%

PPL's investment strategy with respect to its other postretirement benefit obligations is to fund the VEBA trusts with voluntary contributions and to invest in a tax efficient manner utilizing a prudent mix of assets. Based on the current VEBA and postretirement plan structure, a targeted asset allocation range of 50% to 60% equity and 40% to 50% debt is maintained.

Plan Assets - International Pension Plans(PPL and PPL Energy Supply)

WPD operates three defined benefit plans, the WPD Group segment of the Electricity Supply Pension Scheme (ESPS), the Western Power Utilities Pension Scheme and the Infralec 1992 Scheme. The assets of all three schemes are held separately from those of WPD in trustee-administered funds.

PPL's international pension plan asset allocation and target allocation is detailed below.

Asset Category		Percentage of plan assets at December 31,				Target asset allocation
		2005		2004
Equity securities			76%		74%		75%
Debt securities			21%		22%		23%
Real estate and other			3%		4%		2%
	Total		100%		100%		100%

In consultation with its investment advisor and with WPD, the group trustees of the WPD Group of the ESPS have drawn up a Statement of Investment Principles to comply with the requirements of U.K. legislation.

The group trustees' primary investment objective is to maximize investment returns within the constraint of avoiding excessive volatility in the funding position.

Expected Cash Flows - Domestic Pension and Other Postretirement Benefit Plans

(PPL)

There are no contributions required for PPL's primary domestic pension plan or any of PPL's other domestic subsidiary pension plans. However, PPL's domestic subsidiaries expect to contribute approximately $37 million to their pension plans in 2006 to ensure future compliance with minimum funding requirements.

PPL sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. PPL expects to make approximately $2 million of benefit payments under these plans in 2006.

PPL is not required to make contributions to its other postretirement benefit plans but has historically funded these plans in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would provide for PPL to contribute $39 million to its other postretirement benefit plans in 2006.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid and the following federal subsidy payments are expected to be received by the separate plan trusts.

			Other Postretirement
	Pension		Benefit Payment		Expected Federal Subsidy
2006	$	83	$	40	$	2
2007		88		45		2
2008		95		50		2
2009		101		56		2
2010		109		61		3
2011 - 2015		699		389		18

(PPL Energy Supply)

There are no contributions required for the PPL Montana pension plan. However, PPL Montana expects to contribute approximately $11 million to the plan in 2006 to ensure future compliance with minimum funding requirements.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the separate plan trusts.

	Pension		Other Postretirement
2006	$	2	$	1
2007		2		1
2008		2		1
2009		3		1
2010		3		2
2011 - 2015		26		12

Expected Cash Flows - International Pension Plans(PPL and PPL Energy Supply)

The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. Future contributions were evaluated in accordance with the latest valuation performed as of March 31, 2004, in respect of WPD's principal pension scheme, the ESPS, to determine contribution requirements for 2005 and forward. WPD expects to make contributions of approximately $47 million in 2006.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the separate plan trusts.

	Pension
2006	$	159
2007		163
2008		167
2009		171
2010		176
2011 - 2015		945

Savings Plans(PPL, PPL Energy Supply and PPL Electric)

Substantially all employees of PPL's domestic subsidiaries are eligible to participate in deferred savings plans (401(k)s). Contributions to the plans charged to operating expense approximated the following.

	2005		2004		2003
PPL	$	13	$	13	$	11
PPL Energy Supply		7		7		6
PPL Electric		3		3		2

Employee Stock Ownership Plan(PPL, PPL Energy Supply and PPL Electric)

PPL sponsors a non-leveraged ESOP, in which substantially all employees, excluding those of PPL Global, PPL Montana, PPL Gas Utilities and the mechanical contractors, are enrolled after one year of credited service. Dividends paid on ESOP shares are treated as ordinary dividends by PPL. Under existing income tax laws, PPL is permitted to deduct the amount of those dividends for income tax purposes and to contribute the resulting tax savings (dividend-based contribution) to the ESOP.

The dividend-based contribution is used to buy shares of PPL's common stock and is expressly conditioned upon the deductibility of the contribution for federal income tax purposes. Contributions to the ESOP are allocated to eligible participants' accounts as of the end of each year, based 75% on shares held in existing participants' accounts and 25% on the eligible participants' compensation.

Amounts charged as compensation expense for ESOP contributions approximated $6 million in 2005 and $5 million in each of 2004 and 2003. These amounts were offset by the dividend-based contribution tax savings and had no impact on PPL's earnings.

ESOP shares outstanding at December 31, 2005, were 8,836,536, or 2% of total common shares outstanding, and are included in all EPS calculations.

Postemployment Benefits

(PPL, PPL Energy Supply and PPL Electric)

Certain PPL subsidiaries provide health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses for 2005 were $8 million for PPL, $4 million for PPL Energy Supply and $2 million for PPL Electric, primarily due to an updated valuation for Long Term Disability benefits completed in 2005, and were not significant in 2004 and 2003.

(PPL and PPL Energy Supply)

Certain of PPL Global subsidiaries, including Emel, EC, Elfec and Integra, provide limited non-pension benefits to all current employees. All active employees are entitled to benefits in the event of termination or retirement in accordance with government-sponsored programs. These plans generally obligate a company to pay one month's salary per year of service to employees in the event of involuntary termination. Under certain plans, employees with five or more years of service are entitled to this payment in the event of voluntary or involuntary termination.

The liabilities for these plans are accounted for under the guidance of EITF 88-1, "Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan," using what is commonly referred to as the "shut down" method, where a company records the undiscounted obligation as if it were payable at each balance sheet date. The combined liabilities for these plans at December 31, 2005 and 2004, were $10 million and $9 million, and are recorded in "Deferred Credits and Noncurrent Liabilities - Other" on the Balance Sheet.

13.Jointly-Owned Facilities

(PPL and PPL Energy Supply)

At December 31, 2005, subsidiaries of PPL and PPL Energy Supply owned interests in the facilities listed below. The Balance Sheets of PPL and PPL Energy Supply include the amounts noted in the following table.

		Ownership Interest	Electric Plant in Service		Other Property		Accumulated Depreciation		Construction Work in Progress
PPL Generation
Generating Stations
	Susquehanna	90.00%	$	4,308			$	3,447	$	57
	Griffith (a)	50.00%		151
	Conemaugh	16.25%		199				83		3
	Keystone	12.34%		100				54		3
	Wyman Unit 4	8.33%		15				5
Merrill Creek Reservoir		8.37%			$	22		14

(a) A PPL subsidiary has a 50% interest in a partnership that owns the Griffith gas-fired generating station. The partnership arrangement is essentially a cost-sharing arrangement, in that each of the partners has rights to one-half of the plant capacity and energy, and an obligation to cover one-half of the operating costs of the station. Accordingly, the equity investment is classified as "Electric Plant in Service - Generation" on the Balance Sheet.

Each PPL Generation subsidiary provided its own funding for its share of the facility. Each receives a portion of the total output of the generating stations equal to its percentage ownership. The share of fuel and other operating costs associated with the stations is reflected on the Statement of Income.

In addition to the interests mentioned above, PPL Montana is the operator of the jointly-owned, coal-fired generating units comprising the Colstrip steam generation facility. At December 31, 2005 and 2004, PPL Montana had a 50% leasehold interest in Colstrip Units 1 and 2 and a 30% leasehold interest in Colstrip Unit 3 under operating leases. See Note 10 for additional information.

PPL Montana's share of direct expenses associated with the operation and maintenance of these facilities is included in the corresponding operating expenses on the Statement of Income. Each joint-owner in these facilities provides its own financing. As operator of all Colstrip Units, PPL Montana invoices each joint-owner for their respective portion of the direct expenses. The amount due from joint-owners was approximately $7 million and $6 million at December 31, 2005 and 2004.

At December 31, 2005, NorthWestern owned a 30% leasehold interest in Colstrip Unit 4. PPL Montana and NorthWestern have a sharing agreement to govern each party's responsibilities regarding the operation of Colstrip Units 3 and 4, and each party is responsible for 15% of the respective operating and construction costs, regardless of whether a particular cost is specified to Colstrip Unit 3 or 4. However, each party is responsible for its own fuel-related costs.

14.Commitments and Contingent Liabilities

Energy Purchases, Energy Sales and Other Commitments

Energy Purchase Commitments(PPL, PPL Energy Supply and PPL Electric)

PPL and PPL Energy Supply enter into long-term purchase contracts to supply the fuel requirements for generation facilities. These include contracts to purchase coal, emission allowances, natural gas, oil and nuclear fuel. These contracts extend for terms through 2019. PPL and PPL Energy Supply also enter into long-term contracts for the storage and transport of natural gas. These contracts extend through 2014 and 2032, respectively. Additionally, PPL and PPL Energy Supply enter into long-term contracts to purchase power to meet load requirements. These contracts extend for terms through April 2010.

PPL and PPL Energy Supply entered into long-term power purchase agreements with two wind project developers to purchase the full output of their facilities when they begin commercial operation. One of the power purchase agreements is for 50-100 MW and extends for a term of 15 years. The in-service date for this project is under evaluation. The other agreement is for 24 MW and extends for a term of 20 years, and the project is expected to be in service in early 2006.

As part of the purchase of generation assets from Montana Power, PPL Montana assumed a power purchase agreement, which was still in effect at December 31, 2005. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $58 million as the estimated fair value of the agreement at the acquisition date. The liability is being reduced over the term of the agreement, through 2010, as an adjustment to "Energy purchases" on the Statement of Income. The unamortized balance of the liability related to the agreement at December 31, 2005, was $49 million and is included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet.

In 1998, PPL Electric recorded a loss accrual for above-market contracts with NUGs of $854 million, due to its generation business being deregulated. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy purchases" on the Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment in 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. At December 31, 2005, the remaining liability associated with the above market NUG contracts was $206 million.

Energy Sales Commitments(PPL and PPL Energy Supply)

PPL Energy Supply enters into long-term power sales contracts in connection with its load-serving activities or associated with certain of its power plants. These power sales contracts extend for terms through 2017. All long-term contracts were executed at pricing that approximated market rates, including profit margin, at the time of execution.

As part of the purchase of generation assets from Montana Power, PPL Montana assumed a power sales agreement, which was still in effect at December 31, 2005. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $7 million as the estimated fair value of the agreement at the acquisition date. The agreement was re-evaluated under DIG Issue C20, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts with a Price Adjustment Feature," which changed its fair value and reclassified it as a derivative instrument in 2003. At December 31, 2005, $5 million was recorded as a component of accumulated other comprehensive loss.

On July 1, 2002, PPL Montana began to sell to NorthWestern an aggregate of 450 MW of energy supplied by PPL Montana. Under two five-year agreements, PPL Montana 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.

In 2002, PPL began commercial operations in New York of its Edgewood natural gas-fired generating station and its Shoreham oil-fired generating station. Each of these New York plants has a capacity of 79.9 MW. Initially, the Long Island Power Authority contracted to purchase all of Edgewood's capacity and ancillary services as part of a 3-year power purchase agreement with PPL EnergyPlus beginning at commercial operation, and all of Shoreham's capacity and ancillary services as part of a 15-year power purchase agreement with PPL EnergyPlus beginning at commercial operation. In 2005, PPL EnergyPlus extended the Edgewood power purchase agreement for an additional term that runs through October 2008. The Shoreham power purchase agreement remains in effect until 2017.

As a result of New Jersey's Electric Discount and Energy Competition Act, the New Jersey Board of Public Utilities authorized and made available to power suppliers, on a competitive basis, the opportunity to provide Basic Generation Service (BGS) to all non-shopping New Jersey customers. In February 2003, PPL EnergyPlus was awarded a 34-month fixed-price BGS contract for a fixed percentage of customer load (approximately 1,000 MW) for Atlantic City Electric Company (ACE), Jersey Central Power & Light Company (JCPL) and Public Service Electric & Gas Company (PSEG). This contract commenced in August 2003. In February 2004, PPL EnergyPlus was awarded a 12-month hourly energy price supply BGS contract for a fixed percentage of customer load (approximately 450 MW) for ACE, JCPL and PSEG. These contracts commenced in June 2004 and expired in May 2005. In the first quarter of 2005, PPL EnergyPlus was awarded a portion of the Commercial Industrial Energy Pricing tranche, which amounts to approximately 85 MW after expected shopping. These 12-month contracts commenced in June 2005. In February 2006, PPL EnergyPlus was awarded 36-month fixed-price BGS contracts for fixed percentages of customer load (an aggregate of approximately 600 MW) for ACE, JCPL and PSEG. These contracts commence in June 2006.

In January 2004, PPL EnergyPlus began supplying 12.5% of Connecticut Light & Power Company's (CL&P) Transitional Standard Offer load under a three-year fixed-price contract. During peak hours, PPL EnergyPlus' obligation to supply the Transitional Standard Offer load may reach 625 MW. Additionally, in January 2006, PPL EnergyPlus will begin to supply an additional 6.25% of CL&P's Transitional Standard Offer load under a one-year fixed-price contract. During peak hours, PPL EnergyPlus' obligation to supply the Transitional Standard Offer load may reach 313 MW.

In December 2005 and January 2006, PPL EnergyPlus entered into agreements with Delmarva Power and Light Company to provide a portion of its full requirements service from May 2006 through May 2008.

PPL Montana Hydroelectric License Commitments(PPL and PPL Energy Supply)

PPL Montana has 11 hydroelectric facilities and one storage reservoir licensed by the FERC pursuant to the Federal Power Act under long-term licenses. 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. Under this arrangement, PPL Montana has a remaining commitment to spend approximately $19 million between 2006 and 2015, at which point the tribes have the option to purchase, hold and operate the project.

PPL Montana entered into two Memorandums of Understanding (MOUs) 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 MOUs require PPL Montana to implement plans to mitigate the impact of its projects on fish, wildlife and the habitat, and to increase recreational opportunities. The MOUs were created to maximize collaboration between the parties and enhance the possibility for matching funds from relevant federal agencies. Under this arrangement, PPL Montana has a remaining commitment to spend approximately $35 million between 2006 and 2040.

Legal Matters

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries are involved in numerous legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities.

Montana Power Shareholders' Litigation(PPL and PPL Energy Supply)

In August 2001, a purported class-action lawsuit was filed by a group of shareholders of Montana Power against Montana Power, the directors of Montana Power, certain advisors and consultants of Montana Power and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to and participated in a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. This lawsuit has been pending in the U.S. District Court of Montana, Butte Division and the judge has placed this proceeding on hold pending the outcome of certain motions currently before the U.S. Bankruptcy Court for the District of Delaware, the resolution of which may impact this proceeding. PPL and PPL Energy Supply cannot predict the outcome of this matter.

NorthWestern Corporation Litigation(PPL and PPL Energy Supply)

In September 2002, NorthWestern filed a lawsuit against PPL Montana in Montana state court seeking specific performance of a provision in the Montana Power APA 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. In 2005, PPL Montana and NorthWestern settled the litigation, and PPL Energy Supply recorded a charge of $9 million ($6 million after tax, or $0.02 per share for PPL) in the first quarter of 2005 related to the settlement agreement. Pursuant to the settlement agreement, all claims of the parties in the litigation were dismissed with prejudice, NorthWestern retained its interest in the CTS, and PPL Montana paid NorthWestern $9 million in October 2005.

Montana Hydroelectric Litigation(PPL and PPL Energy Supply)

In October 2003, a lawsuit was filed against PPL Montana, PPL Services, Avista Corporation, PacifiCorp and nine John Doe defendants in the U.S. District Court of Montana, Missoula Division, by two residents allegedly acting in a representative capacity on behalf of the State of Montana. In January 2004, the complaint was amended to, among other things, include the Great Falls school districts as additional plaintiffs. In May 2004, the Montana Attorney General filed a motion to allow the State of Montana to intervene as an additional plaintiff in the litigation. This motion was granted without objection. The individual plaintiffs, the school districts and the State sought declaratory judgment, compensatory damages and attorneys fees and costs for use of state and/or "school trust" lands by hydropower facilities and to require the defendants to adequately compensate the State and/or the State School Trust fund for full market value of lands occupied. Generally, the suit is founded on allegations that the bed of navigable rivers became state-owned property upon Montana's admission to statehood, and that the use thereof for placement of dam structures, affiliated structures and reservoirs should, under an existing regulatory scheme, trigger lease payments for use of land underneath. The plaintiffs also sought relief on theories of unjust enrichment, trespass and negligence. No specific amount of damages or future rental value has been claimed by the plaintiffs. The defendants filed separate motions to dismiss the individual plaintiffs' and school districts' complaint, as well as the complaint of the State of Montana. In September 2004, the federal court granted the motions to dismiss the individual plaintiffs' and school districts' complaint but denied the similar motions as to the State of Montana's complaint. Following the federal court's September decision, PPL Montana and the other defendants filed a motion to dismiss the State of Montana's complaint for lack of diversity jurisdiction and also filed a motion to vacate certain portions of the decision. The federal court granted both of these motions in September 2005.

In November 2004, PPL Montana, Avista Corporation and PacifiCorp commenced an action for declaratory judgment in Montana First Judicial District Court seeking a determination that no lease payments or other compensation for the hydropower facilities' use and occupancy of streambeds can be collected by the State of Montana. The State subsequently filed counterclaims and a motion for summary judgment. In February 2005, the individual plaintiffs and school districts who were dismissed from the federal court proceeding, along with a state teachers' union, filed a motion to intervene as additional defendants in this state court proceeding, and also filed a proposed answer and counterclaims to be used if their motion to intervene is granted. The state court denied this motion to intervene, but has not yet ruled on any of the other above-described motions. PPL and PPL Energy Supply cannot predict the outcome of the state court proceeding.

Regulatory Issues

California ISO and Western Markets(PPL and PPL Energy Supply)

Through its subsidiaries, PPL made approximately $18 million of sales to the California ISO during the period from October 2000 through June 2001, 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. At December 31, 2005, PPL has fully reserved for possible underrecoveries of payments for these sales.

Regulatory proceedings arising out of the California electricity supply situation have been filed at the FERC. The FERC has determined that all sellers of energy into markets operated by the California ISO and the California Power Exchange, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000, through June 20, 2001, and initiated an evidentiary hearing concerning refund amounts. In April 2003, the FERC changed the manner in which this refund liability is to be computed and ordered further proceedings to determine the exact amounts that the sellers, including PPL Montana, would be required to refund. In September 2004, the U.S. Court of Appeals for the Ninth Circuit held that the FERC had the additional legal authority to order refunds for periods prior to October 2, 2000, and ordered the FERC to determine whether or not it would be appropriate to grant such additional refunds.

In June 2003, the FERC took several actions as a result of a number of related investigations. The FERC terminated proceedings pursuant to which it had been considering whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. The FERC also commenced additional investigations relating to "gaming" and bidding practices during 2000 and 2001, but, to their knowledge, neither PPL EnergyPlus nor PPL Montana is a subject of these investigations.

Litigation arising out of the California electricity supply situation has been filed in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these legal proceedings allege, among other things, abuse of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, and seek other relief, including treble damages and attorneys' fees. While PPL's subsidiaries have not been named by the plaintiffs in these legal proceedings, PPL Montana was named by a defendant in its cross-complaint in a consolidated court proceeding, which combined into one master proceeding several of the lawsuits alleging antitrust violations and unfair trade practices. This generator denies that any unlawful, unfair or fraudulent conduct occurred but asserts that, if it is found liable, the other generators and power marketers, including PPL Montana, caused, contributed to and/or participated in the plaintiffs' alleged losses.

In February 2004, the Montana Public Service Commission initiated a limited investigation of the Montana retail electricity market for the years 2000 and 2001, focusing on how that market was affected by transactions involving the possible manipulation of the electricity grid in the western U.S. The investigation includes all public utilities and licensed electricity suppliers in Montana, as well as other entities that may possess relevant information. Through its subsidiaries, PPL is a licensed electricity supplier in Montana and a wholesale supplier in the western U.S. In June 2004, the Montana Attorney General served PPL Montana and more than 20 other companies with subpoenas requesting documents, and PPL Montana has provided responsive documents to the Montana Attorney General. As with the other investigations taking place as a result of the issues arising out of the electricity supply situation in California and other western states, PPL and its subsidiaries believe that they have not engaged in any improper trading or marketing practices affecting the Montana retail electricity market.

PPL and its subsidiaries believe that they have not engaged in any improper trading practices. However, 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. PPL also cannot predict 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 Litigation(PPL, PPL Energy Supply and PPL Electric)

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, among other things, violations of the federal antitrust laws in connection with the pricing of installed capacity in the PJM daily market during the first quarter of 2001. These boroughs were 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 in early 2001. The complaint indicates that ENERCO provides consulting and energy procurement services to clients in Pennsylvania and New Jersey. In September 2004, this complaint was dismissed by the District Court, and in June 2005 the U.S. Court of Appeals for the Third Circuit denied the plaintiff's appeal.

Each of the U.S. Department of Justice - Antitrust Division, the FERC and the Pennsylvania Attorney General conducted investigations regarding PPL's PJM capacity market transactions in early 2001 and did not find any reason to take action against PPL.

New England Investigation(PPL and PPL Energy Supply)

In January 2004, PPL became aware of an investigation by the Connecticut Attorney General and the FERC's Office of Market Oversight and Investigation (OMOI) regarding allegations that natural gas-fired generators located in New England illegally sold natural gas instead of generating electricity during the week of January 12, 2004. Subsequently, PPL and other generators were served with a data request by OMOI. The data request indicated that PPL was not under suspicion of a regulatory violation, but that OMOI was conducting an initial investigation. PPL has responded to this data request. PPL also has responded to data requests of ISO New England and data requests served by subpoena from the Connecticut Attorney General. Both OMOI and ISO New England have issued preliminary reports finding no regulatory or other violations concerning these matters. While PPL does not believe that it committed any regulatory or other violations concerning the subject matter of these investigations, PPL cannot predict the outcome of these investigations.

PJM Billing(PPL, PPL Energy Supply and PPL Electric)

In December 2004, Exelon Corporation, on behalf of its subsidiary, PECO Energy, Inc. (PECO), filed a complaint against PJM and PPL Electric with the FERC alleging that PJM had overcharged PECO from April 1998 through May 2003 as a result of an error by PJM in the State Estimator Model used in connection with billing all PJM customers for certain transmission, spot market energy and ancillary services charges. Specifically, the complaint alleges that PJM mistakenly identified PPL Electric's Elroy substation transformer as belonging to PECO and that, as a consequence, during times of congestion, PECO's bills for transmission congestion from PJM erroneously reflected energy that PPL Electric took from the Elroy substation and used to serve PPL Electric's load. The complaint requests the FERC, among other things, to direct PPL Electric to refund to PJM $39 million, plus interest of approximately $8 million, and for PJM to refund these same amounts to PECO. In February 2005, PPL Electric filed its response with the FERC stating that neither PPL Electric nor any of its affiliates should be held financially responsible or liable to PJM or PECO as a result of PJM's error.

In April 2005, the FERC issued an Order Establishing Hearing and Settlement Judge Proceedings (the Order). In the Order, the FERC determined that PECO is entitled to reimbursement for the transmission congestion charges that PECO asserts PJM erroneously billed to it at the Elroy substation. The FERC set for additional proceedings before a judge the determination of the amount of the overcharge to PECO and which PJM market participants were undercharged and therefore are responsible for reimbursement to PECO. The FERC also ordered procedures before a judge to attempt to reach a settlement of the dispute.

PPL Electric recognized an after-tax charge of approximately $27 million (or $0.07 per share for PPL) in the first quarter of 2005 for a loss contingency related to this matter. The pre-tax accrual was approximately $47 million, with $39 million included in "Energy purchases" on the Statement of Income, and $8 million in "Interest Expense."

In September 2005, PPL Electric and Exelon Corporation filed a proposed settlement agreement regarding this matter with the FERC. Under the settlement agreement, PPL Electric would pay $33 million plus interest over a four-year period to PJM through a new transmission charge that, under applicable law, is recoverable from PPL Electric's retail customers. Also, all PJM market participants would pay approximately $8 million plus interest over a four-year period to PJM through a new market adjustment charge. PJM would forward amounts collected under the two new charges to PECO. PJM filed comments with the FERC neither supporting nor opposing the settlement agreement, and the FERC Trial Staff filed comments with the FERC supporting the settlement agreement. Numerous other parties, including PJM market participants, filed comments with the FERC opposing the settlement agreement. The FERC has not yet acted on the proposed settlement agreement.

PPL, PPL Electric and PPL Energy Supply cannot be certain of the outcome of this matter or the impact on PPL and its subsidiaries. Some or all of the first quarter 2005 charges for this matter may be reversed in a future period depending on the outcome of this matter, the potential for recovery of any amounts paid as a result of the additional FERC proceedings, the application of the relevant provisions of the energy supply agreements between PPL Electric and PPL EnergyPlus and other factors. Depending on these factors, PPL Energy Supply, the parent company of PPL EnergyPlus, may incur some or all of the costs associated with this matter in a future period.

FERC Market-Based Rate Authority(PPL and PPL Energy Supply)

In December 1998, the FERC issued an order authorizing PPL EnergyPlus to make wholesale sales of electric power and related products at market-based rates. In that order, the FERC directed PPL EnergyPlus to file an updated market analysis within three years of the date of the order, and every three years thereafter. PPL EnergyPlus filed its initial updated market analysis in December 2001. Several parties thereafter filed interventions and protests requesting that PPL EnergyPlus be required to provide additional information demonstrating that it has met the FERC's market power tests necessary for PPL EnergyPlus to continue its market-based rate authority. PPL EnergyPlus has responded that the FERC does not require the economic test suggested by the intervenors and that, in any event, it would meet such economic test if required by the FERC.

In June 2004, FERC approved certain changes to its standards for granting market-based rate authority. As a result of the schedule adopted by the FERC, PPL EnergyPlus, PPL Electric, PPL Montana and most of PPL Generation's subsidiaries were required to file, in November 2004, updated analyses demonstrating that they should continue to maintain market-based rate authority under the new standards. PPL made two filings, a Western market-based rate filing for PPL Montana and an Eastern market-based rate filing for most of the other PPL subsidiaries in the PJM region.

In September 2005, the FERC issued an order conditionally approving the Eastern market-based rate filing. The FERC expressly rejected the concerns raised by various consumer advocates and industrial customers regarding generation market power of PPL's and PPL Energy Supply's generation subsidiaries in the PJM region. The FERC's order required the subsidiaries to make a compliance filing providing further support that they cannot erect other non-transmission barriers to entry into the generation market, and the PPL subsidiaries made this compliance filing in October 2005.

Also in September 2005, in an order on PPL's western market-based rate filing, the FERC found that PPL Montana did not pass one of the FERC's initial screening tests for market power in the Northwestern Energy Control Area, namely the wholesale market share screen. As a result, PPL Montana was required to make a more detailed filing with the FERC demonstrating that it meets the market power tests. Also, the FERC has established a refund effective date of November 8, 2005 (for sales made in the Northwestern Energy Control Area pursuant to contracts entered into on and after that date), in the event that PPL Montana does not pass the FERC's market power tests. The FERC's order is not a definitive determination that PPL Montana has market power but rather the FERC's mechanism for analyzing market-based rate authority applications that require further scrutiny. In October 2005, PPL Montana made the more detailed filing with the FERC, which PPL Montana believes demonstrates that it cannot exercise generation market power in the Northwestern Energy Control Area and should be granted market-based rate authority in that area. The FERC has not yet acted on this more detailed filing. While PPL Montana continues to believe that it does not have market power in the Northwestern Energy Control Area, it cannot predict the outcome of this proceeding.

FERC Proposed Rules(PPL, PPL Energy Supply and PPL Electric)

In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design." The proposed rule contained a proposed implementation date of July 31, 2003. This far-reaching proposed rule purported to establish uniform transmission rules and a standard market design by, among other things:

· enacting standard transmission tariffs and uniform market mechanisms;

· monitoring and mitigating "market power";

· managing transmission congestion through pricing and tradable financial rights;

· requiring independent operational control over transmission facilities;

· forming state advisory committees on regional transmission organizations and resource adequacy; and

· exercising FERC jurisdiction over all transmission service.

In April 2003, the FERC issued a white paper describing certain modifications to the proposed rule. The FERC requested comments and held numerous public comment sessions concerning the white paper. In July 2005, the FERC terminated the proposed rule based on its conclusion that the objectives of the proposed rule had been overtaken by other events in the industry, such as the continuing development of voluntary ISOs and RTOs.

In November 2003, the FERC adopted a proposed rule to require all existing and new electric market-based tariffs and authorizations to include provisions prohibiting the seller from engaging in anticompetitive behavior or the exercise of market power. The FERC order adopts a list of market behavior rules that apply to all electric market-based rate tariffs and authorizations, including those of PPL EnergyPlus and any other PPL subsidiaries that hold market-based rate authority. PPL does not expect this rule to have a significant impact on its subsidiaries.

Wallingford Cost-Based Rates (PPL and PPL Energy Supply)

In January 2003, PPL negotiated an agreement with 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. PPL filed a request with the FERC for such approval. PPL requested authority for cost-based rates because the current and anticipated wholesale prices in New England are insufficient to cover the costs of keeping these units available for operation. In March 2003, PPL filed an application with the New England Power Pool to temporarily deactivate these four units. In May 2003, the FERC denied PPL's request for cost-based rates in light of the FERC's changes to the market and bid mitigation rules of ISO New England made in a similar case involving generating units owned by NRG Energy, Inc. PPL subsequently has explained to the FERC that its changes to the market and bid mitigation rules of ISO New England will not provide sufficient revenues to PPL, and PPL continues to seek approval of its cost-based rates. However, PPL has informed the New England Power Pool that it will not pursue its request to temporarily deactivate certain Wallingford units. In August 2005, the U.S. Court of Appeals for the District of Columbia Circuit reversed the FERC's denial of PPL's request for cost-based rates and remanded the case to the FERC for further consideration. PPL cannot predict the outcome of this matter.

IRS Synthetic Fuels Tax Credits(PPL and PPL Energy Supply)

PPL, through its subsidiaries, has interests in two synthetic fuel production facilities: the Somerset facility located in Pennsylvania and the Tyrone facility located in Kentucky. PPL receives tax credits pursuant to Section 29 of the Internal Revenue Code based on the sale of synthetic fuel from these facilities to unaffiliatedthird-party purchasers. Section 29 of the Internal Revenue Code provides tax credits for the production and sale of solid synthetic fuels produced from coal. Section 29 tax credits are currently scheduled to expire at the end of 2007.

To qualify for the Section 29 tax credits, the synthetic fuel must meet three primary conditions: (i) there must be a significant chemical change in the coal feedstock, (ii) the product must be sold to an unaffiliated entity, and (iii) the production facility must have been placed in service before July 1, 1998.

In addition, Section 29 provides for the synthetic fuel tax credit to begin to phase-out when the relevant annual reference price for crude oil, which is the domestic first purchase price (DFPP), falls within a designated range and to be eliminated when the DFPP exceeds the range. The phase-out range is adjusted annually for inflation. The DFPP is published by the IRS annually in April for the prior year and is calculated based on the annual average wellhead price per barrel for all unregulated domestic crude oil. Accounting for inflation, PPL estimates that the 2005 tax credit phase-out would start at a DFPP for the year of about $52 per barrel and the tax credit would be totally eliminated at about $65 per barrel. PPL currently does not expect any phase-out of the synthetic fuel tax credit for 2005. Based on current market conditions and given the recent increases in and volatility of crude oil prices, PPL cannot predict the final DFPP for crude oil for 2006 and 2007 or inflation for those years that affects the determination of the phase-out range of the tax credit.

PPL has entered into economic hedge transactions that serve to mitigate some of the earnings and cash flow impact of increases in crude oil prices for 2006 and 2007, with the mark-to-market value of these hedges reflected in "Energy-related businesses" revenues on the Statement of Income. Nonetheless, if the price of crude oil remains at, or increases above, current price levels in 2006 or 2007, PPL's expected synthetic fuel tax credits for either or both of those years could be significantly reduced. Based on forecasted oil prices and other market factors for 2006 and 2007, PPL will evaluate its synthetic fuel production levels and operations.

A PPL subsidiary owns and operates the Somerset facility. In November 2001, PPL received a private letter ruling from the IRS pursuant to which, among other things, the IRS concluded that the synthetic fuel produced at the Somerset facility qualifies for Section 29 tax credits. The Somerset facility uses the Covol technology to produce synthetic fuel, and the IRS issued the private letter ruling after its review and approval of that technology. In reliance on this private letter ruling, PPL has sold synthetic fuel produced at the Somerset facility resulting in an aggregate of approximately $267 million of tax credits as of December 31, 2005.

PPL owns a limited partnership interest in the entity that owns and operates the Tyrone facility. In April 2004, this entity received a private letter ruling from the IRS. Similar to its conclusions relating to the Somerset facility, the IRS concluded that the synthetic fuel to be produced at the Tyrone facility qualifies for Section 29 tax credits. In reliance on this private letter ruling, this entity has sold synthetic fuel produced at the Tyrone facility resulting in an aggregate of approximately $60 million of tax credits as of December 31, 2005. The Tyrone facility began commercial operation in the third quarter of 2004, after being relocated to Kentucky from Pennsylvania.

PPL also purchases synthetic fuel from unaffiliated third parties, at prices below the market price of coal, for use at its coal-fired power plants.

In October 2003, it was reported that the U.S. Senate Permanent Subcommittee on Investigations, of the Committee on Governmental Affairs, had begun an investigation of the synthetic fuel industry and its producers. That investigation is ongoing. PPL cannot predict when the investigation will be completed or the potential results of the investigation.

Energy Policy Act of 2005(PPL, PPL Energy Supply and PPL Electric)

In August 2005, President Bush signed into law the Energy Policy Act of 2005 (the "2005 Energy Act"). The 2005 Energy Act is comprehensive legislation that will substantially affect the regulation of energy companies. The Act amends federal energy laws and provides the FERC with new oversight responsibilities. Among the important changes to be implemented as a result of this legislation are:

· The Public Utility Holding Company Act of 1935, or PUHCA, will be repealed effective six months after the 2005 Energy Act is enacted. PUHCA significantly restricted mergers and acquisitions in the electric utility sector.

· The FERC will appoint and oversee an electric reliability organization to establish and enforce mandatory reliability rules regarding the bulk power system.

· The FERC will establish incentives for transmission companies, such as performance-based rates, recovery of the costs to comply with reliability rules and accelerated depreciation for investments in transmission infrastructure.

· The Price Anderson Amendments Act of 1988, which provides the framework for nuclear liability protection, will be extended by twenty years to 2025.

· Federal support will be available for certain clean coal power initiatives, nuclear power projects and renewable energy technologies.

The implementation of the 2005 Energy Act requires proceedings at the state level and the development of regulations by the FERC, the DOE and other federal agencies, some of which have been finalized. PPL cannot predict when all of these proceedings and regulations will be finalized.

PPL cannot predict with certainty the impact of the 2005 Energy Act and any related regulations on PPL and its subsidiaries.

Environmental Matters - Domestic

(PPL, PPL Energy Supply and PPL Electric)

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

Air (PPL and PPL Energy Supply)

The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards, fine particulate matter standards and toxic air emissions and visibility in the U.S. Amendments to the Clean Air Act, although not presently under consideration, are likely to continue to be brought up for consideration in the U.S. Congress. Past proposed amendments would have required significant further reductions in emissions of nitrogen oxide and sulfur dioxide and reductions in emissions of mercury beyond the reductions discussed below.

Citing its authority under the Clean Air Act, the EPA has developed new standards for ambient levels of ozone and fine particulates in the U.S. These standards have been upheld following court challenges. To facilitate attainment of these standards, the EPA has promulgated the Clean Air Interstate Rule (CAIR) for 28 midwestern and eastern states, including Pennsylvania, to reduce national sulfur dioxide emissions by about 50% by 2010 and to extend the current seasonal program for nitrogen oxide emission reductions to a year-round program starting in 2009. The CAIR requires further reductions, starting in 2015, in sulfur dioxide and nitrogen oxide of 30% and 20%, respectively, from 2010 levels. The CAIR allows these reductions to be achieved through cap-and-trade programs. Pennsylvania and Montana have not challenged the CAIR, but the rule has been challenged by several states and environmental groups as not being sufficiently strict, and by industry petitioners as being too strict. In addition, several Canadian environmental groups have petitioned the EPA under the Clean Air Act to revise the CAIR to require deeper reductions in sulfur dioxide and mercury emissions.

In order to continue meeting existing sulfur dioxide reduction requirements of the Clean Air Act, PPL is proceeding with the installation of sulfur dioxide scrubbers at its Montour Units 1 and 2 and Brunner Island Unit 3 by 2008, and also plans to install a scrubber at Brunner Island Units 1 and 2 by 2009. Based on expected levels of generation, emission allowance shortfalls that would otherwise occur without significant additional purchases of allowances and projected emission allowance prices, PPL has determined that it is more economic to install these scrubbers than to purchase significant additional emission allowances. PPL's current installation plan for the scrubbers and other pollution control equipment (primarily aimed at sulfur dioxide and nitrogen oxide emissions reduction) from 2005 to 2010 reflects a cost of approximately $1.5 billion.

Also citing its authority under the Clean Air Act, the EPA has finalized mercury regulations that affect coal-fired plants. These regulations establish an emission trading program to take effect beginning January 2010, with a second phase to take effect in 2018. At the same time that it finalized these mercury regulations, the EPA determined that it currently does not need to regulate nickel emissions from oil-fired units. PPL is still assessing what measures it will need to take to comply with the mercury regulations. PPL expects that the scrubbers to be installed at Montour and Brunner Island will provide mercury removal co-benefits. However, PPL believes that it may need to take additional measures to comply with the 2010 requirements of the EPA's mercury regulations and that it will need to take additional measures to comply with the 2018 requirements. The capital costs to PPL of complying with these new mercury regulations are not now determinable, but could be significant. Based on preliminary industry estimates, the costs are expected to exceed $150 million.

Pennsylvania and ten other states have challenged the new EPA mercury regulations in the D.C. Circuit Court of Appeals as not being sufficiently strict. The Pennsylvania Environmental Quality Board (PaEQB) has accepted a petition filed by PennFuture, an environmental citizens organization, requesting the PaEQB to develop mercury rules that would require by 2008 a level of mercury reduction that would be more stringent than the level required by 2018 under the EPA's mercury regulations. In addition, the Ozone Transport Commission (consisting of Pennsylvania and 11 other states and the District of Columbia) has passed a resolution calling for reductions in sulfur dioxide, nitrogen oxide and mercury emissions that are more stringent than those under CAIR and the EPA's mercury regulations. The Pennsylvania DEP (which works with the PaEQB to develop Pennsylvania environmental regulations) has initiated a process to develop mercury regulations that are expected to be more stringent than the EPA's regulations but different from those requested by PennFuture, and it also has indicated support for developing more stringent regulations for reductions in sulfur dioxide and nitrogen oxide. A proposed rule is expected by mid-2006.

As a result of a petition to initiate state-specific rulemaking for mercury emissions that was filed by a coalition of environmental and other public interest groups with the Montana Board of Environmental Review (BER) in September 2005, the Montana Department of Environmental Quality (DEQ) is developing a rule to recommend to the BER. The DEQ has circulated to certain parties, including PPL Montana, a preliminary proposed rule that PPL Montana is evaluating. The rule presently is expected to be formally proposed to the BER in March 2006.

PPL and other energy companies and industry groups oppose state-specific regulations that are more stringent than the current federal rules and regulations regarding nitrogen oxide, sulfur dioxide and mercury emissions. PPL cannot predict whether more stringent regulations will ultimately be adopted in Pennsylvania or Montana. The additional costs to comply with any such regulations are not now determinable, but could be significant.

In addition to the above rules, the Clean Air Visibility Rule was issued by the EPA on June 15, 2005, to address regional haze or regionally-impaired visibility caused by multiple sources over a wide area. The rule defines Best Available Retrofit Technology requirements for electric generating units, including presumptive limits for sulfur dioxide and nitrogen oxide controls for large units. The EPA has stated that this rule will not require reductions in sulfur dioxide or nitrogen oxide beyond those required by CAIR. At this time, PPL cannot predict whether the Pennsylvania DEP will require additional reductions beyond the visibility requirements established through CAIR. If the Pennsylvania DEP establishes regulations to require additional reductions, the additional costs to comply with such regulations, which are not now determinable, could be significant. In states like Montana that are not within the CAIR region, the need for and costs of additional controls as a result of this new rule are not now determinable, but could be significant.

In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA subsequently issued notices of violation and commenced enforcement activities against other utilities. However, in the past several years, the EPA has shifted its position on New Source Review. In 2003, the EPA issued changes to its regulations that clarified what projects are exempt from "New Source" requirements as routine maintenance and repair. However, these regulations have been stayed by the U.S. Court of Appeals for the District of Columbia Circuit. PPL is therefore continuing to operate under the "New Source" regulations as they existed prior to the EPA's 2003 clarifications.

In October 2005, the EPA proposed changing its rules on how to determine whether a project results in an emissions increase and is therefore subject to review under the "New Source" regulations. The EPA's proposed tests are consistent with the position of energy companies and industry groups and, if adopted, would substantially reduce the uncertainties under the current regulations. PPL cannot predict whether these proposed new tests will be adopted. In addition to proposing these new tests, the EPA also announced in October 2005 that it will not bring new enforcement actions with respect to projects that would satisfy the proposed new tests or the EPA's 2003 clarifications referenced above. Accordingly, PPL believes that it is unlikely that the EPA will follow up on the information requests that had been issued to PPL Montana's Corette and Colstrip plants by EPA Region VIII in 2000 and 2003, respectively, and to PPL Generation's Martins Creek plant by EPA Region III in 2002. However, states and environmental groups also have been bringing enforcement actions alleging violations of "New Source" requirements by coal-fired plants, and PPL is unable to predict whether such state or citizens enforcement actions will be brought with respect to any of its affiliates' plants.

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 PPL's Lower Mt. Bethel generating plant. In October 2003, PPL finalized an agreement with the New Jersey DEP and the Pennsylvania DEP pursuant to which PPL will reduce sulfur dioxide emissions from its Martins Creek power plant. Under the agreement, PPL Martins Creek will shut down the plant's two coal-fired generating units by September 2007 and may repower them any time after shutting them down so long as it follows all applicable state and federal requirements, including installing the best available pollution control technology. Pursuant to the agreement, PPL Martins Creek began reducing the fuel sulfur content for the coal units as well as the plant's two oil-fired units in June 2004. The agreement also calls for PPL to 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. Some of these donations have already been made to the Pennsylvania Environmental Council. As a result of the agreement, the New Jersey DEP withdrew its challenge to the Air Quality Plan Approval for the Lower Mt. Bethel facility. The agreement will not result in material costs to PPL. The agreement does not address the issues raised by the New Jersey DEP regarding the visible opacity of emissions from the oil-fired units at the Martins Creek plant. Similar issues also are being raised by the Pennsylvania DEP. PPL is currently negotiating the matter with the Pennsylvania DEP. If it is determined that actions must be taken to address the visible opacity of these emissions, such actions could result in costs that are not now determinable, but could be significant.

In addition to the opacity concerns raised by the New Jersey DEP, PPL and the Pennsylvania DEP were engaged in litigation relating to the opacity of emissions from the Montour plant. That litigation now has been resolved. The settlement does not impose any material costs.

In December 2003, PPL Montana, as operator of the Colstrip facility, received an Administrative Compliance Order (ACO) from the EPA pursuant to the Clean Air Act. The ACO alleges that Units 3 and 4 of the facility have been in violation of the Clean Air Act permit at Colstrip since 1980. The permit required Colstrip to submit for review and approval by the EPA an analysis and proposal for reducing emissions of nitrogen oxide to address visibility concerns upon the occurrence of certain triggering events. The EPA is asserting that regulations it promulgated in 1980 triggered this requirement. PPL believes that the ACO is unfounded. PPL is engaged in settlement negotiations on these matters with the EPA, the Montana DEQ and the Northern Cheyenne Tribe.

In addition to the requirements related to emissions of sulfur dioxide, nitrogen oxide and mercury noted above, there is a growing concern nationally and internationally about carbon dioxide emissions. In June 2005, the U.S. Senate adopted a resolution declaring that mandatory reductions in carbon dioxide are needed. Various legislative proposals are being considered in Congress, and several states already have passed legislation capping carbon dioxide emissions. The Bush administration is promoting a voluntary carbon dioxide reduction program, called the Climate VISION program. In support of this program, the electric power industry has committed to reducing its greenhouse gas emission intensity levels (measured as tons of carbon dioxide equivalent against electric power production in MWh) by 3% to 5% by the 2010 to 2012 period. Furthermore, in December 2005, seven northeastern states (New York, Connecticut, Delaware, Maine, New Hampshire, New Jersey and Vermont) signed an MOU establishing a cap and trade program commencing in January 2009 for stabilization of carbon dioxide emissions, at base levels established in 2005, from electric power plants larger than 25 MW in capacity. This MOU also provides for a 10% reduction in carbon dioxide emissions from the base levels by the end of 2018. Increased pressure for carbon dioxide emissions reduction also is coming from investor organizations and the international community.

Pennsylvania and Montana have not, at this time, established any formal programs to address carbon dioxide and other greenhouse gases. PPL has conducted an inventory of its carbon dioxide emissions and is continuing to evaluate various options for reducing, avoiding, off-setting or sequestering its emissions. If Pennsylvania or Montana develop regulations imposing mandatory reductions of carbon dioxide and other greenhouse gases on generation facilities, the cost to PPL of such reductions could be significant.

In June 2005, PPL Montour, along with 20 other companies with coal-fired generating plants, was named as a defendant in a toxic-tort, purported class-action lawsuit filed in the Ontario Superior Court of Justice. The complaint alleged damages in the approximate amount of Canadian $49 billion (approximately $42 billion at current exchange rates), along with continuing damages in the amount of Canadian $4.1 billion (approximately $3.5 billion at current exchange rates) per year and punitive damages of Canadian $1 billion (approximately $858 million at current exchange rates), along with such other relief as the court deems just. However, the deadline for serving the complaint on PPL Montour now has expired. PPL does not believe that the complaint was served on any of the defendants, and it is not clear whether the plaintiffs intend to pursue this action.

Water/Waste (PPL and PPL Energy Supply)

In August 2005, a leak from a disposal basin containing fly ash and water used in connection with the operation of the two 150-MW coal-fired generating units at the Martins Creek generating facility caused the discharge of approximately 100 million gallons of water containing ash from the basin onto adjacent roadways and fields, and into a nearby creek and the Delaware River. The leak was stopped, and PPL has determined that the problem was caused by a failure in the disposal basin's discharge structure. PPL is continuing to work with the Pennsylvania DEP and other appropriate agencies and consultants to assess the extent of the environmental damage caused by the ash in the discharged water and to remediate the damage. PPL shut down the two coal-fired generating units in August 2005 and placed the units back in service in December 2005 after completing the repairs and upgrades to the basin and obtaining the Pennsylvania DEP's approval.

On September 20, 2005, PPL Martins Creek and the Pennsylvania DEP were served with notice by the Delaware Riverside Conservancy and several citizens of their intention to file a citizens' suit on the basis that the leak from the disposal basin at Martins Creek allegedly violated various state and federal laws. The Pennsylvania DEP subsequently filed a complaint in Commonwealth court against PPL Martins Creek and PPL Generation, alleging violations of various state laws and regulations and seeking penalties and injunctive relief. The Delaware Riverside Conservancy and several citizens have filed a motion to intervene in the Pennsylvania DEP's action, which motion includes a class action complaint alleging that the fly ash spill caused damages to property along a 40-mile stretch of the Delaware River. PPL has objected to the intervention by certain of the intervenors and both PPL and the Pennsylvania DEP have objected to the purported class action suit. PPL intends to engage in settlement discussions to resolve the Pennsylvania DEP action.

At this time, PPL has no reason to believe that the Martins Creek leak has caused any danger to human health or any adverse biological impact on the river aquatic life. However, a group of natural resource trustees, along with the Delaware River Basin Commission, has been conducting an assessment of any natural resource damages that could have been caused by the Martins Creek leak. PPL expects the trustees and the Delaware River Basin Commission to seek to recover their costs as well as any damages they determine were caused by the leak. PPL cannot predict when the assessment will be completed but does not expect it to be completed before the end of 2006.

PPL Energy Supply recognized a $33 million charge in the third quarter of 2005 and an additional $15 million charge in the fourth quarter of 2005 (or a total of $31 million after tax, or $0.08 per share for PPL) in connection with the current expected on-site and off-site costs relating to the leak. Approximately $41 million of the total charge, or $27 million after tax, relates to the off-site costs, and the balance of the total charge, $7 million, or $4 million after tax, relates to the on-site costs. The pre-tax accrual of $48 million was included in "Other operation and maintenance" on the Statement of Income. PPL and PPL Energy Supply cannot predict the final cost of assessment and remediation of the leak, the outcome of the action initiated by the Pennsylvania DEP, the outcome of the natural resource damage assessment, and the exact nature of any other regulatory or other legal actions that may be initiated against PPL, PPL Energy Supply or their subsidiaries as a result of the disposal basin leak. PPL and PPL Energy Supply also cannot predict the extent of the fines or damages that may be sought in connection with any such actions or the ultimate financial impact on PPL or PPL Energy Supply.

Seepages have been detected at active and retired wastewater basins at various PPL plants, including the Montour, Brunner Island and Martins Creek generating facilities. PPL has completed an assessment of some of the seepages at the Montour and Brunner Island facilities and is working with the Pennsylvania DEP to implement abatement measures for those seepages. PPL is continuing to conduct assessments of other seepages at the Montour and Brunner Island facilities as well as seepages at the Martins Creek facility to determine the appropriate abatement actions. PPL plans to comprehensively address issues related to wastewater basins at all of its Pennsylvania plants, as part of the process to renew the residual waste permits for these basins that expire within the next three years. The cost of addressing seepages at PPL's Pennsylvania plants is not now determinable, but could be significant.

In May 2003, approximately 50 plaintiffs brought an action now pending at the Montana Sixteenth Judicial District Court, Rosebud County, against PPL Montana and the other owners of the Colstrip plant alleging property damage from seepage from the freshwater and wastewater ponds at Colstrip. PPL Montana has undertaken certain groundwater investigation and remediation measures at the Colstrip plant to address groundwater contamination alleged by the plaintiffs as well as other groundwater contamination at the plant. These measures include offering to extend city water to certain residents who live near the plant, some of whom are plaintiffs in the litigation. Beyond the original estimated reserve of $1 million recorded by PPL Montana in 2004 (of which only an insignificant amount remains at December 31, 2005) for a proposed settlement of the property damage claims raised in the litigation, for extending city water and for a portion of the remedial investigation costs, PPL Montana may incur further costs based on its additional groundwater investigations and any related remedial measures, which costs are not now determinable, but could be significant.

The Pennsylvania DEP has stated that the temperature of the cooling water discharge at the Brunner Island plant must be lowered. The Pennsylvania DEP has also stated that it believes the plant is in violation of a permit condition prohibiting the discharge from changing the river temperature by more than two degrees per hour. PPL is discussing these matters with the agency. Depending on the outcome of these discussions, the plant could be subject to additional capital and operating costs that are not now determinable, but could be significant. In early January, PPL received notice from PennFuture (an environmental citizens organization) that they intended to sue PPL for alleged violations of the permit condition that prohibits the discharge from changing the river temperature by more than two degrees per hour. PPL cannot predict the outcome of this potential citizens' suit.

The EPA has significantly tightened the water quality standard for arsenic. The revised standard becomes effective in 2006. The revised standard may result in action by individual states that could require several PPL subsidiaries to either further treat wastewater or take abatement action at their power plants, or both. The cost of complying with any such requirements is not now determinable, but could be significant.

The EPA finalized requirements in 2004 for new or modified water intake structures. These requirements affect where generating facilities are built, establish intake design standards, and could lead to requirements for cooling towers at new and modified power plants. Another new rule that was finalized in 2004 addresses existing structures. PPL does not believe that either of these rules will impose material costs on PPL subsidiaries. However, six northeastern states have challenged the new rules for existing structures as being inadequate. If this challenge is successful, it could result in the EPA establishing stricter standards for existing structures that could impose significant costs on PPL subsidiaries.

Superfund and Other Remediation

(PPL, PPL Energy Supply and PPL Electric)

In 1995, PPL Electric and PPL Generation and, in 1996, PPL Gas Utilities entered into consent orders with the Pennsylvania DEP to address a number of sites that were not being addressed under another regulatory program such as Superfund, but for which PPL Electric, PPL Generation or PPL Gas Utilities may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; oil or other contamination that may exist at some of PPL Electric's former generating facilities; and potential contamination at abandoned power plant sites owned by PPL Generation. This may also include former coal gas manufacturing facilities and potential mercury contamination from gas meters and regulators at PPL Gas Utilities' sites.

Since the PPL Electric Consent Order expired on January 31, 2005, and since only four sites remained, PPL has negotiated a new consent order and agreement (COA) with the Pennsylvania DEP that combines both PPL Electric's and PPL Gas Utilities' consent orders into one single agreement. As of December 31, 2005, PPL Electric and PPL Gas Utilities have 144 sites to address under the new combined COA. Additional sites formerly owned or operated by PPL Electric, PPL Generation or PPL Gas Utilities are added to the consent orders on a case-by-case basis.

At December 31, 2005, PPL Electric and PPL Gas Utilities had accrued approximately $2 million and $6 million, respectively, representing the estimated amounts each will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above. Depending on the outcome of investigations at sites where investigations have not begun or have not been completed, the costs of remediation and other liabilities could be substantial. PPL and its subsidiaries also could incur other non-remediation costs at sites included in the consent orders or other contaminated sites, the costs of which are not now determinable, but could be significant.

The Pennsylvania DEP has raised concerns regarding potential leakage of natural gas from the Tioga gas storage field owned by PPL Gas Utilities. The Pennsylvania DEP believes gas is leaking from the storage field and causing methane impacts to nearby residential wells. While PPL Gas has no evidence to confirm or deny the Pennsylvania DEP's position, PPL Gas Utilities has initiated a plan to identify and address potential sources of gas leakage from the field. PPL Gas Utilities is discussing the matter with the operator of the field and with the Pennsylvania DEP.

The EPA is evaluating the risks associated with naphthalene, a chemical by-product of coal gas manufacturing operations. As a result of the EPA's evaluation, individual states may establish stricter standards for water quality and soil clean-up. This could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing facilities. The costs to PPL of complying with any such requirements are not now determinable, but could be significant.

(PPL and PPL Energy Supply)

Under the Pennsylvania Clean Streams Law, subsidiaries of PPL Generation are obligated to remediate acid mine drainage at former mine sites and may be required to take additional measures to prevent potential acid mine drainage at previously capped refuse piles. One PPL Generation subsidiary is pumping and treating mine water at two mine sites. Another PPL Generation subsidiary is installing passive wetlands treatment at a third site, and the Pennsylvania DEP has suggested that it may require that PPL Generation subsidiary to pump and treat the mine water at that third site. At December 31, 2005, a PPL Energy Supply subsidiary had accrued $28 million to cover the costs of pumping and treating groundwater at the two mine sites for 50 years and for operating and maintaining passive wetlands treatment at the third site.

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

(PPL, PPL Energy Supply and PPL Electric)

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

Asbestos(PPL and PPL Energy Supply)

There have been increasing litigation claims throughout the U.S. based on exposure to asbestos against companies that manufacture or distribute asbestos products or that have these products on their premises. Certain of PPL's generation subsidiaries and certain of its energy services subsidiaries, such as those that have supplied, may have supplied or installed asbestos material in connection with the repair or installation of process piping and heating, ventilating and air conditioning systems, have been named as defendants in asbestos-related lawsuits. PPL cannot predict the outcome of these lawsuits or whether additional claims may be asserted against its subsidiaries in the future. PPL does not expect that the resolution of the current lawsuits will have a material adverse effect on its results of operations.

Electric and Magnetic Fields(PPL, PPL Energy Supply and PPL Electric)

Concerns have been expressed by some members of the public regarding potential health effects of power frequency EMFs, which 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 reviewed this issue. The U.S. National Institute of Environmental Health Sciences concluded in 2002 that, for most health outcomes, there is no evidence of EMFs causing adverse effects. The agency further noted that there is some epidemiological evidence of an association with childhood leukemia, but that this evidence is difficult to interpret without supporting laboratory evidence. The U.K. National Radiological Protection Board concluded in 2004 that, while the research on EMFs does not provide a basis to find that EMFs cause any illness, there is a basis to consider precautionary measures beyond existing exposure guidelines. PPL and its subsidiaries believe the current efforts to determine whether EMFs cause adverse health effects should continue and are taking steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PPL and its subsidiaries are unable to predict what effect, if any, the EMF issue might have on their operations and facilities either in the U.S. or abroad, and the associated cost, or what, if any, liabilities they might incur related to the EMF issue.

Lower Mt. Bethel(PPL and PPL Energy Supply)

In August 2002, the Northampton County Court of Common Pleas issued a decision setting the permissible noise levels for operation of the Lower Mt. Bethel facility. PPL appealed the court's decision to the Commonwealth Court, and an intervenor in the lawsuit cross-appealed the court's decision. In May 2003, the Commonwealth Court remanded the case to the Court of Common Pleas for further findings of fact concerning the zoning application relating to the construction of the facility. In September 2003, the Court of Common Pleas ruled in PPL's favor while also reaffirming its decision on the noise levels, and the intervenor appealed this ruling to the Commonwealth Court. In April 2004, the Commonwealth Court affirmed the decision of the Court of Common Pleas, and the Supreme Court of Pennsylvania has denied the intervenor's Petition for Allowance of Appeal. Accordingly, the September 2003 ruling by the Court of Common Pleas is final.

The certificate of occupancy for the Lower Mt. Bethel facility was issued by the local township zoning officer in April 2004, and the facility was placed in service in May 2004. In May 2004, the intervenor in the legal proceedings regarding the facility's permissible noise levels filed an appeal with the township zoning board regarding the issuance of the certificate of occupancy. The hearing on the appeal was held in December 2004, and the intervenor's appeal was denied. The intervenor appealed the zoning board's decision to the Northampton County Court of Common Pleas in February 2005, and the Court of Common Pleas denied this appeal in August 2005. The intervenor did not further appeal this matter. Accordingly, the zoning board's decision is final.

Environmental Matters - International (PPL and PPL Energy Supply)

U.K.

WPD's distribution businesses are subject to numerous regulatory and statutory requirements with respect to environmental matters. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment. There are no material legal or administrative proceedings pending against WPD with respect to environmental matters. See "Environmental Matters - Domestic - Electric and Magnetic Fields" for a discussion of EMFs.

Latin America

Certain of PPL's affiliates have electric distribution operations in Latin America. PPL believes that these affiliates have taken and continue to take measures to comply with the applicable laws and governmental regulations for the protection of the environment. There are no material legal or administrative proceedings pending against PPL's affiliates in Latin America with respect to environmental matters.

Other

Nuclear Insurance(PPL and PPL Energy Supply)

PPL Susquehanna is a member of certain insurance programs that 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 that 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 December 31, 2005, this maximum assessment was about $38 million.

In the event of a nuclear incident at the Susquehanna station, PPL Susquehanna's public liability for claims resulting from such incident would be limited to about $10.8 billion under provisions of The Price Anderson Act Amendments under the Energy Policy Act of 2005. 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 Act Amendments under the Energy Policy Act of 2005, PPL Susquehanna could be assessed up to $201 million per incident, payable at $30 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 or to facilitate the commercial activities in which these subsidiaries enter.

(PPL)

PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.

(PPL, PPL Energy Supply and PPL Electric)

PPL, PPL Energy Supply and PPL Electric 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." The table below details guarantees provided as of December 31, 2005.

	Recorded Liability at				Exposure at
	December 31,				December 31,		Expiration
	2005		2004		2005 (a)		Date	Description
PPL
Residual value guarantees of leased equipment						$10	2006	(c)
PPL Energy Supply (b)
WPD LLP guarantee of obligations under SIUK Capital Trust I preferred securities						82	2027	WPD LLP guarantees all of the obligations of SIUK Capital Trust I, an unconsolidated wholly owned financing subsidiary of WPD LLP, under its trust preferred securities. The exposure at December 31, 2005, reflects principal payments only. See Note 22 for further discussion.
Letters of credit issued on behalf of affiliates						7	2007	Standby letter of credit arrangements under PPL Energy Supply's $300 million five-year credit facility for the purposes of protecting various third parties against nonperformance by PPL and PPL Gas Utilities. This is not a guarantee of PPL on a consolidated basis.
Support agreements to guarantee partnerships' obligations for the sale of coal						9	2007	PPL Generation has entered into certain partnership arrangements for the sale of coal to third parties. PPL Generation also has executed support agreements 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.
Retroactive premiums under nuclear insurance programs						38		PPL Susquehanna is contingently obligated to pay this amount related to potential retroactive premiums that could be assessed under its nuclear insurance programs. See "Nuclear Insurance" for additional information.
Nuclear claims under The Price-Anderson Act Amendments under The Energy Policy Act of 2005						201		This is the maximum amount PPL Susquehanna could be assessed for each incident at any of the nuclear reactors covered by this Act. See "Nuclear Insurance" for additional information.
Contingent purchase price payments to former owners of synfuel projects				$11		33	2007	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 potential amount of future payments is not explicitly stated in the related agreements.
Residual value guarantees of leased equipment						3	2006	(c)
Indemnifications for entities in liquidation						262	2008 to 2012	In connection with the liquidation of wholly owned subsidiaries that have been deconsolidated upon turning the entities over to the liquidators, certain affiliates of PPL Global have agreed to indemnify the liquidators, directors and/or the entities themselves for any liabilities or expenses arising during the liquidation process, including liabilities and expenses of the entities placed into liquidation. In some cases, the indemnifications are limited to a maximum amount that is based on distributions made from the subsidiary to its parent either prior or subsequent to being placed into liquidation. In other cases, the maximum amount of the indemnifications is not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted is only for those cases in which the agreements provide for a specific limit on the amount of the indemnification, and the expiration date was based on an estimate of the dissolution date of the entities.
WPD guarantee of pension and other obligations of unconsolidated entities		$4				41	2017	As a result of the privatization of the utility industry in the U.K., certain electric associations' roles and responsibilities were discontinued or modified. As a result, certain obligations, primarily pension-related, associated with these organizations have been guaranteed by the participating members. Costs are allocated to the members based on predetermined percentages as outlined in specific agreements. However, if a member becomes insolvent, costs can be reallocated to and are guaranteed by the remaining members. At December 31, 2005, WPD has recorded an estimated discounted liability based on its current allocated percentage of the total expected costs. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements. Therefore, they have been estimated based on the types of obligations.
Tax indemnification related to unconsolidated WPD affiliates						9	2012	Two WPD unconsolidated affiliates were refinanced during the year. Under the terms of the refinancing, WPD has indemnified the lender against certain tax and other liabilities. At this time, WPD believes that the likelihood of such liabilities arising is remote.
WPD guarantee of an unconsolidated entity's lease obligations						1	2008	The maximum potential amount of future payments is not explicitly stated in the related agreements.
Indemnifications related to the sale of the Sundance plant		1				(d)	(d)	PPL Energy Supply has provided indemnifications to the purchaser for losses arising out of any breach of the representations, warranties and covenants under the related transaction documents and for losses arising with respect to liabilities not specifically assumed by the purchaser, including certain pre-closing environmental and tort liabilities. Certain of the indemnifications are triggered only if the purchaser's losses reach $1 million in the aggregate, are capped at 50% of the purchase price (or approximately $95 million), and survive for a period of only 24 months after the May 13, 2005, transaction closing. The indemnification provision for unknown environmental and tort liabilities related to periods prior to PPL Energy Supply's ownership of the real property on which the facility is located are capped at approximately $4 million in the aggregate and survive for a maximum period of five years after the transaction closing.

	Recorded Liability at			Exposure at
	December 31,			December 31,		Expiration
	2005	2004		2005 (a)		Date	Description
PPL Electric (b)
Guarantee of a portion of an unconsolidated entity's debt					7	2008	The exposure at December 31, 2005, reflects principal payments only.
Residual value guarantees of leased equipment			1		72	2006	(c)

(a)	Represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee.
(b)	Other than the letters of credit, all guarantees of PPL Energy Supply and PPL Electric also apply to PPL on a consolidated basis.
(c)	PPL Services, PPL Montana and PPL Electric lease certain equipment under master operating lease agreements. The term for each piece of equipment leased by PPL Services and PPL Montana is one year, after which time the lease may be extended from month-to-month until terminated. The term for each piece of equipment leased by PPL Electric ranges from one to three years, after which time the lease term may be extended for certain equipment either (i) from month-to-month until terminated or (ii) for up to two additional years. Under these lease arrangements, PPL Services, PPL Montana and PPL Electric provide residual value guarantees to the lessors. PPL Services, PPL Montana and PPL Electric generally could be required to pay the guaranteed residual value of the leased equipment 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. These guarantees generally expire within one year, unless the lease terms are extended. The liability recorded is included in "Other current liabilities" on the Balance Sheet. Although the expiration date noted is 2006, equipment of similar value is generally leased and guaranteed on an ongoing basis.
(d)	PPL Energy Supply's maximum exposure with respect to these indemnifications and the expiration of the indemnifications cannot be estimated because, in the case of certain of the indemnification provisions, the maximum potential liability is not capped by the transaction documents, and the expiration date is based on the applicable statute of limitations.

PPL, PPL Energy Supply and PPL Electric and their subsidiaries provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of various indemnifications or warranties related to services or equipment and vary in duration. The obligated amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, PPL, PPL Energy Supply and PPL Electric and their subsidiaries have not made any significant payments with respect to these types of guarantees. As of December 31, 2005, the aggregate fair value of these indemnifications related to arrangements entered into subsequent to December 31, 2002, was insignificant. Among these guarantees are:

· The companies' or their subsidiaries' leasing arrangements, including those discussed above, contain certain indemnifications in favor of the lessors (e.g., tax and environmental matters).

· In connection with their issuances of securities, the companies 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. The companies and their subsidiaries typically provide indemnification to these agents for any liabilities or expenses incurred by them in performing their obligations.

· In connection with certain of their credit arrangements, the companies provide the creditors or credit arrangers with indemnification that is standard for each particular type of transaction. For instance, under the credit agreement for the asset-backed commercial paper program, PPL Electric and its special purpose subsidiary have agreed to indemnify the commercial paper conduit, the sponsoring financial institution and the liquidity banks for damages incurred by such parties arising from, among other things, a breach by PPL Electric or the subsidiary of their various representations, warranties and covenants in the credit agreement, PPL Electric's activities as servicer with respect to the pledged accounts receivable and any dispute by PPL Electric's customers with respect to payment of the accounts receivable.

· 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.

· 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. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.

PPL, on behalf of itself and certain of 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.

15.Related Party Transactions

Affiliate Trust(PPL and PPL Energy Supply)

At both December 31, 2005, and 2004, PPL's and PPL Energy Supply's Balance Sheets reflect $89 million of "Long-term Debt with Affiliate Trust." This debt represents obligations of PPL Energy Supply under 8.23% subordinated debentures maturing in February 2027 that are held by SIUK Capital Trust I, which is a variable interest entity whose common securities are owned by PPL Energy Supply but which is not consolidated by PPL Energy Supply. Interest expense on this obligation was $12 million in 2005, $11 million in 2004 and $5 million in 2003. This interest is reflected in "Interest Expense" for PPL and "Interest Expense with Affiliates" for PPL Energy Supply on the Statement of Income. See Note 22 for additional information.

PLR Contracts (PPL Energy Supply and PPL Electric)

PPL Electric has power sales agreements with PPL EnergyPlus, effective July 2000 and January 2002, to supply all of PPL Electric's PLR load through 2009. Under these contracts, PPL EnergyPlus provides electricity at the predetermined capped prices that PPL Electric is authorized to charge its PLR customers. These purchases totaled $1.6 billion in 2005, $1.5 billion in 2004 and $1.4 billion in 2003. These purchases include nuclear decommissioning recovery and amortization of an up-front contract payment and are included in the Statement of Income as "Energy purchases from affiliate" by PPL Electric, and as "Wholesale energy marketing to affiliate" by PPL Energy Supply.

Under one of the PLR contracts, PPL Electric is required to make performance assurance deposits with PPL EnergyPlus when the market price of electricity is less than the contract price by more than its contract collateral threshold. Conversely, PPL EnergyPlus is required to make performance assurance deposits with PPL Electric when the market price of electricity is greater than the contract price by more than its contract collateral threshold. PPL Electric estimated that at December 31, 2005, the market price of electricity would exceed the contract price by approximately $4.2 billion. Accordingly, at December 31, 2005, PPL Energy Supply was required to provide PPL Electric with performance assurance of $300 million, the maximum amount required under the contract. PPL Energy Supply's deposit with PPL Electric was $300 million at December 31, 2005 and 2004. This deposit is shown on the Balance Sheet as "Collateral on PLR energy supply to/from affiliate," a current asset of PPL Energy Supply and a current liability of PPL Electric. PPL Electric pays interest equal to the one-month LIBOR plus 0.5% on this deposit, which is included in "Interest Expense with Affiliate" on the Statement of Income. PPL Energy Supply records this as interest income, which is included in "Other Income - net" on the Statement of Income.

In 2001, PPL Electric made a $90 million up-front payment to PPL EnergyPlus in connection with the PLR contracts. The up-front payment is being amortized by both parties over the term of the PLR contracts. The unamortized balance of this payment and other payments under the contract was $47 million at December 31, 2005, and $58 million at December 31, 2004. These current and noncurrent balances are reported on the Balance Sheet as "Prepayment on PLR energy supply from affiliate" by PPL Electric and as "Deferred revenue on PLR energy supply to affiliate" by PPL Energy Supply.

NUG Purchases (PPL Energy Supply and PPL Electric)

PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates and then sells the electricity at the same price to PPL EnergyPlus. These purchases totaled $148 million in 2005, $154 million in 2004 and $152 million in 2003. These amounts are included in the Statement of Income as "Wholesale electric to affiliate" by PPL Electric, and as "Energy purchases from affiliate" by PPL Energy Supply.

Allocations of Corporate Service Costs(PPL Energy Supply and PPL Electric)

PPL Services provides corporate functions such as financial, legal, human resources and information services. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that is not directly charged to PPL subsidiaries is allocated to certain of the subsidiaries based on an average of the subsidiaries' relative invested capital, operation and maintenance expenses, and number of employees. PPL Services allocated the following charges to PPL Energy Supply and PPL Electric.

		2005		2004		2003
Direct expenses
	PPL Energy Supply	$	108	$	102	$	94
	PPL Electric		62		59		56
Overhead costs
	PPL Energy Supply		75		69		63
	PPL Electric		32		29		27

Intercompany Borrowings

(PPL Energy Supply)

PPL Energy Supply had no notes receivable from affiliates at December 31, 2005 and December 31, 2004. Interest earned on cash collateral and loans to affiliates, included in "Other Income - net" on the Statement of Income, was $15 million, $6 million and $16 million for 2005, 2004 and 2003.

In May 2004, PPL Energy Supply issued a $495 million note payable to an affiliate. There was no balance at December 31, 2005, and there was a balance of $495 million at December 31, 2004, which is shown on the Balance Sheet as "Note Payable to Affiliate," a long-term liability. PPL Energy Supply can borrow under the note until May 2010. Interest is payable monthly in arrears at LIBOR plus 1%. Interest expense on this note was $9 million and $8 million for 2005 and 2004. This interest is reflected in "Interest Expense with Affiliates" on the Statement of Income.

In late December 2005, PPL Energy Supply issued a $30 million demand note payable to an affiliate. At December 31, 2005, there was a balance of $8 million, which is shown on the Balance Sheet as "Note Payable to Affiliate", a current liability. Interest is payable monthly at a rate equal to LIBOR plus 1.5%. Interest on this note will be reflected in "Interest Expense with Affiliates" on the Statement of Income.

(PPL Electric)

In August 2004, a PPL Electric subsidiary made a $300 million demand loan to an affiliate, with interest due quarterly at a rate equal to the 3-month LIBOR plus 1.25%. This loan is shown on the Balance Sheet as "Note receivable from affiliate."

Interest earned on loans to affiliates, included in "Other Income - net" on the Statement of Income, was $14 million for 2005, and $3 million for both 2004 and 2003.

Trademark Royalties (PPL Energy Supply)

A PPL subsidiary owns PPL trademarks and bills certain affiliates for their use. PPL Energy Supply was allocated $31 million of this license fee in 2005, $34 million in 2004 and $39 million in 2003. These allocations of this license fee are primarily included in "Other Operation and Maintenance" on the Statement of Income.

Other (PPL Energy Supply and PPL Electric)

PPL Energy Supply owns no domestic transmission or distribution facilities, other than facilities to interconnect its generation with the electric transmission system. Therefore, PPL EnergyPlus and other PPL Generation subsidiaries must pay PJM, the operator of the transmission system, to deliver the energy these subsidiaries supply to retail and wholesale customers in PPL Electric's franchised territory in eastern and central Pennsylvania.

16.Other Income - Net

(PPL, PPL Energy Supply and PPL Electric)

The breakdown of "Other Income - net" was:

		2005		2004		2003
PPL
Other Income
	Interest income - IRS settlement			$	23
	Other interest income	$	23		16	$	12
	Sale of CEMAR (Note 9)				23

	Equity earnings		3		3
	Realized earnings on nuclear decommissioning trust (a)		5		(7	)		20
	Hyder-related activity							8
	Reduction of reserves for receivables from Enron							10
	Miscellaneous - Domestic		7		7			9
	Miscellaneous - International		7		8			12
	Total		45		73			71
Other Deductions
	Impairment of investment in technology supplier (Note 9)				10
	Asset valuation write-down							3
	Charitable contributions		4		2			3
	Realized loss on available-for-sale investment				6
	Non-operating taxes, other than income		1		2			1
	Miscellaneous - Domestic		6		6			4
	Miscellaneous - International		5		8			5
Other Income - net		$	29	$	39		$	55

(a) 2004 includes a $(10) million and a $(2) million adjustment to the realized earnings on the nuclear decommissioning trust recorded in 2003 and 2004, respectively. The adjustment was recorded in the fourth quarter of 2004, as the adjustment was not material to the financial statements for any affected periods in 2003 or 2004, or as recorded in the fourth quarter of 2004.

		2005		2004			2003
PPL Energy Supply
Other Income
	Affiliated interest income	$	15	$	6		$	16
	Interest income - IRS settlement				15
	Other interest income		14		10			8
	Sale of CEMAR (Note 9)				23
	Reduction of reserves for receivables from Enron							10
	Realized earnings on nuclear decommissioning trust (a)		5		(7	)		20
	Equity earnings		4		4			4
	Hyder-related activity							8
	Miscellaneous - Domestic		3		5			9
	Miscellaneous - International		7		8			12
	Total		48		64			87
Other Deductions
	Loss on sale of property							2
	Asset valuation write-down							3
	Non-operating taxes, other than income		1		2			2
	Miscellaneous - Domestic		5		5			5
	Miscellaneous - International		5		8			5
Other Income - net		$	37	$	49		$	70

(a) 2004 includes a $(10) million and a $(2) million adjustment to the realized earnings on the nuclear decommissioning trust recorded in 2003 and 2004, respectively. The adjustment was recorded in the fourth quarter of 2004, as the adjustment was not material to the financial statements for any affected periods in 2003 or 2004, or as recorded in the fourth quarter of 2004.

		2005		2004		2003
PPL Electric
Other Income
	Affiliated interest income	$	14	$	3	$	3
	Interest income - IRS settlement				8
	Other interest income		7		5		4
	Miscellaneous		2
	Total		23		16		7
Other Deductions			2		1		1
Other Income - net		$	21	$	15	$	6

17.Derivative Instruments and Hedging Activities

(PPL and PPL Energy Supply)

PPL and PPL Energy Supply adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amended and clarified 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 clarified the circumstances under which a contract with an initial net investment meets the characteristics of a derivative, clarified when a derivative contains a financing component, amended the definition of an "underlying" and amended certain other existing pronouncements.

Additionally, SFAS 149 placed additional limitations on the use of the normal purchase or normal sale exception. SFAS 149 was 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 did not yet exist. PPL adopted SFAS 149 as of July 1, 2003. The adoption of SFAS 149 did not have a significant impact on PPL or PPL Energy Supply.

Management of Market Risk Exposures

Market risk is the potential loss PPL and PPL Energy Supply may incur as a result of price changes associated with a particular financial or commodity instrument. PPL and PPL Energy Supply are exposed to market risk from:

· commodity price risk for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity marketing activities, the purchase of fuel for the generating assets and energy trading activities;

· interest rate risk associated with variable-rate debt and the fair value of fixed-rate debt used to finance operations, as well as the fair value of debt securities invested in by PPL Energy Supply's nuclear decommissioning trust funds;

· foreign currency exchange rate risk associated with investments in affiliates in Latin America and Europe, as well as purchases of equipment in currencies other than U.S. dollars; and

· equity securities price risk associated with the fair value of equity securities invested in by PPL Energy Supply's nuclear decommissioning trust funds.

PPL has a risk management policy approved by the Board of Directors to manage market risk and counterparty credit risk. The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function. Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, sensitivity analyses, and daily portfolio reporting, including open positions, mark-to-market valuations, and other risk measurement metrics.

PPL and PPL Energy Supply utilize forward contracts, futures contracts, options, swaps and tolling agreements as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price, interest rate and foreign currency volatility. All derivatives are recognized on the balance sheet at their fair value, unless they meet SFAS 133 criteria for exclusion (see discussion in "Accounting Designations" below).

Fair Value Hedges

PPL and PPL Energy Supply enter into financial or physical contracts to hedge a portion of the fair value of firm commitments of forward electricity sales and emission allowance positions. These contracts range in maturity through 2007. Additionally, PPL and PPL Energy Supply enter into financial contracts to hedge fluctuations in the market value of existing debt issuances. These contracts range in maturity through 2013. PPL and PPL Energy Supply also enter into foreign currency forward contracts to hedge the exchange rates associated with firm commitments denominated in foreign currencies. These forward contracts range in maturity through 2008.

PPL and PPL Energy Supply did not recognize significant gains or losses resulting from hedges of firm commitments that no longer qualified as fair value hedges for 2005, 2004 or 2003.

PPL and PPL Energy Supply also did not recognize any gains or losses resulting from the ineffective portion of fair value hedges for these years.

Cash Flow Hedges

PPL and PPL Energy Supply enter into financial and physical contracts, including forwards, futures and swaps, to hedge the price risk associated with electric, gas and oil commodities. These contracts range in maturity through 2010. Additionally, PPL and PPL Energy Supply enter into financial interest rate swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. These interest rate swap contracts range in maturity through 2016 for PPL. PPL Energy Supply was not a party to any financial interest rate swap contracts as of December 31, 2005. PPL and PPL Energy Supply also enter into foreign currency forward contracts to hedge the cash flows associated with foreign currency-denominated debt, the exchange rates associated with firm commitments denominated in foreign currencies and the net investment of foreign operations. These forward contracts range in maturity through 2028.

Net investment hedge activity is reported in the foreign currency translation adjustments component of other comprehensive income. PPL recorded net investment hedge losses, after tax, of $6 million and $7 million as of December 31, 2005 and 2004.

Cash flow hedges may be discontinued if it is probable that the original forecasted transaction will not occur by the end of the originally specified time period. There were no such events in 2005, and there was an insignificant impact from such an event in 2004. In 2003, PPL and PPL Energy Supply discontinued certain cash flow hedges, which resulted in the reclassification of $7 million of after-tax losses from other comprehensive income (reported in "Wholesale energy marketing" revenues, "Energy purchases" and "Interest Expense" on the Statement of Income).

Hedge ineffectiveness associated with energy derivatives did not have a significant impact in 2005, 2004 and 2003.

Ineffectiveness associated with interest rate and foreign currency derivatives also was not significant for 2005, 2004 and 2003.

As of December 31, 2005, the deferred net loss, after tax, on derivative instruments in "Accumulated other comprehensive income" expected to be reclassified into earnings during the next twelve months was $72 million and $67 million for PPL and PPL Energy Supply. Amounts are reclassified as the energy contracts go to delivery and interest payments are made.

This table shows the change in accumulated unrealized gains or losses on derivatives, after tax, in accumulated other comprehensive income.

		2005			2004
PPL
	Beginning accumulated derivative gain (loss)	$	(63	)	$	41
	Net change associated with current period hedging activities and other		(160	)		(209	)
	Net change from reclassification into earnings		(23	)		105
	Ending accumulated derivative loss	$	(246	)	$	(63	)

PPL Energy Supply
	Beginning accumulated derivative gain (loss)	$	(45	)	$	60
	Net change associated with current period hedging activities and other		(162	)		(204	)
	Net change from reclassification into earnings		(30	)		99
	Ending accumulated derivative loss	$	(237	)	$	(45	)

Accounting Designations

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, which is subsequently verified by an independent internal group on a daily basis. The following summarizes the electricity guidelines that have been provided to the marketers who are responsible for contract designation for derivative energy contracts in accordance with SFAS 133.

· Any wholesale and retail contracts to sell electricity and the related capacity that are expected to be delivered from PPL's generation or that do not meet the definition of a derivative 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.

· Physical capacity-only transactions to sell excess capacity from PPL's generation are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery.

· Any physical energy sale or purchase deemed to be a "market call" is considered speculative, with unrealized gains or losses recorded immediately through earnings.

· Financial 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. Certain financial transactions, specifically FTRs, do not currently qualify for hedge treatment. Unrealized and realized gains and losses from FTRs that were entered into to offset probable transmission congestion expenses are recorded in "Energy purchases" on the Statement of Income.

· Physical and financial transactions for gas and oil to meet fuel and retail requirements can receive cash flow hedge treatment if they lock-in the price PPL will pay in the spot market.

· Option contracts that do not meet the requirements of DIG Issue C15, "Scope Exceptions: Interpreting the Normal Purchases and Normal Sales Exception as an Election," do not receive hedge accounting treatment and are marked to market through earnings.

Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

In addition to energy-related transactions, PPL enters into financial interest rate and foreign currency swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. PPL and PPL Energy Supply also enter into foreign currency swap contracts to hedge the fair value of firm commitments denominated in foreign currency and net investments in foreign operations. As with energy transactions, the circumstances and intent existing at the time of the transaction determine a contract's accounting designation, which is subsequently verified by an independent internal group on a daily basis. The following is a summary of certain guidelines that have been provided to PPL's finance department, which is responsible for contract designation.

· Transactions to lock in an interest rate prior to a debt issuance can be designated as cash flow hedges. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income and are amortized as a component of interest expense over the life of the debt.

· Transactions entered into to hedge fluctuations in the value of existing debt can be designated as fair value hedges. To the extent that the change in the fair value of the derivative offsets the change in the fair value of the existing debt, there is no earnings impact, as both changes are reflected in interest expense. Realized gains and losses over the life of the hedge are reflected in interest expense.

· Transactions entered into to hedge the value of a net investment of foreign operations can be designated as net investment hedges. To the extent that the derivatives are highly effective at hedging the value of the net investment, gains and losses are recorded in other comprehensive income/loss and will not be recorded in earnings until the investment is disposed of.

· Derivative transactions that do not qualify for hedge accounting treatment are marked to market through earnings.

Related Implementation Issues

In November 2003, the FASB revised the guidance in DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity," to clarify the application of derivative accounting rules for contracts that may involve capacity. The guidance was effective January 1, 2004, for PPL and did not have a significant impact on its financial statements.

In June 2003, the FASB issued DIG Issue C20, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts with a Price Adjustment Feature," which became effective October 1, 2003. DIG Issue C20 addresses a requirement in SFAS 133 that contracts that qualify for normal treatment must feature pricing that is clearly and closely related to the asset being sold. Diversity in practice had developed among companies. DIG Issue C20 permits normal treatment if a price adjustment factor, such as a broad market index (e.g., Consumer Price Index), is not extraneous to both the cost and the fair value of the asset being sold and is not significantly disproportionate in terms of the magnitude and direction when compared with the asset being sold. However, DIG Issue C20 also stated that prior guidance did not permit the use of a broad market index to serve as a proxy for an ingredient or direct factor. Thus, DIG Issue C20 required that contracts that had been accounted for as normal, but were not eligible for normal treatment under prior guidance, be reflected on the balance sheet at their fair value, with an offsetting amount reflected in income as of the date of adoption. These contracts could then be evaluated under the provisions of DIG Issue C20 to determine whether they could qualify for normal treatment prospectively. PPL and PPL Energy Supply recorded a pre-tax charge to income of $2 million in the fourth quarter of 2003 to comply with the provisions of DIG Issue C20.

PPL and PPL Energy Supply adopted the final provisions of EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," prospectively as of October 1, 2003. As a result of this adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. The impact of adopting EITF 03-11 was a reduction in both "Wholesale energy marketing" revenues and "Energy purchases" by $290 million in PPL's and PPL Energy Supply's Statements of Income for the year ended December 31, 2005, and a reduction of $277 million and $105 million for the years ended December 31, 2004 and December 31, 2003, respectively.

Credit Concentration

(PPL and PPL Energy Supply)

PPL and PPL Energy Supply enter into contracts with many entities for the purchase and sale of energy. Many of these contracts are considered a normal part of doing business and, as such, the mark-to-market value of these contracts is not reflected in the financial statements. However, the mark-to-market value of these contracts is considered when committing to new business from a credit perspective.

PPL and PPL Energy Supply have credit exposures to energy trading partners. The majority of these exposures are the mark-to-market value of multi-year contracts for energy sales and purchases. Therefore, if these counterparties fail to perform their obligations under such contracts, PPL and PPL Energy Supply would not experience an immediate financial loss but would experience lower revenues or higher costs in future years to the extent that replacement sales or purchases could not be made at the same prices as those under the defaulted contracts.

At December 31, 2005, PPL had a credit exposure of $559 million to energy trading partners. Ten counterparties accounted for 72% of this exposure. No other individual counterparty accounted for more than 2% of the exposure. Nine of the ten counterparties had an investment grade credit rating from S&P. One counterparty was not investment grade but was current on its obligations and has posted collateral in the form of a letter of credit equal to PPL's exposure.

At December 31, 2005, PPL Energy Supply had a credit exposure of $554 million to energy trading partners. Ten counterparties accounted for 72% of this exposure. No other individual counterparty accounted for more than 2% of the exposure. Nine of the ten counterparties had an investment grade credit rating from S&P. One counterparty was not investment grade but was current on its obligations and has posted collateral in the form of a letter of credit equal to PPL Energy Supply's exposure.

PPL and PPL Energy Supply generally have the right to request collateral from their counterparties in the event that the counterparties' credit ratings fall below investment grade. It is also the policy of PPL and PPL Energy Supply to enter into netting agreements with all of their counterparties to minimize credit exposure.

(PPL Electric)

Prior to 2004, PPL Energy Supply had an exposure to PPL Electric under the long-term contract for PPL EnergyPlus to provide PPL Electric's PLR load. However, beginning in 2004, increases in electricity prices reversed this position. PPL Electric estimates that, at December 31, 2005, the market price of electricity would exceed the contract price by approximately $4.2 billion. In accordance with the terms of one of the PLR contracts, PPL Energy Supply provided PPL Electric with cash collateral in the amount of $300 million, the maximum amount required under the contract. This is the only credit exposure for PPL Electric that has a mark-to-market element. No other counterparty accounts for more than 1% of PPL Electric's total exposure.

18.Restricted Cash

(PPL, PPL Energy Supply and PPL Electric)

The following table details the components of restricted cash by reporting entity and by type.

			December 31, 2005
			PPL		PPL Energy Supply		PPL Electric
Current:
Collateral for letters of credit (a)			$	42			$	42
Deposits for trading purposes with NYMEX broker				29	$	29
Counterparty collateral				9		9
Client deposits				12
Miscellaneous				1		1
	Restricted cash - current			93		39		42
Noncurrent:
Required deposits of WPD (b)				16		16
PPL Transition Bond Company Indenture reserves (c)				32				32
	Restricted cash - noncurrent			48		16		32
		Total restricted cash	$	141	$	55	$	74

			December 31, 2004
			PPL		PPL Energy Supply		PPL Electric
Current:
Collateral for letters of credit (a)			$	42			$	42
Client deposits				5
Miscellaneous				3	$	3
	Restricted cash - current			50		3		42
Noncurrent:
Required deposits of WPD (b)				37		37
PPL Transition Bond Company Indenture reserves (c)				22				22
	Restricted cash - noncurrent			59		37		22
		Total restricted cash	$	109	$	40	$	64

(a)	A deposit with a financial institution of funds from the asset-backed commercial paper program to fully collateralize $42 million of letters of credit. See Note 8 for further discussion on the asset-backed commercial paper program.
(b)	Includes insurance reserves of $15 million and $37 million at December 31, 2005 and 2004.
(c)	Credit enhancement for PPL Transition Bond Company's $2.4 billion Series 1999-1 Bonds to protect against losses or delays in scheduled payments.

19.Goodwill and Other Acquired Intangible Assets

Goodwill(PPL and PPL Energy Supply)

Goodwill by segment at December 31 was:

	2005		2004		2003
Supply	$	94	$	94	$	93
International Delivery		921		978		920
PPL Energy Supply		1,015		1,072		1,013
Pennsylvania Delivery		55		55		55
PPL	$	1,070	$	1,127	$	1,068

In 2005, the decrease of $57 million in the International Delivery segment was attributable to a decrease of $60 million due to the effect of changes in foreign currency exchange rates, offset by $3 million of adjustments pursuant to EITF Issue 93-7, "Uncertainties Related to Income Taxes in a Purchase Business Combination."

In 2004, the increase of $58 million in the International Delivery segment was attributable to an increase of $93 million due to the effect of changes in foreign currency exchange rates, offset by $35 million consisting primarily of adjustments pursuant to EITF Issue No. 93-7.

In December 2003, the PPL Global Board of Managers authorized the sale of its investment in a Latin American telecommunications company. As a result of this decision, PPL Global wrote off $6 million of goodwill in 2003.

Other Acquired Intangible Assets

(PPL)

The carrying amount and the accumulated amortization of acquired intangible assets were:

	December 31, 2005				December 31, 2004
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Land and transmission rights	$	279	$	104	$	284	$	99
Emission allowances		176				78
Easements		55				56
Licenses and other		83		27		67		11
	$	593	$	131	$	485	$	110

Current intangible assets are included in "Current Assets - Other," and long-term intangible assets are included in "Other acquired intangibles" on the Balance Sheet.

Amortization expense was approximately $8 million for 2005 and $6 million for 2004 and 2003. Amortization expense is estimated at $9 million per year for 2006 through 2010.

(PPL Energy Supply)

The carrying amount and the accumulated amortization of acquired intangible assets were:

	December 31, 2005				December 31, 2004
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Land and transmission rights	$	65	$	19	$	69	$	17
Emission allowances		176				78
Easements		55				56
Licenses and other		83		27		67		11
	$	379	$	46	$	270	$	28

Current intangible assets are included in "Current Assets - Other," and long-term intangible assets are included in "Other acquired intangibles" on the Balance Sheet.

Amortization expense was approximately $4 million for 2005, $3 million for 2004 and $2 million for 2003. Amortization expense is estimated at $5 million per year for 2006 through 2010.

(PPL Electric)

The carrying amount and the accumulated amortization of acquired intangible assets were:

	December 31, 2005				December 31, 2004
	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
Land and transmission rights	$	195	$	81	$	196	$	79

Intangible assets are shown as "Acquired intangibles" on the Balance Sheet.

Amortization expense was approximately $2 million for 2005, $3 million for 2004 and $2 million for 2003. Amortization expense is estimated at $2 million per year for 2006 through 2010.

20.Workforce Reduction

(PPL and PPL Electric)

In an effort to improve operational efficiency and reduce costs, PPL and its subsidiaries commenced a workforce reduction assessment in June 2002. The program was broad-based and impacted all employee groups, except certain positions that are key to providing high-quality service to PPL's electricity delivery customers.

PPL and PPL Electric recorded a final charge of $9 million, or $5 million after tax, in 2003. This final charge included employee terminations associated with implementation of the Automated Meter Reading project.

The program provided 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 were paid from the PPL Retirement Plan pension trust. All of the accrued non-pension benefits have been paid.

21.Asset Retirement Obligations and Nuclear Decommissioning

Asset Retirement Obligations

(PPL and PPL Energy Supply)

In connection with the adoption of SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003, PPL and PPL Energy Supply recorded a cumulative effect of adoption that increased net income by $63 million (net of tax of $44 million), or $0.18 per share.

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 plant. PPL and PPL Energy Supply identified and recorded other AROs related to significant interim retirements at the Susquehanna plant, and various environmental requirements for coal piles, ash basins and other waste basin retirements at Susquehanna and other facilities.

PPL and PPL Energy Supply also identified legal retirement obligations that could not be reasonably estimated at that time. These items included requirements associated with the retirement of a reservoir and certain transmission assets. These retirement obligations could not be reasonably estimated due to indeterminable settlement dates.

In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143." FIN 47 clarifies that an entity is required to recognize a liability for the fair value of a conditional ARO when incurred if the fair value of the ARO can be reasonably estimated. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an ARO.

PPL and PPL Energy Supply adopted FIN 47 effective December 31, 2005. Adoption of the new guidance resulted in an increase in net PP&E of $4 million, recognition of AROs of $17 million, recognition of deferred tax assets of $5 million and a cumulative effect of adoption that decreased net income by $8 million (net of tax of $6 million), or $0.02 per share.

PPL and PPL Energy Supply identified several conditional AROs. The most significant of these related to the removal and disposal of asbestos-containing material at various generation plants. The fair value of the portion of these obligations that could be reasonably estimated was recorded at December 31, 2005, and resulted in AROs of $14 million and a cumulative effect of adoption that decreased net income by $8 million.

Also, PPL Global identified and recorded conditional AROs that related to treated wood poles and fluid-filled cable, which had an insignificant impact on the financial statements.

In addition to the AROs that were recorded for asbestos-containing material, PPL and PPL Energy Supply identified other asbestos-related obligations, but were unable to reasonably estimate their fair values. These retirement obligations could not be reasonably estimated due to their indeterminable settlement dates. The generation plants, where significant amounts of asbestos-containing material are located, have been well maintained, and large capital and environmental investments are being made at these plants. During the last five years, the useful lives of the plants have been reviewed and in most cases significantly extended. See Note 1 for further discussion related to the extension of the useful lives of these assets. Due to these circumstances, PPL management was unable to reasonably estimate a settlement date or range of settlement dates for the remediation of all of the asbestos-containing material at the generation plants. If economic events or other circumstances change that enable PPL and PPL Energy Supply to reasonably estimate the fair value of these retirement obligations, they will be recorded at that time.

The changes in the carrying amounts of AROs were:

		2005		2004
ARO at beginning of year		$	257	$	242
Accretion expense			21		19
Obligations incurred:
	Adoption of FIN 47		17
	Other		3
Obligations settled					(4	)
ARO at end of year		$	298	$	257

The pro forma ARO liability balances calculated as if FIN 47 had been adopted on January 1, 2003, would not have been significantly different than those calculated at December 31, 2005.

The pro forma income statement effects, including the effects on income from continuing operations, net income, and basic and diluted EPS, from the application of FIN 47 calculated as if it had been adopted prior to January 1, 2003, also would have been insignificant for 2003, 2004 and 2005.

(PPL Electric)

PPL Electric adopted SFAS 143 effective January 1, 2003, and FIN 47 effective December 31, 2005. PPL Electric did not record any AROs upon adoption of either of these standards.  PPL Electric identified legal retirement obligations for the retirement of certain transmission assets that could not be reasonably estimated at this time due to indeterminable settlement dates. These assets are located on rights-of-way that allow the grantor to require PPL Electric to relocate or remove the assets. Since this option is at the discretion of the grantor of the right-of-way, PPL Electric is unable to determine when this event may occur.

Nuclear Decommissioning(PPL and PPL Energy Supply)

The expected cost to decommission the Susquehanna plant is based on a 2002 site-specific study that estimated the cost to dismantle and decommission each unit immediately following final shutdown. PPL Susquehanna's 90% share of the total estimated cost of decommissioning the Susquehanna plant was approximately $936 million measured in 2002 dollars. This estimate includes decommissioning the radiological portions of the station and the cost of removal of non-radiological structures and materials.

Beginning in January 1999, in accordance with the PUC Final Order, approximately $130 million of decommissioning costs are being recovered from PPL Electric's customers through the CTC over the 11-year life of the CTC rather than the remaining life of Susquehanna. The recovery includes a return on unamortized decommissioning 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.

Accretion expense, as determined under the provisions of SFAS 143, was $19 million in 2005, $18 million in 2004 and $16 million in 2003, and is included in "Other operation and maintenance" on the Statement of Income. Accrued nuclear decommissioning expenses, as determined under the provisions of SFAS 143, were $255 million and $236 million at December 31, 2005 and 2004, and are included in "Asset Retirement Obligations" on the Balance Sheet.

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. To the extent that the actual costs for decommissioning exceed the amounts in the nuclear decommissioning trust funds, PPL Susquehanna would be obligated to fund 90% of the shortfall.

Investments in the trust funds for decommissioning the nuclear plant are classified as available-for-sale. The following tables show the fair values and gross unrealized gains and gross unrealized losses for the securities held in the trust funds.

		December 31, 2005
		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents							$	10
Equity securities		$	85	$	(2	)		295
Debt securities
	Government		1		(2	)		119
	Other							20
Total debt securities			1		(2	)		139
Total		$	86	$	(4	)	$	444

		December 31, 2004
		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents							$	11
Equity securities		$	70					279
Debt securities
	Government		1	$	(3	)		102
	Other							17
Total debt securities			1		(3	)		119
Total		$	71	$	(3	)	$	409

At December 31, 2005, PPL Susquehanna's nuclear decommissioning trust funds contained investments with an aggregate unrealized loss position of approximately $4 million, of which $2 million was attributable to investments with an aggregate fair value of approximately $69 million that have been in a continuous unrealized loss position for less than 12 months and $2 million was attributable to investments with an aggregate fair value of approximately $40 million that have been in a continuous unrealized loss position for 12 months or longer. The equity securities' unrealized loss position consists of 132 investments with an aggregate fair value of $20 million and an average unrealized loss of 7%. The largest unrealized loss for any individual investment was $387 thousand, which represents a decrease in value of only 15%. The minor decline in the value of government securities is primarily due to the impact of interest rates, as such securities are essentially free of credit risk. Currently, PPL Susquehanna believes it is reasonable to expect these securities to recover from this temporary decline in value.

At December 31, 2004, PPL Susquehanna's nuclear decommissioning trust funds contained investments with an aggregate unrealized loss position of approximately $3 million, of which $1 million was attributable to investments with an aggregate fair value of approximately $56 million that had been in a continuous unrealized loss position for less than 12 months, and $2 million was attributable to investments with an aggregate fair value of approximately $29 million that had been in a continuous unrealized loss position for 12 months or longer. The minor decline in the value of government securities is primarily due to the impact of interest rates, as such securities are essentially free of credit risk.

Of the $139 million of government obligations and other debt securities held at December 31, 2005, $3 million mature within one year, $45 million mature after one year through five years, $43 million mature after five years through ten years and $48 million mature after ten years.

The following table shows proceeds from and realized gains and losses on sales of securities held in the trust.

	2005			2004			2003
Proceeds from sales	$	223		$	113		$	140
Gross realized gains		10			3			14
Gross realized losses (a)		(12	)		(17	)		(3	)

(a) 2004 includes a $(10) million adjustment to the net realized gains recorded in 2003. The adjustment was included in gross realized losses in this table.

The proceeds from the sales of securities are reinvested in the trust. These funds, along with deposits of amounts collected from customers, are used to pay income taxes and fees related to managing the trust. Due to the restricted nature of these investments, they are not included in cash and cash equivalents.

Net unrealized gains associated with current year activities increased accumulated other comprehensive income by:

	2005		2004		2003
Pre-tax	$	12	$	24	$	41
After-tax		7		15		23

Net gains (losses) reclassified from accumulated other comprehensive income and realized in "Other Income - net" on the Statement of Income were:

	2005			2004			2003
Pre-tax	$	(2	)	$	(14	)	$	11
After-tax		(1	)		(8	)		6

PPL Susquehanna intends to file with the NRC in 2006 for license renewals for each of the Susquehanna units to extend their expirations by 20 years, from 2022 to 2042 for Unit 1 and from 2024 to 2044 for Unit 2.

22.Variable Interest Entities

(PPL, PPL Energy Supply and PPL Electric)

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarified 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. In December 2003, the FASB revised FIN 46 by issuing Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," which is known as FIN 46(R) and replaces FIN 46. FIN 46(R) does not change the general consolidation concepts of FIN 46. Among other things, FIN 46(R) clarifies certain provisions of FIN 46 and provides additional scope exceptions for certain types of businesses. FIN 46 applied immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtained an interest after January 31, 2003. FIN 46(R) provides that a public entity that is not a small business issuer (i) should apply FIN 46 or FIN 46(R) to entities that are considered to be SPEs no later than the end of the first reporting period that ends after December 15, 2003 and (ii) should apply the provisions of FIN 46(R) to all entities no later than the end of the first reporting period that ends after March 15, 2004.

As permitted by FIN 46(R), PPL and its subsidiaries adopted FIN 46 effective December 31, 2003, for entities created before February 1, 2003, that are considered to be SPEs. This adoption resulted in the consolidation of the lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities, as well as the deconsolidation of two wholly owned trusts. See below for further discussion. Also, as permitted by FIN 46(R), PPL and its subsidiaries deferred the application of FIN 46 for other entities and adopted FIN 46(R) for all entities on March 31, 2004. The adoption of FIN 46(R) did not have a material impact on the results of PPL and its subsidiaries.

(PPL and PPL Energy Supply)

Additional Entities Consolidated

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 was created for the sole purpose of owning the facilities and incurring the related financing costs. The $660 million operating lease arrangement covered the 450 MW gas-fired Sundance project located in Pinal County, Arizona and the 540 MW gas-fired University Park project near University Park, Illinois. These facilities were substantially complete in July 2002, at which time the initial lease term commenced. In June 2004, PPL Energy Supply subsidiaries purchased the Sundance and University Park generation assets from the lessor. In May 2005, a subsidiary of PPL Energy Supply completed the sale of its Sundance generation assets to Arizona Public Service Company. See Note 9 for further discussion of the sale.

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 582 MW gas-fired combined-cycle generation facility located in Lower Mt. Bethel Township, Northampton County, Pennsylvania. The lessor was created for the sole purpose of owning the facilities and incurring the related financing costs. The initial lease term commenced on the date of commercial operation, which occurred in May 2004, and ends in December 2013. The lease financing, which is included in "Long-term Debt," is secured by, among other things, the generation facility. At December 31, 2005 and 2004, the facility had a carrying value of $459 million and $470 million, net of accumulated depreciation and amortization of $25 million and $10 million, and was included in "Property, Plant and Equipment" and "Other acquired intangibles" on the Balance Sheet.

PPL Energy Supply was required to consolidate the financial statements of the lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities effective December 31, 2003, since it was the primary beneficiary of these entities. Upon initial consolidation, PPL Energy Supply recognized a charge of $27 million (net of a tax benefit of $18 million) as a cumulative effect of a change in accounting principle.

Entities Deconsolidated

Effective December 31, 2003, PPL deconsolidated PPL Capital Funding Trust I, and PPL Energy Supply deconsolidated SIUK Capital Trust I. These trusts were deconsolidated because PPL and PPL Energy Supply were not the primary beneficiaries of the trusts under interpretations of FIN 46. The deconsolidation of the trusts did not impact the earnings of PPL and PPL Energy Supply. See below for a discussion of PPL's and PPL Energy Supply's interest in the trusts. See Note 15 for a discussion of the presentation of the related party debt.

(PPL)

In May 2001, PPL and PPL Capital Funding Trust I, a wholly owned financing subsidiary of PPL, issued $575 million of 7.75% PEPS Units. Each PEPS Unit consisted of (i) a contract to purchase shares of PPL common stock on or prior to May 2004 and (ii) a trust preferred security of PPL Capital Funding Trust I with a maturity date of May 2006. The trust's sole source of funds for distributions were from payments of interest on 7.29% subordinated notes of PPL Capital Funding, due May 18, 2006, that were issued to the trust. PPL guaranteed the payment of principal and interest on the subordinated notes issued to the trust by PPL Capital Funding. PPL also fully and unconditionally guaranteed all of the trust's obligations under the trust preferred securities. All of the preferred securities of PPL Capital Funding Trust I were cancelled in 2004, and the trust was terminated in June 2004.

(PPL and PPL Energy Supply)

SIUK Capital Trust I issued $82 million of 8.23% preferred securities maturing in February 2027 and invested the proceeds in 8.23% subordinated debentures maturing in February 2027 issued by SIUK Limited. Thus, the preferred securities are supported by a corresponding amount of subordinated debentures. SIUK Limited owned all of the common securities of SIUK Capital Trust I and guaranteed all of SIUK Capital Trust I's obligations under the preferred securities. In January 2003, SIUK Limited transferred its assets and liabilities, including the common securities of SIUK Capital Trust I and the obligations under the subordinated debentures, to WPD LLP. Therefore, WPD LLP currently guarantees all of SIUK Capital Trust I's obligations under the preferred securities. SIUK Capital Trust I may, at the discretion of WPD LLP, redeem the 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.

23.New Accounting Standards

(PPL, PPL Energy Supply and PPL Electric)

SFAS 123(R)

In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment," which is known as SFAS 123(R) and replaces SFAS 123, "Accounting for Stock-Based Compensation," as amended by SFAS 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Among other things, SFAS 123(R) eliminates the alternative to use the intrinsic value method of accounting for stock-based compensation. SFAS 123(R) requires public entities to recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of the awards. SFAS 123(R) was originally effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual period that begins after June 15, 2005. However, in April 2005, the SEC issued a rule that amended Regulation S-X to change this effective date to the beginning of an entity's fiscal year that begins on or after June 15, 2005.

SFAS 123(R) requires public entities to apply the modified prospective application transition method of adoption. Under this application, entities must recognize compensation expense based on the grant-date fair value for new awards granted or modified after the effective date and for unvested awards outstanding on the effective date. Additionally, public entities may choose to apply modified retrospective application to periods before the effective date of SFAS 123(R). This application may be applied either to all prior years for which SFAS 123 was effective or only to prior interim periods in the year of initial adoption of SFAS 123(R). Under modified retrospective application, prior periods would be adjusted to recognize compensation expense as though stock-based awards granted, modified or settled in cash in fiscal years beginning after December 15, 1994, had been accounted for under SFAS 123.

PPL and its subsidiaries adopted SFAS 123(R) effective January 1, 2006. PPL and its subsidiaries will not apply modified retrospective application to any periods prior to the date of adoption. The adoption of SFAS 123(R) is not expected to have a significant impact on PPL and its subsidiaries, since PPL and its subsidiaries adopted the fair value method of accounting for stock-based compensation, as described by SFAS 123, effective January 1, 2003.

SFAS 155

In February 2006, the FASB issued SFAS 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140." Among other items, SFAS 155 addresses certain accounting issues surrounding securitized financial assets and hybrid financial instruments with embedded derivatives that require bifurcation. PPL and its subsidiaries must adopt SFAS 155 no later than January 1, 2007. PPL and its subsidiaries are currently in the process of performing a complete assessment of SFAS 155. However, since PPL and its subsidiaries do not have any interests in securitized financial assets or hybrid financial instruments with embedded derivatives that require bifurcation, the impact from the adoption of SFAS 155 is not expected to be material.

FIN 47

See Note 21 for a discussion of FIN 47, "Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143," and the impact of its adoption.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Millions of Dollars)
				Additions
		Balance at Beginning of Period		Charged to Income		Charged to Other Accounts		Deductions			Balance at End of Period
Reserves deducted from assets on the Balance Sheet
PPL Corporation
Uncollectible accounts including unbilled revenues (a)
2005		$	89	$	28	$	2	$	29		$	90
2004			96		25		1		33			89
2003			112		31				47			96
Obsolete inventory - Materials and supplies
2005			2		2				2			2
2004			3		2				3			2
2003			1		3				1			3
Mark-to-market valuation reserves
2005			2		9							11
2004			4						2			2
2003			3				2		1			4
Deferred tax valuation allowance
2005			164				2		18			148
2004			293				24		153	(b)		164
2003			327		4		53		91			293
PPL Energy Supply, LLC
Uncollectible accounts including unbilled revenues (a)
2005		$	70	$	2			$	5		$	67
2004			71		1	$	1		3			70
2003			88		5				22			71
Obsolete inventory - Materials and supplies
2005			2		2				2			2
2004			3		2				3			2
2003			1		3				1			3
Mark-to-market valuation reserves
2005			2		9							11
2004			4						2			2
2003			3				2		1			4
Deferred tax valuation allowance
2005			160				2		18			144
2004			288				24		152	(b)		160
2003			327		4		48		91			288
PPL Electric Utilities Corporation
Uncollectible accounts
2005		$	18	$	23	$	1	$	22		$	20
2004			24		22				28			18
2003			23		24				23			24
(a)	Includes reserves for customer accounts receivable, California ISO, the Enron receivables and other.
(b)	Includes write-off of WPD $152 million acquired tax asset and associated 100% valuation allowance as it was determined that there was no likelihood of recovering the asset.

QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited)
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share data)
		For the Quarters Ended (a)
		March 31			June 30			Sept. 30		Dec. 31
	2005
Operating revenues as previously reported		$	1,602		$	1,476
	Reclassification of Sundance discontinued operations (b)		(3	)
	Reclassification of energy-related business activity		1
	Reclassification of a PJM expense					5
	Reclassification related to net energy trading margins					(3	)
	Operating revenues		1,600			1,478		$	1,643	$	1,498
Operating income as previously reported			329
	Reclassification of Sundance discontinued operations (b)		4
	Reclassification of energy-related business activity		2
	Operating income		335			331			386		294
Income from continuing operations as previously reported			168
	Reclassification of Sundance discontinued operations (b)		2
	Income from continuing operations		170			177			197		193
Loss from discontinued operations as previously reported
	Reclassification of Sundance discontinued operations (b)		2
	Loss from discontinued operations		2			49
Net income			168			128			197		185
Basic earnings per common share: (c)
	Income from continuing operations		0.45			0.46			0.52		0.51
	Net income		0.45			0.34			0.52		0.49
Diluted earnings per common share: (c)
	Income from continuing operations		0.45			0.46			0.51		0.50
	Net income		0.44			0.33			0.51		0.48
Dividends declared per common share (d)			0.23			0.23			0.25		0.25
Price per common share:
	High	$	27.95		$	29.99		$	33.51	$	33.68
	Low		25.52			26.13			29.75		28.25
	2004
Operating revenues as previously reported		$	1,519		$	1,361
	Reclassification of Sundance discontinued operations (b)		(1	)
	Reclassification of energy-related business activity		1
	Reclassification related to net energy trading margins		(2	)		(1	)
	Operating revenues		1,517			1,360		$	1,454	$	1,463
Operating income as previously reported			366
	Reclassification of Sundance discontinued operations (b)		4
	Reclassification of energy-related business activity		2
	Operating income		372			302			383		343
Income from continuing operations as previously reported			178
	Reclassification of Sundance discontinued operations (b)		4
	Income from continuing operations		182			155			196		180
Loss from discontinued operations as previously reported			1
	Reclassification of Sundance discontinued operations (b)		4
	Loss from discontinued operations		5			7					3
Net income			177			148			196		177
Basic earnings per common share: (c)
	Income from continuing operations		0.51			0.43			0.52		0.48
	Net income		0.50			0.41			0.52		0.47
Diluted earnings per common share: (c)
	Income from continuing operations		0.51			0.42			0.52		0.47
	Net income		0.50			0.40			0.52		0.47
Dividends declared per common share (d)			0.205			0.205			0.205		0.205
Price per common share:
	High	$	23.62		$	23.49		$	24.20	$	27.08
	Low		21.37			19.92			22.35		23.57
(a)	Quarterly results can vary depending on, among other things, weather and the forward pricing of power. In addition, earnings in 2005 and 2004 were affected by unusual items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. Per share amounts have been adjusted to reflect PPL's 2-for-1 common stock split completed in August 2005.
(b)	In May 2005, a subsidiary of PPL Generation sold its Sundance plant. See Note 9 to the Financial Statements for further information.
(c)	The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding.
(d)	PPL has paid quarterly cash dividends on its common stock in every year since 1946. The dividends declared per share, as adjusted to reflect PPL's 2-for-1 common stock split, were $0.96 in 2005 and $0.82 in 2004. In February 2006, PPL announced an increase to its quarterly common stock dividend, payable April 1, 2006, to 27.5 cents per share (equivalent to $1.10 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.

QUARTERLY FINANCIAL DATA (Unaudited)
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
		For the Quarters Ended (a)
		March 31		June 30		Sept. 30		Dec. 31
2005
Operating revenues as previously reported				$	724
	Reclassification of a PJM expense				5
	Operating revenues	$	819		729	$	824	$	791
Operating income			68		99		122		88
Income available to PPL Corporation			15		36		52		42
2004
Operating revenues		$	773	$	661	$	704	$	709
Operating income			102		51		58		48
Income available to PPL Corporation			33		3		15		23

(a) PPL Electric's business is seasonal in nature, with peak sales periods generally occurring in the winter and summer months. In addition, earnings in certain quarters were affected by unusual items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation

Effective March 3, 2006, following the solicitation process described below, PPL dismissed PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm for PPL, PPL Energy Supply and PPL Electric. The registrants had previously announced that the Audit Committee of PPL's Board of Directors (the Audit Committee) had determined on November 10, 2005, that PwC would be dismissed as the registrants' independent registered public accounting firm effective upon the completion of its procedures regarding the financial statements of each of the registrants as of and for the year ended December 31, 2005, and this Form 10-K (in which such financial statements are included). PwC completed its procedures on March 3, 2006, coincident with the filing of this Form 10-K.

PwC's reports on the financial statements of the registrants for the fiscal years ended December 31, 2004 and 2005, did not contain any adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years ended December 31, 2004 and 2005, and through March 3, 2006, (1) there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in its reports on the financial statements of the registrants for such years, and (2) there have been no "reportable events" as defined in Item 304(a)(1)(v) of Regulation S-K.

Also as previously announced, on November 10, 2005, the Audit Committee appointed Ernst & Young LLP (Ernst & Young) as the independent registered public accounting firm for the registrants as of and for the fiscal year ending December 31, 2006. This appointment followed a solicitation and review process conducted by PPL pursuant to the Audit Committee's previously announced policy to solicit competitive proposals for audit services from independent accounting firms at least once every seven years. During the fiscal years ended December 31, 2004 and 2005, and prior to its engagement, (1) Ernst & Young had not been engaged as the principal accountant of the registrants to audit their financial statements or as an independent accountant to audit a significant subsidiary of the registrants, and (2) none of the registrants had consulted with Ernst & Young regarding (a) the application of accounting principles to any completed or proposed transaction, (b) the type of audit opinion that might be rendered on the registrants' financial statements for such periods, or (c) any other accounting, auditing or financial reporting matter described in Items 304(a)(2)(i) and (ii) of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES
PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation
(a)	Evaluation of disclosure controls and procedures.
	The registrants' principal executive officers and principal financial officers, based on their evaluation of the registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of December 31, 2005, the registrants' disclosure controls and procedures are effective to ensure that material information relating to the registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this annual report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.
(b)	Change in internal controls over financial reporting.
	The registrants' principal executive officers and principal financial officers have concluded that there were no changes in the registrants' internal control over financial reporting during the registrants' fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrants' internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting
PPL Corporation
	PPL's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). PPL's internal control over financial reporting is a process designed to provide reasonable assurance to PPL's management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in "Internal Control - Integrated Framework," our management concluded that our internal control over financial reporting was effective as of December 31, 2005. Our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, contained herein.
PPL Energy Supply, LLC and PPL Electric Utilities Corporation
	Omitted since PPL Energy Supply and PPL Electric are not subject to the Sarbanes-Oxley 404 requirements for the year ended December 31, 2005.
ITEM 9B. OTHER INFORMATION
PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation
None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

PPL Corporation

Additional information for this item will be set forth in the sections entitled "Nominees for Directors," "Directors Continuing in Office," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Board Committees - Audit Committee" in PPL's 2006 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference. There have been no changes to the procedures by which shareowners may recommend nominees to PPL's board of directors since the filing with the SEC of PPL's 2005 Notice of Annual Meeting and Proxy Statement. Information required by this item concerning the executive officers of PPL is set forth at the end of Part I of this report.

PPL has adopted a code of ethics entitled "Standards of Conduct and Integrity" that applies to all directors, managers, trustees, officers (including the principal executive officers, principal financial officers and principal accounting officers (each, a "principal officer")), employees and agents of PPL and PPL's subsidiaries for which it has operating control (including PPL Energy Supply and PPL Electric). The "Standards of Conduct and Integrity" are posted on PPL's Internet Web site: www.pplweb.com/about/corporate+governance, and are available in print to any shareholder who requests them. A description of any amendment to the "Standards of Conduct and Integrity" (other than a technical, administrative or other non-substantive amendment) will be posted on PPL's Internet Web site within four business days following the date of the amendment. In addition, if a waiver constituting a material departure from a provision of the "Standards of Conduct and Integrity" is granted to one of the principal officers, a description of the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will be posted on PPL's Internet Web site within four business days following the date of the waiver.

PPL also has adopted its "Guidelines for Corporate Governance," which address, among other things, director qualification standards and director and board committee responsibilities. These guidelines, and the charters of each of the committees of PPL's board of directors, are posted on PPL's Internet Web site: www.pplweb.com/about/corporate+governance and are available in print to any shareholder who requests them.

PPL Energy Supply, LLC

Item 10 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the sections entitled "Nominees for Directors" in PPL Electric's 2006 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PPL Electric is set forth at the end of Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

PPL Corporation

Information for this item will be set forth in the sections entitled "Compensation of Directors," "Board Committees - Audit Committee," "Summary Compensation Table," "Option Grants in Last Fiscal Year" and "Retirement Plans for Executive Officers" in PPL's 2006 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference.

PPL Energy Supply, LLC

Item 11 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table," "Option Grants in Last Fiscal Year" and "Retirement Plans for Executive Officers" in PPL Electric's 2006 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

PPL Corporation

Information for this item will be set forth in the section entitled "Stock Ownership" in PPL's 2006 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference. In addition, provided below in tabular format is information as of December 31, 2005, with respect to compensation plans (including individual compensation arrangements) under which equity securities of PPL are authorized for issuance.

Equity Compensation Plan Information(1)

	Number of securities to be issued upon exercise of outstanding options, warrants and rights (4)	Weighted-average exercise price of outstanding options, warrants and rights (4)	Number of securities remaining available for future issuance under equity compensation plans (5)
Equity compensation plans approved by security holders (2)	3,859,964 - ICP 1,726,108 - ICPKE 5,586,072 - Total	$21.96 - ICP $21.45 - ICPKE $21.81- Combined	6,459,298 - ICP 12,664,318 - ICPKE 14,714,209 - DDCP 33,837,825- Total
Equity compensation plans not approved by security holders (3)

(1)	All security amounts and exercise prices have been adjusted to reflect PPL's 2-for-1 common stock split completed in August 2005.
(2)	Includes (a) the Amended and Restated Incentive Compensation Plan (ICP), under which stock options, restricted stock, restricted stock units, dividend equivalents and other stock-based awards may be awarded to executive officers of PPL; (b) the Amended and Restated Incentive Compensation Plan for Key Employees (ICPKE), under which stock options, restricted stock, restricted stock units, dividend equivalents and other stock-based awards may be awarded to non-executive key employees of PPL and its subsidiaries; and (c) the Directors Deferred Compensation Plan (DDCP), under which stock units may be awarded to directors of PPL. See Note 11 to the financial statements for additional information.
(3)	All of PPL's current compensation plans under which equity securities of PPL are authorized for issuance have been approved by PPL's shareholders.
(4)	Relates to common stock issuable upon the exercise of stock options awarded under the ICP and ICPKE as of December 31, 2005. In addition, as of December 31, 2005, the following other securities had been awarded and are outstanding under the ICP, ICPKE and DDCP: 185,640 shares of restricted stock and 387,265 restricted stock units under the ICP; 232,100 shares of restricted stock and 752,118 restricted stock units under the ICPKE; and 273,775 stock units under the DDCP.
(5)	Based upon the following aggregate award limitations under the ICP, ICPKE and DDCP: (a) under the ICP, 15,769,431 awards (i.e., 5% of the total PPL common stock outstanding as of April 23, 1999) granted after April 23, 1999; (b) under the ICPKE, 16,573,608 awards (i.e., 5% of the total PPL common stock outstanding as of January 1, 2003) granted after April 25, 2003, reduced by outstanding awards for which common stock was not yet issued as of such date; and (c) under the DDCP, 15,052,856 securities. In addition, each of the ICP and ICPKE includes an annual award limitation of 2% of total PPL common stock outstanding as of January 1 of each year.

PPL Energy Supply, LLC

Item 12 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the section entitled "Stock Ownership" in PPL Electric's 2006 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PPL Corporation

None.

PPL Energy Supply, LLC

Item 13 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

None.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PPL Corporation

Information for this item will be set forth in the section entitled "Fees to Independent Auditor for 2005 and 2004" in PPL's 2006 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference.

PPL Energy Supply, LLC

The following table presents an allocation of fees billed by PricewaterhouseCoopers LLP (PwC) to PPL for the fiscal years ended December 31, 2005, and December 31, 2004, for professional services rendered for the audit of PPL Energy Supply's annual financial statements and for fees billed for other services rendered by PwC.

	2005		2004
	(in thousands)
Audit fees (a)	$	2,211	$	1,657
Audit-related fees (b)		14		61
Tax fees (c)
All other fees (d)		2		3

(a)	Includes audit of annual financial statements and review of financial statements included in PPL Energy Supply's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC.
(b)	Fees for audits of employee benefit plans and consultation to ensure appropriate accounting and reporting in connection with various business and financing transactions.
(c)	The independent auditor does not provide tax consulting and advisory services to PPL Energy Supply or any of its affiliates.
(d)	Fees for access to a research database licensed by PwC that provides authoritative accounting and reporting guidance.

Approval of FeesThe Audit Committee of PPL has procedures for pre-approving audit and non-audit services to be provided by the independent auditor. The procedures are designed to ensure the continued independence of the independent auditor. More specifically, the use of the independent auditor to perform either audit or non-audit services is prohibited unless specifically approved in advance by the Audit Committee of PPL. As a result of this approval process, the Audit Committee of PPL has established specific categories of services and authorization levels. All services outside of the specified categories and all amounts exceeding the authorization levels are reviewed by the Chair of the Audit Committee of PPL, who serves as the Committee designee to review and approve audit and non-audit related services during the year. A listing of the approved audit and non-audit services is reviewed with the full Audit Committee of PPL no later than its next meeting.

The Audit Committee of PPL approved 100% of the 2005 and 2004 audit and non-audit related fees.

PPL Electric Utilities Corporation

Information for this item will be set forth in the section entitled "Fees to Independent Auditor for 2005 and 2004" in PPL Electric's 2006 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2005, and which information is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation
(a) The following documents are filed as part of this report:
	1.	Financial Statements - Refer to the "Index to Item 8. Financial Statements and Supplementary Data" for an index of the financial statements included in this report.
	2.	Supplementary Data and Supplemental Financial Statement Schedule - included in response to Item 8.
		Schedule II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 2005.
		All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto.
	3.	Exhibits
		See Exhibit Index immediately following the signature pages.

SHAREOWNER AND INVESTOR INFORMATION

Annual Meetings: The annual meeting of shareowners of PPL Corporation is held each year on the fourth Friday of April. The 2006 meeting for PPL Corporation will be held on Friday, April 28, 2006, at the Holiday Inn in Fogelsville, Pennsylvania, in Lehigh County. The 2006 meeting for PPL Electric will be held on Wednesday, April 26, 2006, at the offices of the company at Two North Ninth Street, Allentown, Pennsylvania.

Proxy and Information Statement Material: A proxy statement or information statement, and notice of PPL's and PPL Electric's annual meetings are mailed to all shareowners of record as of February 28, 2006.

PPL Annual Report:The report is published and mailed in mid-March to all shareowners of record. The latest annual report can be accessed at www.pplweb.com. If you have more than one account, or if there is more than one investor in your household, you may contact PPL Investor Services to request that only one annual report be delivered to your address. Please provide account numbers for all duplicate mailings.

Dividends: Subject to the declaration of dividends on PPL common stock by the PPL Board of Directors or its Executive Committee and PPL Electric preferred stock by the PPL Electric Board of Directors, dividends are paid on the first day of April, July, October and January. Dividend checks are mailed in advance of those dates with the intention that they arrive as close as possible to the payment dates. The 2006 record dates for dividends are expected to be March 10, June 9, September 8, and December 8.

PPL Shareowner InformationLine (1-800-345-3085):Shareowners can get detailed corporate and financial information 24 hours a day using the PPL Shareowner Information Line. They can hear timely recorded messages about earnings, dividends and other company news releases; request information by fax; and request printed materials in the mail. Other PPL publications, such as the annual and quarterly reports to the Securities and Exchange Commission (Forms 10-K and 10-Q), will be mailed upon request.

PPL's Web Site(www.pplweb.com): Shareowners can access PPL Securities and Exchange Commission filings, corporate governance materials, news releases, stock quotes and historical performance. Visitors to our Web site can provide their E-mail address and indicate their desire to receive future earnings or news releases automatically.

Online Account Access: Registered shareowners can access account information by visiting www.shareowneronline.com.

PPL Investor Services: For questions about PPL Corporation or its subsidiaries, or information concerning:

Lost Dividend Checks

Bond Interest Checks

Direct Deposit of Dividends

Bondholder Information

Please contact:

Manager - PPL Investor Services

Two North Ninth Street (GENTW8)

Allentown, PA 18101

Toll Free: 1-800-345-3085

FAX: 610-774-5106

Via e-mail: invserv@pplweb.com

Lost Dividend or Bond Interest Checks: Checks lost by investors, or those that may be lost in the mail, will be replaced if the check has not been located by the 10th business day following the payment date.

Direct Deposit of Dividends:Shareowners may choose to have their dividend checks deposited directly into their checking or savings account.

Wells Fargo Shareowner Services: For information concerning:

PPL's Dividend Reinvestment Plan

Stock Transfers

Lost Stock Certificates

Certificate Safekeeping

Please contact:

Wells Fargo Bank, N.A.

Shareowner Services

161 North Concord Exchange

South St. Paul, MN 55075-1139

Toll Free: 1-866-280-0245

Outside U.S.: 651-453-2129

Dividend Reinvestment Plan:Shareowners may choose to have dividends on their PPL common stock or PPL Electric preferred stock reinvested in PPL common stock instead of receiving the dividend by check.

Certificate Safekeeping: PPL Corporation participates in the Direct Registration System (DRS). Shareowners may choose to have their common stock certificates deposited into Direct Registration. Participants of PPL's Dividend Reinvestment Plan may choose to have their common stock certificates deposited into their Plan account.

Listed Securities:

New York Stock Exchange

PPL Corporation:

Common Stock (Code: PPL)

PPL Electric Utilities Corporation:

4-1/2% Preferred Stock

(Code: PPLPRB)

4.40% Series Preferred Stock

(Code: PPLPRA)

Philadelphia Stock Exchange

PPL Corporation:

Common Stock

Fiscal Agents:

Stock Transfer Agent and Registrar;

Dividend Reinvestment Plan Agent

Wells Fargo Bank, N.A.

Shareowner Services

161 North Concord Exchange

South St. Paul, MN 55075-1139

Toll Free: 1-866-280-0245

Outside U.S.: 651-453-2129

Dividend Disbursing Office

PPL Investor Services

Two North Ninth Street (GENTW8)

Allentown, PA 18101

Toll Free: 1-800-345-3085

FAX: 610-774-5106

Mortgage Bond Trustee and

Transfer Agent

Deutsche Bank Trust Company Americas

Attn: Security Transfer Unit

648 Grassmere Park Road

Nashville, TN 37211

Toll Free: 1-800-735-7777

FAX: 615-835-2727

Bond Interest Paying Agent

PPL Investor Services

Two North Ninth Street (GENTW8)

Allentown, PA 18101

Toll Free: 1-800-345-3085

FAX: 610-774-5106

Indenture Trustee

JPMorgan Chase Bank, N.A.

4 New York Plaza

New York, NY 10004

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PPL Corporation

(Registrant)

By /s/ William F. Hecht
William F. Hecht -
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
		TITLE
By /s/ William F. Hecht		Principal Executive Officer and Director
William F. Hecht -
Chairman and
Chief Executive Officer
By /s/ John R. Biggar		Principal Financial Officer and Director
John R. Biggar -
Executive Vice President and
Chief Financial Officer
By /s/ Paul A. Farr		Principal Accounting Officer
Paul A. Farr -
Senior Vice President-Financial
Directors:
Frederick M. Bernthal	James H. Miller
John W. Conway	Craig A. Rogerson
E. Allen Deaver	W. Keith Smith
Louise K. Goeser	Susan M. Stalnecker
Stuart Heydt	Keith H. Williamson
By /s/ William F. Hecht
William F. Hecht, Attorney-in-fact	Date: March 3, 2006

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PPL Energy Supply, LLC

(Registrant)

By /s/ William F. Hecht
William F. Hecht -
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
	TITLE
By /s/ William F. Hecht	Principal Executive Officer and Manager
William F. Hecht -
President
By /s/ Paul A. Farr	Principal Financial and Accounting Officer
Paul A. Farr -	and Manager
Senior Vice President
Managers:
/s/ John R. Biggar
John R. Biggar
/s/ Robert J. Grey
Robert J. Grey
/s/ James H. Miller
James H. Miller
/s/ James E. Abel
James E. Abel
Date: March 3, 2006

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PPL Electric Utilities Corporation

(Registrant)

By /s/ John F. Sipics
John F. Sipics -
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
	TITLE
By /s/ John F. Sipics	Principal Executive Officer and Director
John F. Sipics -
President
By /s/ Paul A. Farr	Principal Financial and Accounting Officer
Paul A. Farr -
Senior Vice President-Financial

Directors:
/s/ William F. Hecht	/s/ Dean A. Christiansen	/s/ James H. Miller
William F. Hecht	Dean A. Christiansen	James H. Miller
/s/ John R. Biggar	/s/ Robert J. Grey	/s/ Rick L. Klingensmith
John R. Biggar	Robert J. Grey	Rick L. Klingensmith
Date: March 3, 2006

EXHIBIT INDEX

The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits have heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

3(a)-1	-	Amended and Restated Articles of Incorporation of PPL Corporation, effective August 17, 2005 (Exhibit 3.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated August 19, 2005)
3(a)-2	-	Amended and Restated Articles of Incorporation of PPL Electric Utilities Corporation (Exhibit 3(a)-3 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2001)
3(a)-3	-	Certificate of Formation of PPL Energy Supply, LLC (Exhibit 3.1 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
3(b)-1	-	Bylaws of PPL Corporation, as amended and restated effective August 17, 2005 (Exhibit 3.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated August 19, 2005)
3(b)-2	-	Bylaws of PPL Electric Utilities Corporation, as amended effective July 16, 2004 (Exhibit 3 to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2004)
3(b)-3	-	Limited Liability Company Agreement of PPL Energy Supply, LLC, dated March 20, 2001 (Exhibit 3.2 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
4(a)-1	-	Amended and Restated Employee Stock Ownership Plan, dated June 12, 2000 (Exhibit 4(a) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2000)
4(a)-2	-	Amendment No. 1 to said Employee Stock Ownership Plan, dated September 10, 2001 (Exhibit 4(a)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2001)
4(a)-3	-	Amendment No. 2 to said Employee Stock Ownership Plan, dated October 8, 2002 (Exhibit 4(a)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2002)
4(a)-4	-	Amendment No. 3 to said Employee Stock Ownership Plan, dated April 1, 2003 (Exhibit 4(a)-4 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2003)
4(a)-5	-	Amendment No. 4 to said Employee Stock Ownership Plan, dated May 7, 2003 (Exhibit 4(a)-5 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2004)
4(a)-6	-	Amendment No. 5 to said Employee Stock Ownership Plan, dated May 4, 2005 (Exhibit 4(c) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2005)
4(b)-1	-	Mortgage and Deed of Trust, dated as of October 1, 1945, between PPL Electric Utilities Corporation and Bankers Trust Company (as successor Trustee) (Exhibit 2(a)-4 to Registration Statement No. 2-60291)
4(b)-2	-	Supplement, dated as of July 1, 1954, to said Mortgage and Deed of Trust (Exhibit 2(b)-5 to Registration Statement No. 219255)
4(b)-3	-	Supplement, dated as of March 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 11, 1994)
4(b)-4	-	Supplement, dated as of March 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 30, 1994)
4(b)-5	-	Supplement, dated as of October 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated October 3, 1994)
4(b)-6	-	Supplement, dated as of August 1, 2001, to said Mortgage and Deed of Trust (Exhibit 4.5 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)
4(b)-7	-	Supplement, dated as of January 1, 2002, to said Mortgage and Deed of Trust (Exhibit 4(b)-19 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2001)
4(b)-8	-	Supplement, dated as of February 1, 2003, to said Mortgage and Deed of Trust (Exhibit 4(b)-20 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2002)
4(b)-9	-	Supplement, dated as of May 1, 2003, to said Mortgage and Deed of Trust (Exhibit 10(c) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for quarter ended June 30, 2003)
4(b)-10	-	Supplement, dated as of February 1, 2005, to said Mortgage and Deed of Trust (Exhibit 4(b)-20 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2004)
4(b)-11	-	Supplement, dated as of May 1, 2005, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2005)
*4(b)-12	-	Supplement, dated as of June 1, 2005, to said Mortgage and Deed of Trust
4(b)-13	-	Supplement, dated as of December 1, 2005, to said Mortgage and Deed of Trust (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated December 22, 2005)
4(c)-1	-	Indenture, dated as of November 1, 1997, among PPL Corporation, PPL Capital Funding, Inc. and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 12, 1997)
4(c)-2	-	Supplement, dated as of November 1, 1997, to said Indenture (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 12, 1997)
4(c)-3	-	Supplement, dated as of March 1, 1999, to said Indenture (Exhibit 4.3 to Registration Statement Nos. 333-87847, 333-87847-01 and 333-87847-02)
4(c)-4	-	Supplement, dated as of October 1, 1999, to said Indenture (Exhibit 4(c)-4 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 1999)
4(c)-5	-	Supplement, dated as of June 1, 2000, to said Indenture (Exhibit 4 to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2000)
4(c)-6	-	Supplement, dated as of January 21, 2004, to said Indenture (Exhibit 4(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2004)
4(c)-7	-	Supplement, dated as of May 18, 2004, to said Indenture (Exhibit 4.7 to Registration Statement Nos. 333-116478, 333-116478-01 and 333-116478-02)
4(d)-1	-	Subordinated Indenture, dated as of May 9, 2001, between PPL Capital Funding, Inc., PPL Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(d)-2	-	Supplement, dated as of May 9, 2001, to said Subordinated Indenture (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(e)-1	-	Indenture, dated as of August 1, 2001, by PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)
4(e)-2	-	Supplement, dated as of August 1, 2001, to said Indenture (Exhibit 4.2 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)
4(e)-3	-	Supplement, dated as of February 1, 2003, to said Indenture (Exhibit 4(g)-3 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2002)
4(e)-4	-	Supplement, dated as of May 1, 2003, to said Indenture (Exhibit 10(d) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2002)
4(e)-5	-	Supplement, dated as of February 1, 2005, to said Indenture (Exhibit 4(g)-5 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2004)
4(e)-6	-	Supplement, dated as of May 1, 2005, to said Indenture (Exhibit 4(b) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2005)
4(e)-7	-	Supplement, dated as of December 1, 2005, to said Indenture (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated December 22, 2005)
4(f)-1	-	Indenture, dated as of October 1, 2001, by PPL Energy Supply, LLC and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
4(f)-2	-	Supplement, dated as of October 1, 2001, to said Indenture (Exhibit 4.2 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
4(f)-3	-	Registration Rights Agreement, dated October 19, 2001, between PPL Energy Supply, LLC and the Initial Purchasers (Exhibit 4.5 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
4(f)-4	-	Supplement, dated as of August 15, 2004, to said Indenture (Exhibit 4(h)-4 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(f)-5	-	Supplement, dated as of October 1, 2005, to said Indenture (Exhibit 4(a) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated October 28, 2005)
4(f)-6	-	Form of Note for PPL Energy Supply, LLC's $300 million aggregate principal amount of 5.70% REset Put Securities due 2035 (REPSSM) (Exhibit 4(b) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated October 28, 2005)
4(g)-1	-	Indenture, dated as of May 21, 2003, by PPL Energy Supply, LLC, PPL Corporation and JPMorgan Chase Bank, as Trustee (Exhibit 4.3 to PPL Energy Supply, LLC and PPL Corporation Form S-4 (Registration Statement No. 333-106200))
4(g)-2	-	Registration Rights Agreement, dated as of May 21, 2003, by PPL Energy Supply, LLC, PPL Corporation and the Representatives of the Initial Purchasers (Exhibit 4.2 to PPL Energy Supply, LLC and PPL Corporation Form S-4 (Registration Statement No. 333-106200))
4(g)-3	-	Supplement, dated November 12, 2004, to said Indenture (Exhibit 99.1 to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated November 17, 2004)
4(h)-1	-	Indenture, dated as of February 26, 2004, among PPL Corporation, PPL Capital Funding, Inc. and JPMorgan Chase Bank, as Trustee (Exhibit 4(b) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2004)
4(h)-2	-	Registration Rights Agreement, dated as of February 26, 2004, among PPL Corporation, PPL Capital Funding, Inc. and the Representatives of the Initial Purchasers (Exhibit 4(c) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended March 31, 2004)
4(i)	-	Trust Deed, dated November 9, 1995, between Western Power Distribution (South Wales) plc and Bankers Trustee Company Limited (Exhibit 4(k) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(j)-1	-	Indenture, dated as of November 21, 1996, among Western Power Distribution LLP and Western Power Distribution Holdings Limited (as successor co-obligors), Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), as Trustee, and Deutsche Bank Luxembourg S.A. (formerly Bankers Trust Luxembourg S.A.), as Paying and Transfer Agent (Exhibit 4(l)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(j)-2	-	Supplement, dated as of November 21, 1996, to said Indenture (Exhibit 4(l)-2 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(j)-3	-	Supplement, dated as of December 2, 1998, to said Indenture (Exhibit 4(l)-3 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(j)-4	-	Supplement, dated as of January 30, 2003, to said Indenture (Exhibit 4(l)-4 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(j)-5	-	Supplement, dated as of January 30, 2003, to said Indenture (Exhibit 4(l)-5 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(k)-1	-	Indenture, dated as of January 29, 1997, among Western Power Distribution LLP and Western Power Distribution Holdings Limited (as successor co-obligors), Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), as Trustee, and Deutsche Bank Luxembourg S.A. (formerly Bankers Trust Luxembourg S.A.), as Paying and Transfer Agent (Exhibit 4(m)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(k)-2	-	Supplement, dated as of December 2, 1998, to said Indenture (Exhibit 4(m)-2 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(k)-3	-	Supplement, dated as of January 30, 2003, to said Indenture (Exhibit 4(m)-3 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(k)-4	-	Supplement, dated as of January 30, 2003, to said Indenture (Exhibit 4(m)-4 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(l)-1	-	Indenture, dated as of March 16, 2001, among Western Power Distribution Holdings Limited (as successor obligor), Deutsche Bank Trust Company Americas (formerly Bankers Trust Company), as Trustee, and Deutsche Bank Luxembourg S.A. (formerly Bankers Trust Luxembourg S.A.), as Paying and Transfer Agent (Exhibit 4(n)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(l)-2	-	Supplement, dated as of March 16, 2001, to said Indenture (Exhibit 4(n)-2 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(l)-3	-	Supplement, dated as of January 30, 2003, to said Indenture (Exhibit 4(n)-3 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(m)-1	-	Trust Deed, dated March 25, 2003, between Western Power Distribution (South West) plc and J.P. Morgan Corporate Trustee Services Limited (Exhibit 4(o)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
4(m)-2	-	Supplement, dated as of May 27, 2003, to said Trust Deed (Exhibit 4(o)-2 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
10(a)	-	$100 million Three-Year Credit Agreement, dated as of June 24, 2003, among PPL Electric Utilities Corporation and the banks named therein (Exhibit 10(f) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2003)
10(b)	-	$150 Million Credit and Reimbursement Agreement, dated as of April 25, 2001, among PPL Montana, LLC and the banks named therein (Exhibit 10(d) to PPL Montana, LLC Form 10-Q Report (File No. 333-50350) for the quarter ended June 30, 2001)
10(c)	-	Generation Supply Agreement, dated as of June 20, 2001, between PPL Electric Utilities Corporation and PPL EnergyPlus, LLC (Exhibit 10.5 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
10(d)	-	Master Power Purchase and Sale Agreement, dated as of October 15, 2001, between Northwestern Energy Division (successor in interest to The Montana Power Company) and PPL Montana, LLC (Exhibit 10(g) to PPL Montana, LLC Form 10-K Report (File No. 333-50350) for year ended December 31, 2001)
10(e)	-	Guaranty, dated as of December 21, 2001, from PPL Energy Supply, LLC in favor of LMB Funding, Limited Partnership (Exhibit 10(j) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2001)
10(f)-1	-	Agreement for Lease, dated as of December 21, 2001, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(m) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003)
10(f)-2	-	Amendment No. 1 to Agreement for Lease, dated as of September 16, 2002, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(m)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003)
10(g)-1	-	Lease Agreement, dated as of December 21, 2001, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(n) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003)
10(g)-2	-	Amendment No. 1 to Lease Agreement, dated as of September 16, 2002, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC (Exhibit 10(n)-1 to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2003)
10(h)	-	Pollution Control Facilities Loan Agreement, dated as of May 1, 1973, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration Statement No. 2-60834)
10(i)	-	Facility Lease Agreement (BA 1/2) between PPL Montana, LLC and Montana OL3, LLC (Exhibit 4.7a to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
10(j)	-	Facility Lease Agreement (BA 3) between PPL Montana, LLC and Montana OL4, LLC (Exhibit 4.8a to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
10(k)	-	Services Agreement, dated as of July 1, 2000, among PPL Corporation, PPL Energy Funding Corporation and its direct and indirect subsidiaries in various tiers, PPL Capital Funding, Inc., PPL Gas Utilities Corporation, PPL Services Corporation and CEP Commerce, LLC (Exhibit 10.20 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
10(l)	-	Pollution Control Facilities Loan Agreement, dated as of February 1, 2003, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority
10(m)-1	-	Asset Purchase Agreement, dated as of June 1, 2004, by and between PPL Sundance Energy, LLC, as Seller, and Arizona Public Service Company, as Purchaser (Exhibit 10(a) to PPL Corporation and PPL Energy Supply, LLC Form 10-Q Reports (File Nos. 1-11459 and 333-74794) for the quarter ended June 30, 2004)
10(m)-2	-	Amendment No. 1, dated December 14, 2004, to said Asset Purchase Agreement (Exhibit 99.1 to PPL Corporation and PPL Energy Supply, LLC Form 8-K Reports (File Nos. 1-11459 and 333-74794) dated December 15, 2004)
10(n)	-	Receivables Sale Agreement, dated as of August 1, 2004, between PPL Electric Utilities Corporation, as Originator, and PPL Receivables Corporation, as Buyer (Exhibit 10(d) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2004)
10(o)	-	Credit and Security Agreement, dated as of August 1, 2004, among PPL Receivables Corporation, as Borrower, PPL Electric Utilities Corporation, as Servicer, Blue Ridge Asset Funding Corporation, the Liquidity Banks from time to time party thereto and Wachovia Bank, National Association, as Agent (Exhibit 10(e) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2004)
10(p)	-	$300 Demand Loan Agreement, dated as of August 20, 2004, among CEP Lending, Inc. and PPL Energy Funding Corporation (Exhibit 10(dd) to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2004)
10(q)	-	Amended and Restated £400,000,000Credit Agreement, dated as of October 12, 2004, among Western Power Distribution (South West) plc and the banks named therein (Exhibit 10(ee) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for the year ended December 31, 2004)
10(r)	-	Pollution Control Facilities Loan Agreement, dated as of February 1, 2005, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 10(ff) to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2004)
10(s)	-	Reimbursement Agreement, dated as of March 31, 2005, among PPL Energy Supply, LLC, The Bank of Nova Scotia, as Issuer and Administrative Agent, and the Lenders party thereto from time to time (Exhibit 10(a) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended March 31, 2005)
10(t)	-	First Amendment to said Reimbursement Agreement, dated as of June 16, 2005 (Exhibit 10(b) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended June 30, 2005)
10(u)	-	Second Amendment to said Reimbursement Agreement, dated as of September 1, 2005 (Exhibit 10(a) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended September 30, 2005)
10(v)	-	Pollution Control Facilities Loan Agreement, dated as of May 1, 2005, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 10(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2005)
10(w)	-	$800 million Amended and Restated Five-Year Credit Agreement, dated as of June 22, 2005, among PPL Energy Supply, LLC and the banks named therein (Exhibit 10(c) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended June 30, 2005)
10(x)	-	$600 million Five-Year Credit Agreement, dated as of June 22, 2005, among PPL Energy Supply, LLC and the banks named therein (Exhibit 10(d) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended June 30, 2005)
10(y)	-	$200 million Amended and Restated Five-Year Credit Agreement, dated as of June 22, 2005, among PPL Electric Utilities Corporation and the banks named therein (Exhibit 10(e) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2005)
10(z)	-	$500 Million Five-Year Credit Agreement, dated as of December 15, 2005, among PPL Energy Supply, LLC and the banks named therein (Exhibit 10(a) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated December 21, 2005)
10(aa)	-	$300 Million Five-Year Letter of Credit and Revolving Credit Agreement, dated as of December 15, 2005, among PPL Energy Supply, LLC and the banks named therein (Exhibit 10(b) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated December 21, 2005)
10(bb)	-	$300 Million Five-Year Letter of Credit and Reimbursement Agreement, dated as of December 15, 2005, among PPL Energy Supply and the banks named therein (Exhibit 10(c) to PPL Energy Supply, LLC Form 8-K Report (File No. 333-74794) dated December 21, 2005)
[_]10(cc)-1	-	Amended and Restated Directors Deferred Compensation Plan, dated June 12, 2000 (Exhibit 10(h) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2000)
[_]10(cc)-2	-	Amendment No. 1 to Amended and Restated Directors Deferred Compensation Plan, dated December 18, 2002 (Exhibit 10(m)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2002)
[_]10(cc)-3	-	Amendment No. 2 to Amended and Restated Directors Deferred Compensation Plan, dated December 4, 2003 (Exhibit 10(q)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2003)
*[_]10(cc)-4	-	Amendment No. 3 to Amended and Restated Directors Deferred Compensation Plan, dated as of January 1, 2005
[_]10(dd)	-	Trust Agreement, dated as of April 1, 2001, between PPL Corporation and Wachovia Bank, N.A. (as successor to First Union National Bank), as Trustee
[_]10(ee)	-	Amended and Restated Officers Deferred Compensation Plan, dated December 8, 2003 (Exhibit 10(r) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2003)
*[_]10(ee)-1	-	Amendment No. 1 to Amended and Restated Officers Deferred Compensation Plan, dated as of January 1, 2005
[_]10(ff)-1	-	Amended and Restated Supplemental Executive Retirement Plan, dated December 8, 2003 (Exhibit 10(s) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2003)
[_]10(ff)-2	-	Amendment No. 1 to Supplemental Executive Retirement Plan, dated December 16, 2004 (Exhibit 99.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated December 17, 2004)
*[_]10(ff)-3	-	Amendment No. 2 to Supplemental Executive Retirement Plan, dated as of January 1, 2005
[_]10(gg)-1	-	Incentive Compensation Plan, amended and restated effective January 1, 2003 (Exhibit 10(p) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2002)
*[_]10(gg)-2	-	Amendment No. 1 to said Incentive Compensation Plan, dated as of January 1, 2005
[_]10(gg)-3	-	Form of Stock Option Agreement for stock option awards under the Incentive Compensation Plan (Exhibit 10(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 1, 2006)
[_]10(gg)-4	-	Form of Restricted Stock Unit Agreement for restricted stock unit awards under the Incentive Compensation Plan (Exhibit 10(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 1, 2006)
[_]10(gg)-5	-	Form of Restricted Stock Unit Agreement for restricted stock unit awards under the Incentive Compensation Plan pursuant to PPL Corporation Cash Incentive Premium Exchange Program (Exhibit 10(c) to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 1, 2006)
[_]10(hh)	-	Incentive Compensation Plan for Key Employees, amended and restated effective January 1, 2003 (Schedule B to Proxy Statement of PPL Corporation, dated March 17, 2003)
*[_]10(hh)-1	-	Amendment No. 1 to said Incentive Compensation Plan for Key Employees, dated as of January 1, 2005
[_]10(ii)	-	Short-term Incentive Plan (Schedule B to Proxy Statement of PPL Corporation, dated March 12, 1999)
[_]10(jj)	-	Form of Severance Agreement entered into between PPL Corporation and the Executive Officers listed in this Form 10-K Report (Exhibit 10(r) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2001)
[_]10(kk)	-	Form for Retention Agreement entered into between PPL Corporation and Messrs. Champagne, Farr, Miller and Petersen (Exhibit 10(s) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2001)
[_]10(ll)	-	Agreement dated January 15, 2003 between PPL Corporation and Mr. Miller regarding Supplemental Pension Benefits (Exhibit 10(u) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2002)
[_]10(mm)	-	Compensation arrangement changes for PPL Corporation non-employee Directors and 2005 compensation matters regarding PPL Corporation Named Executive Officers (Exhibit 10(gg) to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 2004)
[_]10(nn)	-	2005 compensation matters regarding PPL Electric Utilities Corporation Named Executive Officers (Exhibit 10(hh) to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2004)
[_]10(oo)	-	Establishment of 2005 annual performance goals and business criteria for incentive awards to PPL Corporation Named Executive Officers (PPL Corporation Form 8-K Report (File No. 1-11459) dated March 31, 2005)
[_]10(pp)	-	Establishment of 2005 annual performance goals and business criteria for incentive awards to PPL Electric Utilities Corporation Named Executive Officers (PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 31, 2005)
[_]10(qq)	-	Compensation arrangement changes regarding Mr. Miller (PPL Corporation Form 8-K Report (File No. 1-11459) dated July 27, 2005)
[_]10(rr)	-	Compensation arrangement changes regarding Mr. Farr (PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated July 27, 2005)
[_]10(ss)	-	Compensation arrangement changes regarding PPL Corporation non-employee Directors (PPL Corporation Form 8-K Report (File No. 1-11459) dated January 3, 2006)
[_]10(tt)	-	2006 compensation matters regarding PPL Corporation Named Executive Officers (PPL Corporation Form 8-K Report (File No. 1-11459) dated February 1, 2006)
[_]10(uu)	-	Restricted Stock Unit Agreement with Mr. Hecht for restricted stock unit award under PPL Corporation's incentive Compensation Plan (Exhibit 10(d) to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 1, 2006)
[_]10(vv)	-	2006 compensation matters regarding PPL Electric Utilities Corporation Named Executive Officers (PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated February 1, 2006)
*12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*12(b)	-	PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*12(c)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*21(a)	-	Subsidiaries of PPL Corporation
*21(b)	-	Subsidiaries of PPL Electric Utilities Corporation
*23(a)	-	Consent of PricewaterhouseCoopers LLP - PPL Corporation
*23(b)	-	Consent of PricewaterhouseCoopers LLP - PPL Energy Supply, LLC
*24	-	Power of Attorney
*31(a)	-	Certificate of PPL's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(b)	-	Certificate of PPL's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(c)	-	Certificate of PPL Energy Supply's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(d)	-	Certificate of PPL Energy Supply's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(e)	-	Certificate of PPL Electric's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(f)	-	Certificate of PPL Electric's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32(a)	-	Certificate of PPL's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(b)	-	Certificate of PPL's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(c)	-	Certificate of PPL Energy Supply's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(d)	-	Certificate of PPL Energy Supply's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(e)	-	Certificate of PPL Electric's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(f)	-	Certificate of PPL Electric's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*99(a)	-	PPL Corporate Organization (Selected Subsidiaries)
*99(b)	-	Examples of Wholesale Energy, Fuel and Emission Allowance Price Fluctuations - 2000 through 2005

EX-4.B12

Exhibit 4(b)-12

PPL ELECTRIC UTILITIES CORPORATION

(formerly PP&L, Inc. and Pennsylvania Power & Light Company)

TO

DEUTSCHE BANK TRUST COMPANY AMERICAS

(formerly Bankers Trust Company,

successor to Morgan Guaranty Trust Company of New York,

formerly Guaranty Trust Company of New York)

As Trustee under PPL Electric Utilities Corporation’s

Mortgage and Deed of Trust,

Dated as of October 1, 1945

_____________________________

Seventy-fourth Supplemental Indenture

Providing among other things for

Amendments to Mortgage

_____________________________

Dated as of June 1, 2005

Seventy-fourth Supplemental Indenture

SEVENTY-FOURTH SUPPLEMENTAL INDENTURE, dated as of the 1^stday of June, 2005 made and entered into by and between PPL ELECTRIC UTILITIES CORPORATION (formerly PP&L, Inc. and Pennsylvania Power & Light Company), a corporation of the Commonwealth of Pennsylvania, whose address is Two North Ninth Street, Allentown, Pennsylvania 18101 (hereinafter sometimes called the Company), and DEUTSCHE BANK TRUST COMPANY AMERICAS (formerly Bankers Trust Company), a corporation of the State of New York, whose address is 60 Wall Street, New York, New York 10005 (hereinafter sometimes called the Trustee), as Trustee under the Mortgage and Deed of Trust, dated as of October 1, 1945 (hereinafter called the Mortgage and, together with any indentures supplemental thereto, hereinafter called the Indenture), which Mortgage was executed and delivered by Pennsylvania Power & Light Company to secure the payment of bonds issued or to be issued under and in accordance with the provisions of the Mortgage, reference to which said Mortgage is hereby made, this instrument (hereinafter called the Seventy-fourth Supplemental Indenture) being supplemental thereto.

WHEREAS, said Mortgage was or is to be recorded in various Counties in the Commonwealth of Pennsylvania, which Counties include or will include all Counties in which this Seventy-fourth Supplemental Indenture is to be recorded; and

WHEREAS, by amendment to its Articles of Incorporation filed in the Office of the Secretary of State of Pennsylvania on September 12, 1997, the Company changed its name to PP&L, Inc.; and

WHEREAS, by an amendment to its Articles of Incorporation filed with the Office of the Secretary of State of Pennsylvania on February 14, 2001, the Company changed its name to PPL Electric Utilities Corporation; and

WHEREAS, an instrument, dated August 5, 1994, was executed by the Company appointing Bankers Trust Company as Trustee in succession to said Morgan Guaranty Trust Company of New York (resigned) under the Indenture, and by Bankers Trust Company accepting said appointment, which instrument was or is to be recorded in various Counties in the Commonwealth of Pennsylvania; and

WHEREAS, by an amendment to its Articles of Incorporation filed in the office of the Secretary of State of New York, effective April 15, 2002, the Trustee changed its name to Deutsche Bank Trust Company Americas; and

WHEREAS, by the Mortgage the Company covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Indenture and to make subject to the lien of the Indenture any property thereafter acquired and intended to be subject to the lien thereof; and

WHEREAS, the Company executed and delivered as supplements to the Mortgage, the following supplemental indentures:

Designation	Dated as of
First Supplemental Indenture	July 1, 1947
Second Supplemental Indenture	December 1, 1948
Third Supplemental Indenture	February 1, 1950
Fourth Supplemental Indenture	March 1, 1953
Fifth Supplemental Indenture	August 1, 1955
Sixth Supplemental Indenture	December 1, 1961
Seventh Supplemental Indenture	March 1, 1964
Eighth Supplemental Indenture	June 1, 1966
Ninth Supplemental Indenture	November 1, 1967
Tenth Supplemental Indenture	December 1, 1967
Eleventh Supplemental Indenture	January 1, 1969
Twelfth Supplemental Indenture	June 1, 1969
Thirteenth Supplemental Indenture	March 1, 1970
Fourteenth Supplemental Indenture	February 1, 1971
Fifteenth Supplemental Indenture	February 1, 1972
Sixteenth Supplemental Indenture	January 1, 1973
Seventeenth Supplemental Indenture	May 1, 1973
Eighteenth Supplemental Indenture	April 1, 1974
Nineteenth Supplemental Indenture	October 1, 1974
Twentieth Supplemental Indenture	May 1, 1975
Twenty-first Supplemental Indenture	November 1, 1975
Twenty-second Supplemental Indenture	December 1, 1976
Twenty-third Supplemental Indenture	December 1, 1977
Twenty-fourth Supplemental Indenture	April 1, 1979
Twenty-fifth Supplemental Indenture	April 1, 1980
Twenty-sixth Supplemental Indenture	June 1, 1980
Twenty-seventh Supplemental Indenture	June 1, 1980
Twenty-eighth Supplemental Indenture	December 1, 1980
Twenty-ninth Supplemental Indenture	February 1, 1981
Thirtieth Supplemental Indenture	February 1, 1981
Thirty-first Supplemental Indenture	September 1, 1981
Thirty-second Supplemental Indenture	April 1, 1982
Thirty-third Supplemental Indenture	August 1, 1982
Thirty-fourth Supplemental Indenture	October 1, 1982
Thirty-fifth Supplemental Indenture	November 1, 1982
Thirty-sixth Supplemental Indenture	February 1, 1983
Thirty-seventh Supplemental Indenture	November 1, 1983
Thirty-eighth Supplemental Indenture	March 1, 1984
Thirty-ninth Supplemental Indenture	April 1, 1984
Fortieth Supplemental Indenture	August 15, 1984
Forty-first Supplemental Indenture	December 1, 1984
Forty-second Supplemental Indenture	June 15, 1985
Forty-third Supplemental Indenture	October 1, 1985
Forty-fourth Supplemental Indenture	January 1, 1986
Forty-fifth Supplemental Indenture	February 1, 1986
Forty-sixth Supplemental Indenture	April 1, 1986
Forty-seventh Supplemental Indenture	October 1, 1986
Forty-eighth Supplemental Indenture	March 1, 1988
Forty-ninth Supplemental Indenture	June 1, 1988
Fiftieth Supplemental Indenture	January 1, 1989
Fifty-first Supplemental Indenture	October 1, 1989
Fifty-second Supplemental Indenture	July 1, 1991
Fifty-third Supplemental Indenture	May 1, 1992
Fifty-fourth Supplemental Indenture	November 1, 1992
Fifty-fifth Supplemental Indenture	February 1, 1993
Fifty-sixth Supplemental Indenture	April 1, 1993
Fifty-seventh Supplemental Indenture	June 1, 1993
Fifty-eighth Supplemental Indenture	October 1, 1993
Fifty-ninth Supplemental Indenture	February 15, 1994
Sixtieth Supplemental Indenture	March 1, 1994
Sixty-first Supplemental Indenture	March 15, 1994
Sixty-second Supplemental Indenture	September 1, 1994
Sixty-third Supplemental Indenture	October 1, 1994
Sixty-fourth Supplemental Indenture	August 1, 1995
Sixty-fifth Supplemental Indenture	April 1, 1997
Sixty-sixth Supplemental Indenture	May 1, 1998
Sixty-seventh Supplemental Indenture	June 1, 1999
Sixty-eighth Supplemental Indenture Sixty-ninth Supplemental Indenture Seventieth Supplemental Indenture Seventy-first Supplemental Indenture Seventy-second Supplemental Indenture Seventy-third Supplemental Indenture	August 1, 2001 January 1, 2002 February 1, 2003 May 1, 2003 February 1, 2005 May 1, 2005

which supplemental indentures were or are to be recorded in various Counties in the Commonwealth of Pennsylvania; and

WHEREAS, the Company executed and delivered its Supplemental Indenture, dated July 1, 1954, creating a security interest in certain personal property of the Company, pursuant to the provisions of the Pennsylvania Uniform Commercial Code, as a supplement to the Mortgage, which Supplemental Indenture was filed in the Office of the Secretary of the Commonwealth of Pennsylvania on July 1, 1954, and all subsequent supplemental indentures were or are to be so filed; and

WHEREAS, in addition to the property described in the Mortgage, as heretofore supplemented, the Company has acquired certain other property, rights and interests in property; and

WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, as supplemented, the following series of First Mortgage Bonds:

Series	Principal Amount Issued	Principal Amount Outstanding
3% Series due 1975	$93,000,000	None
2-3/4% Series due 1977	20,000,000	None
3-1/4% Series due 1978	10,000,000	None
2-3/4% Series due 1980	37,000,000	None
3-1/2% Series due 1983	25,000,000	None
3-3/8% Series due 1985	25,000,000	None
4-5/8% Series due 1991	30,000,000	None
4-5/8% Series due 1994	30,000,000	None
5-5/8% Series due 1996	30,000,000	None
6-3/4% Series due 1997	30,000,000	None
6-1/2% Series due 1972	15,000,000	None
7% Series due 1999	40,000,000	None
8-1/8% Series due June 1, 1999	40,000,000	None
9% Series due 2000	50,000,000	None
7-1/4% Series due 2001	60,000,000	None
7-5/8% Series due 2002	75,000,000	None
7-1/2% Series due 2003	80,000,000	None
Pollution Control Series A	28,000,000	None
9-1/4% Series due 2004	80,000,000	None
10-1/8% Series due 1982	100,000,000	None
9-3/4% Series due 2005	125,000,000	None
9-3/4% Series due November 1, 2005	100,000,000	None
8-1/4% Series due 2006	150,000,000	None
8-1/2% Series due 2007	100,000,000	None
9-7/8% Series due 1983-1985	100,000,000	None
15-5/8% Series due 2010	100,000,000	None
11-3/4% Series due 1984	30,000,000	None
Pollution Control Series B	70,000,000	None
Pollution Control Series C	20,000,000	None
14% Series due December 1, 1990	125,000,000	None
15% Series due 1984-1986	50,000,000	None
14-3/4% Series A due 1986	30,000,000	None
14-3/4% Series B due 1986	20,000,000	None
16-1/2% Series due 1987-1991	52,000,000	None
16-1/8% Series due 1992	100,000,000	None
16-1/2% Series due 1986-1990	92,500,000	None
13-1/4% Series due 2012	100,000,000	None
Pollution Control Series D	70,000,000	None
12-1/8% Series due 1989-1993	50,000,000	None
13-1/8% Series due 2013	125,000,000	None
Pollution Control Series E	37,750,000	None
13-1/2% Series due 1994	125,000,000	None
Pollution Control Series F	115,500,000	None
12-3/4% Series due 2014	125,000,000	None
Pollution Control Series G	55,000,000	None
12% Series due 2015	125,000,000	None
10-7/8% Series due 2016	125,000,000	None
9-5/8% Series due 1996	125,000,000	None
9% Series due 2016	125,000,000	None
9-1/2% Series due 2016	125,000,000	None
9-1/4% Series due 1998	125,000,000	None
9-5/8% Series due 1998	125,000,000	None
10% Series due 2019	125,000,000	None
9-1/4% Series due 2019	250,000,000	None
9-3/8% Series due 2021	150,000,000	None
7-3/4% Series due 2002	150,000,000	None
8-1/2% Series due 2022	150,000,000	None
Pollution Control Series H	90,000,000	None
6-7/8% Series due 2003	100,000,000	None
7-7/8% Series due 2023	200,000,000	None
5-1/2% Series due 1998	150,000,000	None
6-1/2% Series due 2005	125,000,000	None
6% Series due 2000	125,000,000	None
6-3/4% Series due 2023	150,000,000	None
Pollution Control Series I	53,250,000	None
6.55% Series due 2006	150,000,000	146,000,000
7.30% Series due 2024	150,000,000	None
6-7/8% Series due 2004	150,000,000	None
7-3/8% Series due 2014	100,000,000	10,290,000
Pollution Control Series J	115,500,000	None
7.70% Series due 2009	200,000,000	325,000
Pollution Control Series K	55,000,000	None
Short-Term Series A	800,000,000	None
6 1/8% REset Put Securities Series due 2006	200,000,000	None
Short-Term Series B	600,000,000	None
5-7/8% Series due August 15, 2007	300,000,000	254,866,000
6-1/4% Series due August 15, 2009	500,000,000	485,785,000
3.125% Pollution Control Series due 2008	90,000,000	90,000,000
4.30% Collateral Series due 2013	100,000,000	100,000,000
4.70% Pollution Control Series due 2029	115,500,000	115,500,000
4.75% Pollution Control Series due 2027	108,250,000	108,250,000

which bonds are also sometimes called bonds of the First through Eighty-first Series, respectively; and

WHEREAS, in Section 2 of the Seventy-third Supplemental Indenture, Section 2 of the Seventy-second Supplemental Indenture, Section 2 of the Seventy-first Supplemental Indenture, Section 2 of the Seventieth Supplemental Indenture, Section 3 of the Sixty-eighth Supplemental Indenture, Section 3 of the Sixty-fourth Supplemental Indenture, Section 4 of the Sixty-third Supplemental Indenture, Section 3 of the Sixty-second Supplemental Indenture, Section 4 of the Sixty-first Supplemental Indenture, and Section 3 of the Fifty-ninth Supplemental Indenture, the Company has reserved the right to make such amendments to the Mortgage, as supplemented, as shall be necessary to delete subsection (I) of Section 39 of the Mortgage, and in such sections each holder of bonds now outstanding has consented to such deletion without any other or further action by any holder of such bonds.

The Company further covenants and agrees to and with the Trustee and its successors in said trust under the Indenture, as follows:

ARTICLE I.

Amendments

SECTION 1.Deletion of Maintenance and Replacement Fund Covenant. Pursuant to the rights reserved in the Supplemental Indentures referenced in the last recital above (pursuant to which all of the currently outstanding First Mortgage Bonds were issued), the Company hereby amends the Mortgage to delete subsection (I) of Section 39 of the Mortgage.

ARTICLE II.

Miscellaneous Provisions

SECTION 2.The terms defined in the Mortgage, as heretofore supplemented, shall, for all purposes of this Seventy-fourth Supplemental Indenture, have the meanings specified in the Mortgage, as heretofore supplemented.

SECTION 3.Whenever in this Seventy-fourth Supplemental Indenture either of the parties hereto is named or referred to, this shall, subject to the provisions of Articles XVI and XVII of the Mortgage, be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Seventy-fourth Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustee shall, subject as aforesaid, bind and inure to the respective benefits of the respective successors and assigns of such parties, whether so expressed or not.

SECTION 4.The Trustee hereby accepts the trusts herein declared, provided, created or supplemented and agrees to perform the same upon the terms and conditions herein and in the Mortgage, as heretofore supplemented, set forth and upon the following terms and conditions:

The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Seventy-fourth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. Each and every term and condition contained in Article XVII of the Mortgage, as heretofore amended by said First through Seventy-third Supplemental Indentures, shall apply to and form part of this Seventy-fourth Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Seventy-fourth Supplemental Indenture.

SECTION 5.Nothing in this Seventy-fourth Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Indenture, any right, remedy or claim under or by reason of this Seventy-fourth Supplemental Indenture or by any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Seventy-fourth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and coupons Outstanding under the Indenture.

SECTION 6.This Seventy-fourth Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

PPL ELECTRIC UTILITIES CORPORATION does hereby constitute and appoint JAMES E. ABEL, Treasurer of PPL ELECTRIC UTILITIES CORPORATION, to be its attorney for it, and in its name and as and for its corporate act and deed to acknowledge this Seventy-fourth Supplemental Indenture before any person having authority by the laws of the Commonwealth of Pennsylvania to take such acknowledgment, to the intent that the same may be duly recorded, and DEUTSCHE BANK TRUST COMPANY AMERICAS does hereby constitute and appoint Susan Johnson, a Vice President of DEUTSCHE BANK TRUST COMPANY AMERICAS, to be its attorney for it, and in its name and as and for its corporate act and deed to acknowledge this Seventy-fourth Supplemental Indenture before any person having authority by the laws of the Commonwealth of Pennsylvania to take such acknowledgment, to the intent that the same may be duly recorded.

IN WITNESS WHEREOF, PPL ELECTRIC UTILITIES CORPORATION has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by its President, one of its Vice Presidents or its Treasurer, and its corporate seal to be attested by its Secretary or one of its Assistant Secretaries for and in its behalf, in the City of Allentown, Pennsylvania, and DEUTSCHE BANK TRUST COMPANY AMERICAS has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Principals, Vice Presidents, Trust Officers or Associates, and its corporate seal to be attested by one of its Vice Presidents, Assistant Vice Presidents, Trust Officers or Associates, in The City of New York, as of the day and year first above written.

PPL ELECTRIC UTILITIES CORPORATION

By:  

Name:  James E. Abel

Title:  Treasurer

Attest:

Assistant Secretary

DEUTSCHE BANK TRUST COMPANY AMERICAS

By:

Name:  Susan Johnson

Title:    Vice President

Attest:

Rodney Gaughan

Assistant Vice President

COMMONWEALTH OF PENNSYLVANIA	)
	)    ss.:
COUNTY OF LEHIGH	)

On this ____ day of June, 2005, before me, a notary public, the undersigned officer, personally appeared JAMES E. ABEL, who acknowledged himself to be the Treasurer of PPL ELECTRIC UTILITIES CORPORATION, a corporation and that he, as such Treasurer, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as Treasurer.

In witness whereof, I hereunto set my hand and official seal.

Notary Public

STATE OF NEW YORK	)
	)    ss.:
COUNTY OF NEW YORK	)

On this ____ day of June, 2005, before me, a notary public, the undersigned officer, personally appeared SUSAN JOHNSON, who acknowledged herself to be a Vice President of DEUTSCHE BANK TRUST COMPANY AMERICAS, a corporation and that she, as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by herself as Vice President.

In witness whereof, I hereunto set my hand and official seal.

Notary Public

Deutsche Bank Trust Company Americas hereby certifies that its precise name and address as Trustee hereunder are:

DEUTSCHE BANK TRUST COMPANY AMERICAS

Trust & Securities Services

60 Wall Street, MS NYC60-2710

New York, New York 10005

DEUTSCHE BANK TRUST COMPANY AMERICAS

By:  

Name:  Susan Johnson

Title:    Vice President

EX-10.CC4

Exhibit 10(cc)-4

AMENDMENT NO. 3

TO

PPL CORPORATION

DIRECTORS DEFERRED COMPENSATION PLAN

WHEREAS, PPL Services Corporation ("PPL") assumed sponsorship of the PPL Corporation Directors Deferred Compensation Plan ("Plan") effective July 1, 2000; and

WHEREAS, the Plan was most recently amended and restated effective February 14, 2000, and subsequently amended by Amendments No. 1 and 2; and

WHEREAS, PPL desires to further amend the Plan and the PPL Corporation Employee Benefit Plan Board has authorized the following changes;

NOW, THEREFORE, the Plan is hereby amended as follows:

I. Effective January 1, 2005, Paragraph 8 is amended to read:

8.  Payment of Accounts. 

(a)	The Total Amount Payable shall be payable at the election of the Participant within thirty (30) days after the later of the following events:
	(i)	Participant ceases serving on the Board of Directors; or
	(ii)	the age elected by the Participant, provided such age is not greater than 75.

Such election must be made before the applicable Cash Compensation is deferred, shall apply to the payment of both the Cash Account and the Stock Account, and may not be changed once the election has been made. In such election the Participant may defer commencement of distribution until January of the next calendar year after such event occurs. If the Participant has made no election, payments will commence within thirty (30) days after a Participant ceases to be a Director. No election under this paragraph 8(a) or under paragraph 8(b)(i) shall be effective unless the time of payment under paragraph 8(a) is at least 12 months after the date the election is filed.

In accordance with transitional rules issued by the IRS under Internal Revenue Code Section 409A, all Participants shall be permitted to make a change in previous payment elections prior to December 31, 2006. If a Participant fails to make a change in prior payment elections by December 31, 2006, the prior elections for payment of the Cash Account shall control and any prior elections for the payment of the Stock Account shall be void if different from Cash Account payment elections.

(b)	(i)	The Total Amount Payable shall be paid to the Participant in a single sum or, if elected by the Participant, in annual installments up to a maximum of ten (10) years. Such election must be made before the applicable Cash Compensation is deferred, shall apply to the payment of both the Cash Account and the Stock Account, and may not be changed once it has been made. Any election made less than 12 months prior to the date that the total Amount Payable is to be paid under said election shall be void, and the prior election closest in time to the void election shall govern in its stead. If there is no prior election, a single-sum shall be paid.
	(ii)	Payments in respect of the Stock Account shall be made in Common Stock and payments in respect of the Cash Account shall be made in cash. A Participant shall receive a number of shares of Common Stock equal to the number of Stock Units in his Stock Account.
	(iii)	All annual installments shall, except for the final payment, be not less than $5,000. To the extent necessary, the number of annual installments may be reduced to ensure that annual installments are at least $5,000.
	(iv)	The amount of each annual installment shall be determined by dividing the Total Amount Payable less any payments already made to Participant by the remaining number of annual installments to be made (i.e., a 10-year payout shall pay 1/10 of the Total Amount Payable as the first installment, 1/9 as the second annual installment, etc.).
(c)	(i)	If Participant dies while a Director, or before all installments have been paid under paragraph 8(b), pay-ments shall be made within 30 days after Participant's death to one beneficiary designated by Participant in writing in such form and subject to such condition as determined necessary and approved by EBPB. Participant shall have a continuing power to designate a new beneficiary in the event of his death at any time prior to his death by written instrument delivered by Participant to the EBPB without the consent or approval of any person theretofore named as his beneficiary. In the event the designated beneficiary does not survive Participant, payment will be made to an alternate beneficiary designated in writing by Participant. If no such designation is in effect at the time of death of Participant, or if no person so designated shall survive Participant, payment shall be made to Participant's estate.
	(ii)	Payments will be made to Participant's designated beneficiary or Participant's estate in a single sum.
(d)		As long as there is a balance in Participant's Cash Account, the balance shall be credited with interest pursuant to Paragraph 7.2(b). For any installment or other payment from the Cash Account, interest shall accrue up to the last day of the month prior to that payment to Participant or his estate. As long as there is a balance in Participant's Stock Account, the remaining balance shall be credited with dividend amounts pursuant to Paragraph 7.1(c).
(e)		The EBPB may determine, in its sole discretion, that the Total Amount Payable shall be paid to Participant or his estate in different amounts or at different times than provided under this Plan if, in the opinion of the EBPB, it would be necessary as the result of an unforeseeable emergency which results in a severe financial hardship to the Participant resulting from extraordinary and unforeseeable circumstances that are beyond the control of the Participant, in which case payment shall be made only to the extent necessary to alleviate the Participant's hardship, taking into account reasonably anticipated taxes on the distribution but also taking into account reimbursement or compensation, by insurance or otherwise, and possible liquidation of assets, to the extent the liquidation of assets would not itself cause severe financial hardship. Any determination by EBPB to change the amount or timing of a Participant's distribution shall not, however, result in the Participant receiving distributions in lesser amounts or over a longer period of time.
II.		Except as provided for in this Amendment No. 3, all other provisions of the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Amendment No. 3 is executed this _____ day of February, 2006.

PPL SERVICES CORPORATION

By: _____________________________

Ronald Schwarz

Vice President-Human Resources

EX-10.EE1

Exhibit 10(ee)-1

AMENDMENT NO. 1

TO

PPL OFFICERS DEFERRED COMPENSATION PLAN

WHEREAS, PPL Services Corporation ("PPL") has adopted the PPL Officers Deferred Compensation Plan ("Plan") effective July 1, 2000; and

WHEREAS, the Plan was amended and restated effective November 1, 2003; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.  Effective January 1, 2005, the following sections of Articles 4 and 6 are amended to read:

4.4    Any election to defer or change the amount of Cash Compensation and/or Cash Awards to be deferred for any subsequent calendar year after the first calendar year of eligibility may be made by Participant not later than June 30 of the year preceding the year Cash Compensation is earned and Cash Awards are granted, with the exception of the deferral of salary, by filing with the CLC or its designee an election form; provided, however, that an election once made will be presumed to continue unless changed or revoked by Participant. Deferral of salary or changes in salary deferral elections may be made not later than December 31 of the year preceding the year salary would otherwise be paid.

4.5    With the exception of an election to defer salary, Participant may revoke his election to defer Cash Compensation and/or Cash Awards at any time by so notifying the CLC or its designee in writing not later than June 30 of the year preceding the year for which the revocation will be effective. For any subsequent calendar year, Participant may resume his election to defer if he files with the CLC an election form not later than June 30 of the year preceding such subsequent calendar year. An election to defer salary may be revoked, or an election may be resumed, not later than December 31 of the year preceding the year salary would otherwise be paid.

6.1    The Total Amount Payable shall be payable to Participant:

(a)     When the Participant's employment with PPL terminates for any reason, including retirement, payments will commence immediately for the amount of Participant's Account as of December 31, 2004, plus applicable earnings under Section 5.4 to the date of payment, but, for the amount of Participant's Account attributable to deferrals after December 3, 2004, and applicable earnings under Section 5.4, payments will commence six calendar months after cessation of employment; or

(b)      if Participant, while employed by PPL or an Affiliated Company, is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the participant's employer; payments will commence within thirty (30) days of such event or in any other form, as elected by Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred.

6.2         (a)       The Total Amount Payable shall be paid to Participant in a single sum or in annual installments up to a maximum of fifteen (15) years, or other forms approved by the CLC as elected by the Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred. Any election made less than 12 months prior to the date that the Total Amount Payable is to be paid under said election shall be void, and the prior election closest in time to the void election shall govern in its stead. If there is no prior election, a single-sum shall be paid.

(b)      All annual installments shall, except for the final payment, be not less than $5,000. To the extent necessary, the number of annual installments may be reduced to insure that annual installments are at least $5,000.

(c)      The amount of each annual installment shall be determined by dividing the Total Amount Payable less any payments already made to Participant by the remaining number of annual installments to be made (i.e., a 10 year payout shall pay 1/10 of the Total Amount Payable as the first installment, 1/9 as the second annual installment, etc.).

6.5    The CLC may determine, in its sole discretion, that the Total Amount Payable shall be paid to a Participant or his beneficiary in different amounts or at different times than provided under this Plan if, in the opinion of the CLC, it would be necessary as the result of an unforeseeable emergency which results in a severe financial hardship to the Participant, which arises from extraordinary and unforeseeable circumstances that are a result of events beyond the control of the Participant, in which case payment shall be made only to the extent necessary to alleviate the Participant's hardship. Amounts distributed must not exceed the amount necessary as determined by including taxes payable on a distribution from this Plan, but reduced by compensation available from insurance or otherwise, or by liquidation of assets if such liquidation does not itself cause severe financial hardship.

II.    Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect.

         IN WITNESS WHEREOF, this Amendment No. 1 is executed this _____ day of _____________________, 2006.

PPL SERVICES CORPORATION

By:_______________________________

Ronald Schwarz

Vice President - Human Resources

EX-10.FF3

Exhibit 10(ff)-3

AMENDMENT NO. 2

TO

PPL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

WHEREAS, PPL Services Corporation ("PPL") adopted the PPL Supplemental Executive Retirement Plan (the "Plan"), effective July 1, 2000, for certain of its employees; and

WHEREAS, the Plan was amended and restated effective July 1, 2003, and subsequently amended by Amendment No. 1; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.    Effective January 1, 2005 the following sections of Articles 5 and 6 are amended to read:

5.       Time of Payment.

A Participant who is eligible for benefits under Article 3 shall start receiving Benefit payments on the date set forth below.

(a)      A Retiree shall receive benefits accrued after December 31, 2004 on the first day of the calendar month that follows the sixth calendar month after his Termination of Employment. The first payment shall include a back payment of six monthly annuity payments, if an annuity form of payment was elected, plus interest from the Termination of Employment, calculated using the current interest rate paid by the Blended Interest Rate Fund of the PPL Deferred Savings Plan. For benefits accrued as of December 31, 2004, a Retiree shall receive benefits as soon as administratively practicable following his Termination of Employment.

(b)     A Terminated Vested Participant shall receive benefits as follows:

(1)    If he has elected, and the CLC has approved, a single sum form of benefit under Article 6, such single sum calculated as of December 31, 2004 shall be paid as soon as administratively practicable following his Termination of Employment, but the single sum representing the benefit accrued after December 31, 2004 shall be paid the first day of the calendar month that follows the sixth calendar month after his Termination of Employment, plus interest calculated from the Termination of Employment using the current interest rate paid by the Blended Interest Rate Fund of the PPL Deferred Savings Plan.

(2)    If he has elected an annuity form of benefit under Article 6, such annuity form shall start to be paid as soon as administratively practicable following his attainment of age 55, for the benefit accrued to December 31, 2004 but, for the benefit accrued after December 31, 2004, not sooner than six calendar months after his Termination of Employment, plus interest calculated from the Termination of Employment to the date payments commence, calculated using the current interest rate paid by the Blended Interest Rate Fund of the PPL Deferred Savings Plan.

6.       Method of Payment.

(c)     For benefits accrued as of December 31, 2004, a Participant may elect a form of benefit hereunder by filing written notice with the CLC at anytime at least 12 months prior to the first day of the calendar month for which a Benefit is first payable to Participant. For benefits accrued as of December 31, 2004, the CLC may waive this requirement in its sole discretion. If a Participant described in Section (a) of this Article fails to elect a form of benefit within the prescribed time period, for benefits accrued as of December 31, 2004, the benefit shall be paid in the form in which such Participant’s Retirement Plan benefits are paid. For benefits accrued after December 31, 2004, a Participant must elect a form of benefit by filing written notice with the CLC within 30 days after he first becomes eligible under this Plan. If a Participant described in Section (a) or (b) of this Article fails to elect a form of benefit within this time period, for benefits accrued after December 31, 2004, the benefit shall be paid in the form of a single-life annuity if the Participant does not have a spouse on the date of benefit commencement and in the form of a 50% joint and survivor annuity with Participant's spouse as the beneficiary if the Participant has a spouse on the date of benefit commencement.

In accordance with transitional rules issued by the IRS under Internal Revenue Code Section 409A, all Participants shall be permitted to make a change in previous payment elections prior to December 31, 2006. Participants shall be solicited with new benefit election forms which shall take effect as of the date of such elections, and as of that date shall supersede all prior elections. Elections shall be separate for benefits accrued to December 31, 2004 ("grandfathered SERP benefits") and benefits accrued after December 31, 2004 ("non-grandfathered SERP benefits"). Only grandfathered SERP benefits may be paid in whatever form of benefit is later elected under the Retirement Plan. Non-grandfathered SERP benefits must be subject to the form of benefit elected pursuant to the terms of the plan, without regard to any later Retirement Plan election. The failure to make a new benefit election by December 31, 2006 shall cause any prior election to remain in place and to control the payment of the grandfathered SERP benefit. The non-grandfathered SERP benefit shall be governed by the above provisions for failure to elect a form of benefit for benefits accrued after December 31, 2004, if no new benefit election is made by December 31, 2006. Any election of form of benefit shall not be effective until 12 months after the election is made, and any change in the election of form of benefit shall require a five-year delay in the payment or commencement of payments under such changed election of form of benefit.

II.       Except as provided for in this Amendment No. 2, all other provisions of the Plan shall remain in full force and effect.

          IN WITNESS WHEREOF, this Amendment No. 2 is executed this ____ day of _________________________, 2006.

PPL SERVICES CORPORATION

By:______________________________

Ronald Schwarz

Vice President-Human Resources

EX-10.GG2

Exhibit 10(gg)-2

AMENDMENT NO. 1

TO

PPL CORPORATION

INCENTIVE COMPENSATION PLAN

WHEREAS, PPL Corporation ("PPL") has adopted the PPL Corporation Incentive Compensation Plan ("Plan") effective January 1, 1987; and

WHEREAS, the Plan was amended and restated effective January 1, 2003; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.    Effective January 1, 2005, Section 7 is amended to read:

SECTION 7.  RESTRICTED STOCK.

B.    Restriction Period.  At the time a Restricted Stock or Restricted Stock Units Award is granted, the Committee shall establish a Restriction Period applicable to such Award which shall be not less than three years. Each Restricted Stock or Restricted Stock Units Award may have a different Restriction Period. All Restricted Stock Units granted after December 31, 2004 shall have a mandatory Restriction Period, if the Restriction Period has not lapsed as of the day prior to a termination of employment, of six calendar months from the day of termination of employment.

      Notwithstanding the other provisions of this Section 7: (i) in the event of a Change in Control, the Restriction Periods on all Restricted Stock Awards previously granted shall lapse and in the event of a "change in ownership or effective control" as defined by Treasury Regulations under Code Section 409A(a)(2)(A)(v), the Restriction Periods on all Restricted Stock Units shall lapse and; (ii) apart from a Change in Control, the Committee is also authorized, in its sole discretion to accelerate the time at which any or all of the restrictions on all or any part of a Restricted Stock Award shall lapse or to remove any or all of such restrictions whenever the Committee may decide that changes in tax or other laws or other circumstances arising after the granting of a Restricted Stock Award make such action appropriate; provided, however, that no acceleration or removal of restrictions pursuant to this clause (ii) shall result in payout of Common Stock to the Partici-pant less than six months after the Date of Grant, except pursuant to Section 7C below upon the Termination, death, Disability or Retirement of the Participant. The Committee may, in its discretion, authorize a deferral of stock award gains program which covers any Restricted Stock Units prior to the end of the Restriction Period or any unexercised Options. If the Committee does so authorize such a program, a Participant may defer receipt of Common Stock as permitted under that program. The program, if authorized, shall not permit a deferral of gain to be elected less than 12 months from the end of the Restriction Period, and shall impose a mandatory five-year delay on the receipt of Common Stock if deferral is elected.

                          C.    Forfeiture or Payout of Award.  During the Restriction Period, Restricted Stock or Restricted Stock Units Awards are subject to forfeiture or payout (i.e., removal of restric-tions) as indicated for each of the following events:

(a)  Termination - In this event, the Restricted Stock or Restricted Stock Units Award will be completely forfeited.

(b)  Retirement - In this event, Restricted Stock will be completely forfeited, but payout of the Restricted Stock Units Award will be made with complete removal of restrictions, but, for Restricted Stock Units granted after December 31, 2004, six calendar months after the last day of employment, if the Participant is eligible for and actually receives retirement benefits. If retirement or severance benefits are payable under a separation program or policy, the restrictions will be modified, but only in accordance with the express terms of such separation program or policy, and in the absence of such express terms there shall be a complete forfeiture of Restricted Stock or Restricted Stock Units.

(c)  Disability - In this event, payout of the Restricted Stock or Restricted Stock Units Award will be prorated as if the Participant had maintained active employment until age 65, but payout of the Restricted Stock Units granted after December 31, 2004 shall not be made until six calendar months after the last day of employment, unless the participant is "disabled" within the meaning of Code Section 409A(a)(2)(C).

(d)  Death - In this event, payout of the Restricted Stock or Restricted Stock Units Award will be proratedas if the Participant had maintained active employment until age 65, and will be made to the Beneficiary.

(e)  Conversions between Restricted Stock and Restricted Stock Units. The Committee has the discretion to convert with the consent of the Participant any or all Restricted Stock into Restricted Stock Units of equivalent value, and to convert any or all Restricted Stock Units into Restricted Stock of equivalent value, prior to the end of the applicable Restriction Period, but a conversion of Restricted Stock Units into Restricted Stock shall not be implemented less than 12 months prior to the end of the applicable Restriction Period, and the new Restriction Period shall lapse at least 5 years after the end of the old Restriction Period. Upon any such conversion, the Restricted Stock or Restricted Stock Units so converted will be completely forfeited, and the Participant shall have the rights with respect to Restricted Stock, Restricted Stock Units and Dividend Equivalents (if applicable) as may be specified in the conversion notice.

       In any instance where payout of a Restricted Stock or Restricted Stock Units Award is to be prorated, the Committee may choose in its sole discretion to provide the Participant (or the Participant's Beneficiary) with the entire Award rather than the prorated portion thereof.

       Notwithstanding anything in this Section 7C to the contrary, in the event that prior to any payout of Common Stock a Participant described in paragraph (c) violates any noncompete agreements between Participant and PPL Corporation or an Affiliated Company, his Restricted Stock or Restricted Stock Units Award, and any Dividend Equivalents, will be completely forfeited.

        Any Restricted Stock which is forfeited hereunder will be transferred to PPL Corporation.

D.    Section 83(b) Election.  As a condition of receiving Restricted Stock, a Participant shall agree in writing to notify PPL Corporation within 30 days of the Date of Grant whether or not the Participant has made an election under Section 83(b) of the Code to report the value of the Restricted Stock as income on the Date of Grant.

II.       Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect.

           IN WITNESS WHEREOF, this Amendment No. 1 is executed this ____ day of _____________, 2006.

PPL SERVICES CORPORATION

By:_______________________________

Ronald Schwarz

Vice President-Human Resources

EX-10.HH1

Exhibit 10(hh)-1

AMENDMENT NO. 1

TO

PPL CORPORATION INCENTIVE

COMPENSATION PLAN FOR KEY EMPLOYEES

WHEREAS, PPL Corporation, (“PPL”) has adopted the PPL Corporation Incentive Compensation Plan for Key Employees (“Plan”), effective January 1, 1997; and

WHEREAS, the Plan was amended and restated effective January 1, 2003; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.    Effective January 1, 2005, Section 7, paragraphs B and C are amended to read:

SECTION 7.  RESTRICTED STOCK, RESTRICTED STOCK UNITS.

B.    Restriction Period. At the time a Restricted Stock or Restricted Stock Units Award is granted, CLC shall establish a Restriction Period applicable to such Award which shall be not less than three years. Each Restricted Stock or Restricted Stock Units Award may have a different Restriction Period. All Restricted Stock Units granted after December 31, 2004 shall have a mandatory Restriction Period, if the Restriction Period has not lapsed as of the day prior to a termination of employment, of six calendar months from the day of termination of employment.

Notwithstanding the other provisions of this Section 7: (i) in the event of a Change in Control, the Restriction Periods on all Restricted Stock Awards previously granted shall lapse and in the event of a "Change in ownership or effective control" as defined by Treasury Regulations under Code Section 409A(a)(2)(A)(v), the Restriction Periods on all Restricted Stock Units shall lapse, and (ii) apart from a Change in Control, CLC is authorized in its sole discretion to accelerate the time at which any or all of the restrictions on all or any part of a Restricted Stock Award shall lapse or to remove any or all of such restrictions whenever CLC may decide that changes in tax or other laws or other circumstances arising after the granting of a Restricted Stock Award make such action appropriate. CLC may, in its discretion, authorize a deferral of stock award gains program which covers any Restricted Stock Units prior to the end of the Restriction Period or any unexercised Options. If CLC does so authorize such a program, a Participant may defer receipt of Common Stock as permitted under that program. The program if authorized, shall not permit a deferral of gain to be elected less than 12 months from the end of the Restriction Period, and shall impose a mandatory five-year delay on the receipt of Common Stock if deferral is elected.

C.    Forfeiture or Payout of Award. During the Restriction Period, Restricted Stock or Restricted Stock Units Awards are subject to forfeiture or payout (i.e., removal of restrictions) as indicated for each of the following events:

(i)  Termination - In this event, the Restricted Stock or Restricted Stock Units Award will be completely forfeited.

(ii)  Retirement - In this event, Restricted Stock will be completely forfeited, but payout of the Restricted Stock Units Award will be made with complete removal of restrictions, but, for Restricted Stock Units granted after December 31, 2004, six calendar months after the last day of employment, if the Participant is eligible for and actually receives retirement benefits. If retirement or severance benefits are payable under a separation program or policy, the restrictions will be modified, but only in accordance with the express terms of such separation program or policy, and in the absence of such express terms there shall be a complete forfeiture of Restricted Stock or Restricted Stock Units.

(iii)  Disability - In this event, payout of the Restricted Stock or Restricted Stock Units Award will be prorated as if the Participant had maintained active employment until age 65, but payout of the Restricted Stock Units granted after December 31, 2004 shall not be made until six calendar months after the last day of employment, unless the Participant is "disabled" within the meaning of Code Section 409A(a)(2)(C).

(iv)  Death - In this event, payout of the Restricted Stock or Restricted Stock Units Award will be prorated as if the Participant had maintained active employment until age 65, and will be made to the Beneficiary.

(v)  Conversions between Restricted Stock and Restricted Stock Units. CLC has the discretion to convert with the consent of the Participant any or all Restricted Stock into Restricted Stock Units of equivalent value, and to convert any or all Restricted Stock Units into Restricted Stock of equivalent value, prior to the end of the applicable Restriction Period, but a conversion of Restricted Stock Units into Restricted Stock shall not be implemented less than 12 months prior to the end of the applicable Restriction Period, and the new Restriction Period shall lapse at least 5 years after the end of the old Restriction Period. Upon any such conversion, the Restricted Stock or Restricted Stock Units so converted will be completely forfeited, and the Participant shall have the rights with respect to Restricted Stock, Restricted Stock Units and Dividend Equivalents (if applicable) as may be specified in the conversion notice.

Notwithstanding anything in this Section 7C to the contrary, in the event that prior to any payout of Common Stock a Participant described in this Section 7C violates any noncompete agreements between Participant and PPL Corporation or an Affiliated Company, his Restricted Stock or Restricted Stock Units Award, and any Dividend Equivalents, will be completely forfeited.

In any instance where payout of a Restricted Stock or Restricted Stock Units Award is to be prorated, CLC may choose in its sole discretion to provide the Participant (or the Participant's Beneficiary) with the entire Award rather than the prorated portion thereof.

Any Restricted Stock which is forfeited hereunder will be transferred to PPL Corporation.

               II.       Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Amendment No. 1 is executed this         day of February, 2006.

PPL Services Corporation

By: _______________________________

Ronald Schwarz

Vice President-Human Resources

EX-12.A

Exhibit 12(a)
PPL CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Millions of Dollars)
				2005			2004 (c)			2003 (c)			2002 (c)			2001
Fixed charges, as defined:
	Interest on long-term debt			$	465		$	491		$	417		$	486		$	351
	Interest on short-term debt and   other interest				29			20			25			70			44
	Amortization of debt discount,   expense and premium - net				23			8			41			25			17
	Estimated interest component of   operating rentals				32			34			45			38			36
	Preferred security distributions of   subsidiaries on a pre-tax basis				5			5			45			79			64
			Total fixed charges	$	554		$	558		$	573		$	698		$	512
Earnings, as defined:
	Net income (a)			$	744		$	721		$	740		$	444		$	167
	Preferred security dividend requirements				3			3			30			66			52
	Less undistributed income (loss) of   equity method investments				(14	)		(14	)		(19	)		(23	)		20
					761			738			789			533			199
Add:
	Income taxes				121			203			179			214			261
	Total fixed charges as above   (excluding capitalized interest   and preferred security distributions of   subsidiaries on a pre-tax basis)				540			547			521			598			419
			Total earnings	$	1,422		$	1,488		$	1,489		$	1,345		$	879
Ratio of earnings to fixed charges					2.6			2.7			2.6			1.9			1.7
Ratio of earnings to combined fixed   charges and preferred stock   dividends (b)					2.6			2.7			2.6			1.9			1.7
(a)		Net income excludes minority interest, loss from discontinued operations and the cumulative effects of changes in accounting principles.
(b)		PPL, the parent holding company, does not have any preferred stock outstanding; therefore, the ratio of earnings to combined fixed charges and preferred stock dividends is the same as the ratio of earnings to fixed charges.
(c)		Certain line items have been revised due to the May 2005 sale of the Sundance plant and the related reclassification of prior period operating losses to "Loss from Discontinued Operations."

EX-12.B

Exhibit 12(b)
PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
				2005			2004 (b)			2003 (b)			2002 (b)			2001
Fixed charges, as defined:
	Interest on long-term debt			$	259		$	255		$	149		$	169		$	36
	Interest on short-term debt and   other interest				26			23			25			52			33
	Amortization of debt discount,   expense and premium - net				7			(6	)		31			9			2
	Estimated interest component of   operating rentals				15			17			31			21			19
	Preferred security distributions of   subsidiaries on a pre-tax basis										8			12
			Total fixed charges	$	307		$	289		$	244		$	263		$	90
Earnings, as defined:
	Net income (a)			$	608		$	673		$	733		$	515		$	168
	Preferred security dividend requirement										5			8
	Less undistributed income (loss) of   equity method investments				(14	)		(13	)		(15	)		(22	)		20
					622			686			753			545			148
Add:
	Income taxes				75			207			194			270			274
	Total fixed charges as above   (excluding capitalized interest   and preferred security distributions of   subsidiaries on a pre-tax basis)				299			285			230			231			66
			Total earnings	$	996		$	1,178		$	1,177		$	1,046		$	488
Ratio of earnings to fixed charges					3.2			4.1			4.8			4.0			5.4
(a)		Net income excludes minority interest, loss from discontinued operations and the cumulative effects of changes in accounting principles.
(b)		Certain line items have been revised due to the May 2005 sale of the Sundance plant and the related reclassification of prior period operating losses to "Loss from Discontinued Operations."

EX-12.C

Exhibit 12(c)
PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Millions of Dollars)
				2005		2004		2003		2002		2001
Fixed charges, as defined:
	Interest on long-term debt			$	151	$	176	$	201	$	209	$	220
	Interest on short-term debt and   other interest				22		7		3		3		4
	Amortization of debt discount,   expense and premium - net				9		7		8		7		6
	Estimated interest component of   operating rentals				8		8		7		7		8
	Preferred security distributions of   subsidiaries on a pre-tax basis										13		23
			Total fixed charges	$	190	$	198	$	219	$	239	$	261
Earnings, as defined:
	Net income (a)			$	145	$	74	$	25	$	39	$	114
	Preferred security dividend   requirements				2		2		3		16		26
					147		76		28		55		140
Add:
	Income taxes				69		8		18		18		65
	Total fixed charges as above   (excluding capitalized interest   and preferred security distributions of   subsidiaries on a pre-tax basis)				190		197		219		225		238
			Total earnings	$	406	$	281	$	265	$	298	$	443
Ratio of earnings to fixed charges					2.1		1.4		1.2		1.2		1.7
Preferred stock dividend requirements on a   pre-tax basis				$	4	$	4	$	5	$	7	$	7
Fixed charges, as above					190		198		219		239		261
			Total fixed charges and preferred   stock dividends	$	194	$	202	$	224	$	246	$	268
Ratio of earnings to combined fixed charges   and preferred stock dividends					2.1		1.4		1.2		1.2		1.7
(a)		Net income excludes the cumulative effect of a change in accounting principle.

EX-21.A

Exhibit 21(a)
PPL Corporation
Subsidiaries of the Registrant
As of December 31, 2005
Company Name	State or Jurisdiction of
Business Conducted under Same Name	Incorporation/Formation
PPL Electric Utilities Corporation	Pennsylvania
PPL Energy Funding Corporation	Pennsylvania
PPL Energy Supply, LLC	Delaware
PPL Investment Corporation	Delaware
PPL Global, LLC	Delaware
PMDC International Holdings, Inc.	Delaware
PPL EnergyPlus, LLC	Pennsylvania
PPL Generation, LLC	Delaware
PPL Montana Holdings, LLC	Delaware
PPL Montana, LLC	Delaware
PPL Susquehanna, LLC	Delaware
WPD Investment Holdings Ltd.	United Kingdom

EX-21.B

Exhibit 21(b)
PPL Electric Utilities Corporation
Subsidiaries of the Registrant
As of December 31, 2005
Company Name	State or Jurisdiction of
Business Conducted under Same Name	Incorporation/Formation
PPL Transition Bond Company, LLC	Delaware
PPL Receivables Corporation	Delaware

EX-23.A

Exhibit 23(a)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-116478, 333-116478-01, 333-116478-02, 333-85716, 333-85716-01, 333-85716-02, 333-106200 and 106200-01), the Registration Statements on Form S-3D (Nos. 333-128543 and 333-102845), and the Registration Statements on Form S-8 (Nos. 333-02003, 333-112453, 333-110372, and 333-95967) of PPL Corporation of our report dated February 24, 2006 relating to the consolidated financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

March 3, 2006

EX-23.B

Exhibit 23(b)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-128219, 333-116477, 333-106200 and 106200-01) of PPL Energy Supply, LLC of our report dated February 24, 2006 relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

March 3, 2006

EX-24

Exhibit 24

PPL CORPORATION

2005 ANNUAL REPORT

TO THE SECURITIES AND EXCHANGE COMMISSION

ON FORM 10-K

POWER OF ATTORNEY

The undersigned directors of PPL Corporation, a Pennsylvania corporation, that is to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its 2005 Annual Report on Form 10-K, do hereby appoint each of William F. Hecht, John R. Biggar and Robert J. Grey their true and lawful attorney, with power to act without the other and with full power of substitution and resubstitution, to execute for them and in their names said Form 10-K Report and any and all amendments thereto, whether said amendments add to, delete from or otherwise alter said Form 10-K Report, or add or withdraw any exhibits or schedules to be filed therewith and any and all instruments in connection therewith. The undersigned hereby grant to each said attorney full power and authority to do and perform in the name of and on behalf of the undersigned, and in any and all capacities, any act and thing whatsoever required or necessary to be done in and about the premises, as fully and to all intents and purposes as the undersigned might do, hereby ratifying and approving the acts of each of the said attorneys.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 24th day of February, 2006.

/s/  Frederick M. Bernthal	/s/  James H. Miller
Frederick M. Bernthal	James H. Miller
/s/  John W. Conway	/s/  Craig A. Rogerson
John W. Conway	Craig A. Rogerson
/s/  E. Allen Deaver	/s/  W. Keith Smith
E. Allen Deaver	W. Keith Smith
/s/  Louise K. Goeser	/s/  Susan M. Stalnecker
Louise K. Goeser	Susan M. Stalnecker
/s/  Stuart Heydt	/s/  Keith H. Williamson
Stuart Heydt	Keith H. Williamson

EX-31.A

Exhibit 31(a)

CERTIFICATION
I, WILLIAM F. HECHT, certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2005;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 3, 2006			/s/  William F. Hecht
			William F. Hecht Chairman and Chief Executive Officer PPL Corporation

EX-31.B

Exhibit 31(b)

CERTIFICATION
I, JOHN R. BIGGAR, certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2005;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 3, 2006			/s/  John R. Biggar
			John R. Biggar Executive Vice President and Chief Financial Officer PPL Corporation

EX-31.C

Exhibit 31(c)

CERTIFICATION
I, WILLIAM F. HECHT, certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2005;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 3, 2006			/s/  William F. Hecht
			William F. Hecht President PPL Energy Supply, LLC

EX-31.D

Exhibit 31(d)

CERTIFICATION
I, PAUL A. FARR, certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2005;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 3, 2006			/s/  Paul A. Farr
			Paul A. Farr Senior Vice President PPL Energy Supply, LLC

EX-31.E

Exhibit 31(e)

CERTIFICATION
I, JOHN F. SIPICS, certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2005;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 3, 2006			/s/  John F. Sipics
			John F. Sipics President PPL Electric Utilities Corporation

EX-31.F

Exhibit 31(f)

CERTIFICATION
I, PAUL A. FARR, certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2005;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 3, 2006			/s/  Paul A. Farr
			Paul A. Farr Senior Vice President-Financial PPL Electric Utilities Corporation

EX-32.A

Exhibit 32(a)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

FOR PPL CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2005

In connection with the annual report on Form 10-K of PPL Corporation (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

· The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

· The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2006 /s/ William F. Hecht                                    William F. Hecht Chairman and Chief Executive Officer PPL Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.B

Exhibit 32(b)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

FOR PPL CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2005

In connection with the annual report on Form 10-K of PPL Corporation (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

· The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

· The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2006 /s/ John R. Biggar                                    John R. Biggar Executive Vice President and Chief Financial Officer PPL Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.C

Exhibit 32(c)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

FOR PPL ENERGY SUPPLY, LLC'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2005

In connection with the annual report on Form 10-K of PPL Energy Supply, LLC (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

· The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

· The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2006 /s/ William F. Hecht                                    William F. Hecht President PPL Energy Supply, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.D

Exhibit 32(d)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

FOR PPL ENERGY SUPPLY, LLC'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2005

In connection with the annual report on Form 10-K of PPL Energy Supply, LLC (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

· The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

· The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2006 /s/ Paul A. Farr                                    Paul A. Farr Senior Vice President PPL Energy Supply, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.E

Exhibit 32(e)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

FOR PPL ELECTRIC UTILITIES CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2005

In connection with the annual report on Form 10-K of PPL Electric Utilities Corporation (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

· The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

· The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2006 /s/ John F. Sipics                                    John F. Sipics President PPL Electric Utilities Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.F

Exhibit 32(f)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

FOR PPL ELECTRIC UTILITIES CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2005

In connection with the annual report on Form 10-K of PPL Electric Utilities Corporation (the "Company") for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

· The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

· The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2006 /s/ Paul A. Farr                                    Paul A. Farr Senior Vice President-Financial PPL Electric Utilities Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.A

Exhibit 99(a)
PPL Corporation - Corporate Organization (Selected Subsidiaries)
PPL Corporation
	PPL Electric Utilities Corporation
		PPL Transition Bond Company, LLC
		PPL Receivables Corporation
		CEP Commerce, LLC
			CEP Lending, Inc.
	PPL Gas Utilities Corporation
	PPL Services Corporation
		PPL Development Company, LLC
	PPL Capital Funding, Inc.
	PPL Deposit Corporation
	PPL Principal Corporation
	PPL Properties, Inc.
	PPL Power Insurance Ltd.
	PPL Energy Funding Corporation
		CEP Reserves, Inc.
		PPL Ventures, LLC
			PPL Land Holdings, LLC
			PPLSolutions, LLC
			PPL Telcom, LLC
		PPL Energy Supply, LLC
			PPL Investment Corporation
			PPL Global, LLC
				PMDC Chile, Inc. (includes Emel)
				PPLG US Latin America, Inc. (includes Elfec and Integra)
				PPLG El Salvador (includes EC)
				PMDC International Holdings, Inc. (includes WPD)
			PPL EnergyPlus, LLC
				PPL Synfuel Investments, LLC
					PPL Somerset, LLC
					Avon Lake Synfuels, LLC (limited partner interest in Tyrone Synfuels, LP)
				PPL Energy Services Holdings, LLC
			PPL Generation, LLC
				Lower Mount Bethel Energy, LLC
				PPL Brunner Island, LLC
					PPL Rights, Inc. (jointly owned by PPL Brunner Island (67%) and PPL Martins Creek (33%))
				PPL Coal Holdings Corporation
				PPL Edgewood Energy, LLC
				PPL Holtwood, LLC
				PPL Maine, LLC
				PPL Martins Creek, LLC
				PPL Midwest Holdings, LLC (includes PPL University Park, LLC)
				PPL Montana Holdings, LLC (includes PPL Montana)
				PPL Montour, LLC
				PPL Shoreham Energy, LLC
				PPL Southwest Generation Holdings, LLC (50% owner of Griffith)
				PPL Susquehanna, LLC
				PPL Wallingford Energy LLC

EX-99.B

Exhibit 99(b)

Examples of Wholesale Energy, Fuel and Emission Allowance Price Fluctuations

2000 through 2005

Wholesale Energy:

PJM West Hub* Power Price - $/MWh

Year	High	Month	Low	Month
2000	$    801.55	December	$     0.00**	Jan., Feb., April, May, June, July, Aug., Sept.
2001	$    838.75	August	$     0.00**	April, May, June, July, Sept., Nov., Dec.
2002	$    733.72	July	$     0.00**	Feb., March, April, May, June, July, Aug., Sept.
2003	$    252.38	March	$     0.00**	Jan., May, June, July, Aug., Sept.
2004	$    181.66	December	$     0.00**	Jan., June, July, Aug., Sept., Oct.
2005	$    315.65	July	$     0.00**	Jan., April, May, June, July, Sept.

*A common trading hub for PJM.

**Occurs during times of low demand for electricity when generation levels of generating units are reduced to their normal minimums.

Mid-C* Power Price - $/MWh

Year	High	Month	Low	Month
2000	$3,322.42	December	$       7.34	April
2001	$   559.40	January	$     12.57	November
2002	$     46.00	March	$       1.21	July
2003	$   113.89	February	$       9.13	May
2004	$     65.06	July	$     10.21	June
2005	$   139.76	December	$       7.68	May

*A common trading hub for Northwestern U.S.

Fuel:

NYMEX Coal (1% sulfur content, 12,000 Btu) Price - $/ton

Year	High	Month	Low	Month
2000
2001*	$     48.75	August	$     27.25	December
2002	$     30.00	December	$     23.10	February
2003	$     39.92	December	$     27.75	March
2004	$     63.00	August	$     39.67	January
2005	$     62.75	September	$     51.10	June

*The NYMEX coal contract was established in July 2001.

NYMEX Natural Gas Price - $/million Btu

Year	High	Month	Low	Month
2000	$       9.98	December	$       2.17	January
2001	$       9.82	January	$       1.83	September
2002	$       5.34	December	$       1.91	January
2003	$       9.58	February	$       2.66	August
2004	$       8.73	November	$       4.57	September
2005	$     15.38	December	$       5.83	January

Residual Oil (1% sulfur content) Price @ NY Harbor - $/barrel

Year	High	Month	Low	Month
2000	$     32.12	October	$     19.52	January
2001	$     26.50	January	$     14.97	November
2002	$     29.10	December	$     14.03	February
2003	$     43.62	March	$     23.00	April
2004	$     35.38	October	$     22.12	December
2005	$     54.38	October	$     26.88	January

Sulfur Dioxide Emission Allowances:

SO2 Emission Allowance Price - $/allowance

Year	High	Month	Low	Month
2000	$        156	July	$        115	January
2001	$        218	September	$        142	January
2002	$        177	March	$        126	November
2003	$        221	December	$        135	January
2004	$        730	November	$        210	January
2005	$     1,610	December	$        640	January