10-K405

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, 2001
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
333-50350			PPL Montana, LLC (Exact name of Registrant as specified in its charter) (Delaware) 303 North Broadway - Suite 400 Billings, MT 59101 (406) 869-5100		54-1928759
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% 3.35% Series 4.40% Series 4.60% Series			New York & Philadelphia Stock Exchanges Philadelphia Stock Exchange New York & Philadelphia Stock Exchanges Philadelphia Stock Exchange

Company-Obligated Mandatorily Redeemable Securities of PPL Electric Utilities Corporation
		8.20% Series ($25 stated value)(a) 8.10% Series ($25 stated value)(b)	New York Stock Exchange New York Stock Exchange
PPL Capital Funding
		7-3/4% PEPS Units ($25 stated value)(c)	New York Stock Exchange
(a)	Issued by PPL Capital Trust and guaranteed by PPL Electric Utilities Corporation
(b)	Issued by PPL Capital Trust II and guaranteed by PPL Electric Utilities Corporation
(c)	Issued by PPL Capital Funding Trust I and guaranteed by PPL Corporation

Securities registered pursuant to Section 12(g) of the Act: None

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 ]
PPL Montana, LLC	[ 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	No  X
PPL Electric Utilities Corporation	Yes  X	No
PPL Montana, LLC	Yes  X	No

PPL Energy Supply, LLC has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 since its initial Registration Statement on Form S-4 became effective on January 7, 2002.

As of January 31, 2002, PPL Corporation had 146,581,220 shares of its $.01 par value Common Stock outstanding, excluding 30,993,637 shares held as treasury stock. The aggregate market value of these common shares (based upon the average of the high and low price of these shares on the New York Stock Exchange on that date) held by non-affiliates was $4,838,646,000.

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. The aggregate market value of the voting preferred stock held by non-affiliates of PPL Electric Utilities Corporation at January 31, 2002 was $67,402,000.

PPL Corporation indirectly holds all of the member interests in PPL Energy Supply, LLC and PPL Montana, LLC.

PPL Energy Supply, LLC and PPL Montana, LLC meet the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and are 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 2002 Notice of Annual Meeting and Proxy Statement, and PPL Electric Utilities Corporation's 2002 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, 2001. Such Statements will provide the information required by Part III of this Report.

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

FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

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

Item				Page
	PART I
1.	Business			1
2.	Properties			10
3.	Legal Proceedings			12
4.	Submission of Matters to a Vote of Security Holders			14
	Executive Officers of the Registrants			15
PPL CORPORATION
PART II
5.	Market for the Registrant's Common Equity and Related Stockholder Matters			18
6.	Selected Financial and Operating Data			19
7.	Review of the Financial Condition and Results of Operations			20
7A.	Quantitative and Qualitative Disclosures About Market Risk			34
	Report of Independent Accountants			36
	Management's Report on Responsibility for Financial Statements			37
8.	Financial Statements and Supplementary Data
	Financial Statements:
	Consolidated Statement of Income for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		38
	Consolidated Statement of Cash Flows for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		39
	Consolidated Balance Sheet at December 31, 2001 and 2000			40
	Consolidated Statement of Shareowners' Common Equity and Comprehensive Income
		for each of the Three Years Ended December 31, 2001, 2000 and 1999		42
	Consolidated Statement of Preferred Stock at December 31, 2001 and 2000			43
	Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at
			December 31, 2001 and 2000	44
	Consolidated Statement of Long-Term Debt at December 31, 2001 and 2000			45
	Notes to Consolidated Financial Statements			46
	Supplemental Financial Statement Schedule:
	II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended
			December 31, 2001	70
	Quarterly Financial Data, Common Stock Price and Dividend Data			71
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			72
PART III
10.	Directors and Executive Officers of the Registrant			72
11.	Executive Compensation			72
12.	Security Ownership of Certain Beneficial Owners and Management			72
13.	Certain Relationships and Related Transactions			72
PPL ENERGY SUPPLY, LLC
PART II
5.	Market for the Registrant's Common Equity and Related Stockholder Matters			75
6.	Selected Financial and Operating Data			75
7.	Review of the Financial Condition and Results of Operations			76
7A.	Quantitative and Qualitative Disclosures About Market Risk			84
	Report of Independent Accountants			86
	Management's Report on Responsibility for Financial Statements			87
8.	Financial Statements and Supplementary Data
	Financial Statements:
	Consolidated Statement of Income for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		88
	Consolidated Statement of Cash Flows for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		89
	Consolidated Balance Sheet at December 31, 2001 and 2000			90
	Consolidated Statement of Member's Equity and Comprehensive Income for each of the
		Three Years Ended December 31, 2001, 2000 and 1999		92
	Consolidated Statement of Long-Term Debt at December 31, 2001 and 2000			93
	Notes to Consolidated Financial Statements			94
	Supplemental Financial Statement Schedule:
	II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended
			December 31, 2001	116
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			117
PART III
10.	Directors and Executive Officers of the Registrant			117
11.	Executive Compensation			117
12.	Security Ownership of Certain Beneficial Owners and Management			117
13.	Certain Relationships and Related Transactions			117
PPL ELECTRIC UTILITIES CORPORATION
PART II
5.	Market for the Registrant's Common Equity and Related Stockholder Matters			119
6.	Selected Financial and Operating Data			120
7.	Review of the Financial Condition and Results of Operations			121
7A.	Quantitative and Qualitative Disclosures About Market Risk			127
	Report of Independent Accountants			128
	Management's Report on Responsibility for Financial Statements			129
8.	Financial Statements and Supplementary Data
	Financial Statements:
	Consolidated Statement of Income for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		130
	Consolidated Statement of Cash Flows for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		131
	Consolidated Balance Sheet at December 31, 2001 and 2000			132
	Consolidated Statement of Shareowner's Common Equity and Comprehensive Income
			for each of the Three Years Ended December 31, 2001, 2000 and 1999	134
	Consolidated Statement of Preferred Stock at December 31, 2001 and 2000			135
	Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at
			December 31, 2001 and 2000	136
	Consolidated Statement of Long-Term Debt at December 31, 2001 and 2000			137
	Notes to Consolidated Financial Statements			138
	Supplemental Financial Statement Schedule:
	II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended
			December 31, 2001	147
	Quarterly Financial Data			148
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			149
PART III
10.	Directors and Executive Officers of the Registrant			149
11.	Executive Compensation			149
12.	Security Ownership of Certain Beneficial Owners and Management			149
13.	Certain Relationships and Related Transactions			149
PPL MONTANA, LLC
PART II
5.	Market for the Registrant's Common Equity and Related Stockholder Matters			151
6.	Selected Financial and Operating Data			151
7.	Review of the Financial Condition and Results of Operations			152
7A.	Quantitative and Qualitative Disclosures About Market Risk			155
	Report of Independent Accountants			156
	Management's Report on Responsibility for Financial Statements			157
8.	Financial Statements and Supplementary Data
	Financial Statements:
	Consolidated Statement of Income for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		158
	Consolidated Statement of Cash Flows for each of the Three Years Ended
		December 31, 2001, 2000 and 1999		159
	Consolidated Balance Sheet at December 31, 2001 and 2000			160
	Consolidated Statement of Member's Equity and Comprehensive Income
		for each of the Three Years Ended December 31, 2001, 2000, 1999		161
	Notes to Consolidated Financial Statements			162
	Supplemental Financial Statement Schedule:
	II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended
			December 31, 2001	174
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			175
PART III
10.	Directors and Executive Officers of the Registrant			175
11.	Executive Compensation			175
12.	Security Ownership of Certain Beneficial Owners and Management			175
13.	Certain Relationships and Related Transactions			175
PART IV
14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K			176
	Shareowner and Investor Information			178
	Signatures			180
	Exhibit Index			184
	Computation of Ratio of Earnings to Fixed Charges			190
	PPL Corporation - Corporate Organization			194

GLOSSARY OF TERMS AND ABBREVIATIONS

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

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 that is capitalized as part of construction cost.

APB - Accounting Principles Board.

Bangor Hydro - Bangor Hydro-Electric Company.

BG&E - Baltimore Gas & Electric Company.

BGG - Bolivian Generating Group, LLC, an energy consortium with a 50% interest in an electric generating company in Bolivia.

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

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

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

CO₂ - carbon dioxide.

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

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

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

DEP - Department of Environmental Protection.

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

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

2. It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.

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

DIG - Derivatives Implementation Group.

DOE - Department of Energy.

DRIP - Dividend Reinvestment Plan.

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

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 issues within the framework of existing authoritative literature.

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

EMF - electric and magnetic fields.

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

EPA - Environmental Protection Agency.

EPS - earnings per share.

ESOP - Employee Stock Ownership Plan.

EWG - exempt wholesale generator.

Fabrication - the process which 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) - federal agency that regulates interstate transmission and wholesale sales of electricity and related matters.

GAAP - Generally accepted accounting principles.

Hyder - Hyder Limited, a subsidiary of WPDL and previous owner of South Wales Electricity plc. In March 2001, South Wales Electricity plc was acquired by WPD 1953 and renamed WPD (South Wales).

IBEW - International Brotherhood of Electrical Workers.

ICP - Incentive Compensation Plan.

ICPKE - Incentive Compensation Plan for Key Employees.

IRS - Internal Revenue Service.

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.

JCP&L - Jersey Central Power & Light Company.

kWh - kilowatthours.

kVA - kilovoltampere.

LIBOR - London Interbank Offered Rate.

Mirant - Mirant Corporation, formerly Southern Energy Inc., a diversified energy company based in Atlanta. PPL Global and Mirant jointly own WPD 1953.

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

MPSC - Montana Public Service Commission.

MW - megawatts.

NO_x - nitrogen oxide.

NPDES - National Pollutant Discharge Elimination System.

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

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

OSM - United States Office of Surface Mining.

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

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

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

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

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

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

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

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

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

PPL Coal Supply - a partnership between PPL Coal Holdings, LLC (a subsidiary of PPL Generation) and Iris Energy, LLC. PPL Coal Supply procures coal, which it sells to PPL Generation power plants, and to Iris Energy for purposes of producing synfuel.

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

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

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

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

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

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

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

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

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

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

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

PPL Montour - PPL Montour, LLC, a fossil generating subsidiary of PPL Generation.

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

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

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

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

PRP - Potentially Responsible Parties under Superfund.

PUC (Pennsylvania Public Utility Commission) - 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 Utilities' restructuring proceeding.

PUHCA - Public Utility Holding Company Act of 1935.

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

PURTA - Public Utility Realty Tax Act.

RMC - Risk Management Committee.

RTO - regional transmission organization.

SCR - selective catalytic reduction.

SEC - Securities and Exchange Commission.

SERP - Supplemental Executive Retirement Plan.

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

SNCR - selective non-catalytic reduction.

SO₂ - sulfur dioxide.

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

SWEB - the trading name for South Western Electricity plc, a British regional electric utility company. Following the sale of its supply business in 1999, SWEB was renamed Western Power Distribution and then WPD (South West). See WPD (South West), below.

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

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

UF - inflation-indexed peso-denominated unit.

UGI - UGI Corporation.

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

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

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

WPD 1953 - WPD 1953 Limited, a jointly-owned subsidiary of PPL Global and Mirant. WPD 1953 owns WPD Holdings U.K. which owns WPD (South West) and WPD (South Wales).

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

Forward-looking Information

Certain 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, PPL Electric and PPL Montana believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to have been correct. These forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the forward-looking statements. In addition to the specific factors discussed in the Review of the Financial Condition and Results of Operations sections herein, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements: market demand and prices for energy, capacity and fuel; weather variations affecting customer energy usage; competition in retail and wholesale power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; political, regulatory or economic conditions in states or countries where PPL or its subsidiaries conduct business; receipt of necessary governmental approvals; capital market conditions and decisions regarding capital structure; stock price performance; credit ratings; foreign exchange rates; state and federal regulatory developments; new state or federal legislation; national or regional economic conditions, including any potential effects arising from the September 11, 2001 terrorist attacks in New York, Washington, D.C. and Pennsylvania and consequential hostilities; and the commitments and liabilities of PPL and its subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with other documents of PPL, PPL Energy Supply, PPL Electric and PPL Montana on file with the SEC.

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

PART I

ITEM 1. BUSINESS

BACKGROUND

PPL Corporation is an energy and utility holding company that was incorporated in 1994. Through its subsidiaries, PPL generates electricity in 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. and in Canada; delivers electricity to nearly six million customers in the U.S., U.K. and Latin America; and provides energy services for businesses in the mid-Atlantic and northeastern U.S.

PPL Energy Supply, LLC, an indirect wholly-owned subsidiary of PPL, is a growth-oriented energy company engaged through its subsidiaries in power generation and marketing primarily in the northeastern and western U.S. and in the delivery of electricity abroad. PPL Energy Supply was formed in 2000 to serve as the holding company for PPL's competitive energy businesses. PPL Energy Supply's major operating subsidiaries are PPL Generation, PPL EnergyPlus, and PPL Global. PPL Energy Supply owns or controls 10,023 MW of electric power generation capacity, and is constructing or has announced the development of new electric generation projects in Arizona, Illinois, New York and Pennsylvania, which would add 2,440 MW of electric generation capacity.

PPL Electric Utilities Corporation, incorporated in 1920, is a 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. Prior to July 1, 2000, PPL Electric also generated electricity at its power plants in Pennsylvania, and marketed wholesale electricity (through PPL EnergyPlus) in deregulated markets. Prior to August 1, 1998, PPL Electric marketed retail electricity in deregulated markets.

PPL Montana, LLC, an indirect wholly-owned subsidiary of PPL Energy Supply formed in 1998, acquired the Montana assets in 1999. PPL Montana owns or controls, leases and operates interests in 13 electric generating facilities with an aggregate capacity of approximately 1,157 MW. PPL Montana's primary regional market for wholesale customers is the northwest U.S. (Montana, Oregon, Washington and Idaho).

In 1996, the Customer Choice Act was enacted to deregulate the generation supply market in Pennsylvania. On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution operations from its recently deregulated generation operations, to better position the companies and their affiliates in the new competitive marketplace. As part of the realignment, PPL Electric's generation assets were transferred to PPL Generation and its wholesale power marketing assets were transferred to PPL EnergyPlus. Also as part of the realignment, PPL Global transferred its domestic generation assets to subsidiaries of PPL Generation.  See "Corporate Realignment" in Item 7, the Review of the Financial Condition and Results of Operations of PPL Energy Supply, for the key features of the corporate realignment. See Exhibit 99 in Item 14 for the current corporate organization.

As a result of the corporate realignment, PPL is organized in segments consisting of Supply, Delivery and International. In addition, certain corporate service functions reside in PPL Services. See Note 2 to PPL's Financial Statements for financial information about the segments.

Supply Segment

The Supply Segment primarily consists of:

• PPL Generation, which owns and operates power plants to generate electricity;
• PPL EnergyPlus, which markets this electricity and other power purchases and natural gas and oil to deregulated wholesale and retail markets, primarily in the northeastern and western portions of the U.S.; and
• PPL Global's development and acquisition of domestic generation projects.

PPL Generation was established in the corporate realignment and, through subsidiaries, owns and operates power plants in Pennsylvania, Montana, Maine and Connecticut. At December 31, 2001, PPL Generation had 10,023 MW of generating capacity.

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

The Pennsylvania generation plants, with a total capacity of 8,545 MW, were transferred by PPL Electric to PPL Generation in the corporate realignment. These plants are fueled by nuclear reaction, coal, gas, oil and hydro power. 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. Generally, PPL's EWGs are subject to regulation by the FERC but not subject to regulation under PUHCA. The FERC has authorized these EWGs to sell generation from their facilities at market-based prices.

PPL Susquehanna, a subsidiary of PPL Generation, is subject to the jurisdiction of the NRC in connection with the operation of the two nuclear-fueled generating units at its Susquehanna station. PPL Susquehanna owns a 90% undivided interest in each of the Susquehanna units and Allegheny Electric Cooperative, Inc. owns a 10% undivided interest in each of those units.

PPL Generation operates its Pennsylvania power plants in conjunction with PJM. PPL EnergyPlus markets power through the PJM. PPL Generation's Pennsylvania power plants and PPL EnergyPlus are parties to the Mid-Atlantic Area Coordination Agreement. Refer to "Delivery Segment" for information regarding PJM's operations and functions and the Mid-Atlantic Area Coordination Agreement.

The Montana generating assets were acquired by PPL Montana in December 1999. (PPL Montana was transferred to PPL Generation in the corporate realignment.) These stations are fueled by coal and hydro power, and have a net capacity of 1,157 MW. Under the terms of a wholesale power transition agreement, PPL Montana provides Montana Power with electricity for certain of its retail requirements, with excess generation available for wholesale marketing by PPL EnergyPlus. When the current transition agreement expires in June 2002, PPL EnergyPlus will supply 300 MW of around-the-clock electricity and 150 MW of on-peak electricity to Montana Power under a new five-year agreement. PPL Montana also purchases 98 MW of firm capacity during the months of November through April.

PPL Montana is 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. In addition, PPL Montana is subject to the jurisdiction of the NRC in connection with the operation by its coal plants of certain level and density monitoring devices.

The Maine generating assets were acquired from Bangor Hydro in 1998. The oil and hydro powered stations have a total capacity of 96 MW.

The Wallingford, Connecticut generating station was constructed by PPL Generation and began commercial operations in December 2001. This natural gas powered station in Connecticut has a total capacity of 225 MW.

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

PPL EnergyPlus, a subsidiary of PPL Energy Supply, markets the electricity produced by PPL Generation subsidiaries, along with purchased power, natural gas and oil in deregulated wholesale and retail markets in order to take advantage of opportunities in the competitive energy marketplace. Prior to the corporate realignment, PPL EnergyPlus was a subsidiary of PPL Electric.

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 is actively managing 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 a contract to provide electricity to PPL Electric sufficient for it to meet its PLR obligation from 2002 through 2009, at the pre-determined capped rates PPL Electric is entitled to charge its customers during this period. See Notes to Financial Statements of PPL (Note 23) and PPL Energy Supply (Note 15) for more information concerning this contract.

PPL EnergyPlus has a PUC license to act as an EGS in Pennsylvania. This license permits PPL EnergyPlus to offer retail electric and gas supply to customers throughout Pennsylvania. In 2001, PPL EnergyPlus was licensed, and supplied energy to industrial and commercial customers in Pennsylvania, New Jersey, Delaware, Maine and Montana. PPL EnergyPlus is also licensed to provide energy in Maryland and Massachusetts. At this time, PPL EnergyPlus has decided not to pursue residential customers in the competitive marketplace based on economic considerations.

PPL EnergyPlus also provides energy-related products and services to commercial and industrial customers, through its mechanical contracting and engineering subsidiaries based in Pennsylvania, Massachusetts, Connecticut and New York.

PPL Synfuel Investments, LLC, a subsidiary of PPL EnergyPlus, indirectly owns two production facilities in Pennsylvania. These facilities manufacture synthetic fuel from coal or coal byproducts. PPL receives federal tax credits from these qualified manufactured synfuel products.

PPL Global acquires and develops domestic generation projects for PPL Generation. It also acquires and develops, owns and operates international energy projects that are primarily focused on the distribution of electricity.

At December 31, 2001, PPL Global was in the process of developing approximately 2,440 MW of electric generating capacity in Pennsylvania, New York, Illinois and Arizona. The Griffith project in Kingman, Arizona, began commercial operations in January 2002. The University Park project in Illinois, the Shoreham and Edgewood projects in New York and the Sundance project in Arizona are also expected to be operational in 2002. The other projects are expected to be operational at various times between 2003 and 2004. See Item 2, Properties, for additional information on these projects.

Delivery Segment

PPL Electric provides electricity delivery service to approximately 1.3 million customers in a 10,000-square mile territory in 29 counties of eastern and central Pennsylvania, with a population of approximately 2.6 million people. The largest cities in this territory are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport. In addition to delivery of purchased power as a PLR, PPL Electric is delivering power supplied by PUC-licensed EGSs pursuant to the Customer Choice Act.

PPL EnergyPlus has executed a contract to provide electricity to PPL Electric sufficient for it to meet its PLR obligation from 2002 through 2009, at the pre-determined capped rates PPL Electric is entitled to charge its customers during this period. See PPL Electric's Note 15 to the Financial Statements.

During 2001, about 89% of PPL Electric's operating revenue was derived from regulated electricity deliveries and supply as a PLR. About 8% of 2001 operating revenues was from wholesale sales, including the sale of power purchased from NUGs to PPL EnergyPlus. The remaining 3% of operating revenues in 2001 was from energy related products and services and miscellaneous revenues. During 2001, about 43% of electricity delivery and PLR revenues were from residential customers, 35% from commercial customers, 21% from industrial customers and 1% from other customer classes.

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 is not a holding company under PUHCA, and PPL has been exempted by the SEC from the provisions of PUHCA applicable to it as a holding company.

PPL Electric is also 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.

PPL Electric operates its transmission facilities as part of PJM. PJM operates the electric transmission network and electric energy market in the mid-Atlantic region of the U.S. Bulk electricity is transmitted to wholesale users throughout a geographic area including all or part of Pennsylvania, New Jersey, Maryland, Delaware, Virginia and the District of Columbia. PPL Electric is also a party to the Mid-Atlantic Area Coordination Agreement, which provides for the coordinated planning of generation and transmission facilities by the companies included in the PJM.

PJM serves as an ISO in order to accommodate greater competition and broader participation in the power pool. The purpose of the ISO is to separate operation of, and access to, the transmission grid from the PJM electric utilities' generation interests. The electric utilities continue to own the transmission assets, but the ISO directs the control and operation of the transmission facilities.

In July 2001, the FERC issued orders calling for the formation of one RTO throughout the Mid-Atlantic region (PJM), New York and New England. PPL believes that a single northeastern RTO is a significant step forward in establishing a reliable and properly functioning wholesale electricity market in the region. PPL strongly supports the most comprehensive amalgamation of the existing and proposed northeast power pools, including the establishment of a single RTO, as well as the elimination of marketplace distinctions and control area boundaries. The FERC's northeastern RTO proceeding is continuing.

PPL Gas Utilities provides natural gas and propane delivery to approximately 103,000 customers in Pennsylvania and Maryland.

International Segment

PPL Global's major international project is its equity investment in two U.K. electricity transmission and distribution companies: WPD (South West) which serves customers in England; and WPD (South Wales) which serves customers in Wales. PPL Global jointly owns these investments with Mirant.

PPL Global also has consolidated investments in electricity transmission and distribution companies serving customers in Chile, El Salvador, Bolivia and Brazil.

See Note 11 to PPL's Financial Statements for additional information on PPL Global's international activities in 2001.

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.

FINANCIAL CONDITION

See PPL's and PPL Electric's Review of the Financial Condition and Results of Operations for this information.

CAPITAL EXPENDITURE REQUIREMENTS

See "Financial Condition - Capital Expenditure Requirements" in PPL's and PPL Electric's Review of the Financial Condition and Results of Operations for information concerning estimated capital expenditure requirements for the years 2002-2006. See the Notes to Financial Statements of PPL (Note 16), PPL Energy Supply (Note 14), PPL Electric (Note 10) and PPL Montana (Note 9) for information concerning estimates of the costs to comply with various environmental regulations.

COMPETITION

The unregulated businesses of PPL and its subsidiaries are highly competitive. The electric industry has experienced a significant increase in the level of competition in the energy markets in response to federal and state deregulation initiatives.

In 1992, the Energy Act amended the PUHCA to create a new class of independent power producers, and 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 a "customer choice" plan to allow customers to choose their electricity supplier. Competitive factors affecting PPL's results of operations include new market entrants, construction by others of generating assets, the actions of regulatory authorities, weather and other factors. PPL cannot predict the impact of these and other competitive factors on its future results of operations or financial position.

PPL and its subsidiaries believe that, assuming deregulation of the energy industry continues on both the federal and state levels and retail energy markets are opened to new participants and new services, competition will continue to be intense. In addition to deregulation, competitive pressures have resulted from technological advances in power generation and electronic communications, and the greater efficiency of energy markets.

The wholesale power markets in which PPL Generation subsidiaries and PPL EnergyPlus operate are highly competitive. Competitors include regulated utilities, industrial companies, non-utility generators and unregulated subsidiaries of regulated utilities. Although PPL EnergyPlus has long-term supply agreements, (see "Background-Supply Segment") a substantial portion of PPL's future sales will be made into the competitive wholesale markets. Competition will occur principally on the basis of the price of products, and to a lesser extent on the basis of reliability and availability.

PPL EnergyPlus also faces competition in the wholesale markets for energy capacity and ancillary services. As pricing information becomes increasingly available in the energy trading and marketing business and assuming deregulation in the electricity markets continues, PPL EnergyPlus anticipates that trading, marketing and risk management operations will experience greater competition. PPL EnergyPlus primarily competes with other energy merchants based on the ability to aggregate supplies at competitive prices from different sources and locations and to efficiently utilize transportation from third-party pipelines and transmission from electric utilities. Competitors may employ widely differing strategies in their fuel supply and power sales contracts with respect to pricing, terms and conditions. PPL EnergyPlus also competes against other energy marketers on the basis of relative financial position and access to credit sources.

PPL Global also faces intense competition from a number of participants in the non-utility power generation industry for the acquisition and development of additional facilities. Opportunities for new projects are increasingly subject to competitive bidding as opposed to negotiated transactions.

Some restructured markets have recently experienced supply problems and price volatility. In a number of these markets, government agencies and other interested parties have made proposals to delay market restructuring or even re-regulate certain areas of these markets that have previously been deregulated. In California, legislation has been passed placing a moratorium on the sale of generation plants by public utilities regulated by the California Public Utilities Commission. In June 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. as a result of the California energy crisis. These price controls have contributed to the lowering of spot and forward energy prices in the western market. Other proposals to institute price controls or to re-regulate the energy industry may be made, and legislative or other actions may cause the electric power restructuring process to be delayed, discontinued or reversed in the states in which PPL currently, or may in the future, operate. If the competitive restructuring of the wholesale and retail power markets is delayed, discontinued or reversed, PPL's business prospects and financial condition could be materially adversely affected.

POWER SUPPLY

PPL Generation's system capacity (winter rating) at December 31, 2001 was as follows:

Plant			Net MW Capacity
Pennsylvania
Nuclear-fueled steam station
	Susquehanna		2,011	(a)
Coal-fired steam stations
	Montour		1,525
	Brunner Island		1,469
	Martins Creek		300
	Keystone		211	(b)
	Conemaugh		278	(c)
		Total coal-fired	3,783
Gas and oil-fired steam station
	Martins Creek		1,670
Combustion turbines and diesels			451
Hydroelectric			152
		Total generating capacity	8,067
Firm purchases
	Hydroelectric		140	(d)
	Qualifying facilities		338
		Total firm purchases	478
Total system capacity - Pennsylvania			8,545
Connecticut
Natural gas powered station
	Wallingford		225	(e)
Montana
Coal-fired stations
	Colstrip Units 1 & 2		307	(f)
	Colstrip Unit 3		222	(g)
	Corette		154
		Total coal-fired	683
Hydroelectric			474
Total system capacity - Montana			1,157
Maine
Oil-fired generating station
	Wyman Unit 4		52	(h)
Hydroelectric			44	(i)
Total system capacity - Maine			96
Total system capacity - PPL Generation			10,023	(j)

(a)	PPL's 90% undivided interest.
(b)	PPL's 12.34% undivided interest.
(c)	PPL's 16.25% undivided interest.
(d)	From Safe Harbor Water Power Corporation.
(e)	Began commercial operations in December 2001.
(f)	PPL's 50% undivided leasehold interest.
(g)	PPL's 30% undivided leasehold interest.
(h)	PPL's 8.33% undivided interest.
(i)	Includes PPL's 50% interest in the West Enfield Station.
(j)	In addition, the gas-fired steam Griffith station, of which PPL's 50% ownership totals 300 MW, began commercial operations in January 2002. This table does not include the capacity of Griffith.

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 from time to time to reflect changed circumstances.

The system capacity shown in the preceding table does not reflect installed capacity credit sales and purchases with other utilities. The net effect of these transactions is to reduce Pennsylvania system capacity by 1,168 MW at the end of December 2001, to 7,377 MW.

The net effect of Maine sales committed to Bangor Hydro is to reduce Maine's system capacity by 31 MW, to 65 MW. The West Enfield facility's output will be sold to Bangor Hydro through the year 2024. The Wyman Unit 4 output will be sold to Constellation through 2004.

PPL Montana had two transition agreements to supply wholesale electricity to Montana Power. One agreement to provide 200 MW from PPL Montana's leasehold interest in Colstrip Unit 3 expired in December 2001. The other agreement covers Montana Power's remaining native load commitments and lasts until the remaining load is zero, but in no event later than June 2002. PPL Montana now has an agreement to supply Montana Power with 450 MW of energy for five years beginning July 2002.

As part of the purchase of generation assets from Montana Power, PPL Montana agreed to supply electricity to the U.S. government on behalf of the Flathead Irrigation Project (FLIP). Under the agreement, which expires in December 2010, PPL Montana is required to supply approximately 7.5 MW of capacity year round, with an additional 3.7 MW from April through October during the term of the agreement.

During 2001, PPL Generation produced about 39 billion kWh in its Pennsylvania plants, with 53% of the energy generated by coal-fired stations, 41% from nuclear operations at the Susquehanna station, 5% from the Martins Creek gas and oil-fired station and 1% from hydroelectric stations. PPL EnergyPlus also purchased 18.1 billion kWh and had 19.1 billion kWh in non-system energy sales.

During 2001, PPL Montana generated 7.5 billion kWh. Of this total, 5.0 billion kWh was from fossil generation, with the balance from PPL Montana's hydroelectric plants.

During 2001, PPL Maine generated about 267 million kWh. Of this total, about 216 million kWh was from hydroelectric generation, with the balance from PPL Maine's interest in the oil-fired Wyman Unit 4.

PPL EnergyPlus purchases energy from, and sells energy to, other utilities and FERC-certified power marketers at market-based rates under power purchase and sales agreements. PPL EnergyPlus enters into these transactions on an hourly, daily, weekly, monthly or longer-term basis.

PPL EnergyPlus has FERC authorization to sell electric energy, capacity and ancillary services at market-based rates to wholesale customers located both inside and outside the PJM control area. As of December 31, 2001, 160 utilities and power marketers had signed power sales agreements under this tariff. Under the market-based tariff, PPL EnergyPlus may also sell power purchased from third parties.

PPL EnergyPlus also has an export license to sell capacity and/or energy to electric utilities in Canada. This export license allows PPL EnergyPlus to sell either its own capacity and energy not required to serve domestic obligations or power purchased from other utilities.

FUEL SUPPLY

Coal - Pennsylvania

In February 2001, a subsidiary of PPL Generation entered into a partnership (PPL Coal Supply) with Iris Energy, LLC, an unrelated third party, to procure coal and facilitate the production of synthetic fuel. PPL Coal Supply began operations in June 2001 and provides coal to PPL Generation power plants and to Iris Energy for the production of synthetic fuel. In 2001, PPL Coal Supply provided 23% of the coal used by PPL Generation's Pennsylvania stations and Iris Energy provided 34% of the synthetic fuel used by such stations.

During 2001, about 65% of the coal delivered to PPL Generation's Pennsylvania stations was purchased under long-term contracts and 35% was obtained through open market purchases. These contracts provided PPL Generation with about 4.7 million tons of coal in 2001 and are expected to provide 5.4 million tons in 2002. At December 31, 2001, Pennsylvania plants had sufficient supply for about 50 days of operations.

The coal burned at the Pennsylvania power plants contains sulfur. Mechanical cleaning processes are utilized to reduce the sulfur content of the coal. The reduction of the sulfur content by either mechanical cleaning or blending has lowered the total sulfur content of the coal burned to levels which permit compliance with current SO₂ emission regulations established by the Pennsylvania DEP.

At December 31, 2001, a PPL Generation subsidiary owned a 12.34% undivided interest in the Keystone station and a 16.25% undivided interest in the Conemaugh station. The owners of the Keystone station have a long-term contract with a coal supplier that provides 2.8 million tons per year until the contract expires at the end of 2004, and a long-term contract with a synthetic fuel supplier that provides 3 million tons per year until the contract expires at the end of 2007. The balance of the Keystone station requirements are purchased in the open market. The coal supply requirements for the Conemaugh station are being met from several sources through a blend of long-term and short-term contracts and spot market purchases.

Coal - Montana

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

PPL Montana owns the Corette power plant. The plant has a coal purchase contract to purchase low sulfur coal with defined quality characteristics and specifications. The contract expires in December 2003.

Oil and Natural Gas

PPL Generation's Martins Creek Units 3 and 4 burn both oil and natural gas. PPL EnergyPlus, the marketing and trading subsidiary of PPL, is responsible for procuring the oil and natural gas supply for all PPL Generation assets. During 2001, 100% of the oil requirements for the Martins Creek units were purchased on the spot market. At December 31, 2001, PPL EnergyPlus had no long-term agreements for these requirements. During 2001, all of the natural gas consumed at Martins Creek was purchased under short-term agreements. At December 31, 2001, PPL EnergyPlus had no long-term agreements to purchase natural gas for Martins Creek.

Two new natural gas-fired units recently began commercial operations: Wallingford, Connecticut in December 2001 and Kingman, Arizona (Griffith) in January 2002. PPL EnergyPlus has entered into a long-term contract for 40% of the expected pipeline transportation requirements of the Wallingford facility, but has no long-term agreement to purchase natural gas. Certain PPL Generation subsidiaries have long-term pipeline transportation contracts in place for the Griffith facility equaling 75% of the expected requirements. A PPL Generation subsidiary also has approximately 25% of gas supply under a long-term supply agreement for Griffith. PPL EnergyPlus generally employs a strategy of procuring natural gas in conjunction with electricity sales commitments.

Nuclear

PPL Susquehanna has executed uranium supply and conversion agreements that satisfy 75% of the uranium requirements for the Susquehanna units in 2002 and 2003, and, including options, an additional 25% of the requirements for the period 2004-2007. Deliveries under these agreements are expected to provide sufficient uranium to permit Unit 1 to operate into the first quarter of 2004 and Unit 2 to operate into the first quarter of 2003.

PPL Susquehanna has executed an agreement that satisfies all of its enrichment requirements through 2004. Assuming that the other uranium components of the nuclear fuel cycle are satisfied, deliveries under this agreement are expected to provide sufficient enrichment to permit Unit 1 to operate into the first quarter of 2006 and Unit 2 to operate into the first quarter of 2007.

PPL Susquehanna has entered into an agreement that, including options, satisfies all of its fabrication requirements through 2006. Assuming that the uranium and other components of the nuclear fuel cycle are satisfied, deliveries under this agreement are expected to provide sufficient fabrication to permit Unit 1 to operate into the first quarter of 2008 and Unit 2 to operate into the first quarter of 2007.

Federal law requires the federal government to provide for the permanent disposal of commercial spent nuclear fuel. Under the Nuclear Waste Policy Act, the DOE initiated an analysis of a site in Nevada for a permanent nuclear waste repository. Progress on a proposed disposal facility has been slow, and the repository is not expected to be operational before 2010. Thus, expansion of Susquehanna's on-site spent fuel storage capacity was necessary. 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 October 1999. PPL Susquehanna estimates that there is sufficient storage capacity in the spent nuclear fuel pools and the modular on-site dry spent fuel storage facility at Susquehanna to accommodate discharged fuel through the life of the plant, if necessary.

Federal law also provides that generators of spent fuel are responsible for certain costs of disposal. In January 1997, PPL Electric joined over 30 other utilities in a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit seeking assurance of the DOE's performance of its contractual obligation to accept spent nuclear fuel and suspension of payment to that agency pending such performance. In November 1997, the Court denied the utilities' requested relief and held 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. DOE did not, in fact, begin to dispose of spent nuclear fuel on January 31, 1998 and has acknowledged that it violated its contractual obligations. DOE continues, however, to vigorously contest claims by certain utilities, including PPL, that its failures resulted in recoverable damages. PPL cannot predict the outcome of this litigation.

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 "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations for information concerning environmental expenditures during 2001 and PPL's estimate of those expenditures during the years 2002-2006. PPL believes that its subsidiaries are in substantial compliance with applicable environmental laws and regulations.

See "Environmental Matters" in Note 16 to PPL's, Note 14 to PPL Energy Supply's, Note 10 to PPL Electric's and Note 9 to PPL Montana's Financial Statements for information concerning federal clean air legislation, groundwater degradation and waste water control at facilities owned by PPL's subsidiaries and PPL Electric's and PPL Gas Utilities' agreements with the Pennsylvania DEP concerning remediation at certain sites. Other environmental laws, regulations and developments that may have a substantial impact on PPL's subsidiaries are discussed below.

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 $27,500 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 December 1997, international negotiators reached agreement in Kyoto, Japan to strengthen the 1992 United Nations Global Climate Change Treaty by adding legally-binding greenhouse gas emission limits. This agreement - the Kyoto Protocol - would require the U.S. to reduce its greenhouse gas emissions to 7% below 1990 levels by 2008 - 2012. Although the Kyoto Protocol is unlikely to be ratified by the U.S., some form of carbon dioxide reductions will likely be required in the future. Such requirements could result in increased capital and operating expenses which are not now determinable but which could be significant.

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 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 review of NPDES permit conditions.

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 Superfund statute 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.

Certain federal and state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup Act, 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 to resume the siting process should it be necessary. Low-level radioactive waste resulting from the operation of Susquehanna is currently being sent to Barnwell, South Carolina and Clive, Utah for disposal. In the event this 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.

General

Concerns have been expressed by some members of the scientific community and others regarding the potential health effects of EMFs. These fields are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment. Federal, state and local officials have focused attention on this issue. PPL and its subsidiaries support the current efforts to determine whether EMFs cause any human health problems and are taking low cost or no cost steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PPL is unable to predict what effect, if any, the EMF issue might have on its operations and facilities and the associated cost, or what, if any, liabilities it might incur related to the EMF issue.

PPL and its subsidiaries are unable to predict the ultimate effect of evolving environmental laws and regulations upon its 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 which 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 which expire in 2022 and 2024, respectively. In November 2001, PPL Susquehanna notified the NRC that it intends to seek renewal of its operating licenses. If the NRC approves PPL Susquehanna's application, the operating licenses for Units 1 and 2 would each be extended for an additional 20 years, to 2042 and 2044, respectively.

PPL Holtwood operates two hydroelectric projects pursuant to licenses renewed by the FERC in 1980: Wallenpaupack (44 MW capacity) and Holtwood (102 MW capacity). The Wallenpaupack license expires in 2004 and the Holtwood license expires in 2014. PPL Holtwood owns one-third of the capital stock of Safe Harbor Water Power Corporation (Safe Harbor), which holds a project license which extends the operation of its hydroelectric plant until 2030. The total capacity of the Safe Harbor plant is 418 MW, and PPL Holtwood is entitled by contract to one-third of the total capacity (139 MW).

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 license for the nine Missouri-Madison facilities expire in 2040.

EMPLOYEE RELATIONS

See "Source of Labor Supply" in Note 16 to PPL's, Note 14 to PPL Energy Supply's, Note 10 to PPL Electric's and Note 9 to PPL Montana's Financial Statements for information on employees, including those covered by labor contracts.

ITEM 2. PROPERTIES

Domestic Generation

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

Domestic Generation Under Development

PPL Global and PPL Susquehanna had the following domestic generation development projects in progress at December 31, 2001:

Plant		Type	Total MW Capacity (1)	Ownership Interest in MW			Expected In-Service Date (2)
Pennsylvania
	Lower Mt. Bethel	Gas-fired	600	600	(100%)		2003
	Susquehanna (3)	Nuclear	100	90	(90%)		2003-04
Arizona
	Griffith	Gas-fired steam	600	300	(50%)	(4)	January 2002
	Sundance	Gas-fired	450	450	(100%)		2002
Illinois
	University Park	Gas-fired	540	540	(100%)		2002
New York
	Kings Park	Gas-fired	300	300	(100%)		2004	(6)
	Shoreham and    Edgewood	Gas-fired	160	160	(100%)		2002	(5)
Total			2,750	2,440
(1)	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 from time to time to reflect changed circumstances.
(2)	The expected in-service dates are subject to receipt of required approvals and permits and to other contingencies.
(3)	The Susquehanna project involves the installation of more efficient steam turbines to increase capacity.
(4)	The Griffith project, which was co-developed with Duke Energy, began commercial operations in January 2002.
(5)	Construction is expected to commence in 2002.
(6)	Construction is expected to commence in 2003.

All projects under development, other than the Susquehanna upgrade, are gas-fired simple-cycle or combined-cycle combustion turbine facilities.

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

Domestic Electricity Delivery

For a description of PPL's Electric's service territory, see Item 1, "Business - Background." At December 31, 2001, 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 375 substations with a total capacity of 24.7 million kVA, 32,735 circuit miles of overhead lines and 6,002 cable miles of underground conductors. All of PPL Electric's facilities are located in Pennsylvania. Substantially all of PPL Electric's transmission and distribution properties are subject to the lien of PPL Electric's 1945 First Mortgage Bond Indenture and its 2001 Senior Secured Bond Indenture.

Domestic Gas Delivery

PPL Gas Utilities has two natural gas distribution subsidiaries - PFG Gas, Inc., which distributes gas to customers in southeastern and central Pennsylvania and parts of Maryland, and North Penn Gas Company, which serves customers in the northern part of Pennsylvania. North Penn Gas also has natural gas storage facilities in Pennsylvania. As of December 31, 2001, PFG Gas had 39,492 customers and 1,140 miles of pipeline mains, with approximately 14 miles in Maryland and the remainder in Pennsylvania. North Penn Gas had 35,493 customers and 2,695 miles of pipeline mains in Pennsylvania.

International Electric Delivery

PPL Global has consolidated investments in electricity transmission and distribution companies, primarily serving approximately 2 million customers in Chile, El Salvador, Bolivia and Brazil, as follows:

International Projects

Company			Location	Primary Business	Ownership Interest		2001 Electricity Sales GWh (1)
LATIN AMERICA
Empresas EMEL S.A. (EMEL):					95.4%	|  |  }  |	1,989
	Emelari		Chile	Distribution	85.0%
	Eliqsa		Chile	Distribution	85.6%
	Elecda		Chile	Distribution	85.1%
	Emelat		Chile	Distribution	93.4%
	Emelectric		Chile	Distribution	99.9%
		Emetal (owned by Emelectric)	Chile	Distribution	75%
	Transemel		Chile	Transmission	60%
Empresa de Luz y Fuerza Electrica Cochabamba
	(ELFEC)		Bolivia	Distribution	91.9%	}	531
Empresa de Ingenieria y Servicios Integrales
	Cochabamba S.A. (Integra)		Bolivia	Distribution	91.9%
Distribuidora de Electricidad del Sur (DelSur)
			El Salvador	Distribution	80.5%		812
Compañhia Energetica do Maranhao (CEMAR)
			Brazil	Distribution	89.6%		2,586
		Total					5,918

(1)  Sales corresponding to revenues recorded by PPL Global in 2001.

PPL Global's major international operations include equity investments in two U.K. electricity transmission and distribution companies: WPD (South West), which serves approximately 1.4 million customers in England, and WPD (South Wales), which serves approximately 1 million customers in Wales.

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 16 to PPL's, Note 14 to PPL Energy Supply's, Note 10 to PPL Electric's and Note 9 to PPL Montana's Financial Statements for information concerning certain environmental matters.

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

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

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

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

PPL's appeal of the Susquehanna station assessment for 1998 and 1999 is still pending in the Luzerne County Court of Common Pleas. A decision from the court is expected in the first-half of 2002. As a result of these proceedings and potential appeals, a final determination of market value and the associated tax liability for 1998 and 1999 may not occur for several years.

In the other assessment appeals pending in county courts, the local authorities have assessed PPL's generating plants at an aggregate market value amount of about $311 million for tax year 2000, for a total tax liability of about $5.2 million. PPL has estimated the aggregate market value of these plants at about $26 million for tax year 2000, for a total tax liability of about $460,000. As at the Susquehanna station, the school districts involved in these proceedings have issued tax bills at levels which are disputed by PPL. Final determinations of market value and associated tax liability in these proceedings may not occur for several years.

See "Review of the Financial Condition and Results of Operation" for a description of the July 1, 2000 corporate realignment in which PPL Electric's generating plants in Pennsylvania were transferred to various PPL affiliates.

In June 2001, the MPSC issued an order (MPSC Order) in which it found that Montana Power must continue to provide electric service to its customers at tariffed rates until its transition plan under the Montana Electricity Utility Industry Restructuring and Customer Choice Act is finally approved, and that purchasers of generating assets from Montana Power must provide electricity to meet Montana Power's full load requirements at prices to Montana Power that reflect costs calculated as if the generating assets had not been sold. PPL Montana purchased Montana Power's interests in two coal-fired plants and 11 hydroelectric units in 1999. In July 2001, PPL Montana filed a complaint against the MPSC with the U.S. District Court in Helena, Montana, challenging the MPSC Order. In its complaint, PPL Montana asserted, among other things, that the Federal Power Act preempts states from exercising regulatory authority over the sale of electricity in wholesale markets, and requested the court to declare the MPSC action preempted, unconstitutional and void. In addition, the complaint requested that the MPSC be enjoined from seeking to exercise any authority, control or regulation of wholesale sales from PPL Montana's generating assets.

At this time, PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of the proceedings related to the MPSC Order, what actions the MPSC, the Montana Legislature or any other governmental authority may take on these or related matters, or the ultimate impact on PPL, PPL Energy Supply and PPL Montana of any of these matters.

In an unrelated matter, in July 2001, PPL Montana filed an action in state court and a responsive pleading in federal court, both related to a breach of contract by Energy West Resources, Inc. (Energy West), a Great Falls, Montana-based energy aggregator. PPL Montana is seeking a judgment that Energy West violated the terms of the contract under which it supplies energy to Energy West and should pay damages of at least $7.5 million. All litigation in this matter has been consolidated in the U.S. District Court for the District of Montana, Great Falls Division, and is proceeding in that forum. PPL, PPL Energy Supply and PPL Montana cannot predict the ultimate outcome of these proceedings.

In April 2000, three employees at PPL Montana's Colstrip facility were severely burned when an equipment fault in Colstrip Unit 1 caused electrical arcing. In May 2000, the injured employees and their spouses filed litigation for their injuries in Montana district court against Montana Power. PPL Montana was subsequently named as a party defendant to the pending litigation, and a trial has been scheduled for June 2002. At this time, PPL Montana cannot predict the ultimate outcome of this matter.

Litigation arising out of the California electricity supply situation has been filed at the FERC and in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these proceedings allege abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, among other things, and seek price caps on wholesale sales in California and other western power markets, refunds of excess profits allegedly earned on these sales of energy, and other relief, including treble damages and attorney's fees. Certain of PPL's subsidiaries have intervened in the FERC proceedings in order to protect their interests, but have not been named as defendants in any of the court actions alleging abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws. PPL Montana has been named as a defendant in a declaratory judgment action initiated by the State of California to prevent certain members of the California Power Exchange from seeking compensation for the State's seizure of certain energy contracts. PPL Montana is a member of the California Power Exchange, but it has no energy contracts with or through the California Power Exchange and has not sought compensation in connection with the State's seizure.

Attorneys general in several western states, including California, have begun investigations related to the electricity supply situation in California and other western states. The FERC has determined that all sellers of energy in the California markets, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001 and has initiated an evidentiary hearing concerning refund amounts. The FERC also is considering whether to order refunds for sales made in the Pacific Northwest, including sales made by PPL's subsidiaries. The FERC Administrative Law Judge assigned to this proceeding has recommended that no refunds be ordered for sales into the Pacific Northwest. The FERC presently is considering this recommendation. PPL cannot predict whether or the extent to which any of its subsidiaries will be the target of any governmental investigation or named in these lawsuits, refund proceedings or other lawsuits, the outcome of any such proceedings or whether the ultimate impact on PPL or its subsidiaries of the electricity supply situation in California and other western states will be material.

In August 2001, a purported class-action lawsuit was filed by a group of shareholders of Montana Power against Montana Power, the directors of Montana Power, certain unnamed advisors and consultants of Montana Power, and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to and participated in a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. PPL Montana is unable to predict the outcome of this matter.

In November 2001, the PJM Market Monitor publicly released a report prepared for the PUC entitled "Capacity Market Questions" relating to the pricing of installed capacity in the PJM daily market during the first quarter of 2001. The report concludes that PPL EnergyPlus (identified in the report as "Entity 1") was able to exercise market power to raise the market-clearing price above the competitive level during that period. PPL EnergyPlus does not agree with the Market Monitor's conclusions that it exercised market power; in addition, the Market Monitor acknowledged in his report that PJM's standards and rules did not prohibit PPL EnergyPlus' conduct. In November 2001, the PUC issued an Investigation Order directing its Law Bureau to conduct an investigation into the PJM capacity market and the allegations in the Market Monitor's report. In January 2002, PPL filed comments as requested by the Investigation Order. The Order does not suggest what, if any, action the PUC may take as a result of the investigation, other than considering possible changes to its competitive safeguards. While PPL EnergyPlus and PPL Electric have filed comments with the PUC as part of the investigation, they have both taken the position that the PUC does not have jurisdiction to regulate the PJM capacity markets as those markets are for wholesale electricity transactions and accordingly are within the exclusive jurisdiction of the FERC. In addition, PPL EnergyPlus and PPL Electric believe that PPL EnergyPlus' actions under review were at all times lawful and consistent with the rules of the market. At this time, neither PPL EnergyPlus nor PPL Electric can predict the outcome of the PUC investigation or what action the PUC may take in connection with the investigation.

In December 1998, the FERC issued an order authorizing PPL EnergyPlus to make wholesale sales of electric power and related products at market-based rates. In that order, the FERC directed PPL EnergyPlus to file an updated market analysis within three years of the date of the order, and every three years thereafter. PPL EnergyPlus filed its initial updated market analysis in December 2001. Several parties thereafter filed interventions and protests requesting that, in light of the PJM Market Monitor's report described above, PPL EnergyPlus be required to provide additional information demonstrating that it has met the FERC's market power tests necessary for PPL EnergyPlus to continue its market-based rate authority. PPL EnergyPlus has responded to those protests and interventions. PPL EnergyPlus has taken the position 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. The matter is currently pending before the FERC.

In January 2002, the Montana Secretary of State certified, in accordance with applicable statutes, that it had approved the form of a proposed Montana "Hydroelectric Security Act" initiative. The proposed initiative may be placed on the November 2002 statewide ballot if sufficient signatures are obtained prior to June 21, 2002. Among the stated purposes of the proposed initiative is to create an elected Montana public power commission to determine whether purchasing hydroelectric dams in Montana is in the public interest. Such a commission could decide to acquire PPL Montana's hydroelectric dams either pursuant to a negotiated purchase or an acquisition at fair market value through the power of condemnation. At this time, PPL, PPL Energy Supply and PPL Montana cannot predict whether the proposed initiative will garner enough signatures for placement on the November 2002 statewide ballot, whether there will be a successful legal challenge to the initiative, whether it would pass if on the ballot or what impact, if any, the measure might ultimately have upon PPL Montana or its hydroelectric operations. PPL Montana has declared its opposition to, and intends to vigorously oppose, the initiative.

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 2001.

EXECUTIVE OFFICERS OF THE REGISTRANTS

Officers of PPL, PPL Energy Supply, PPL Electric and PPL Montana are elected annually by their Boards of Directors (or Boards of Managers, as applicable) to serve at the pleasure of the respective Boards. There are no family relationships among any of the executive officers, or 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 as of December 31, 2001:

PPL Corporation:
Name		Age	Position	Effective Date of Election to Present Position
William F. Hecht		58	Chairman, President and Chief Executive Officer	February 24, 1995
John R. Biggar		57	Executive Vice President and Chief Financial Officer	January 1, 2001
Lawrence E. De Simone		54	Executive Vice President - Supply	October 1, 2001
Robert J. Grey		51	Senior Vice President, General Counsel and Secretary	March 1, 1996
Michael E. Bray*		54	Vice Chair and President - PPL Electric Utilities Corporation	July 1, 2000
Paul T. Champagne*		43	President - PPL EnergyPlus, LLC	October 1, 2001
James H. Miller*		53	President - PPL Generation, LLC	February 5, 2001
Roger L. Petersen*		50	President - PPL Global, LLC	October 1, 2001
Joseph J. McCabe		51	Vice President and Controller	August 1, 1995
James E. Abel		50	Vice President - Finance and Treasurer	June 1, 1999
*	Messrs. Bray, Champagne, Miller and Petersen have been designated executive officers of PPL by virtue of their respective positions at PPL subsidiaries.

PPL Electric Utilities Corporation:
Name	Age	Position	Effective Date of Election to Present Position
Michael E. Bray	54	Vice Chair and President	July 1, 2000
Joseph J. McCabe	51	Vice President and Controller	August 1, 1995
James E. Abel	50	Treasurer	July 1, 2000

Each of the above officers, with the exception of Messrs. Bray, Champagne, De Simone, Miller and Petersen, had been employed by PPL Electric for more than five years as of July 1, 2000. In connection with the July 1, 2000 corporate realignment, Messrs. Hecht, Biggar, Grey, McCabe and Abel became employees of PPL Services, another PPL subsidiary; at that time, Messrs. Hecht, Biggar and Grey ceased being officers of PPL Electric. Mr. De Simone became an employee of PPL Services upon his election as PPL's Executive Vice President - Supply on October 1, 2001.

Mr. Bray joined PPL Electric in April 2000. Prior to that time, he was President and Chief Executive Officer of Consolidated Edison Development, Inc. Mr. De Simone became Executive Vice President - Supply of both PPL and PPL Services in October 2001. Prior to that time, he was President - PPL EnergyPlus and Senior Vice President - Energy Services at Virginia Power Company. Mr. Champagne became President - PPL EnergyPlus in October 2001. Prior to that time, he was President - PPL Global and Vice President and Senior Development Officer of PPL Global. Mr. Miller joined PPL Generation in February 2001. Prior to that time, he was Executive Vice President of USEC, Inc. Mr. Petersen became President - PPL Global in October 2001. Prior to that time, he was President - PPL Montana, Vice President and Chief Operating Officer - PPL Global and Vice President - PPL Global.

Prior to their election to the positions shown above, the following executive officers held other positions within PPL and PPL Electric since January 1, 1997. Mr. Biggar was Vice President - Finance, Vice President - Finance and Treasurer, Senior Vice President - Financial, and Senior Vice President and Chief Financial Officer; and Mr. Abel was Treasurer (of PPL) and Vice President and Treasurer (of PPL Electric).

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.

PPL Montana, LLC:

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

PPL CORPORATION AND SUBSIDIARIES

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

Additional information for this item is set forth in the sections entitled "Quarterly Financial, Common Stock Price and Dividend Data" and "Shareowner and Investor Information" of this report. The number of common shareowners is set forth in the section entitled "Selected Financial and Operating Data" in Item 6.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
			2001		2000		1999		1998		1997
PPL Corporation (a)
Income Items -- millions
	Operating revenues		$	5,725	$	5,683	$	4,590	$	3,786	$	3,077
	Operating income (b)			855		1,202		821		827		800
	Net income (loss)			179		498		432		(569)		296
Balance Sheet Items -- millions (c)
	Property, plant and equipment, net			6,135		5,948		5,624		4,480		6,820
	Recoverable transition costs			2,174		2,425		2,647		2,819
	Total assets			12,574		12,360		11,174		9,607		9,485
	Long-term debt			5,579		4,784		4,157		2,984		2,735
	Company-obligated mandatorily redeemable    preferred securities of subsidiary trusts holding    solely company debentures			825		250		250		250		250
	Preferred stock
		With sinking fund requirements		31		46		46		46		46
		Without sinking fund requirements		51		51		51		51		51
	Common equity			1,857		2,012		1,613		1,790		2,809
	Short-term debt			118		1,037		857		636		135
	Total capital provided by investors			8,461		8,180		6,974		5,757		6,026
	Capital lease obligations (d)							125		168		171
Financial Ratios
	Return on average common equity -- %			8.41		27.49		24.70		(24.60)		10.60
	Embedded cost rates (b)
		Long-term debt -- %		6.84		6.98		6.95		7.40		7.88
		Preferred stock -- %		5.81		5.87		5.87		5.87		5.85
		Preferred securities -- %		8.13		8.44		8.44		8.44		8.43
	Times interest earned before income taxes			2.15		3.05		3.48		3.69		3.39
	Ratio of earnings to fixed charges -- total    enterprise basis (e)			2.0		2.8		3.0		3.5		3.3
	Ratio of earnings to fixed charges and dividends    on preferred stock --total enterprise basis (e)			1.8		2.6		2.8		3.1		2.9
Common Stock Data
	Number of shares outstanding -- thousands
		Year-end		146,580		145,041		143,697		157,412		166,248
		Average		145,974		144,350		152,287		164,651		164,550
	Number of record shareowners (c)			87,796		91,777		91,553		100,458		117,293
	Basic EPS (loss) - reported		$	1.23	$	3.45	$	2.84	$	(3.46)	$	1.80
	Diluted EPS (loss) - reported		$	1.22	$	3.44	$	2.84	$	(3.46)	$	1.80
	Dividends declared per share		$	1.06	$	1.06	$	1.00	$	1.335	$	1.67
	Book value per share (c)		$	12.67	$	13.87	$	11.23	$	11.37	$	16.90
	Market price per share (c)		$	34.85	$	45.188	$	22.875	$	27.875	$	23.938
	Dividend payout rate -- % (f)			87		31		35		(39)		93
	Dividend yield -- % (g)			3.04		2.35		4.37		4.79		6.98
	Price earnings ratio (f) (h)			28.57		13.14		8.05		(8.06)		13.30
Sales Data - millions of kWh
	Electric energy supplied - retail			43,470		41,493		36,637		31,651		31,964
	Electric energy supplied - wholesale			27,683		40,925		32,045		36,708		21,454
	Electric energy delivered - retail			40,529		37,642		35,987		32,144		31,964
(a)	The earnings for each year were affected by unusual items. These adjustments affected net income. See "Earnings" in Review of the Financial Condition and Results of Operations for a description of unusual items in 2001, 2000, and 1999.
(b)	Operating income of certain years is restated to conform to the current presentation.
(c)	At year-end.
(d)	PPL Electric terminated its capital lease in 2000. See Note 12 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, interest on capital lease obligations and the estimated interest component of other rentals.
(f)	Based on diluted EPS.
(g)	Based on year-end market prices.
(h)	Based on diluted EPS excluding unusual items, the price earnings ratios are: 2001, 8.26; 2000, 13.78; 1999, 9.73; 1998, 14.91; 1997, 11.97.

PPL CORPORATION
ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PPL is an energy and utility holding company with headquarters in Allentown, PA. See Item 1 "Business - Background" for descriptions of PPL's major segments. See Exhibit 99 in Item 14 for the current corporate organization structure. Other subsidiaries may be formed by PPL to take advantage of new business opportunities.

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income, comparing 2001 to 2000, and 2000 to 1999.

Certain items on the Statement of Income have been impacted by PPL Global's investment in CEMAR. The results of CEMAR are included for the entire year in 2001, but were included for only the last three months of 2000.

Certain items on the Statement of Income have also been impacted by the acquisition of the Montana generating assets by PPL Montana in December 1999. As such, the results of PPL Montana are included for all of 2000 and 2001, but only for the last two weeks of 1999.

Earnings

Net income, and the related EPS, were as follows:

	2001		2000		1999
Net income (millions of dollars)	$	179	$	498	$	432
EPS - basic	$	1.23	$	3.45	$	2.84

The changes in net income from year to year are, in part, attributable to several unusual items with significant earnings impacts that are shown below. Refer to specific Notes to the Financial Statements for discussion of certain of these items. The items without note references are discussed in "Other Charges," "Other Operation Expenses" and "Other Income and (Deductions)."

		(Millions of dollars)
			2001			2000		1999
Net income - actual			$	179		$	498	$	432
Unusual items (net of tax):
	Write-down of WPD 1953 investment in Teesside (Note 22)			(21	)
	Write-down investment in WPD 1953 and WPDL (Note 22)			(117	)
	Write-down investment in CEMAR (Note 22)			(217	)
	Accounting method change - pensions (Note 14)			10
	Enron impact on trading (Note 21)			(8	)
	Cancellation of generation projects (Note 11)			(88	)
	Environmental insurance recoveries						24
	Sale of Sunbury plant and related assets								42
	Sale of SWEB supply business								64
	Securitization (Note 5)								19
	Write-down of carrying value of investments								(51	)
Net income from core operations			$	620		$	474	$	358

Excluding the effects of unusual items, net income from core operations increased from $474 million in 2000 to $620 million in 2001, or 31%. The earnings improvement was primarily due to:

• higher margins on eastern and western U.S. wholesale energy transactions;
• lower operating costs, partially due to lower pension expense;
• favorable tax credits from synfuel operations; and
• higher earnings from mechanical contracting subsidiaries.

These earnings improvements in 2001 were partially offset by higher levels of interest expense, and increased dividends resulting from the issuance of the PEPS Units.

PPL expects that lower wholesale prices will adversely impact core earnings in 2002. Additionally, PPL anticipates writing off the remaining balance of its investment in CEMAR, approximately $100 million, in 2002. See Note 22 for additional information.

Excluding the effects of unusual items, net income from core operations increased from $358 million in 1999 to $474 million in 2000, or 32%. The earnings improvement was primarily due to:

• higher margins on wholesale energy transactions, including PPL Montana;
• the end of a one-year 4% rate reduction for delivery customers in Pennsylvania;
• gains on sales of emission allowances;
• lower depreciation on certain fossil generating assets; and
• fewer common shares outstanding.

These earnings improvements in 2000 were partially offset by higher levels of interest expense, higher costs of wages and employee benefits, and the write-off of a regulatory asset related to the loss incurred in the Pennsylvania Retail Access Pilot Program.

Operating Revenues

Retail Electric and Gas

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

			2001 vs. 2000				2000 vs. 1999
Retail Electric Revenue
	PPL Electric
		Electric delivery		$	12			$	28
		PLR electric generation supply			283				32
	PPL EnergyPlus
		Electric generation supply			(228	)			88
	PPL Global
		Electric delivery			88				75
	Other				(8	)			3
					147				226
Retail Gas Revenue
	PPL Gas Utilities				21				25
	PPL EnergyPlus				22				43
					43				68
Retail Revenues - total				$	190			$	294

Operating revenues from retail electric operations increased in 2001 compared to 2000 primarily due to:

• higher net supply revenues (increases in PPL Electric revenues as a PLR, offset by decreased emphasis of PPL EnergyPlus as a retail supplier);
• increase in PPL Global international electric delivery revenues, primarily due to the acquisition of CEMAR; and
• higher delivery revenues, reflecting a 2% increase in deliveries of electricity.

Operating revenues from retail electric operations increased in 2000 compared to 1999 primarily due to:

• higher supply revenues (increases in PPL EnergyPlus revenues as a retail supplier and PPL Electric revenues as a PLR);
• increased PPL Global international electric delivery revenues, primarily due to the acquisition of CEMAR; and
• higher delivery revenues, reflecting an end of a one-year 4% rate reduction for delivery customers.

Pursuant to the Customer Choice Act and a restructuring settlement with the PUC, PPL Electric is required, through 2009, to provide electricity at pre-determined prices to its delivery customers who do not select an alternate supplier. While these supply rates vary by customer class, the settlement provides for average rates ranging from 4.16 cents per kWh in 2001, increasing to 5.02 per kWh in 2009. As part of this settlement agreement, PPL Electric also agreed to a cap on its average transmission and distribution rates of 1.74 cents per kWh through 2004.

Both PPL Gas Utilities and PPL EnergyPlus experienced higher retail gas revenues in both periods. PPL Gas Utilities' increase in 2001 compared to 2000 was primarily due to a base rate increase effective January 1, 2001, and higher gas commodity prices. PPL Gas Utilities' increase in 2000 compared to 1999 was primarily due to greater demand and higher gas commodity prices. PPL EnergyPlus' increase in both periods was primarily due to intensified gas marketing efforts, and increased retail pricing attributed to higher wholesale gas commodity costs.

Wholesale Energy Marketing and Trading

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

		2001 vs. 2000				2000 vs. 1999
Eastern U.S. markets
	Bilateral/Spot market		$	(203	)		$	315
	Cost-based			(58	)			(38	)
	Gas & oil			(140	)			(39	)
	Other			11				(3	)
				(390	)			235
Western U.S. markets				71				438
Intercompany eliminations				(49	)			(33	)
			$	(368	)		$	640

The decrease in revenues in eastern U.S. markets in 2001 compared to 2000 was primarily due to lower bilateral/spot market sales, caused by unplanned outages, which created fewer opportunities to sell forward and less trading activity, as well as lower spot market prices. The decrease in revenues also reflected the expiration of capacity and energy agreements with JCP&L and BG&E, and lower gas and oil trading activity. (Energy purchases also decreased in 2001 compared with 2000. Refer to "Energy Purchases" for more information.) The increase in western U.S. markets was due to higher wholesale energy prices related to the energy supply shortage in the western U.S. in the first quarter of 2001.

In June 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. as a result of the California energy crisis. These price controls have contributed to the lowering of spot and forward energy prices in the western U.S.

The increase in revenues in eastern U.S. markets in 2000 compared to 1999 was primarily due to higher bilateral market pricing and increased sales volumes to other counterparties. The increase in revenues in western U.S. markets was due to the acquisition of the Montana generating assets by PPL Montana in December 1999.

Energy Related Businesses

Energy related businesses (see Note 1 to the Financial Statements) contributed $84 million to the 2001 operating income of PPL, an increase of $38 million from 2000. The increase primarily reflects PPL Global's higher equity earnings from its U.K. investments and higher operating income from the mechanical contracting and engineering subsidiaries. These gains were partially offset by an increase in PPL Global's project development expenses and pre-tax operating losses from synfuel projects. (However, after the recording of tax credits associated with synfuel operations, the synfuel projects contributed approximately $19 million to net income for 2001.)

Energy related businesses contributed $46 million to the 2000 operating income of PPL, which was a decrease of $14 million from 1999. This decrease was primarily due to operating losses incurred by PPL's synfuel projects. These and other losses were partially offset by increased operating income of the mechanical contracting and engineering subsidiaries, and higher equity earnings from PPL Global's international investments.

Fuel

Fuel costs increased by $63 million in 2001 compared with 2000, and by $47 million in 2000 compared with 1999.

Electric fuel costs increased by $32 million in 2001 compared with 2000. The increase was primarily attributable to increased generation output of PPL Generation's oil/gas-fired units, and higher per-unit costs for this generation, to support an unplanned outage. The increase also reflects higher interchange transmission requirements and higher coal costs. The increase was partially offset by a decrease in coal-fired generation due to the unplanned outage.

Electric fuel costs increased by $23 million in 2000 compared with 1999. Excluding PPL Montana, electric fuel costs decreased by $8 million during 2000 compared with 1999. The decrease was attributable to lower unit costs for nuclear generation, in part due to a $5 million accrual in 1999 for dry cask canisters for on-site spent fuel storage. The decrease from lower unit costs was partially offset by higher generation at the Susquehanna station.

The cost of natural gas and propane increased by $31 million in 2001 compared with 2000. The increase reflects higher gas prices as well as greater off-system sales volume by PPL Gas Utilities.

The cost of natural gas and propane increased by $24 million in 2000 compared with 1999. This increase was primarily due to higher sales by PPL Gas Utilities and intensified gas marketing efforts by PPL EnergyPlus.

Energy Purchases

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

		2001 vs. 2000				2000 vs. 1999
Domestic
	Eastern markets		$	(506	)		$	216
	Western markets			63				121
International				47				46
			$	(396	)		$	383

Excluding energy purchases of CEMAR, energy purchases decreased by $443 million in 2001 compared with 2000. This decrease was primarily due to lower purchases of electricity and gas in the eastern U.S. markets, attributable to a reduction in volumes due to fewer wholesale load obligations and less trading. Partially offsetting these reductions in volumes were higher average purchased power costs in the first half of 2001, and recognized losses on certain long-term transactions by PPL Montana.

Excluding the impact of PPL Montana, energy purchases increased by $262 million during 2000, compared with 1999. This increase was primarily due to higher wholesale prices for energy purchases needed to supply retail load obligations.

Other Operation Expenses

Other operation expenses increased by $54 million in 2001 compared to 2000. This increase was primarily due to a gain on the sale of emission allowances and an insurance settlement for environmental liability coverage in 2000 (both recorded as reductions of expense). The increase also reflects additional operating expenses of CEMAR in 2001. These increases were partially offset by lower pension costs in 2001 primarily due to pension investment performance.

Other operation expenses increased by $40 million in 2000 compared to 1999. Excluding the expenses of PPL Montana, other operation expenses decreased by $37 million in 2000 when compared with 1999. This decrease was primarily the result of environmental insurance recoveries, gains on the sale of emission allowances and reduced pension costs. These reductions were partially offset by increased expenses due to the CEMAR acquisition, an environmental loss accrual and increased costs of wages and other benefits.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs increased by $24 million in 2001 compared to 2000. This increase was primarily due to the collection of CTC revenues related to prior year CTC deferrals of amounts in excess of the Pennsylvania rate cap. The increase also reflects higher amortization of intangible transition property due to lower interest expense on the transition bonds issued under the Customer Choice Act.

Amortization of recoverable transition costs increased by $33 million in 2000 compared to 1999. This increase was the result of recording twelve months of amortization in 2000 as compared to five months of amortization in 1999. This increase was partially offset by a decrease in CTC revenues related to a deferral of CTC amounts in excess of the rate cap.

Maintenance Expenses

Maintenance expenses increased by $44 million in 2000 compared with 1999. Excluding the expenses of PPL Montana, maintenance expenses increased by $31 million in 2000 compared with 1999. This increase was primarily due to higher maintenance costs at the Susquehanna generating station, higher transmission and distribution line maintenance expenses and higher costs of wages.

Other Charges

Other charges of $486 million in 2001 consisted of the write-down of international energy projects (see Note 22) and the cancellation of generation development projects (see Note 11).

Other charges of $51 million in 1999 consisted of the write-downs of PPL Global's investments in WPD and two smaller projects.

Other Income and (Deductions)

Other income increased by $27 million in 2001 compared with 2000. This increase was due to charges in 2000 resulting from a PUC ruling requiring the write-off of the regulatory asset for the loss incurred in Pennsylvania's Retail Access Pilot Program, an adverse FERC decision regarding investments in PJM, and an environmental loss contingency.

Other income decreased by $163 million in 2000 compared with 1999. This decrease was due to the charges recorded in 2000, as described above, and to gains in 1999 on the sale of SWEB's electric supply business ($78 million pre-U.S. tax) and the Sunbury plant and related assets ($66 million pre-tax).

Taxes, Other Than Income

Taxes, other than income, decreased by $21 million in 2001 compared with 2000. This decrease was primarily the result of lower gross receipts tax accruals due to a reduction in the Pennsylvania gross receipts tax rate. Changes in gross receipts tax do not significantly affect earnings as they are substantially recovered in rate-based revenues.

Taxes, other than income, increased by $39 million in 2000 compared with 1999. This increase was primarily due to a higher Pennsylvania gross receipts tax rate, and increased PURTA, real estate and capital stock taxes.

Financing Costs

Interest expense increased by $11 million in 2001 compared with 2000. This increase was the net effect of higher interest on long-term debt, offset by lower interest on short-term debt. The increase in interest on long-term debt reflects the issuance of $800 million of senior secured bonds by PPL Electric, $500 million of senior unsecured notes by PPL Energy Supply and debt issued by PPL Global's consolidated affiliates. A portion of these proceeds were used to pay down commercial paper balances, which decreased such interest expense.

Interest expense increased by $99 million in 2000 compared with 1999. This increase was primarily due to the issuance of transition bonds in August 1999, and interest on PPL Montana's bridge financing.

Dividends on preferred securities increased by $26 million in 2001 compared with 2000 due to the issuance of the PEPS Units in the second quarter of 2001.

Income Taxes

Income tax expense decreased by $33 million in 2001 compared with 2000. This decrease was primarily due to a change in pre-tax domestic book income and additional federal synfuel tax credits recognized. These decreases were offset by deferred income tax valuation allowances recorded on the company's investments in Brazil and the U.K. (see Note 22).

Income tax expense increased by $120 million in 2000 compared with 1999. This increase was primarily due to an increase in pre-tax book income and a release of deferred income taxes no longer required due to securitization, recognized in the third quarter of 1999.

Financial Condition

Liquidity

At December 31, 2001, PPL's net cash position was $832 million, which reflects $950 million in cash and cash equivalents less $118 million of short-term debt. PPL expects this cash and anticipated cash flows from operations to be sufficient to meet PPL's cash requirements for 2002. If PPL's cash requirements exceed its available cash, PPL would attempt to obtain the necessary funds from the issuance of commercial paper, drawing on credit lines, or capital market financings subject to market conditions. PPL cannot provide assurances that any of these funding sources will be available to PPL on acceptable terms.

Cash and cash equivalents are derived from cash from operations, cash from financing activities and cash from investing activities. Cash from operations in 2001 was $908 million, compared to $871 million in 2000. As an asset-backed provider of electricity, the stability of PPL's cash from operations as it relates to the supply of electricity is influenced by the market prices of electricity, the cost of fuel used in the production of electricity and the operational availability of generating units, among other factors.

An important element supporting the stability of PPL's cash from operations is its continuing effort to secure long-term commitments from wholesale and retail customers and long-term fuel supply contracts. In 2001, PPL EnergyPlus signed a full requirements, eight-year contract to supply PPL Electric with estimated peak demand between 6,700 and 7,000 MW for PPL Electric's PLR load. PPL EnergyPlus also signed a five-year contract with Montana Power for 300 MW of around-the-clock electricity supply and 150 MW of on-peak supply. Commitments under these contracts represent between 75%-85% of total anticipated margins from wholesale and retail activity over the next five years (2002-2006). Also, PPL has contracted for over 90% of its anticipated fuel requirements for 2002 and for a lesser amount in future years. PPL will continue to evaluate long-term contracts as market conditions warrant.

In 2002, PPL also finalized multi-year tolling agreements with the Long Island Power Authority for about 160 MW of generation that the company is building at two Long Island sites. Under these tolling agreements, PPL will convert fuel supplied by the Long Island Power Authority to electricity and will receive payments for use of its facilities. PPL is also providing up to 135 MW of supply, for various terms, to large industrial customers in Montana.

PPL EnergyPlus enters into contracts under which it agrees to sell and purchase electricity, natural gas, oil and coal. PPL also enters into contracts designed to lock-in interest rates for future financings or effect changes in PPL's exposure to fixed or floating interest rates. These contracts often provide for cash collateral or other credit enhancement, or reductions or terminations of a portion or all of the contract through cash settlement in the event of a downgrade of PPL or the respective subsidiary's credit ratings or adverse changes in market prices. For example, in addition to limiting its trading ability, if PPL or its respective subsidiary's ratings were lowered to below "investment grade" and energy prices increased by more than 100%, PPL estimates that, based on its December 31, 2001 position, it would have to post collateral of approximately $150 million. PPL has in place risk management programs that, among other things, 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.

Net cash provided by financing activities was $267 million in 2001, compared to $233 million in 2000. Commercial paper programs at PPL Energy Supply and PPL Electric, providing for the issuance of up to $1.1 billion and $400 million, respectively, are maintained to meet short-term cash needs. If the existing credit ratings on these commercial paper programs of each company were lowered, it is unlikely that there would be sufficient investor demand for the commercial paper. In addition, the amount of commercial paper that could be outstanding under either PPL Energy Supply or PPL Electric's program is generally limited to the amount of their respective unused credit lines.

PPL Energy Supply and PPL Electric maintain unsecured credit lines of $1.1 billion and $400 million that are available as backstops for their respective commercial paper programs or for direct borrowings. PPL Energy Supply's and PPL Electric's credit lines are also available to issue up to $700 million and $200 million, respectively, in letters of credit that may be needed for general corporate purposes, including margin requirements resulting from energy contracts. There was no commercial paper outstanding or borrowings under its credit line by PPL Electric at December 31, 2001 or 2000. There was no commercial paper outstanding or borrowings under its credit line by PPL Energy Supply at December 31, 2001, and PPL Energy Supply did not have a commercial paper program or credit line in 2000. In addition, the lenders in the credit line had issued $26 million of letters of credit on PPL Energy Supply's behalf at December 31, 2001. PPL Montana also maintains a $250 million unsecured credit line that is available for borrowings and letters of credit. PPL Montana can directly borrow up to $100 million or request that lenders issue up to $225 million in letters of credit provided that combined borrowings and outstanding letters of credit do not exceed $250 million. PPL Montana had borrowed $44 million under its credit line at December 31, 2001, as compared to no borrowings at December 31, 2000. The lenders in the credit line had issued $25 million of letters of credit on PPL Montana's behalf at December 31, 2001, as compared to $70 million at December 31, 2000. These credit lines contain borrowing conditions, including the absence of certain material adverse changes, financial and other covenants, that if not met, would limit or restrict the ability to borrow or issue letters of credit or cause early payment of outstanding borrowings. In addition, the interest rates applicable to borrowings under the credit lines are based on a scale indexed to the respective companies' credit ratings.

Under its credit lines, PPL Energy Supply must maintain a consolidated debt to capitalization percentage not greater than 65%, and an interest coverage ratio of not less than 2.0 times consolidated earnings before income taxes, depreciation and amortization, in each case as calculated in accordance with the credit lines. At December 31, 2001, PPL Energy Supply's consolidated debt to capitalization percentage, as developed in accordance with its credit lines, was 29%. At December 31, 2001, PPL Energy Supply's interest coverage ratio, as developed in accordance with its credit line, was 12.6. PPL Energy Supply did not have credit lines in 2000. Under its credit line, PPL Electric must maintain a consolidated debt to capitalization percentage not greater than 70%. At December 31, 2001 and December 31, 2000, PPL Electric's consolidated debt to capitalization percentage, as developed in accordance with its credit line, was 57% and 43%, respectively. Under its credit lines, PPL Montana must maintain a consolidated debt to capitalization percentage not greater than 60%. At December 31, 2001 and December 31, 2000, PPL Montana's consolidated debt to capitalization percentage, as developed in accordance with its credit lines, was 51% and 44%, respectively. At this time, PPL believes that these covenants and other borrowing conditions will not limit access to these funding sources.

PPL and its subsidiaries also have available funding sources that are provided through operating leases that are not recorded on the balance sheet. These operating leases provide funds for developing, constructing and operating generation facilities and equipment. Failure to meet the financial and other covenants contained in these operating leases 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.

Under the operating leases entered into to manufacture and construct the natural gas-fired simple-cycle generation facilities, PPL Energy Supply's subsidiaries act as a construction agent for the lessor to manufacture the equipment and for construction of the facility. Upon commercial operation, PPL Energy Supply subsidiaries will operate the facilities, be responsible for all of the costs associated with the operation and maintenance of the facilities and will make rental payments to the lessor trusts.

In November 2005, under the terms of the $555 million operating lease for the turbine generators, which terminates in November 2007, one of PPL Global's subsidiaries is required to deposit in a cash collateral account an amount equal in cash to approximately 82% of all funded equipment costs. Also, PPL guarantees the payment obligations under this lease financing. Accordingly, as guarantor, PPL must maintain a consolidated debt to capitalization percentage not greater than 70%. At December 31, 2001 and December 31, 2000, PPL's consolidated debt to capitalization percentage, as developed in accordance with the guarantee, was 62% and 63%, respectively. At December 31, 2001, the outstanding lease balance was $271 million.

In May 2006, under the terms of the $1.06 billion operating lease which terminates in April 2008, one of PPL Global's subsidiaries is required to deposit in a cash collateral account an amount equal in cash to approximately 83% of all funded asset costs. Also, PPL Energy Supply guarantees the payment obligations under this operating lease. Accordingly, as guarantor, PPL Energy Supply must meet the same covenant tests as applied to its credit lines. At December 31, 2001, the outstanding lease balance was $454 million. In February 2002, the PPL Global subsidiary reduced the available commitment under the lease to approximately $700 million.

Under the terms of the $455 million Lower Mt. Bethel combined-cycle operating lease which terminates no later than September 30, 2014, the PPL Global subsidiary is not required to make any cash payments to the lessor until the facility is completed. However, the PPL Global subsidiary could be called upon to repay approximately 90% of the then-outstanding facility costs. In addition, during the lease term, the PPL Global subsidiary could, subject to certain conditions, purchase the facility from the lessor, offer to assume 100% of the outstanding debt, and pay a reduced make-whole premium to any debt holder that does not accept such offer. Also, PPL Energy Supply guarantees the payment obligations under this operating lease. Accordingly, as guarantor, PPL Energy Supply must meet the same covenant tests as applied to its credit lines. At December 31, 2001 the outstanding lease balance was $116 million.

The PPL Montana Colstrip leases provide two renewal options based on the economic useful life of the generation assets at the end of the 36-year lease term that terminates in 2036. In addition, the lease places certain restriction on PPL Montana's ability to incur additional debt, sell assets and declare dividends. At December 31, 2001 the outstanding debt balance within the lease was $334 million.

In addition to the leasing arrangements discussed above, PPL and its subsidiaries lease vehicles, office space, land, buildings, personal computers and other equipment under separate lease arrangements. See Note 12 to the Financial Statements for a further discussion of the operating leases.

At December 31, 2001, the estimated contractual cash obligations of PPL were as follows (in millions):

Contractual Cash Obligations	Total		Less than 1 year			1-3 years		4-5 years		After 5 years
Long-term Debt (a)	$	5,591	$	498	$	1,668	$	1,628	$	1,797
Capital Lease Obligations
Operating Leases (b)		2,616		368		255		791		1,202
Unconditional Purchase    Obligations		447		65		219		163
Other Long-term Obligations		1,380		171		522		347		340
Total Contractual Cash Obligations	$	10,034	$	1,102	$	2,664	$	2,929	$	3,339

(a)  Includes principal maturities only.
(b)  Includes current amounts for operating leases in effect, projected amounts for projects under construction, and residual value guarantees.

PPL, PPL Energy Supply and PPL Electric provide guarantees for certain affiliate financing arrangements and enable certain transactions. Some of the guarantees contain financial and other covenants that, if not met, would limit or restrict the affiliates' access to funds under these financing arrangements, require early maturity of such arrangements or limit PPL's ability to enter into certain transactions. At this time, PPL believes that these covenants will not limit access to the relevant funding sources. At December 31, 2001, the estimated commercial commitments of PPL were as follows (in millions):

					Amount of Commitment Expiration per period
Other Commercial Commitments		Total Amounts Committed		Less than 1 year		1-3 years		4-5 years	Over 5 years
Lines of Credit (a)
	Standby Letters of    Credit	$	52	$	26	$	26
	Draws Under Lines    of Credit		44		44
Guarantees
	Debt (b)		776		1				$	775
	Performance		117							117
Standby Repurchase    Obligations
Other Commercial    Commitments			114		109		5
Total Commercial    Commitments		$	1,103	$	180	$	31		$	892

(a)  Available credit facilities of $1,762 million.
(b)  Includes guarantees on certain operating lease obligations already included in the table of Contractual Cash Obligations.

The terms governing the securities, guarantees, lease obligations and other commitments issued by PPL and its subsidiaries contain financial and other covenants that require compliance in order to avoid defaults and accelerations of payments. Further, a change in control under certain of these arrangements would constitute a default and could result in early maturity of such arrangements. In addition, certain of these arrangements restrict the ability of PPL's subsidiaries to pay or declare dividends, issue additional debt, sell assets, or take other actions if certain conditions are not met. At this time, PPL believes that it and its subsidiaries will be able to meet these covenant requirements. In order to meet its maturing obligations in future years, PPL expects that it and its subsidiaries will have to continue to access both the bank and capital markets. The long-term debt and similar securities of PPL and its subsidiaries and their maturities are set forth in the table of Contractual Cash Obligations above.

Net cash used in investing activities in 2001 was $702 million, compared to $757 million in 2000. Capital expenditures have historically been for acquisitions and to support both existing and construction of new generation, transmission and distribution facilities. PPL's capital investment needs are expected to increase in 2002. A significant portion of PPL's 2002 capital requirements will be funded through the lessor trusts established in 2001 with the remainder funded from cash and cash equivalents on hand at December 31, 2001 and cash from operations in 2002. (See "Capital Expenditure Requirements" for additional information.)

Energy Marketing and Trading Activities

PPL, through PPL EnergyPlus, sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. Because of the generating assets PPL owns or controls, the majority of PPL's energy transactions qualify for accrual or hedge accounting. In addition, PPL enters into financial contracts to hedge the price risk associated with its electricity, gas and oil positions. At December 31, 2001, PPL had net assets of $50 million related to its energy hedging activities.

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

TCC and FTR contracts are financial instruments that enable the holder to receive compensation for certain congestion-related transmission charges incurred to relieve that congestion. PJM grants FTRs to PPL based upon load being served and owned generation and these FTRs are utilized during the normal course of business. These transactions are accounted for under accrual accounting. In addition to FTRs granted, PPL can purchase and sell TCCs and FTRs at auctions. Only these auction-related TCCs and FTRs, as well as capacity transactions that are not related to PPL's generating assets, are included in trading activities. Net unrealized gains from trading transactions made up approximately 1% of PPL's gross margins from the sale of energy for the year ending December 31, 2001.

PPL's trading contracts mature at various times through 2006. The following chart sets forth PPL's net fair market value of trading contracts as of December 31, 2001.

	Gains/(Losses) (millions of dollars)
Fair value of contracts outstanding at the beginning of the year		$	22
Contracts realized or otherwise settled  during the year			(16	)
Fair value of new contracts when entered into during the year			(4	)
Other changes in fair values			(2	)
Fair value of contracts outstanding at the end of the year		$	0

During 2001, PPL reversed net gains of approximately $16 million related to contracts entered into prior to January 1, 2001. This amount does not reflect intra-year contracts that were entered into and settled during the period.

The fair value of new contracts when entered into during the year is usually zero, because they are entered into at current market prices. However, PPL sometimes enters into certain contracts at a value other than zero. These contracts consist of options, TCCs and FTRs. When PPL enters into an option contract, a premium is paid or received. TCCs and FTRs purchased or sold at public auctions are entered into at an agreed-upon auction price. PPL paid $4 million net-of-tax during 2001 to enter into these contracts.

Other changes in fair value, a loss of approximately $2 million, represent changes in the market value of contracts outstanding at the end of 2001.

PPL's short-term trading contracts, other than exchange-traded futures contracts, are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheet. Long-term trading contracts are included in "Regulatory and Other Noncurrent Assets - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other." Exchange-traded futures contracts are recorded as "Other investments" and "Other current liabilities" on the Balance Sheet. All unrealized gains and losses on trading activities are recognized currently in earnings as "Wholesale energy marketing and trading" revenues and "Energy purchases" on the Statement of Income.

As of December 31, 2001, the net loss on PPL's trading activities expected to be recognized in earnings during the next three months is approximately $1 million.

Modeling Methodologies

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

The following chart segregates estimated fair values of PPL's trading portfolio at December 31, 2001 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) (millions of dollars)
		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
Prices provided by other    external sources			$	(1	)		$	1
Prices based on models    and other valuation    methods				(1	)			1
Fair value of contracts    outstanding at the end of    the period			$	(2	)		$	2

The fair value of contracts using prices actively quoted represents the fair value of exchange-traded futures contracts quoted on the New York Mercantile Exchange. The fair value of contracts provided by other external sources represents the midpoint of the bid/ask spreads obtained through third-party brokers. To be conservative, the open position is then adjusted so that it is marked at the ask price (for open purchase positions) or the bid price (for open sales positions). PPL utilizes internal valuation models to determine the fair value of certain non-exchange traded contracts, including TCCs, FTRs and capacity contracts, because they cannot be quoted through an organized exchange or brokers. The fair value of these contracts on PPL's financial statements reflects a valuation adjustment for the change in market value as determined by the internal model.

Commodity Price Risk

If PPL were unable to deliver firm capacity and energy under its agreements, under certain circumstances it would be required to pay damages. These damages would be based on the difference between the market price to acquire replacement capacity or energy and the contract price of the undelivered capacity or energy. Depending on price volatility in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, non-performance by counterparties (or their counterparties) with which it has power contracts and other factors could affect PPL's ability to meet its firm capacity or energy obligations, or cause significant increases in the market price of replacement capacity and energy.

Although PPL attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty non-performance in the future. PPL attempts to mitigate risks associated with open contract positions by reserving generation capacity to deliver electricity to satisfy its net firm sales contracts and, when necessary, by purchasing firm transmission service. PPL adheres to a comprehensive risk management policy and programs, including established credit policies to evaluate counterparty credit risk.

Credit Risk

Credit risk relates to the risk of loss that PPL would incur as a result of non-performance by counterparties of their contractual obligations. PPL maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL has concentrations of suppliers and customers among electric utilities, natural gas distribution companies and other energy marketing and trading companies. These concentrations of counterparties may impact PPL's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. PPL records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance, in which case PPL would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the financial statements. PPL has also established a reserve with respect to certain sales to the California ISO for which PPL has not yet been paid, as well as a reserve related to PPL's exposure as a result of the Enron bankruptcy, which is reflected in "Accounts receivable." See Notes 20 and 21 to the Financial Statements.

Related Party Transactions

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

For additional information on related party transactions, see Note 17 to the Financial Statements.

Capital Expenditure Requirements

The schedule below shows PPL's current capital expenditure projections for the years 2002-2006 and actual spending for the year 2001 (millions of dollars):

			Actual		Projected
			2001		2002		2003		2004		2005		2006
Construction expenditures (1) (3) (4)
	Generating facilities (2) (5)		$	672	$	1,173	$	385	$	181	$	217	$	895
	Transmission and distribution facilities			292		261		232		205		179		199
	Environmental			58		16		19		53		52		7
	Other			86		106		89		84		65		66
		Total Construction Expenditures		1,108		1,556		725		523		513		1,167
Nuclear fuel				60		54		56		57		61		63
Total Capital Expenditures (4)			$	1,168	$	1,610	$	781	$	580	$	574	$	1,230

(1) Construction expenditures include AFUDC and capitalized interest, which are expected to be less than $20 million in each of the years 2002-2006.
(2) Includes the projected development costs for PPL Global's turbine generator projects. Some of these projects are being financed by parties who lease such projects back to PPL pursuant to leases that are not capitalized on PPL's financial statements.
(3) This information excludes lease payments by PPL Montana under its sales/leaseback transaction.
(4) This information excludes any equity investments by PPL Global for new projects.
(5) Generating facilities include assets financed through off-balance sheet synthetic leases as follows: 2001, $498 million; 2002, $523 million; and 2003, $77 million.

PPL's capital expenditure projections for the years 2002-2006 total about $4.8 billion. Capital expenditure plans are revised from time-to-time to reflect changes in conditions.

Acquisitions and Development

From time-to-time, PPL and its subsidiaries are involved in negotiations with third parties regarding acquisitions, joint ventures and other arrangements which may or may not result in definitive agreements. See Note 11 to the Financial Statements for information regarding recent acquisitions and development activities.

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

At December 31, 2001, PPL Global had domestic generation projects, either announced or under development, which would provide 2,440 MW of additional generation. See Item 2. "Properties" for additional information. In January 2002, construction activities were completed on the Griffith project, located near Kingman, Arizona, and the facility began commercial operations. Griffith is currently in the process of applying for membership in the Southwest Reserve Sharing Group. Acceptance into the Southwest Reserve Sharing Group would allow Griffith to sell significantly more of the plant's generation at firm prices and require fewer reserves for the firm sales.

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

Cash Flow

Cash and cash equivalents increased by $123 million more during 2001 compared with 2000. The reasons for this change were:

• A $37 million increase in cash provided by operating activities, primarily due to an increase in operating income when adjusted for non-cash charges, partially offset by changes in current assets and liabilities.

• A $55 million decrease in cash used in investing activities, primarily due to lower investments in generating assets and electric energy projects.

• A $34 million increase in cash provided by financing activities, primarily due to higher net issuances of securities offset by a decrease in short-term debt.

Environmental Matters

See Note 16 to the Financial Statements for a discussion of environmental matters.

Competition

The electric industry has experienced, and may continue to experience, an increase in the level of competition in the energy supply market at both the state and federal levels. PPL and its subsidiaries believe that, assuming deregulation of the energy industry continues and markets are opened to new participants and new services, competition will continue to be intense. Additionally, competitive pressures have resulted from technological advances in power generation and electronic communications, and the energy markets have become more efficient. See Item 1 "Competition" for additional information.

Critical Accounting Policies

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

1)  Price Risk Management

PPL follows the provisions of SFAS 133, "Accounting for Derivative Instrument and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative Instrument and Certain Hedging Activities," and interpreted by DIG issues (together, "SFAS 133") and EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" for its activities in the area of price risk management. PPL utilizes forward contracts, futures contracts, options and swaps as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by price, interest rate and foreign currency volatility. 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. EITF 98-10 requires that derivative and non-derivative contracts that are designated as trading activities be marked to market through earnings.

PPL markets and/or purchases electricity, gas, oil, capacity, and ancillary products such as transmission congestion contracts. PPL uses exchange prices and external broker quotes to value electricity, gas, and oil contracts. Since there are no market quotes available for capacity and ancillary products, PPL values these products using internal models to forecast future cash flows. PPL then recognizes a modeling reserve for values calculated using internal models to recognize the lack of independence in the valuation of the contracts. Therefore, the net value of the capacity and ancillary products on the financial statements is their amortized cost.

The circumstances and intent existing at the time that energy transactions are entered into determine their accounting designation. These designations are verified by PPL's trading controls group on a daily basis. The following is a summary of the guidelines that have been provided to the traders who are responsible for contract designation:

• Any wholesale and retail contracts to sell electricity that are expected to be delivered from PPL generation are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery. Most wholesale electricity sales contracts in the eastern and western U.S. markets receive "normal" treatment. The methodology utilized in determining the amount of sales that can be delivered from PPL generation is based on a calculation approved by the RMC. This calculation uses market prices compared to dispatch rates as well as planned and forced outage rates by plant by month.

• "Trading around the assets" means that PPL EnergyPlus matches a contract to sell electricity, previously to be delivered from PPL generation, with a physical or financial contract to purchase electricity. These contracts can qualify for fair value hedge treatment. When the contracts' terms are identical, there is no earnings impact until delivery.

• Physical electricity purchases needed to meet obligations due to a change in the physical load or generation forecasts are considered "normal."

• Physical electricity purchases that increase PPL's long position and any energy sale or purchase considered a "market call" are speculative with unrealized gains or losses recorded immediately through earnings.

• Financial electricity transactions, which can be settled in cash, cannot be considered "normal" because they need not result in physical delivery. These transactions receive cash flow hedge treatment if they lock in the price PPL will receive or pay for energy in the spot market. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive 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. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income.

• 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.

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, as well as to hedge the fair value of firm commitments. As with energy transactions, the circumstances and intent existing at the time of the transaction determine its accounting designation, which is subsequently verified by PPL's trading controls group on a daily basis. The following is a summary of certain guidelines that have been provided to the treasury department which is responsible for contract designation:

• Transactions entered into to lock in an interest rate prior to a debt issuance are considered 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 are considered fair value hedges with no earnings impact until the debt is terminated because the hedged debt is also marked to market.

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

To record derivative assets at fair value, PPL reduces the assets' carrying value to recognize differences in counterparty credit quality and potential illiquidity in the market.

• The credit adjustment takes into account the bond ratings (and the implied default rates) of the counterparties that have an out-of-the-money position with PPL. The more counterparties that have, for example, a BBB rating instead of an A rating, the larger the adjustment.

• 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 wanted to close an open sales position or PPL might have to accept the "ask" price if PPL wanted to close an open purchase position.

At December 31, 2001, PPL had assets of $210 million and liabilities of $168 million that were accounted for under SFAS 133 and EITF 98-10. Shareowners' Common Equity included $23 million of net unrealized derivative gains, after-tax, in "Accumulated other comprehensive income." During the year ended December 31, 2001, PPL recorded $7 million in pre-tax income for net unrealized mark-to-market gains, primarily on derivative instruments used for speculative (non-hedge) purposes. During this period, PPL also reclassified into earnings an after-tax loss of $7 million for derivatives that no longer qualified as hedges.

See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," for further discussion regarding price risk management, and sensitivities of hedged portfolios to changes in prices and interest rates.

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" 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 those assumed is a guiding principle of these standards. This approach 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 as follows:

• Discount Rate - The discount rate is used to record the value of benefits, which are based on future projections, in terms of today's dollars.

• Expected Return on Plan Assets - Management projects the future return on plan assets based principally on prior performance. The projected future value of assets reduces the benefit obligation a company will record.

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

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

• Amortization of Gains/(Losses) - Management can select the method by which gains or losses are recognized in financial results. These gains or losses are created when actual results differ from estimated results based on the above assumptions.

At December 31, 2001, PPL had recognized accrued pension and postretirement liabilities of $181 million, included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. PPL's total obligations for these benefits was approximately $1.6 billion, but was offset by $1.8 billion of assets held in various trusts. PPL has not yet recognized this over-funding due to the delayed recognition provisions of SFAS 87 and SFAS 106.

During 2001, PPL made changes to its assumptions related to the discount rate, the rate of compensation increase and the method of amortization of gains/(losses).

A variance in the discount rate, expected return on plan assets, rate of compensation increase or amortization method could have a significant impact on the pension costs recorded under SFAS 87.

A variance in the health care cost trend assumption could have a significant impact on costs recorded under SFAS 106 for postretirement medical expense. The impact of a one-percentage point variance in that assumption is calculated by PPL's actuaries and is detailed in Note 14 to the Financial Statements.

3)  Asset Impairment

PPL and its subsidiaries review long-lived assets for impairment when events or circumstances indicate carrying amounts may not be recoverable. Assets subject to this review, and for which impairments have been recorded in 2001 or prior years, include international equity investments, generation plant and consolidated international energy projects.

Reviews were performed for equity investments in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." APB Opinion No. 18 provides that "a loss in value of an investment which is other than a temporary decline should be recognized." PPL identifies and measures loss in value of equity investments based upon a comparison of fair value to carrying value.

Through December 31, 2001, such reviews were also performed for generation plant and consolidated international energy projects in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." On January 1, 2002, PPL adopted SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS 121. For long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss only if the carrying amount is not recoverable from undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. Refer to Note 18 for additional information on SFAS 144.

At December 31, 2001, PPL Global evaluated its international investments for impairment, as events and circumstances indicated that the carrying value of its investments in Brazil (CEMAR) and the U.K. (WPD 1953 and WPDL) may not be recoverable. The events that led to these impairment reviews were:

• CEMAR: A prolonged drought that caused electricity rationing, an unfavorable regulatory environment and disruption of Brazil's electricity markets, all of which indicated that the future cash flow stream would be adversely impacted.

• WPD 1953 and WPDL: The Enron bankruptcy led to an impairment review of WPD 1953's equity investment in the Teesside generating station, in which Enron was a part owner, operator and purchaser of the station's output. PPL Global's investments in WPD 1953 and WPDL were then tested for impairment, based on the loss of cash flow from the Teesside impairment and the forecasted reduction in operating cash flows at WPD 1953 and WPDL.

In 2001, PPL Global recorded pre-tax impairment charges of $336 million. Impairments included $179 million for its investment in CEMAR, $134 million for its investment in WPD 1953 and WPDL, $21 million for its share of the Teesside impairment recorded by WPD 1953, and approximately $2 million for another international investment.

In determining asset impairments, management must make significant judgments and estimates to calculate the fair value of an investment. Fair value is developed through consideration of several valuation methods including comparison to market multiples, comparison of similar recent sales transactions and discounted cash flow. Discounted cash flow is calculated by estimating future cash flow streams, applying appropriate discount rates to determine the present values of the cash flow streams, and then assessing the probability of the various cash flow scenarios. The impairment is then recorded based on the excess of the carrying value of the investment over fair value.

Changes in assumptions and estimates included within the impairment reviews could result in significantly different results than those identified above and recorded in the Financial Statements.

In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL adopted SFAS 142 on January 1, 2002. Refer to Note 18 for additional information on SFAS 142.

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 that provide specific guidance and additional requirements related to accounting for leases. 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 significant assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life. Changes in these assumptions could result in a significant change to the amounts recognized in the financial statements.

In addition to uncertainty inherent in management's assumptions, leasing transactions become increasingly complex when they involve 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), or unconsolidated special purpose entities (SPEs) (entities that retain ownership of the property, plant and equipment and the related financing). GAAP requires that SPEs be consolidated if several conditions exist, including if the owners of the SPEs have not made an initial substantive residual equity capital investment that is at risk during the entire lease term.

At December 31, 2001, PPL participated in four major leasing transactions involving unconsolidated SPEs. In accordance with GAAP, these SPEs were not consolidated because the equity owners (entities unrelated to PPL) were required to contribute and maintain a minimum of 3% equity interest throughout the life of the SPE.

See Note 12 for additional information related to operating lease payments.

5)  Contingencies

PPL periodically records 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." 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."

SFAS 5 does not permit the accrual of gain contingencies under any circumstances. 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) that the amount of the loss can be reasonably estimated.

The accrual of a contingency involves considerable judgment on the part of management. 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. The largest contingency on PPL's balance sheet is the loss accrual for above market NUG purchase commitments, being the difference between the above market contract terms and the fair value of the energy. This loss accrual of $854 million was recorded in 1998, when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above market cost of the 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 loss contingency associated with the commitment to make above market NUG purchases was recorded. This loss accrual for the above market portion of NUG purchase commitments was recorded because it was probable that the loss had been incurred and the estimate of future energy prices could be reasonably determined, using forward pricing information. This loss accrual was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment. PPL EnergyPlus periodically reviews the reasonableness of the remaining accrual, which was $580 million at December 31, 2001.

PPL has also recorded contingencies for uncollectible accounts, environmental remediation, taxes and litigation in situations where management determined that it was probable a loss had been incurred and it could be reasonably estimated.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk-Sensitive Instruments

PPL actively manages the market risk inherent in its commodity, debt, and foreign currency and equity positions, as detailed in Notes 9 and 19 to the Financial Statements. PPL has a comprehensive risk management policy to manage the risk exposures related to counterparty credit, energy prices, interest rates and foreign currency exchange rates. A RMC comprised of senior officers oversees the risk management function. Nonetheless, adverse changes in commodity prices, interest rates, foreign currency exchange rates and equity prices may result in losses in earnings, cash flows and/or fair values. The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions, due to reliance on model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of reasonably possible losses.

Commodity Price Risk

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

As of December 31, 2001, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of its non-hedge portfolio by an insignificant amount, as compared to a $6 million decrease at December 31, 2000. A similar adverse movement in market prices would have decreased the value of its hedge portfolio by approximately $8 million at December 31, 2001, as compared to a $292 million decrease at December 31, 2000. However, the change in the value of the hedge portfolio would have been offset by an increase in the value of the underlying commodity, the electricity generated. The decline in forward prices from 2000 to 2001 is the primary reason for the differences between 2001 and 2000's sensitivity analyses. In addition to commodity price risk, PPL's commodity positions are also subject to operational and event risks including, among others, increases in load demand and forced outages at power plants.

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

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

Interest Rate Risk

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

At December 31, 2001, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $6 million, as compared to a $7 million increase at December 31, 2000.

PPL is also exposed to changes in the fair value of its debt portfolio. At December 31, 2001, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was $111 million, as compared to $66 million at December 31, 2000.

PPL utilizes various risk management instruments to reduce its exposure to adverse interest rate movements for future anticipated financings. While PPL is exposed to changes in the fair value of these instruments, they are designed such that an economic loss in value should generally be offset by interest rate savings at the time the future anticipated financing is completed. At December 31, 2001, 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 $13 million, as compared to an $18 million exposure at December 31, 2000. See Notes 9 and 19 to the Financial Statements for a discussion of financial derivative instruments outstanding at December 31, 2001.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities and net investments.

During the first quarter of 2001, PPL entered into contracts for the forward purchase of 51 million euros to pay for certain equipment in 2002 and 2003. The estimated value of these forward purchases as of December 31, 2001, being the amount PPL would have to pay to terminate them, was $3 million. At December 31, 2000, PPL had a forward purchase contract for 37 million euros. The estimated amount that PPL would have had to pay to terminate the forward purchases was insignificant.

Nuclear Decommissioning Fund - Securities Price Risk

In order to meet NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of December 31, 2001, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL's 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, 2001, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $17 million reduction in the fair value of the trust assets, as compared to an $18 million reduction at December 31, 2000.

PPL Electric's 1998 restructuring settlement agreement provides for the collection of authorized nuclear decommissioning costs through the CTC. Additionally, PPL Electric is permitted to seek recovery from customers of up to 96% of any increases in these costs. Under the power supply agreement 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. Therefore, PPL's securities price risk is expected to remain insignificant.

Report of Independent Accountants

To the Board of Directors and Shareowners of
PPL Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 176 present fairly, in all material respects, the financial position of PPL Corporation and its subsidiaries ("PPL") at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 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 index appearing under Item 14(a)(2) present 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 PPL'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 auditing standards generally accepted in the United States of America, which 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 19 to the consolidated financial statements, PPL changed its method of accounting for derivative and hedging activities pursuant to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement 133). PPL also changed its method of accounting for amortizing unrecognized gains or losses in the annual pension expense/income determined under Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions, as discussed in Note 14 to the consolidated financial statements.

PricewaterhouseCoopers LLP
Philadelphia, PA
February 4, 2002

PPL Corporation
Management's Report on Responsibility for Financial Statements

The management of PPL is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission for regulated domestic businesses. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatements and present fairly the financial position, results of operations and cash flows of PPL.

PPL's consolidated financial statements have been audited by PricewaterhouseCoopers LLP (PWC), independent certified public accountants. PWC's appointment as auditors was previously ratified by the shareowners. Management has made available to PWC all PPL's financial records and related data, as well as the minutes of shareowners' and directors' meetings. Management believes that all representations made to PWC during its audit were valid and appropriate.

PPL maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control.

Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PPL maintains an internal auditing program to evaluate PPL's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and PWC's recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PPL's system of internal control is adequate to accomplish the objectives discussed in this report.

The Board of Directors, acting through its Audit Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit Committee, which is composed of four independent directors, meets periodically with management, the internal auditors and PWC to review the work of each. PWC and the internal auditors have free access to the Audit Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters.

Management also recognizes its responsibility for fostering a strong ethical climate so that PPL's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the business policies and guidelines of PPL's operating subsidiaries. These policies and guidelines address: the necessity of ensuring open communication within PPL; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information.

William F. Hecht
Chairman, President and Chief Executive Officer

John R. Biggar
Executive Vice President and Chief Financial Officer

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)
			2001		2000		1999
Operating Revenues
	Retail electric and gas		$	3,357	$	3,167	$	2,873
	Wholesale energy marketing and trading			1,712		2,080		1,440
	Energy related businesses			656		436		277
	Total			5,725		5,683		4,590
Operating Expenses
	Operation
		Fuel		602		539		492
		Energy purchases		1,526		1,922		1,539
		Other		755		701		661
		Amortization of recoverable transition costs		251		227		194
	Maintenance			269		265		221
	Depreciation (Note 1)			254		261		257
	Taxes, other than income (Note 7)			155		176		137
	Energy related businesses			572		390		217
	Other Charges
		Write-down of international energy projects		336				51
		Cancellation of generation projects		150
	Total			4,870		4,481		3,769
Operating Income				855		1,202		821
Other Income and (Deductions)				12		(15)		148
Income Before Interest Expense				867		1,187		969
Interest Expense				387		376		277
Income Before Income Taxes and Minority Interest				480		811		692
Income Taxes (Note 7)				261		294		174
Minority Interest (Note 1)				(2)		4		14
Income Before Extraordinary Items				221		513		504
Extraordinary Items (net of income taxes) (Note 5)						11		(46)
Income Before Cumulative Effect of a Change in Accounting Principle				221		524		458
Cumulative Effect of a Change in Accounting Principle (net of income taxes) (Note 14)				10
Income Before Dividends on Preferred Securities				231		524		458
Dividends - Preferred Securities				52		26		26
Net Income			$	179	$	498	$	432
Basic Earnings Per Share of Common Stock (Note 4)			$	1.23	$	3.45	$	2.84
Diluted Earnings Per Share of Common Stock (Note 4)			$	1.22	$	3.44	$	2.84
Dividends Declared Per Share of Common Stock			$	1.06	$	1.06	$	1.00
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)
				2001		2000		1999
Cash Flows From Operating Activities
	Net income			$	179	$	498	$	432
	Extraordinary items (net of income taxes)						11		(46)
	Net income before extraordinary items				179		487		478
	Adjustments to reconcile net income before extraordinary   items to net cash provided by operating activities
		Depreciation			254		261		257
		Amortizations - recoverable transition costs and other			166		129		156
		Cancellation of generation projects			150
		Gain on sale of generating assets							(146)
		Dividends received from unconsolidated affiliates			103		6		62
		Pension expense (income)			(47)		(6)		9
		Cumulative effect of change in accounting principle			(10)
		Nuclear fuel amortization			58		59		59
		Write-down of international energy projects			336				51
		Dividend requirement - preferred securities			52		26		26
		Equity in earnings of unconsolidated affiliates			(125)		(80)		(59)
		Deferred income taxes and investment tax credits			(47)		(59)		(43)
	Change in current assets and current liabilities
		Accounts receivable			44		120		168
		Accounts payable			(101)		(82)		(170)
		Other-net			(45)		40		(80)
	Other operating activities - net				(59)		(30)		(62)
			Net cash provided by operating activities		908		871		706
Cash Flows From Investing Activities
	Expenditures for property, plant and equipment				(565)		(460)		(318)
	Proceeds from the sale of generating assets and electric   energy projects								221
	Proceeds from PPL Montana sale/leaseback						410
	Investment in generating assets and electric energy   projects				(312)		(570)		(1,095)
	Proceeds from (loans to) affiliated companies				210		(114)
	Other investing activities - net				(35)		(23)		(49)
			Net cash used in investing activities		(702)		(757)		(1,241)
Cash Flows From Financing Activities
	Issuance of PEPS Units				575
	Issuance of long-term debt				1,529		1,000		2,620
	Retirement of long-term debt				(616)		(532)		(1,644)
	Issuance of common stock				56		35		8
	Purchase of treasury stock								(417)
	Payments on capital lease obligations						(11)		(59)
	Payment of common and preferred dividends				(201)		(177)		(180)
	Termination of nuclear fuel lease						(154)
	Net increase (decrease) in short-term debt				(981)		45		215
	Other financing activities - net				(95)		27		(70)
			Net cash provided by financing activities		267		233		473
Effect of exchange rates on cash and cash equivalents					(3)
Net Increase (Decrease) in Cash and Cash Equivalents					470		347		(62)
	Cash and Cash Equivalents at Beginning of Period				480		133		195
	Cash and Cash Equivalents at End of Period			$	950	$	480	$	133
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest (net of amount capitalized)		$	373	$	363	$	267
		Income taxes		$	328	$	266	$	184
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)
			2001		2000
Assets
Current Assets
	Cash and cash equivalents (Note 1)		$	950	$	480
	Accounts receivable (less reserve: 2001, $121; 2000, $70)			574		588
	Notes receivable from affiliated companies (Note 17)					114
	Unbilled revenues			248		279
	Fuel, materials and supplies - at average cost			251		197
	Prepayments			51		40
	Deferred income taxes (Note 7)			77		75
	Price risk management assets (Notes 1 and 19)			124		73
	Other			63		85
				2,338		1,931
Investments
	Investment in unconsolidated affiliates - at equity (Note 3)			586		800
	Investment in unconsolidated affiliates - at cost			114		46
	Nuclear plant decommissioning trust fund (Note 8)			276		268
	Other			61		47
				1,037		1,161
Property, Plant and Equipment - net
	Electric plant in service (Note 1)
		Transmission and distribution		2,692		2,841
		Generation		2,518		2,177
		General		317		293
				5,527		5,311
	Construction work in progress			209		261
	Nuclear fuel			127		123
		Electric plant		5,863		5,695
	Gas and oil plant			197		178
	Other property			75		75
				6,135		5,948
Regulatory and Other Noncurrent Assets (Note 1)
	Recoverable transition costs			2,174		2,425
	Other			890		895
				3,064		3,320
			$	12,574	$	12,360
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)
		2001		2000
Liabilities and Equity
Current Liabilities
	Short-term debt (Note 10)	$	118	$	902
	Notes payable to affiliated companies (Note 17)				135
	Long-term debt		498		317
	Above market NUG contracts (Notes 1 and 16)		87		93
	Accounts payable		558		506
	Taxes		146		223
	Interest		61		42
	Dividends		51		45
	Price risk management liabilities (Notes 1 and 19)		106		77
	Other		213		164
			1,838		2,504
Long-term Debt			5,081		4,467
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 7)		1,449		1,412
	Above market NUG contracts (Notes 1 and 16)		493		581
	Other (Notes 1 and 8)		911		983
			2,853		2,976
Commitments and Contingent Liabilities (Note 16)
Minority Interest (Note 1)			38		54
Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures			825		250
Preferred Stock
	With sinking fund requirements		31		46
	Without sinking fund requirements		51		51
			82		97
Shareowners' Common Equity
	Common stock		2		2
	Capital in excess of par value		1,956		1,895
	Treasury stock (Note 1)		(836)		(836)
	Earnings reinvested		1,023		999
	Accumulated other comprehensive income (Note 1)		(251)		(36)
	Capital stock expense and other		(37)		(12)
			1,857		2,012
		$	12,574	$	12,360
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY
AND COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Millions of Dollars)
			For the Years Ended December 31,
			2001		2000		1999
Common stock at beginning of year			$	2	$	2	$	2
Common stock at end of year				2		2		2
Capital in excess of par value at beginning of year				1,895		1,860		1,866
	Common stock issued (a)			56		35		8
	Other			5				(14)
Capital in excess of par value at end of year				1,956		1,895		1,860
Treasury stock at beginning of year				(836)		(836)		(419)
	Treasury stock purchased							(417)
Treasury stock at end of year				(836)		(836)		(836)
Earnings reinvested at beginning of year				999		654		372
	Net income (b)			179		498		432
	Cash dividends declared on common stock			(155)		(153)		(150)
Earnings reinvested at end of year				1,023		999		654
Accumulated other comprehensive loss at beginning of year (c)				(36)		(55)		(4)
	Foreign currency translation adjustments (b)			(234)		15		(51)
	Unrealized gain (loss) on available-for-sale securities (b)			(4)		3
	Minimum pension liability adjustments (b)					1
	Unrealized gain on qualifying derivatives (b)			23
Accumulated other comprehensive loss at end of year				(251)		(36)		(55)
Capital stock expense and other at beginning of year				(12)		(12)		(27)
	Issuance costs and other charges to issue PEPS Units			(25)
	Other							15
Capital stock expense and other at end of year				(37)		(12)		(12)
Total Shareowners' Common Equity			$	1,857	$	2,012	$	1,613
Common stock shares at beginning of year (a)				145,041		143,697		157,412
	Common stock issued through the ESOP, DRIP, ICP, ICPKE and structured equity program			1,539		1,344		282
	Treasury stock purchased							(13,997)
Common stock shares at end of year				146,580		145,041		143,697
(a) In thousands. $.01 par value, 390 million shares authorized. Each share entitles the holder to one vote on any question presented to any shareowners' meeting.
(b)	Statement of Comprehensive Income (Note 1):
	Net income		$	179	$	498	$	432
	Other comprehensive income, net of tax:
		Foreign currency translation adjustments, net of tax of $15, $6, $6		(234)		15		(51)
		Unrealized gain (loss) on available-for-sale securities, net of tax (benefit) of $(3), $2		(4)		3
		Minimum pension liability adjustments				1
		Unrealized gain on qualifying derivatives, net of tax of $12		23
	Total other comprehensive income (loss)			(215)		19		(51)
	Comprehensive Income (Loss)		$	(36)	$	517	$	381
(c)	See Note 1 for disclosure of balances for each component of Accumulated Other Comprehensive Income.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PPL Corporation and Subsidiaries (a)
(Millions of Dollars)
							Shares Outstanding
			Outstanding						Shares Authorized
PPL Electric			2001		2000		2001
Preferred Stock - $100 par, cumulative
	4-1/2%		$	25	$	25	247,524		629,936
	Series			57		72	568,665		10,000,000
			$	82	$	97
Details of Preferred Stock (b)
										Sinking Fund Provisions
								Optional Redemption Price Per Share
							Shares Outstanding			Shares to be Redeemed Annually
			Outstanding									Redemption Period
			2001		2000		2001
With Sinking Fund Requirements
	Series Preferred
		5.95%			$	1
		6.125%	$	17		31	167,500		(c)	(d)		2003-2005
		6.15%		10		10	97,500		(c)	97,500		April 2003
		6.33%		4		4	46,000		(c)	46,000		July 2003
			$	31	$	46
Without Sinking Fund Requirements
	4-1/2% Preferred		$	25	$	25	247,524	$	110.00
	Series Preferred
		3.35%		2		2	20,605		103.50
		4.40%		12		12	117,676		102.00
		4.60%		3		3	28,614		103.00
		6.75%		9		9	90,770		(c)
			$	51	$	51
Decreases in Preferred Stock
				2001			2000			1999
				Shares	Amount		Shares		Amount	Shares	Amount
	4-1/2% Preferred			(134)
	Series Preferred
		5.95%		(10,000)	$	(1)
		6.125%		(148,000)		(14)
Decreases in Preferred Stock represent: (i) the redemption of stock pursuant to sinking fund requirements; or (ii) shares redeemed pursuant to optional provisions. There were no issuances or redemptions of preferred stock in 2000 or 1999 through these provisions.
(a)	Each share of PPL Electric's preferred stock entitles the holder to one vote on any question presented to PPL Electric's shareowners meetings. There were also 10 million shares of PPL's preferred stock and 5 million shares of PPL Electric's preference stock authorized; none were outstanding at December 31, 2001 and 2000, respectively.
(b)	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 for which such price is $100 per share (plus in each case any unpaid dividends).
(c)	These series of preferred stock are not redeemable prior to 2003: 6.125%, 6.15%, 6.33% and 6.75%.
(d)	Shares to be redeemed annually on October 1 as follows: 2003-2004, 57,500; 2005, 52,500.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31, PPL Corporation and Subsidiaries
(Millions of Dollars)
		Outstanding				Outstanding
		2001		2000		2001	Authorized	Maturity
Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures - $25 per security
	8.10% (a)	$	150	$	150	6,000,000	6,000,000	July 2027	(b)
	8.20% (a)		100		100	4,000,000	4,000,000	April 2027	(b)
	7.75% (c)		575			23,000,000	23,000,000	May 2006
		$	825	$	250
(a)	PPL Capital Trust and PPL Capital Trust II issued to the public a total of $250 million of preferred securities through two Delaware statutory business trusts holding solely PPL Electric debentures. PPL Electric owns all of the common securities of the subsidiary trusts, representing the remaining undivided beneficial ownership interest in the assets of the trusts. The proceeds derived from the issuance of the preferred securities and the common securities were used by PPL Capital Trust and PPL Capital Trust II to acquire $103 million and $155 million principal amount of PPL Electric Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures"). Thus, the preferred securities are supported by a corresponding amount of Subordinated Debentures issued by PPL Electric to the trusts. In addition, PPL Electric has guaranteed all of the trusts' obligations under the preferred securities, to the extent the trusts have funds available for payment.
(b)	The preferred securities are subject to mandatory redemption, in whole or in part, upon the repayment of the Subordinated Debentures at maturity or their earlier redemption. At the option of PPL Electric, the Subordinated Debentures are redeemable on and after April 1, 2002 (for the 8.20% securities) and July 1, 2002 (for the 8.10% securities) in whole at any time or in part from time to time. The amount of preferred securities subject to such mandatory redemption will be equal to the amount of related Subordinated Debentures maturing or being redeemed. The redemption price is $25 per preferred security plus an amount equal to accumulated and unpaid distributions to the date of redemption.
(c)	In May 2001, PPL and PPL Capital Funding Trust I issued $575 million of 7.75% PEPS Units. Each PEPS Unit consists of (i) a contract to purchase shares of PPL common stock on or prior to May 18, 2004 and (ii) a trust preferred security of PPL Capital Funding Trust I with a stated liquidation amount of $25. Each purchase contract requires PPL to make contract adjustment payments of .46% per year, paid quarterly, on the $25 stated amount of the PEPS Unit and requires the holders of the contracts to purchase a number of shares of PPL common stock on or prior to May 18, 2004. The number of shares required to be purchased will depend on the average market price of PPL's common stock prior to the purchase date, subject to certain limitations. The holders' obligations to purchase shares under the purchase contracts may be settled with the proceeds of a remarketing of the preferred securities, which have been pledged to secure these obligations. The distribution rate on each preferred security is 7.29% per year, paid quarterly, until May 18, 2004. The Trust's sole source of funds for distributions are from payments of interest on the 7.29% subordinated notes of PPL Capital Funding, due May 18, 2006, issued to the Trust. The preferred securities are expected to be remarketed in the first half of 2004. Upon a remarketing, the interest rate on the subordinated notes and the distribution rate on the preferred securities will be reset at a rate that will be equal to or greater than 7.29%. PPL has guaranteed the payment of principal and interest on the subordinated notes issued to the trust by PPL Capital Funding. PPL has also guaranteed the distributions on the preferred securities to the extent the Trust has funds available for payment.
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
		2001			2000		Maturity (a)
First Mortgage Bonds (b)
	7-3/4%	$	28		$	28	May 1, 2002
	6-7/8%		19			19	February 1, 2003
	6-7/8%		25			25	March 1, 2004
	6-1/2%		110	(c)		125	April 1, 2005
	6.55%		146	(d)		150	March 1, 2006
	6-1/8%			(e)		200	May 1, 2006
	7-3/8%		10			10	2012-2016
	9-3/8%			(f)		5	2017-2021
	6-3/4% to 8-1/2%		83			83	2022-2026
First Mortgage Pollution Control Bonds (b)
	6.40% Series H		90			90	November 1, 2021
	5.50% Series I		53			53	February 15, 2027
	6.40% Series J		116			116	September 1, 2029
	6.15% Series K		55			55	August 1, 2029
Senior Secured Bonds (b)
	5-7/8%		300	(g)			August 15, 2007
	6-1/4%		500	(g)			August 15, 2009
			1,535			959
Series 1999-1 Transition Bonds
	6.08% to 7.15%		1,923	(h)		2,164	2001-2008
Medium-Term Notes
	5.75% to 8.375%		1,347	(i)		1,487	2001-2007
6.40% Senior Unsecured Notes			500	(j)			November 1, 2011
1.54% Pollution Control Revenue Bonds			9			9	June 1, 2027
8.70% to 9.64% - Unsecured Promissory Notes			13	(k)		16	2005-2022
Other Long-Term Debt			264	(l)		155	2001-2024
			5,591			4,790
Fair Value Swaps			3
Unamortized discount			(15)			(6)
			5,579			4,784
Less amount due within one year			(498)			(317)
	Total Long-Term Debt	$	5,081		$	4,467
(a)	Aggregate long-term debt maturities through 2006 are (millions of dollars): 2002, $498; 2003, $400; 2004, $413; 2005, $855; 2006, $513. There are no bonds or notes 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 transmission and distribution 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 transmission and distribution plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture.
(c)	In September 2001, PPL Electric redeemed and retired $15 million of its First Mortgage Bonds, 6-1/2% Series due 2005.
(d)	In December 2001, PPL Electric redeemed and retired $4 million of its First Mortgage Bonds, 6.55% Series due 2006.
(e)	In May 1998, PPL Electric issued $200 million First Mortgage Bonds, 6-1/8% Reset Put Securities Series due 2006. In connection with this issuance, PPL Electric assigned to a third party the option to call the bonds from the holders on May 1, 2001. PPL Electric purchased the call option in March 2001, and did not exercise the call option. These bonds would have matured on May 1, 2006, but were required to be surrendered by the existing holders on May 1, 2001, through the automatic exercise of a mandatory put by the trustee on behalf of the bondholders.
(f)	In July 2001, PPL Electric redeemed and retired all of its outstanding First Mortgage Bonds, 9-3/8% Series due 2021, at an aggregate par value of $5 million through the maintenance and replacement fund provisions of its Mortgage.
(g)	In August 2001, PPL Electric issued $300 million of 5-7/8% Senior Secured Bonds due 2007 and $500 million of 6-1/4% Senior Secured Bonds due 2009.
(h)	In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. The bonds were issued in eight different classes, with expected average lives of 1 to 8.7 years. Bond principal payments of $241 million were made in 2001.
(i)	During 2001, PPL Capital Funding retired the following series of medium-term notes: in September 2001, $25 million of 6.20% Series due 2001 and $25 million of 5.81% Series due 2001; in October 2001, $20 million of 5.75% Series due 2001; in November 2001, $50 million of 7.75% Series due 2005; in December 2001, $20 million of 7.75% Series due 2005.
(j)	In October 2001, PPL Energy Supply issued $500 million of 6.40% of Senior Unsecured Notes due 2011.
(k)	In September 2001, PPL Gas Utilities redeemed and retired $2 million of 9.59% Notes due 2005 and also made a $750,000 principal payment on its 9.64% Notes due 2010.
(l)	In 2001, PPL Global subsidiaries Emel and CEMAR issued long-term debt. Emel issued $127 million of inflation-linked bonds and CEMAR issued $99 million of long-term debt. A portion of CEMAR's debt was reclassified to short-term debt in conjunction with CEMAR's impairment. (See Note 22).
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

PPL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

   Business and Consolidation

   PPL is an energy and utility holding company based in Allentown, Pennsylvania. PPL is the parent of PPL Energy Funding, PPL Electric, PPL Gas Utilities, PPL Services and PPL Capital Funding.

   PPL Energy Funding is the parent of PPL Energy Supply, which serves as the holding company for PPL's principal unregulated subsidiaries: PPL Generation, PPL EnergyPlus and PPL Global. The principal business of PPL Generation is owning and operating U.S. generating facilities through various subsidiaries. The principal business of PPL EnergyPlus is unregulated wholesale and retail energy marketing. PPL Global's principal businesses are the acquisition and development of both U.S. and international energy projects, and the ownership and operation of international energy projects.

   PPL Electric is the principal 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 consolidates the financial statements of its affiliates when it has control. All significant intercompany transactions have been eliminated. Minority interests in operating results and equity ownership are reflected in the consolidated financial statements.

   The consolidated financial statements reflect the accounts of all controlled affiliates on a current basis, with the exception of certain PPL Global investments. It is the policy of PPL Global to consolidate foreign affiliates and record equity in earnings of foreign affiliates on a lag, based on the availability of financial data on a U.S. GAAP basis:

• Equity earnings from WPD 1953, the parent of WPD (South West) and WPD (South Wales), and WPDL are recorded on a one-month lag. PPL Global has 51% equity ownership interests in these entities but has joint control of these investments with Mirant. Earnings from all other foreign equity method investments are recorded on a three-month lag.
  
  

• PPL Global consolidates the results of controlled subsidiaries, Emel, EC, the Bolivian subsidiaries and other investments, on a one-month lag. The results of CEMAR are consolidated on a three-month lag. The portion of the subsidiaries' earnings owned by outside shareowners is included in "Minority Interest" in the consolidated financial statements.

  PPL Global's 8.5% investment in CGE is accounted for using the cost method. Dividends from CGE are recorded as income when received.

  Use of Estimates/Contingencies

  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.

  PPL records loss contingencies in accordance with SFAS 5, "Accounting for Contingencies."

  Accounting Records

  The accounting records 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.

  Regulation

  Historically, PPL Electric accounted for its 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. PPL Electric discontinued application of SFAS 71 for the generation portion of its business, effective June 30, 1998. In connection with the corporate realignment, effective July 1, 2000, PPL Electric's generating and certain other related assets, along with associated liabilities, were transferred to new unregulated subsidiaries of PPL Generation. PPL Electric's remaining regulated business, PPL Gas Utilities and certain PPL Global affiliates continue to be subject to SFAS 71.

  Property, Plant and Equipment

  Following are the classes of Electric plant in service, with the associated accumulated depreciation, at December 31 (millions of dollars):

  	2001		2000
  Generation	$	7,208	$	6,801
  Transmission and distribution		4,170		3,521
  General		491		459
  		11,869		10,781
  Less: Accumulated depreciation		6,342		5,470
  	$	5,527	$	5,311

  Property, plant and equipment is recorded at original cost, unless impaired under the provisions of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." 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. When a component of property, plant or equipment 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 is retired or sold that was depreciated under the composite or group method, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income, unless otherwise required by regulators.

  AFUDC is capitalized as part of the construction costs for regulated projects. Interest is capitalized as part of construction costs for non-regulated projects.

  Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite and group methods. The annual provisions for depreciation have been computed principally in accordance with the following ranges of asset lives: generation, 5-50 years; transmission and distribution, 15-80 years; and general, 5-80 years. PPL periodically reviews and adjusts the depreciable lives of its fixed assets.

  Asset Impairment

  Long-lived assets and identifiable intangibles held and used by PPL and its subsidiaries are reviewed for impairment when events or circumstances indicate carrying amounts may not be recoverable. Such reviews are performed in accordance with SFAS 121. Impairment losses on such long-lived assets are recognized when book values exceed expected undiscounted future cash flow with the impairment measured on a discounted future cash flows basis. Equity investments are reviewed for impairment in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock". APB Opinion No. 18 provides that "a loss in value of an investment which is other than a temporary decline should be recognized." PPL identifies and measures loss in value of equity investments based upon a comparison of fair value to carrying value. See Note 18 for the impact of SFAS 144 on accounting for asset impairments.

  Amortization of Goodwill

  Goodwill, which is included in "Regulatory and Other Noncurrent Assets - Other" on the Balance Sheet, is amortized on a straight-line basis over a period not to exceed 40 years. The excess cost over fair value of PPL Global's investments in unconsolidated affiliates is amortized on a straight-line basis over a period not in excess of 40 years. See Note 18 for the impact of SFAS 142 on accounting for goodwill.

  Recoverable Transition Costs

  Based on the PUC Final Order, PPL Electric was amortizing its competitive transition (or stranded) costs 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 securitized by the issuance of transition bonds. The intangible transition costs are being amortized over the life of the transition bonds, August 1999 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.

  Accounting for Price Risk Management

  PPL enters into commodity contracts for the physical purchase and sale of energy as well as energy contracts that can be settled financially. PPL enters into interest rate derivative contracts to hedge its exposure to changes in the fair value of its debt instruments, as well as its exposure to variability in expected cash flows associated with existing debt instruments or forecasted transactions. PPL also enters into foreign currency derivative contracts to hedge foreign currency exposures, including firm commitments, recognized assets or liabilities, forecasted transactions or net investments.

  As of January 1, 2001, contracts that meet the definition of a derivative were accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." Certain energy contracts have been excluded from SFAS 133's requirements because they meet the definition of a "normal sale or purchase" under DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity." These contracts are reflected in the financial statements using the accrual method of accounting. See Note 19 for additional information on SFAS 133.

  Under SFAS 133, all derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is executed, PPL designates the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), a foreign currency fair value or cash flow hedge ("foreign currency" hedge), a hedge of a net investment in a foreign operation, or a non-hedge derivative. Changes in the fair value of a derivative that is highly effective as, and is designated and qualifies as, a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk, are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as, and is designated as and qualifies as, a cash flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows being hedged. Changes in the fair value of derivatives that are designated as and qualify as, foreign currency hedges are recorded in either current-period earnings or other comprehensive income, depending on whether the hedge transaction is a fair value hedge or a cash flow hedge. If, however, a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in the cumulative translation adjustments account within equity. Changes in the fair value of derivatives that are not designated as hedging instruments are reported in current-period earnings.

  In addition, PPL has entered into non-derivative contracts that meet the definition of energy trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." In accordance with EITF 98-10, energy trading contract gains and losses from changes in market prices are marked to market through earnings.

  For 1999 and 2000, PPL used EITF 98-10 to account for its commodity forward and financial contracts. As such, contracts that did not meet the definition of energy trading contracts, as defined by EITF 98-10, were reflected in the financial statements using the accrual method of accounting. The gains or losses on interest rate derivative contracts that settled prior to the adoption of SFAS 133 were deferred and are being recognized over the life of the debt. Market gains and losses on foreign currency derivative contracts that settled prior to the adoption of SFAS 133 were recognized in accordance with SFAS 52, "Foreign Currency Translation," and are included in "Foreign currency translation adjustments," a component of "Accumulated other comprehensive income" on the Balance Sheet.

  Gains and losses from changes in market prices of energy sales contracts are accounted for in "Wholesale energy marketing and trading" revenues; gains and losses from changes in market prices of energy purchase contracts are accounted for in "Energy purchases" on the Statement of Income. The amortized gains and losses from interest rate derivative contracts are accounted for in "Interest Expense."

  Revenue Recognition

  "Retail electric and gas" and "Wholesale energy marketing and trading" revenues are recorded based on 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.

  "Energy related businesses" revenue includes revenues from PPL Global and the mechanical contracting and engineering subsidiaries. PPL Global's revenue reflects its proportionate share of affiliate earnings under the equity method of accounting, as described in the "Business and Consolidation" section of Note 1, and dividends received from its investments are accounted for using the cost method. 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. Costs include all direct material and labor costs and job-related overhead. Provisions for estimated loss on uncompleted contacts, if any, are made in the period in which such losses are determined.

  Income Taxes

  The income tax provision for PPL is calculated in accordance with SFAS 109, "Accounting for Income Taxes."

  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 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 7 for additional information.

  PPL Electric deferred investment tax credits when they were utilized, and is amortizing the deferrals over the average lives of the related assets.

  PPL and its subsidiaries file a consolidated federal income tax return.

  Leases

  See Note 12 for a discussion on accounting for leases.

  Pension and Other Postretirement Benefits

  See Note 14 for a discussion on accounting for pension and other postretirement benefits.

  Cash Equivalents

  All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents.

  Comprehensive Income

  Comprehensive income consists of net income and other comprehensive income, defined as changes in common equity from transactions not related to shareowners. Other comprehensive income consists of unrealized gains or losses on available-for-sale securities and qualifying derivatives, the excess of additional pension liability over unamortized prior service costs, and foreign currency translation adjustments recorded by PPL Global. Comprehensive income is reflected on the Statement of Shareowners' Common Equity and Comprehensive Income, and "Accumulated other comprehensive income" is presented on the Balance Sheet.

  The accumulated other comprehensive income of PPL consisted of (in millions):

  	December 31,
  	2001			2000
  Foreign currency translation adjustments	$	(268	)	$	(34	)
  Unrealized gains on qualifying derivatives		23
  Minimum pension liability		(5	)		(5	)
  Unrealized gains (losses) on available-for-sale     securities		(1	)		3
  	$	(251	)	$	(36	)

  Treasury Stock

  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.

  Foreign Currency Translation

  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 income." The effect of translation adjustments on other comprehensive income, net of income taxes, is disclosed in the Statement of Shareowners' Common Equity and Comprehensive Income. Gains or losses relating to foreign currency transactions are recognized in income currently. The aggregate transaction gain was $8 million in 2001, and was not significant in 2000.

  Project Development Costs

  PPL Global expenses the costs of evaluating potential acquisition and development opportunities as incurred. Acquisition and development costs are capitalized upon approval of the investment by the PPL Global Board of Managers and the Finance Committee of PPL's Board of Directors or, if later, the achievement of sufficient project milestones such that the economic viability of the project is reasonably assured. The level of assurance needed for capitalization of such costs requires that all major uncertainties be resolved and that there be a high probability that the project will proceed as planned, or that such costs will be recoverable through long-term operations, a financing or a sale.

  The continued capitalization of project development and acquisition costs is subject to on-going risks related to successful completion. In the event that PPL Global determines that a particular project is no longer viable, previously capitalized costs are charged to expense in the period that such determination is made.

  Reclassification

  Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the current presentation.

2. Segment and Related Information

   PPL's reportable segments are Supply, Delivery and International. The Supply group primarily consists of the domestic energy marketing, generation and domestic development operations of PPL Energy Supply. The Delivery group includes the regulated electric and gas delivery operations of PPL Electric and PPL Gas Utilities. The International group includes PPL Global's responsibility for the acquisition, development, ownership and operation of international energy projects. The majority of PPL Global's international investments are located in the U.K., Chile, El Salvador and Brazil. Segments include direct charges, as well as an allocation of indirect corporate costs, for services provided by PPL Services. These service costs include functions such as financial, legal, human resources and information services.

   See Note 23 for a discussion of the contract between PPL Electric and PPL EnergyPlus.

   Previously, there was a "Development" group that included the activities now reflected in the "International" group and the domestic development operations, currently part of the "Supply" group. Previously reported information has been restated to conform to the current presentation. Financial data for PPL's business segments are as follows (millions of dollars):

   		2001			2000			1999
   Income Statement Data
   Revenues from external customers
   	Supply	$	2,283		$	2,815		$	1,731
   	Delivery		2,867			2,413			2,441
   	International		575			455			418
   			5,725			5,683			4,590
   Equity in earnings of unconsolidated    affiliates
   	Supply		12			2			2
   	International		113			78			57
   			125			80			59
   Depreciation
   	Supply		126			136			138
   	Delivery		97			104			102
   	International		31			21			17
   			254			261			257
   Amortizations - recoverable transition    costs, nuclear fuel and other
   	Supply		(35	)		(48	)		14
   	Delivery		259			236			201
   			224			188			215
   Interest and dividend income
   	Supply		3			(28	)		3
   	Delivery		10			27			6
   	International		2			14
   			15			13			9
   Interest expense
   	Supply		58			109			90
   	Delivery		234			230			168
   	International		95			37			19
   			387			376			277
   Income taxes
   	Supply		153			221			103
   	Delivery		71			59			28
   	International		37			14			43
   			261			294			174
   Extraordinary items
   	Delivery					11			(46	)
   						11			(46	)
   Net Income
   	Supply		368			325			199
   	Delivery		126			113			177
   	International		(315	)		60			56
   		$	179		$	498		$	432
   Cash Flow Data
   Expenditures for property, plant and equipment
   	Supply	$	290		$	278		$	173
   	Delivery		149			148			141
   	International		126			34			4
   			565			460			318
   Investment in generating assets and electric energy projects
   	Supply		176			97			870
   	International		136			473			225
   		$	312		$	570		$	1,095

   		As of December 31,
   		2001		2000
   Balance Sheet Data
   Net investment in unconsolidated affiliates-at equity
   	Supply	$	211	$	165
   	International		375		635
   			586		800
   Total assets
   	Supply		5,038		4,420
   	Delivery		6,097		6,062
   	International		1,439		1,878
   		$	12,574	$	12,360

   		2001		2000		1999
   Geographic Data
   Revenues from external customers
   	Domestic	$	5,150	$	5,228	$	4,172
   	Foreign		575		455		418
   		$	5,725	$	5,683	$	4,590

   		As of December 31,
   		2001		2000
   Property, plant and equipment
   	Domestic	$	5,548	$	5,210
   	Foreign		587		738
   		$	6,135	$	5,948

3. Investment in Unconsolidated Affiliates - at Equity

   PPL's investment in unconsolidated affiliates accounted for under the equity method was $586 million and $800 million at December 31, 2001 and 2000. The most significant investment was PPL Global's investment in WPD 1953, which was $328 million at December 31, 2001 and $479 million at December 31, 2000. WPD 1953 owns WPD (South West) and WPD (South Wales). See Note 22 for a discussion on the write-down of international energy projects. At December 31, 2001, PPL Global had a 51% equity ownership interest in WPD 1953, but shared joint control with Mirant. Accordingly, PPL Global accounts for its investment in WPD 1953 (and other investments where it has majority ownership but lacks control) under the equity method of accounting.

   Investment in unconsolidated affiliates accounted for under the equity method at December 31, 2001, and the effective equity ownership percentages, were as follows:

   PPL Global:
      Aguaytia Energy, LLC - 11.4%
      Bolivian Generating Group, LLC - 29.3%
      Hidrocentrais Reunidas, LDA - 50.0%
      Hidro Iberica, B. V. - 50.0%
      Latin American Energy & Electricity Fund I, LP - 16.6%
      WPD 1953- 51.0%
      WPDL - 51.0%
   
   PPL Generation:
      Safe Harbor Water Power Corporation - 33.3%
      Bangor Pacific Hydro Associates - 50.0%
      Southwest Power Partners, LLC - 50.0%
   

   Summarized below is financial information from the financial statements of these affiliates, accounted for by the equity method (millions of dollars):

   Balance Sheet Data
   	As of December 31,
   	2001			2000
   Current Assets		$	612		$	396
   Noncurrent Assets			5,517			4,904
   Current Liabilities			502			409
   Noncurrent Liabilities			3,955			3,365

   
   Income Statement Data

   	2001		2000		1999
   Revenues (a)	$	647	$	505	$	1,130
   Operating Income		328		254		212
   Net Income (a)		248		131		427

   (a)The decrease in revenues and net income in 2001 and 2000 from 1999 were in part due to the sale of the supply business of WPD (South West), formerly SWEB, in the fourth quarter of 1999.

4. Earnings Per Share

   Basic EPS is calculated by dividing "Net Income" on the Statement of Income by the weighted average number of common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock.

   Potentially dilutive securities consist of stock options granted under the incentive compensation plans (See Note 13), stock units representing common stock granted under directors compensation programs and PEPS Units.

   Preferred dividends are included in net income in the computation of basic and diluted EPS.

   The basic and diluted EPS calculations, and the reconciliation of the shares used in the calculations, are shown below:

   			2001		2000		1999
   (Millions of Dollars or Thousands of Shares)
   Income (Numerator)
   Net Income - before extraordinary items and cumulative effect of    change in accounting principle		$	169	$	487	$	478
   	- Extraordinary items (net of tax)				11		(46	)
   	- Cumulative effect of change in    accounting principle (net of tax)		10
   Net Income		$	179	$	498	$	432

   Shares (Denominator)
   Shares for Basic EPS			145,974		144,350		152,287
   Add: Incremental Shares
   	Stock options		569		364		10
   	Stock units		71		67		59
   Shares for Diluted EPS			146,614		144,781		152,356
   Basic Earnings Per Share
   Net Income - before extraordinary items and cumulative effect of    change in accounting principle		$	1.16	$	3.38	$	3.14
   	- Extraordinary items (net of tax)				0.07		(0.30	)
   	- Cumulative effect of    change in accounting principle		0.07
   Net Income		$	1.23	$	3.45	$	2.84
   Diluted Earnings Per Share
   Net Income - before extraordinary    items and cumulative effect of    change in accounting principle		$	1.15	$	3.37	$	3.14
   	- Extraordinary items (net of tax)				0.07		(0.30	)
   	- Cumulative effect of change in    accounting principle (net of tax)		0.07
   Net Income		$	1.22	$	3.44	$	2.84

   See Note 14 for a description of the cumulative effect of a change in accounting for pension gains and losses. The pro-forma effect of retroactive application of this change in accounting, from reported results, is as follows:

   			2001			2000		1999		1998 and prior years
   Increase (decrease)
   	Net income ($ millions)	$	(10	)	$		7		$		3
   	EPS	$	(.07	)	$		.05		$		.02

   In May 2001, PPL issued 23 million PEPS Units that contain a purchase contract component for PPL's common stock. The purchase contract would settle between 8.8 million and 10.8 million of PPL's common shares, depending on a conversion ratio tied to the price of PPL's common stock. The PEPS Units will only be dilutive if the average price of PPL's common stock exceeds $65.03 for any period. Therefore, they were excluded from the diluted EPS calculations.

   Stock options to purchase approximately 896,000 PPL common shares for 2001 were not included in that period's computation of diluted EPS because the exercise price of the options was greater than the average market price of the common shares. Therefore, the effect would have been antidilutive.

5. Extraordinary Items

   In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. PPL Electric used a portion of the securitization proceeds to repurchase $1.5 billion of its first mortgage bonds. The premiums and related expenses to reacquire these bonds were $59 million, net of tax. In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that was no longer required because of securitization. The net securitization impact of the bond repurchase and the deferred tax change was a gain of $19 million.

   SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," requires that a material aggregate gain or loss from the extinguishment of debt be classified as an extraordinary item, net of the related income tax effect. The $59 million loss associated with the bond repurchase was treated as an extraordinary item. Details were as follows (millions of dollars):

   Reacquisition cost of debt	$	1,554
   Net carrying amount of debt		(1,454	)
   Extraordinary charge pre-tax		100
   Tax effects		(41	)
   Extraordinary charge	$	59

   This extraordinary charge was partially offset in December 1999 with a credit relating to wholesale power activity. In December 2000, there was an additional extraordinary credit relating to wholesale power activity.

6. Sales to Other Electric Utilities

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

   PPL EnergyPlus had a contract to provide BG&E with 129,000 kilowatts, or 6.6%, of PPL Susquehanna's share of capacity and related energy from the Susquehanna station. PPL EnergyPlus provided 407 million kWh to BG&E through May 2001, at which point the contract ended.

   PPL Montana provided power to Montana Power under two wholesale transition sales agreements. One agreement expired in December 2001 and the second agreement expires in June 2002. See Note 16 for more information regarding a new power supply agreement beginning in July 2002.

7. Income and Other Taxes

   For 2001, 2000 and 1999, the corporate federal income tax rate was 35%. The statutory corporate net income tax rates for Pennsylvania and Montana were 9.99% and 6.75%.

   The tax effects of significant temporary differences comprising PPL's net deferred income tax liability were as follows (millions of dollars):

   			2001			2000
   Deferred Tax Assets
   	Deferred investment tax credits	$	60		$	66
   	NUG contracts & buybacks		272			326
   	Accrued pension costs		74			106
   	Deferred foreign income taxes		109			86
   	Cancellation of generation projects		60
   	Impairment write-down		61
   	Contribution in aid of construction		42			33
   	Other		200			162
   	Valuation allowance		(172	)		(8	)
   			706			771

   Deferred Tax Liabilities
   	Electric plant - net		852		845
   	Restructuring - CTC		861		949
   	Taxes recoverable through future rates		104		102
   	Reacquired debt costs		12		13
   	Foreign investments		14		15
   	Deferred foreign income taxes		42		52
   	Other		49		(27)
   			1,934		1,949
   Net deferred tax liability		$	1,228	$	1,178

   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 as follows (millions of dollars):

   			2001			2000			1999
   Income Tax Expense
   	Current-Federal	$	270		$	285		$	178
   	Current-State		36			57			36
   	Current-Foreign		8			11			10
   			314			353			224
   	Deferred-Federal		(86	)		(52	)		76
   	Deferred-State		4			12			(109	)
   	Deferred-Foreign		44			(4	)
   			(38	)		(44	)		(33	)
   	Investment tax credit, net-federal		(15	)		(15	)		(17	)
   	Total	$	261		$	294		$	174
   Total income tax expense-Federal		$	169		$	218		$	237
   Total income tax expense-State			40			69			(73	)
   Total income tax expense-Foreign			52			7			10
   	Total	$	261		$	294		$	174
   			2001			2000			1999  (a)
   Reconciliation of Income Tax Expense
   	Indicated federal income tax on    pre-tax income before    extraordinary item and a    cumulative effect of a change    in accounting principle at    statutory tax - 35%	$	168		$	284		$	242
   Increase/(decrease) due to:
   	State income taxes		25			45			(50	)
   	Flow through of depreciation differences    not previously normalized					2			3
   	Amortization of investment tax credit		(11	)		(11	)		(12	)
   	Write-down of international energy projects		100						18
   	Difference related to income recognition of    foreign affiliates		(17	)		(14	)		(22	)
   	Foreign income taxes		52			7			10
   	Federal income tax credits		(40	)		(6	)
   	Other		(16	)		(13	)		(15	)
   			93			10			(68	)
   Total income tax expense		$	261		$	294		$	174
   Effective income tax rate			54.4%			36.3%			25.1%

   (a) In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that were no longer required because of securitization.

   			2001		2000		1999
   Taxes, Other than Income
   	State gross receipts	$	112	$	128	$	108
   	State utility realty		4		6		13
   	State capital stock		20		23		13
   	Property and other		19		19		3
   		$	155	$	176	$	137

   PPL Global does not pay or record U.S. income taxes on the undistributed earnings of its foreign subsidiaries and its 20% to 50% owned corporate joint ventures where management has determined that the earnings are permanently reinvested in the companies that produced them. The cumulative undistributed earnings are included in "Earnings reinvested" on the Balance Sheet. The amounts considered permanently reinvested at December 31, 2001 and 2000 were $38 million and $27 million. It is not practical to estimate the amount of taxes that might be payable on these foreign earnings if they were remitted to PPL Global.

8. Nuclear Decommissioning Costs

   The cost to decommission the Susquehanna station is based on a site-specific study to dismantle and decommission each unit immediately following final shutdown. PPL Susquehanna's 90% share of the total estimated cost of decommissioning the Susquehanna station was approximately $724 million in 1993 dollars. This estimate includes decommissioning the radiological portions of the station and the cost of removal of non-radiological structures and materials.

   Decommissioning costs are recorded as a component of depreciation expense. Beginning in January 1999, in accordance with the PUC Final Order, $130 million of decommissioning costs are being recovered from customers through the CTC over the 11-year life of the CTC rather than the remaining life of Susquehanna. The recovery will include a return on unamortized decommissioning costs. Decommissioning charges were $24 million in 2001, $26 million in 2000 and $27 million in 1999.

   Amounts collected from PPL Electric's customers for decommissioning, less applicable taxes, are deposited in external trust funds for investment and can be used only for future decommissioning costs. Accrued nuclear decommissioning costs were $294 million and $280 million at December 31, 2001 and 2000, and are included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet.

   In November 2001, PPL Susquehanna notified the NRC that it intends to file for 20-year license renewals for each of the Susquehanna units. If approved, the operating licenses would be extended from 2022 to 2042 for Unit 1 and from 2024 to 2044 for Unit 2.

   See Note 18 for additional information on SFAS 143, which could have a material impact on the accounting for the decommissioning of the Susquehanna station.

9. Financial Instruments

   The carrying amount on the Balance Sheet and the estimated fair value of PPL's financial instruments were as follows (millions of dollars):

   			December 31, 2001				December 31, 2000
   				Carrying Amount		Fair Value		Carrying Amount		Fair Value
   Assets
   	Cash and cash equivalents (a)		$	950	$	950	$	480	$	480
   	Nuclear plant decommissioning    trust fund (a)			276		276		268		268
   	Price risk management assets -    current: (c)
   		Energy		22		22		7		7
   	Price risk management assets -    noncurrent: (c)
   		Energy		44		44		1		1
   		Interest		6		6
   	Other investments (a)			61		61		47		47
   	Other financial instruments    included in other current    assets (a)			3		3		13		13
   Liabilities
   	Long-term debt (b)			5,579		5,724		4,784		4,804
   	Company-obligated    mandatorily redeemable    preferred securities of    subsidiary trusts holding    solely company debentures    (b)			825		705		250		250
   	Short-term debt (a)			118		118		902		902
   	Price risk management    liabilities - current: (c)
   		Energy		12		12				201	(d)
   		Interest		4		4
   		Foreign exchange		2		2
   	Price risk management    liabilities - noncurrent: (c)
   		Energy		7		7				61	(d)
   		Interest		3		3
   		Foreign exchange		1		1
   	Preferred stock with sinking    requirements (b)			31		31		46		46
   	Other financial instruments    included in other current    liabilities (a)			12		12

   
   (a) The carrying value of these financial instruments generally is based on established market prices and approximates fair value.
   (b) The fair value generally is based on quoted market prices for the securities where available and estimates based on current rates offered to PPL where quoted market prices are not available.
   (c) Valued using either exchange-traded market quotes or prices obtained through third-party brokers. See Note 19 about the various uses of derivative financial instruments at PPL.
   (d) These contracts were classified as non-trading under EITF 98-10 and were not required to be marked to fair value on the Balance Sheet in 2000.
   

   This table excludes derivative and non-derivative energy contracts that do not meet the definition of a financial instrument because physical delivery is expected.

10. Credit Arrangements and Financing Activities

    Credit Arrangements

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

    In order to enhance liquidity, and as a credit back-stop to their respective commercial paper programs, PPL Electric, PPL Capital Funding and PPL (as guarantor for PPL Capital Funding) shared a 364-day $750 million credit facility and a five-year $300 million credit facility, each with a group of banks. In June 2001, these credit facilities were terminated, PPL Electric entered into a new $400 million 364-day credit facility and PPL Energy Supply entered into two new credit facilities: a $600 million 364-day facility and a $500 million three-year facility. At December 31, 2001, no borrowings were outstanding under any of these facilities and $26 million of letters of credit were issued under the $500 million three-year facility. In addition, in June 2001, PPL Capital Funding entered into a 364-day credit facility with PPL Energy Supply. PPL had guaranteed PPL Capital Funding's obligations under this agreement. The credit facility and related guaranty were terminated in December 2001 when PPL Capital Funding terminated its commercial paper program and at that time no borrowings were outstanding under this credit facility.

    PPL Montana has a $100 million 3-year credit facility with certain lenders which matures in November 2002. The maturity date may be extended with the consent of the lenders. The credit facility provides that up to $75 million of the commitment may be used to cause lenders to issue letters of credit. In the event that PPL Montana were to draw upon this facility or cause lenders to issue letters of credit on its behalf, PPL Montana would be required to reimburse the issuing lenders. At December 31, 2001, $44 million of loans were outstanding under this facility and $25 million of letters of credit were issued.

    In April 2001, PPL Montana executed a new credit facility to allow for incremental letter of credit capacity of $150 million. There were no letters of credit outstanding under this facility at December 31, 2001. PPL has executed a commitment to the lenders under PPL Montana's $150 million credit facility that PPL will provide (or cause PPL Energy Supply to provide) letters of credit at such times and in such amounts as are necessary to permit PPL Montana to remain in compliance with its fixed-price forward energy contracts or its derivative financial instruments entered into to manage energy price risks, to the extent that PPL Montana cannot provide such letters of credit under its existing credit agreements. No such letters of credit had been issued as of December 31, 2001.

    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, 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.

    Financing Activities

    During December 2001:

• PPL Electric terminated its existing commercial paper program and established a new $400 million program.

• PPL Capital Funding terminated its commercial paper program.

• PPL Energy Supply initiated a $1.1 billion commercial paper program.

At December 31, 2001, there was no commercial paper outstanding under either the PPL Electric or PPL Energy Supply programs.

In March 2001, PPL Electric bought back an option related to its 6-1/8% Reset Put Securities due 2006. The option would have permitted a third party to remarket these securities, at higher interest rates, in May 2001. PPL Electric retired the $200 million, 6-1/8% Reset Put Securities in May 2001.

In May 2001, PPL issued 23 million of 7.75% PEPS Units for $575 million. See the "Consolidated Statement of Company-obligated Mandatorily Redeemable Securities" for information regarding the PEPS Units. The $575 million of PEPS Units are included in "Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures" on the Balance Sheet at December 31, 2001. Net proceeds of $558 million were received, after giving effect to $17 million of issuance expenses. PPL used these proceeds to pay down short-term debt. The $17 million of issuance expenses were charged to "Capital stock expense and other" on the Balance Sheet, as well as $7 million for the present value of the estimated liability for contract adjustment payments.

In July 2001, PPL Electric retired all of its outstanding First Mortgage Bonds, 9-3/8% Series due 2021, at $5 million aggregate par value through the maintenance and replacement fund provisions of the 1945 First Mortgage Bond Indenture.

In August 2001, PPL Electric issued $800 million of senior secured bonds as part of a strategic initiative. See Note 23 for additional information.

In September 2001, PPL Electric repurchased $15 million aggregate par value of its First Mortgage Bonds, 6-1/2% Series due 2005, at a market value that approximated par value.

In October 2001, PPL Energy Supply sold $500 million aggregate principal amount of its 6.40% senior unsecured notes due 2011 in a private placement, and agreed to make an exchange offer to exchange the privately-placed senior notes for publicly-registered senior notes. The exchange was completed in February 2002. The new registered senior notes have the same material financial terms as the old senior notes. Proceeds of the senior note offering will be used to fund generation development and for general corporate purposes.

During November and December 2001, PPL Capital Funding repurchased $70 million, par value, of its medium-term notes, 7.75% Series due 2015, at a market value of $76 million.

During December 2001, PPL Electric repurchased $4 million par value of its First Mortgage Bonds, 6.55% Series due 2006, at a market value that approximated par value. PPL Electric also repurchased 148,000 shares of its 6-1/8% Series Preferred Stock, also at a market value that approximated par value.

During the year 2001, PPL Transition Bond Company made principal payments on bonds totaling $241 million.

In December 2000, PPL initiated a Structured Equity Shelf Program for the issuance of up to $100 million in PPL common stock in small amounts on a periodic basis. As of December 31, 2001, PPL had issued $16 million of common stock under this program.

In 2001, PPL Global subsidiaries Emel and CEMAR, issued $127 million and $99 million of long-term debt. A portion of CEMAR's debt was reclassified to short-term debt in conjunction with CEMAR's impairment. (See Note 22.)

See Note 12 for a description of PPL's lease financings.

11. Acquisitions, Development and Divestitures

    Domestic Generation Projects

    In January 2001, PPL Montour acquired an additional interest in the coal-fired Conemaugh Power Plant from Potomac Electric Power Company. Under the terms of the acquisition agreement, PPL Montour and a subsidiary of Allegheny Energy, Inc. jointly acquired a 9.72% interest in the 1,711 MW plant. PPL Montour paid $78 million for this additional 83 MW interest. The purchase increased PPL Montour's ownership interest to 16.25% in the two-unit plant.

    In August 2001, construction began on the University Park Energy project, a 540 MW natural gas-fired facility located in University Park, Illinois and on the Sundance Energy project, a 450 MW natural gas-fired facility in Pinal County, Arizona. The projects are expected to be in service during the summer of 2002, at an estimated total project cost of approximately $675 million. PPL Susquehanna also announced plans to increase the capacity of its Susquehanna nuclear plant by 100 MW, with the installation of more efficient steam turbines on each of the two units. These improvements will be made in 2003 and 2004 and are expected to cost approximately $120 million.

    In December 2001, PPL Global and the Long Island Power Authority entered into agreements to build two 80 MW combustion turbine power facilities at sites in Shoreham and Edgewood on Long Island, New York. Both facilities are expected to be in service during the summer of 2002 at an estimated total project cost of approximately $180 million.

    In December 2001, a PPL Global subsidiary entered into a synthetic lease financing transaction for the development, construction and operation of its Lower Mt. Bethel combined cycle generating facility. The Air Quality Plan Approval issued by the Pennsylvania DEP for construction of the Lower Mt. Bethel facility has been appealed by the New Jersey DEP. PPL Energy Supply and the PPL Global subsidiary intend to work with the Pennsylvania DEP in opposing this appeal. In addition, the local township zoning hearing board granted zoning approval for the facility, but the approval has been appealed by a township resident as to the decibel levels allowed. An additional appeal was filed by the same resident to the township's issuance of a building permit pending the outcome of the zoning appeal. PPL Energy Supply and the PPL Global subsidiary are aggressively opposing the zoning and building permit appeals. As a result of these three appeals, substantial additional requirements could be imposed on the construction and operation of the facility. If, as a result of these appeals, the construction of the facility could not be completed by September 30, 2004, the PPL Global subsidiary, or PPL Energy Supply as guarantor, could be called upon to repay approximately 90% of the then-outstanding facility costs, plus a make-whole premium on the total amount of debt commitments. Alternatively, PPL Energy Supply could, subject to certain conditions, purchase the facility from the lessor, offer to assume 100% of the outstanding debt, and pay a reduced make-whole premium to any debtholder that does not accept such offer.

    In light of continuing declines in wholesale energy prices in the eastern and western U.S. markets, PPL Global is scaling back its generation development program. As a result, in December 2001, PPL Global made a decision to cancel approximately 2,100 MW of previously planned generation development in Pennsylvania and Washington state. These projects were in the early stage of development and would have had an estimated capital cost of approximately $1.3 billion. The charge for cancellation of these generation projects, which was primarily due to cancellation fees under turbine purchase contracts, was approximately $150 million, and is reported on the Statement of Income as "Cancellation of generation projects," a component of "Other Charges."

    International Distribution Projects

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

    In May 2001, WPDL successfully completed the sale of Hyder's water business, Welsh Water, to the Welsh firm Glas Cymru Cyfyngedig for one British pound sterling and the assumption of all of Welsh Water's debt.

    In September 2001, PPL Global increased its capital investment by 4.9% in CEMAR, by purchasing the 25.7 billion shares of CEMAR that were held by CEMAR's employees at a price of $13 million. The increase resulted in a total 89.6% ownership in CEMAR.

    In December 2001, PPL Global purchased an 80% interest in El Salvador Telecom, a small telecommunications company in El Salvador, for an initial investment of $8 million.

    In December 2001, PPL Global recorded impairment charges for its investments in CEMAR, WPD 1953, and WPDL. See Note 22 for additional information.

12. Leases

    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 that provide specific guidance and additional requirements related to accounting for leases.

    In March 2000, PPL Electric terminated its nuclear fuel lease and repurchased $154 million of nuclear fuel from the lessor energy trust. In July 2000, all nuclear fuel was transferred to PPL Susquehanna in connection with the corporate realignment.

    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. The proceeds from this sale approximated $410 million. PPL Montana used the proceeds to reduce outstanding debt and make distributions to its parent, PPL Generation. PPL Montana leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, through four non-cancelable operating leases. The leases provide two renewal options based on the economic useful life of the generation assets.

    In November 2000, a PPL Global subsidiary entered into a $555 million operating lease arrangement for turbine generator units and related equipment (SCRs, transformers and spare engines). Certain obligations of the PPL Global subsidiary under this lease financing, including payment obligations, have been guaranteed by PPL. The units are expected to go into service as they are completed, beginning in 2002.

    In May 2001, a PPL Global subsidiary entered into an operating lease arrangement, initially for $900 million and increased in July 2001 to $1.06 billion upon syndication, for the development, construction and operation of several commercial power generation facilities. Certain obligations of the PPL Global subsidiary under this lease financing, including payment obligations, have been guaranteed by PPL Energy Supply. In February 2002, the PPL Global subsidiary reduced the available commitment under the lease to approximately $700 million. There is a residual value guarantee that is expected to be up to $545 million at the end of the lease.

    In December 2001, a PPL Global subsidiary entered into an operating lease arrangement for $455 million for the development, construction and operation of a 600 MW gas-fired combined-cycle generation facility located in Lower Mt. Bethel Township, Northampton County, Pennsylvania. The facility is expected to be operational in 2004. Certain obligations of the PPL Global subsidiary under this lease financing, including payment obligations, have been guaranteed by PPL Energy Supply. There is a residual value guarantee that is expected to be up to $321 million at the end of the lease.

    In addition to the leasing arrangements discussed above, PPL also has leases for vehicles, office space, land, buildings, personal computers and other equipment. Total future minimum lease payments for all operating leases are estimated as follows (millions of dollars): 2002, $368; 2003, $108; 2004, $147; 2005, $140; 2006, $106; and thereafter, $881.

13. Stock-Based Compensation

    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 as well as stock options may be granted to officers and other key employees of PPL, PPL Electric and other affiliated companies. Awards under the Plans are made in the common stock of PPL 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. Each Plan limits the number of shares available for awards to two percent of the outstanding common stock of PPL on the first day of each calendar year. The maximum number of options which can be awarded under each Plan to any single eligible employee in any calendar year is 1.5 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 or is forfeited or the rights to the participant terminate, any shares of common stock 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. However, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death. Restricted shares vest fully if control of PPL changes, as defined by the Plans.

    Restricted stock awards of 202,590; 440,549; and 108,800 shares, with per share weighted-average fair values of $43.09, $21.30, and $26.74, were granted in 2001, 2000 and 1999. Compensation expense for 2001 was $6 million and less than $3 million in 2000 and 1999. At December 31, 2001, there were 660,572 restricted shares outstanding. These awards currently vest from three to twenty-three years from the date of grant.

    Stock Options

    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. The CCGC and CLC have discretion to accelerate the exercisability of the options. All options expire no later than ten years from the grant date. The options become exercisable if control of PPL changes, as defined by the Plans.

    PPL applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for stock options. Since stock options are granted at the then current market price, no compensation cost has been recognized. Compensation calculated in accordance with the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," for 2001, 2000 and 1999 would have been $5 million, $2 million and less than $1 million. The impact on basic and diluted EPS would have been approximately 2 cents per share in 2001, and approximately 1 cent per share in 2000.

    A summary of stock option activity follows:

    Stock Option Activity		Number of Options		Weighted Average Exercise Price
    Balance at December 31, 1998
    	Options granted	704,800		$	26.85
    	Options forfeited	(78,780	)	$	26.84
    Balance at December 31, 1999		626,020		$	26.85
    (13,570 options exercisable)
    	Options granted	1,501,110		$	22.45
    	Options exercised	(56,590	)	$	26.84
    	Options forfeited	(101,239	)	$	24.02
    Balance at December 31, 2000		1,969,301		$	23.64
    (215,158 options exercisable)
    	Options granted	922,860		$	43.16
    	Options exercised	(548,424	)	$	23.49
    	Options forfeited	(88,686	)	$	31.31
    Balance at December 31, 2001		2,255,051		$	31.36
    (306,544 options exercisable)

    The weighted average fair values of options at their grant date during 2001, 2000 and 1999 were $10.42, $3.35 and $2.37. The estimated fair value of each option granted was calculated using a modified Black-Scholes option-pricing model. The weighted average assumptions used in the model were as follows:

    	2001	2000	1999
    Risk-free interest rate	5.46%	6.74%	5.61%
    Expected option term	10 yrs	10 yrs	10 yrs
    Expected stock volatility	30.24%	19.79%	16.19%
    Dividend yield	4.28%	5.70%	6.60%

    
    
    

    	Options Outstanding			Options Exercisable
    Range of Exercise Prices	Number Outstanding at 12/31/01	Weighted-Avg. Remaining Contractual Life	Weighted-Avg. Exercise Prices	Number Exercisable at 12/31/01	Weighted-Avg. Exercise Price
    $19.00-$24.00	962,249	8.1	$22.42	71,770	$21.99
    $25.00-$30.00	407,812	7.2	$26.85	234,774	$26.85
    $40.00-$45.00	884,990	9.1	$43.16

    Outstanding options had a weighted-average remaining life of 8.3 years at December 31, 2001.

14. Retirement and Postemployment Benefits

    Pension and Other Postretirement Benefits

    PPL and 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" for these benefits.

    PPL and its subsidiaries also provide supplemental retirement benefits to directors, executives and other key management employees through unfunded nonqualified retirement plans.

    Substantially all employees of PPL's subsidiaries will become eligible for certain health care and life insurance benefits upon retirement through contributory plans. Postretirement benefits under the PPL Retiree Health Plans (covering retirees of PPL Electric and various other affiliated PPL companies) and for the North Penn Gas Plans are paid from funded VEBA trusts sponsored by the respective companies. At December 31, 2001, PPL Electric had a regulatory asset of $6 million related to postretirement benefits that is being amortized and recovered in rates with a remaining life of 11 years.

    Net pension and postretirement medical benefit costs (credits) were (millions of dollars):

    	Pension Benefits									Postretirement Medical Benefits
    	2001			2000			1999			2001			2000			1999
    Service cost	$	38		$	40		$	42		$	5		$	5		$	5
    Interest cost		94			86			78			22			22			19
    Expected return on plan assets		(142	)		(113	)		(99	)		(11	)		(8	)		(7	)
    Net amortization and deferral		(50	)		(21	)		(9	)		12			12			12
    Special termination benefits		3						3
    Net periodic pension and    postretirement benefit cost    (credit)	$	(57	)	$	(8	)	$	15		$	28		$	31		$	29

    The net periodic pension cost charged or (credited) to operating expense was $(47) million in 2001, $(6) million in 2000 and $9 million in 1999, excluding amounts charged or (credited) to construction and other non-expense accounts.

    In 2001 PPL changed its method of amortizing unrecognized gains or losses in the annual pension expense/income determined under SFAS 87, "Employers' Accounting for Pensions." This change resulted in a cumulative-effect credit of $10 million after-tax or $.07 per basic share, which is reflected as a "Cumulative Effect of a Change in Accounting Principle" on the Statement of Income. Under the old method, unrecognized gains and losses in excess of ten percent of the greater of the plan's projected benefit obligation or market-related value of plan assets were amortized on a straight-line basis over the estimated average future service period of plan participants. Under the new method, a second corridor will be utilized for unrecognized gains and losses in excess of thirty percent of the plan's projected benefit obligation. Unrecognized gains and losses outside the second corridor will be amortized on a straight-line method over a period equal to one-half of the average future service period of the plan participants. The new method is preferable under SFAS 87 because it provides more current recognition of gains and losses, thereby lessening the accumulation of unrecognized gains and losses.

    Retiree health and welfare benefits costs charged to operating expense were approximately $21 million in 2001, $25 million in 2000 and $20 million in 1999, excluding amounts charged to construction and other non-expense accounts.

    Postretirement medical costs at December 31, 2001 were based on the assumption that costs would increase 7.0% in 2001, then the rate of increase would decline gradually to 6% in 2006 and thereafter. A one-percentage point change in the assumed health care cost trend assumption would have the following effects (in millions):

    	One Percentage Point
    	Increase			Decrease
    Effect on service cost and interest cost components		$	1		$	(1	)
    Effect on postretirement benefit obligation		$	11		$	(10	)

    The following assumptions were used in the valuation of the benefit obligations:

    Pension Benefits

    	2001	2000	1999
    Discount rate	7.25%	7.5%	7.0%
    Expected return on plan assets	9.2%	9.2%	8.0%
    Rate of compensation increase	4.25%	4.75%	5.0%

    Postretirement Medical Benefits

    	2001	2000	1999
    Discount rate	7.25%	7.5%	7.0%
    Expected return on plan assets	7.60%	7.6%	6.35%
    Rate of compensation increase	4.25%	4.75%	5.0%

    The funded status of the combined plans was as follows (millions of dollars):

    		Pension Benefits						Postretirement Medical Benefits
    			2001			2000			2001			2000
    Change in Benefit Obligation
    Benefit Obligation, January 1		$	1,192		$	1,206		$	311		$	317
    	Service cost		38			40			5			5
    	Interest cost		94			86			22			22
    	Plan amendments		4			13
    	Actuarial (gain)/loss		15			(98	)		12			(17	)
    	Acquisition/divestitures		30
    	Participant contributions		1
    	Actual expense paid		(4	)		(4	)
    	Net benefits paid		(54	)		(51	)		(20	)		(16	)
    Benefit Obligation, December 31			1,316			1,192			330			311

    
    

    Change in Plan Assets
    Plan assets at fair value, January 1			1,794			1,799			149			130
    	Actual return on plan assets		(108	)		44			(6	)		2
    	Employer contributions		2			3			32			33
    	Acquisition/divestitures		23			3
    	Participant contributions		1
    	Actual expense paid		(4	)		(4	)
    	Net benefits paid		(54	)		(51	)		(20	)		(16	)
    Plan assets at fair value, December 31			1,654			1,794			155			149
    Funded Status
    Funded Status of Plan			338			601			(175	)		(162	)
    Unrecognized transition assets			(36	)		(40	)		96			104
    Unrecognized prior service cost			110			114			23			27
    Unrecognized net (gain)/loss			(579	)		(911	)		42			14
    Liability recognized		$	(167	)	$	(236	)	$	(14	)	$	(17	)

    
    

    		Pension Benefits						Postretirement Medical Benefits
    			2001			2000			2001			2000
    Amounts recognized in the Balance    Sheet consist of:
    	Prepaid benefit cost	$	1		$	1
    	Accrued benefit liability		(168	)		(237	)	$	(14	)	$	(17	)
    	Intangible asset		5
    	Additional minimum liability		(14	)		(9	)
    	Accumulated other comprehensive    income		9			9
    Net Amount Recognized		$	(167	)	$	(236	)	$	(14	)	$	(17	)

    The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets, were $116 million, $96 million and $46 million, as of December 31, 2001 and $33 million, $29 million and $0 as of December 31, 2000.

    PPL Electric and its subsidiaries formerly engaged in coal mining accrued an additional liability for the cost of health care of their retired miners. At December 31, 2001, this liability was $22 million. The liability is the net of $52 million of estimated future benefit payments offset by $30 million of available assets in a PPL Electric-funded VEBA trust.

    PPL subsidiaries engaged in the mechanical contracting business make contributions to various union-sponsored multiemployer pension and health and welfare plans. Contributions of $14 million, $10 million and $8 million were made in 2001, 2000 and 1999.

    Savings Plans

    Substantially all employees of PPL's subsidiaries are eligible to participate in deferred savings plans (401(k)s). Contributions to the plans charged to operating expense approximated $10 million in 2001, $9 million in 2000 and $6 million in 1999.

    Employee Stock Ownership Plan

    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 $4 million in each of 2001, 2000 and 1999. 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, 2001 totaled 5,140,869, or 4% of total common shares outstanding, and are included in all EPS calculations.

    Postemployment Benefits

    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 were not significant in 2001, 2000 or 1999.

    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. There is no limit on the number of years of service in calculation of the benefit obligation.

    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 was payable at each balance sheet date. The combined liabilities for these plans at December 31, 2001 and 2000 were $6 million, and are recorded in "Deferred Credits and Noncurrent Liabilities - Other" on the Balance Sheet.

15. Jointly-Owned Facilities

    At December 31, 2001, subsidiaries of PPL owned undivided interests in the following facilities (millions of dollars):

    		Ownership Interest		Electric Plant in Service		Other Property			Accumulated Depreciation			Construction Work in Progress
    PPL Generation
    Generating Stations
    	Susquehanna	90.00%	$		4,196					$	3,525		$	24
    	Keystone	12.34%			71						46			6
    	Wyman	8.33%			15						2
    	Conemaugh	16.25%			185						58			4
    Merrill Creek Reservoir		8.37%					$	22			12

    PPL Montana also has 50% and 30% undivided leasehold interests in Colstrip Units 1 and 2, and Colstrip Unit 3, respectively.

    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.

16. Commitments and Contingent Liabilities

    PPL and its subsidiaries are involved in numerous legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the ultimate outcome of such matters, or whether such matters may result in material liabilities.

    Wholesale Energy Commitments

    As part of the purchase of generation assets from Montana Power, PPL Montana agreed to supply electricity under two wholesale transition service agreements. In addition, PPL Montana assumed a power purchase agreement and another power sales agreement. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $118 million as the estimated fair value of these agreements at the acquisition date. The liability is being amortized over the agreement terms as adjustments to "Wholesale energy marketing and trading" revenues and "Energy purchases" on the Statement of Income. The unamortized balance at December 31, 2001 was $78 million and is included in "Other" in the "Deferred Credits and Other Noncurrent Liabilities" section of the Balance Sheet.

    In October 2001, PPL announced that PPL EnergyPlus had reached an agreement to supply Montana Power with an aggregate of 450 MW of energy to be supplied by PPL Montana. The delivery term of this new contract is for five years beginning July 1, 2002, which is the day after the termination date of the last of the two existing contracts, pursuant to which PPL Montana presently supplies energy to Montana Power for its default supply.

    Under the agreement, PPL EnergyPlus will supply 300 MW of around-the-clock electricity and 150 MW of on-peak electricity. In December 2001, the agreement was accepted for filing by the FERC. No further regulatory approvals are required under this agreement.

    Liability for Above Market NUG Contracts

    In 1998, PPL Electric recorded a loss accrual for above market contracts with NUGs of $854 million, when its generation business was deregulated. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy purchases" on the Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment, effective July 1, 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. The liabilities associated with these above market NUG contracts were $580 million at December 31, 2001.

    Commitments - Acquisitions and Development Activities

    PPL Global and its subsidiaries have committed additional capital and extended loans to certain affiliates, joint ventures and partnerships in which they have an interest. At December 31, 2001, PPL Global and its subsidiaries had approximately $561 million of such commitments. The majority of these commitments were for the purchase of LM-6000 turbine generators from General Electric. The General Electric commitments have been reduced due to the decision to cancel generation projects as described in Note 11.

    MPSC Order

    In June 2001, the MPSC issued an order (MPSC Order) in which it found that Montana Power must continue to provide electric service to its customers at tariffed rates until its transition plan under the Montana Electricity Utility Industry Restructuring and Customer Choice Act is finally approved, and that purchasers of generating assets from Montana Power must provide electricity to meet Montana Power's full load requirements at prices to Montana Power that reflect costs calculated as if the generating assets had not been sold. PPL Montana purchased Montana Power's interests in two coal-fired plants and 11 hydroelectric units in 1999.

    In July 2001, PPL Montana filed a complaint against the MPSC with the U.S. District Court in Helena, Montana, challenging the MPSC Order. In its complaint, PPL Montana asserted, among other things, that the Federal Power Act preempts states from exercising regulatory authority over the sale of electricity in wholesale markets, and requested the court to declare the MPSC action preempted, unconstitutional and void. In addition, the complaint requested that the MPSC be enjoined from seeking to exercise any authority, control or regulation of wholesale sales from PPL Montana's generating assets.

    At this time, PPL Montana cannot predict the outcome of the proceedings related to the MPSC Order, what actions the MPSC, the Montana Legislature or any other governmental authority may take on these or related matters, or the ultimate impact on PPL, PPL Energy Supply and PPL Montana of any of these matters.

    Montana Power Shareholders' Litigation

    In August 2001, a purported class-action lawsuit was filed by a group of shareholders of Montana Power against Montana Power, the directors of Montana Power, certain unnamed advisors and consultants of Montana Power, and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to and participated in a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. PPL Montana is unable to predict the outcome of this matter.

    PUC Investigation Order

    In November 2001, the PJM Market Monitor publicly released a report prepared for the PUC entitled "Capacity Market Questions" relating to the pricing of installed capacity in the PJM daily market during the first quarter of 2001. The report concludes that PPL EnergyPlus (identified in the report as "Entity 1") was able to exercise market power to raise the market-clearing price above the competitive level during that period. PPL EnergyPlus does not agree with the Market Monitor's conclusions that it exercised market power; in addition, the Market Monitor acknowledged in his report that PJM's standards and rules did not prohibit PPL EnergyPlus' conduct. In November 2001, the PUC issued an Investigation Order directing its Law Bureau to conduct an investigation into the PJM capacity market and the allegations in the Market Monitor's report. In January 2002, PPL filed comments as requested by the Investigation Order. The Order does not suggest what, if any, action the PUC may take as a result of the investigation, other than considering possible changes to its competitive safeguards. While PPL EnergyPlus and PPL Electric have filed comments with the PUC as part of the investigation, they have taken the position that the PUC does not have jurisdiction to regulate the PJM capacity markets as those markets are for wholesale electricity transactions and accordingly are within the exclusive jurisdiction of the FERC. In addition, PPL EnergyPlus and PPL Electric believe that PPL EnergyPlus' actions under review were at all times lawful and consistent with the rules of the market. At this time, neither PPL EnergyPlus nor PPL Electric can predict the outcome of the PUC investigation or what action the PUC may take in connection with the investigation.

    FERC Market-based Rates

    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to make wholesale sales of electric power and related products at market-based rates. In that order, the FERC directed PPL EnergyPlus to file an updated market analysis within three years of the date of the order, and every three years thereafter. PPL EnergyPlus filed its initial updated market analysis in December 2001. Several parties thereafter filed interventions and protests requesting that, in light of the PJM Market Monitor's report described above, PPL EnergyPlus be required to provide additional information demonstrating that it has met the FERC's market power tests necessary for PPL EnergyPlus to continue its market-based rate authority. PPL EnergyPlus has responded to those protests and interventions. PPL EnergyPlus has taken the position 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. The matter is currently pending before the FERC.

    Proposed Montana Hydroelectric Initiative

    In January 2002, the Montana Secretary of State certified, in accordance with applicable statutes, that it had approved the form of a proposed Montana "Hydroelectric Security Act" initiative. The proposed initiative may be placed on the November 2002 statewide ballot if sufficient signatures are obtained prior to June 21, 2002. Among the stated purposes of the proposed initiative is to create an elected Montana public power commission to determine whether purchasing hydroelectric dams in Montana is in the public interest. Such a commission could decide to acquire PPL Montana's hydroelectric dams either pursuant to a negotiated purchase or an acquisition at fair market value through the power of condemnation. At this time, PPL, PPL Energy Supply and PPL Montana cannot predict whether the proposed initiative will garner enough signatures for placement on the November 2002 statewide ballot, whether there will be a successful legal challenge to the initiative, whether it would pass if on the ballot or what impact, if any, the measure might ultimately have upon PPL Montana or its hydroelectric operations. PPL Montana has declared its opposition to, and intends to vigorously oppose, the initiative.

    Nuclear Insurance

    PPL Susquehanna is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PPL Susquehanna is also a member of an insurance program which provides 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, 2001, this maximum assessment was about $20 million.

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

    Environmental Matters

    Air

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

    The Bush administration and certain members of Congress have made proposals regarding possible amendments to the Clean Air Act. These amendments could require significant further reductions in NO_x, SO₂ and mercury and could possibly require measures to limit CO₂.

    The Pennsylvania DEP has finalized regulations requiring further seasonal (May-June) NO_x reductions to 80% from 1990 levels starting in 2003. These further reductions are based on the requirements of the Northeast Ozone Transport Region Memorandum of Understanding and two EPA ambient ozone initiatives: the September 1998 EPA State Implementation Plan (SIP) call (i.e., EPA's requirement for states to revise their SIPs) issued under Section 110 of the Clean Air Act, requiring reductions from 22 eastern states, including Pennsylvania; and the EPA's approval of petitions filed by Northeastern states, requiring reductions from sources in 12 Northeastern states and Washington D.C., including PPL sources. The EPA's SIP-call was substantially upheld by the D.C. Circuit Court of Appeals in an appeals proceeding. Although the Court extended the implementation deadline to May 2004, the Pennsylvania DEP has not changed its rules accordingly. PPL expects to achieve the 2003 NO_x reductions with the recent installation of SCR technology on the Montour units and the possible use of SCR or SNCR technology on a Brunner Island unit.

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

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

    In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation and commenced enforcement activities against other utilities. Although the EPA has threatened to continue expanding its enforcement actions, the future direction of the "New Source" requirements is presently unclear. Therefore, at this time, PPL is unable to predict whether such EPA enforcement actions will be brought with respect to any of its affiliates' plants. However, the EPA regional offices that regulate plants in Pennsylvania (Region III) and Montana (Region VIII) have indicated an intention to issue information requests to all utilities in their jurisdiction, and the Region VIII office has issued such a request to PPL Montana's Corette plant. PPL has responded to the information request. PPL cannot presently predict what, if any, action the EPA might take in this regard. Should the EPA or any state initiate one or more enforcement actions against PPL, compliance with any such enforcement actions could result in additional capital and operating expenses in amounts which are not now determinable, but which could be significant.

    The EPA is also proposing to revise its regulations in a way that will require power plants to meet "New Source" performance standards and/or undergo "New Source" review for many maintenance and repair activities that are currently exempt.

    The New Jersey DEP and some New Jersey residents have raised environmental concerns with respect to the Martins Creek Plant, particularly with respect to SO₂ emissions. PPL Martins Creek is discussing these concerns with the New Jersey DEP. In addition, the plant experienced several opacity violations in the first and second quarters of 2001, for which it paid a civil penalty of $30,300 and funded an environmental project for $90,000. The cost of addressing New Jersey's SO₂ concerns and the opacity issued is not now determinable but could be significant. See Note 11 for information on the Lower Mt. Bethel appeal by the New Jersey DEP.

    Water/Waste

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

    A final NPDES permit has been issued to the Brunner Island plant. The permit contains a provision requiring further studies on the thermal impact of the cooling water discharge from the plant. Depending on the outcome of these studies, the plant could be subject to capital and operating costs that are not now determinable but could be significant.

    The EPA has significantly tightened the water quality standard for arsenic. The lowered standard may require PPL Generation to further treat wastewater and/or take abatement action at several of its subsidiaries' power plants, the cost of which is not now determinable but which could be significant.

    The EPA recently finalized requirements for new or modified water intake structures. These requirements will affect where generating facilities are built, will establish intake design standards, and could lead to requirements for cooling towers at new and modified power plants. Another new rule, expected to be finalized in 2003, will address existing structures. Each of these rules could impose significant costs on PPL Generation, which are not now determinable but which could be significant.

    Capital expenditures through the year 2003 to correct groundwater degradation at fossil-fueled generating stations and to address wastewater control at PPL Generation's facilities, are included in the table of construction expenditures in the section entitled "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations. Additional capital expenditures could be required beyond the year 2006 in amounts which are not now determinable but which could be significant. Actions taken to correct groundwater degradation, to comply with the environmental regulations and to address wastewater control, are also expected to result in increased operating costs in amounts which are not now determinable but which could be significant.

    Superfund and Other Remediation

    In 1995, PPL Electric entered into a consent order with the Pennsylvania DEP to address a number of sites where it may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; and oil or other contamination which may exist at some of PPL Electric's former generating facilities. In connection with the July 1, 2000 corporate realignment, PPL Electric's generation facilities were transferred to subsidiaries of PPL Generation. As of December 31, 2001, work has been completed on approximately 80% of the sites included in the consent order.

    In 1996, PPL Gas Utilities entered into a similar consent order with the Pennsylvania DEP to address a number of sites where subsidiaries of PPL Gas Utilities may be liable for remediation. The sites primarily include former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities are also investigating the potential for any mercury contamination from gas meters and regulators. Accordingly, PPL Gas Utilities and Pennsylvania DEP have agreed to add 72 meter/regulation sites to the consent order.

    At December 31, 2001, PPL Electric and PPL Gas Utilities had accrued approximately $5 million and $12 million, representing the estimated amounts they will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above.

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

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

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

    General

    Certain of PPL's affiliates have electric distribution operations in the U.K. and Latin America. PPL believes that these operations are in compliance with all applicable laws and government regulations to protect the environment. PPL is not aware of any material administrative proceeding against these companies with respect to any environmental matter.

    Due to the environmental issues discussed above 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, operating expenses and other costs in amounts which are not now determinable but which could be significant.

    Credit Support

    PPL and PPL Energy Supply provide certain guarantees for their subsidiaries. PPL has guaranteed all of the debt of PPL Capital Funding. As of December 31, 2001, PPL had guaranteed $1.3 billion of PPL Capital Funding medium-term notes. PPL had also guaranteed certain obligations under power purchase and sales agreements of PPL EnergyPlus for up to $1 billion and of PPL Montana for up to $138 million. As of December 31, 2001, there were $31 million of guarantees outstanding under the power purchase agreement and none under the sales agreement. In addition, PPL had guaranteed certain obligations of other subsidiaries, totaling $272 million at December 31, 2001. As of December 31, 2001, PPL Energy Supply has also guaranteed certain obligations under power purchase and sales agreements of PPL EnergyPlus for up to $121 million and certain obligations of other subsidiaries totaling $600 million.

    Source of Labor Supply

    As of December 31, 2001, PPL and its subsidiaries had 12,496 full-time employees. This included 3,594 in PPL Electric and 425 in PPL Gas Utilities, 2,550 in PPL Generation, 1,943 in PPL EnergyPlus, 44 in PPL Global, 2,765 in several Central and South American electric companies controlled by PPL Global and 1,175 in PPL Services.

    Approximately 54%, or 5,243, of PPL's domestic workforce are members of labor unions, with four IBEW locals representing nearly 4,200 employees. The other unions primarily represent small locals of gas utility employees in Pennsylvania. The bargaining agreement with the largest union was negotiated in 1998 and expires in May 2002. Eight new three-year contracts with smaller gas utility locals in Pennsylvania were negotiated in 2000 and five additional agreements with two-year terms were negotiated in 2001. New contracts were also concluded with two IBEW locals in Montana. PPL Montana is currently negotiating with the Teamsters Union for a new agreement.

17. Related Party Transactions

    PPL Global provided temporary financing to WPDL and WPD 1953 in connection with the acquisition of Hyder. The outstanding loan receivables and accrued interest, 154.5 million British pounds sterling (approximately $220 million), were repaid in May 2001.

    At December 31, 2000, PPL Global had a $135 million note payable to an affiliate of WPD 1953. The note was denominated in U.S. dollars, and provided for interest at market rates. PPL Global repaid this note in January 2001.

18. New Accounting Standards

    SFAS 141

    In June 2001, the FASB issued SFAS 141, "Business Combinations," which eliminates the pooling-of-interest method of accounting for business combinations and requires the use of the purchase method. In addition, SFAS 141 requires the reassessment of intangible assets to determine if they are appropriately classified either separately or within goodwill. SFAS 141 is effective for business combinations initiated after June 30, 2001. PPL adopted SFAS 141 on July 1, 2001, with no material impact on the financial statements.

    SFAS 142

    In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL adopted SFAS 142 on January 1, 2002.

    In accordance with the provisions of SFAS 142, PPL ceased amortization of goodwill and all intangible assets with indefinite useful lives. The elimination of amortization will result in $18 million less expense (pre-tax) in 2002. In addition, PPL is in the process of conducting the transition impairment analysis and may record a goodwill impairment of up to $100 million (pre-tax) as a change in accounting principle in the first quarter of 2002. The potential impairment relates to reporting units within the International segment.

    SFAS 143

    In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," on the accounting for obligations associated with the retirement of long-lived assets. SFAS 143 requires a liability to be recognized in the financial statements for retirement obligations meeting specific criteria. Measurement of the initial obligation is to approximate fair value, with an equivalent amount recorded as an increase in the value of the capitalized asset. The asset will be depreciated in accordance with normal depreciation policy and the liability will be increased, with a charge to the income statement, until the obligation is settled. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The potential impact of adopting SFAS 143 is not yet determinable, but may be material.

    SFAS 144

    In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss only if the carrying amount is not recoverable from undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. For long-lived assets to be disposed of, SFAS 144 establishes a single accounting model based on the framework established in SFAS 121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. SFAS 144 also broadens the reporting of discontinued operations. PPL adopted SFAS 144 on January 1, 2002, with no material impact on the financial statements.

19. Derivative Instruments and Hedging Activities

    PPL adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. Upon adoption and in accordance with the transition provisions of SFAS 133, PPL recorded a cumulative-effect credit of $11 million in earnings, included as an increase to "Wholesale energy market and trading" revenues and a decrease to "Energy purchases" on the Statement of Income. PPL also recorded a cumulative-effect charge of $182 million in "Accumulated other comprehensive income," a component of Shareowners' Common Equity. As of December 31, 2001, the balance in "Accumulated other comprehensive income" related to unrealized gains and losses on qualifying derivatives was a net gain of $23 million, as a result of reclassifying part of the transition adjustment into earnings, changes in market prices and the adoption of DIG Issue C15 (see discussion in "Implementation Issues" below).

    Management of Market Risk Exposures

    PPL's market risk exposure is the adverse effect on the value of a transaction that results from a change in commodity prices, interest rates or currency exchange rates. The market risk associated with commodity price, interest rate and foreign exchange contracts is managed by the establishment and monitoring of parameters that limit the types and degree of market risk that may be undertaken. PPL actively manages the market risk inherent in its commodity, debt and foreign currency positions. The PPL Board of Directors has adopted risk management policies to manage the risk exposures related to energy prices, interest rates and foreign currency exchange rates. These policies monitor and assist in controlling these market risks and use derivative instruments to manage some associated commodity, debt, and foreign currency activities.

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

    PPL utilizes forward contracts, futures contracts, options and swaps 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 "Implementation Issues" below).

    Fair Value Hedges

    PPL enters into financial contracts to hedge a portion of the fair value of firm commitments of forward electricity sales and to hedge fluctuations in market value of existing debt issuances. These contracts range in maturity through 2006. For the twelve months ended December 31, 2001, PPL recognized a net gain of $7 million, after-tax, resulting from firm commitments that no longer qualified as fair value hedges (reported in "Wholesale energy marketing and trading" revenues and "Energy purchases" on the Statement of Income). PPL did not recognize any gains or losses from the ineffective portion of fair value hedges.

    Cash Flow Hedges

    PPL enters into physical and financial contracts, including forwards, futures and swaps, to hedge the price risk associated with electric, gas and oil commodities. Additionally, PPL enters into financial interest rate swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. These contracts and swaps range in maturity through 2004. PPL also enters into foreign currency forward contracts to hedge exchange rates associated with firm commitments denominated in foreign currencies and to hedge the net investment of foreign operations. These forward contracts range in maturity through 2003, excluding those contracts forecasted to relate to the payment of variable interest on existing financial instruments. For the twelve months ended December 31, 2001, PPL recorded a net gain of $23 million in "Accumulated other comprehensive income" relating to these contracts.

    As a result of an unplanned outage, Enron's bankruptcy and changes in other economic conditions, PPL discontinued certain cash flow hedges which resulted in a net loss of $14 million, after-tax, for the twelve months ended December 31, 2001 (reported in "Wholesale energy marketing and trading" revenues and "Energy purchases" on the Statement of Income). The impact on the financial statements resulting from cash flow hedge ineffectiveness for the twelve months ended December 31, 2001 was immaterial.

    As of December 31, 2001, the deferred net gain on derivative instruments in "Accumulated other comprehensive income" expected to be reclassified into earnings during the next twelve months was $6 million.

    Implementation Issues

    On June 29, 2001, the FASB issued definitive guidance on DIG Issue C15: "Scope Exceptions: Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity." Issue C15 provides additional guidance on the classification and application of SFAS 133 relating to purchases and sales of electricity utilizing forward contracts and options. This guidance became effective as of July 1, 2001. In December 2001, the FASB revised the guidance in Issue C15, principally related to the eligibility of options for the normal purchases and normal sales exception. The revised guidance is effective as of January 1, 2002.

    Purchases and sales of forward electricity and option contracts that require physical delivery and which are expected to be used or sold by the reporting entity in the normal course of business would generally be considered "normal purchases and normal sales" under SFAS 133. These transactions, while within the scope of SFAS 133, are not required to be marked to fair value in the financial statements because they qualify for the normal purchases and sales exception. As of December 31, 2001, "Accumulated other comprehensive income" included a net gain of $11 million related to forward transactions classified as cash flow hedges prior to adoption of DIG Issue C15. This gain will be reversed from "Accumulated other comprehensive income" and recognized in earnings as the contracts deliver through 2008.

    Unrealized Gains/(Losses) on Qualifying Derivatives
    (Millions of Dollars)
    (After-tax)

    December 31, 2001

    Cumulative unrealized gain on qualifying derivatives, beginning of period:		$	0
    Unrealized gains (losses) arising during period:
    	Cumulative effect of change in accounting   principle at January 1, 2001		(182	)
    	Net reclassification into earnings		(16	)
    	Net change associated with current period hedging transactions		221
    Unrealized gain on qualifying derivatives			23
    Cumulative unrealized gain on qualifying derivatives, end of period		$	23

    Credit Concentration

    PPL enters into contracts with many entities for the purchase and sale of energy. Most of these contracts are considered a normal part of doing business and, as such, the mark-to-market value of these contracts is not reflected in the financial statements. However, the mark-to-market value of these contracts is considered when committing to new business from a credit perspective. At year-end, PPL had a credit exposure of $412 million to energy trading partners. The majority of this amount was the mark-to-market value of multi-year contracts for energy sales. Therefore, if the counterparties fail to perform their obligations, PPL would not experience an immediate financial loss, but would experience lower revenues in future years to the extent that replacement sales could not be made at the same prices as the defaulted contracts. Of the $412 million, four counterparties account for 81% of the exposure. No other individual counterparty accounted for more than 3% of the exposure. Each of the four primary counterparties has an "investment grade" credit rating with Standard & Poor's, with the exception of one counterparty that is a governmental agency and, as such, is not rated. With the exception of the government agency, PPL has the right to request collateral from each of these counterparties in the event their credit rating falls below investment grade. It is also PPL's policy to enter into netting agreements with all of its counterparties to minimize credit exposure.

20. Sales to California Independent System Operator and to Other Pacific Northwest Purchasers

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

    Litigation arising out of the California electricity supply situation has been filed at the FERC and in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these proceedings allege abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, among other things, and seek price caps on wholesale sales in California and other western power markets, refunds of excess profits allegedly earned on these sales of energy, and other relief, including treble damages and attorneys' fees. Certain of PPL's subsidiaries have intervened in the FERC proceedings in order to protect their interests, but have not been named as defendants in any of the court actions alleging abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws. A PPL subsidiary has been named as a defendant in a declaratory judgment action initiated by the State of California to prevent certain members of the California Power Exchange from seeking compensation for the state's seizure of certain energy contracts. PPL Montana is a member of the California Power Exchange, but it has no energy contracts with or through the California Power Exchange and has not sought compensation in connection with the state's seizure.

    Attorneys general in several western states, including California, have begun investigations related to the electricity supply situation in California and other western states. The FERC has determined that all sellers of energy in the California markets, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001 and has initiated an evidentiary hearing concerning refund amounts. The FERC also is considering whether to order refunds for sales made in the Pacific Northwest, including sales made by PPL Montana. The FERC Administrative Law Judge assigned to this proceeding has recommended that no refunds be ordered for sales into the Pacific Northwest. The FERC presently is considering this recommendation. PPL cannot predict whether or the extent to which any of its subsidiaries will be the target of any governmental investigation or named in these lawsuits, refund proceedings or other lawsuits, the outcome of any such proceedings or whether the ultimate impact on PPL of the electricity supply situation in California and other western states will be material.

21. Enron Bankruptcy

    In connection with the December 2, 2001 bankruptcy filings by Enron Corporation and its affiliates ("Enron"), certain PPL subsidiaries have terminated certain electricity and gas agreements with Enron. PPL and its subsidiaries' 2001 earnings reflect a loss associated with termination of these contracts of $8 million after-tax, which is recorded in "Wholesale energy marketing and trading" and "Energy purchases" on the Statement of Income. Additionally, certain of these contracts with Enron extended through 2006, and were at prices more favorable to PPL than current market prices. However, there is no further accounting charge to be recorded. PPL expects to make a claim in Enron's bankruptcy proceeding with respect to all amounts payable by Enron resulting from the termination of these contracts.

22. Write-down of International Energy Projects

    PPL Global has a 51% economic interest in WPD 1953, a 15.4% equity investor in Teesside Power Limited, the owner of the 1,875 MW Teesside Power Station, located in northeast England. Through its European affiliates, Enron was an owner, operator and power purchaser of the station's output. As a result of Enron being placed into receivership in the U.K. and its default on obligations under the power purchase agreements, WPD 1953 wrote off its entire equity investment in Teesside Power Limited. PPL Global's share of the impairment loss was $21 million and is included in "Write-down of international energy projects," a component of "Other Charges" on the Statement of Income.

    In connection with the Enron bankruptcy and the probable resulting loss of Teesside cash flows, PPL and its subsidiaries evaluated the carrying value of the investment in WPD 1953 and WPDL. Fair value, measured using discounted cash flows, was compared to the carrying value to determine whether impairment existed at December 31, 2001. Fair value was determined considering the loss of the value of the future cash flows from the Teesside Power Station and a forecasted reduction in future operating cash flows at WPD 1953 and WPDL. The probability-weighted impairment loss was $117 million, after-tax. The pre-tax charge was $134 million, and was recorded as a charge to "Write-down of international energy projects."

    PPL Global owns 89.6% of CEMAR, which distributes and sells electricity in Brazil, under a 30-year concession agreement with the government. The combined effects of growth in demand, decreased rainfall on the country's heavily hydroelectric-dependent generating capacity and delays in the development of new non-hydroelectric generation have led to shortages of electricity in certain regions. As a result, the Brazilian government implemented countrywide electricity rationing in mid-2001. In addition, the wholesale energy markets in Brazil have been substantially disrupted. CEMAR's results of operations, its cash flows, and its continued ability to meet its financial obligations have deteriorated due to the continuing impact of the electricity rationing, the disruption in the energy markets, the failure of the electricity regulator to adequately address these problems, the resulting effects on the Brazilian capital markets and related factors.

    In December 2001 and January 2002, the Brazilian electricity regulator issued tariff rulings that CEMAR believes are inadequate to compensate for CEMAR's rationing-related losses and to meet its ongoing operational and financial requirements. Moreover, CEMAR believes that these tariff rulings demonstrate that the regulator may not take the necessary steps to resolve the current problems in a satisfactory manner. In addition, the Brazilian wholesale energy markets continue to be disrupted and recent actions by the electricity regulator indicate that adequate compensation to CEMAR for its transactions in that market may not be made. Finally, the continued problems in the Brazilian energy market and the lack of appropriate regulatory actions have significantly decreased the availability of local financing for CEMAR.

    As a result of the above events, PPL Global estimates that the long-term viability of the CEMAR operation is jeopardized and that there is minimal probability of positive future cash flows. Consequently, at December 31, 2001, PPL Global recorded an impairment loss in the carrying value of its net assets in CEMAR of $179 million, reflected in "Write-down of international energy projects." In addition, CEMAR increased its valuation allowance in deferred tax assets, thereby recording $44 million in additional foreign deferred income taxes. A related $6 million credit to "Minority Interest" was also reflected on the Statement of Income. The net result of these transactions was a $217 million charge to earnings. PPL Global currently anticipates writing off the remaining portion of its CEMAR investment, approximately $100 million, in 2002.

    As a result of the financial difficulties discussed above, CEMAR has failed to pay certain of its creditors for obligations when due. CEMAR is currently in discussions with credits, governmental officials, regulators and other parties to address these problems.

    In addition, CEMAR expects that it will not be in compliance with the financial covenants in its $150 million debenture indenture when it closes its books for the quarter ended December 31, 2001. In that case, CEMAR will be required to notify the indenture agent. In accordance with the indenture, the agent will call a meeting of the holders of the debentures within three business days of the notice to hold a vote regarding the acceleration of the debentures. Unless three-fourths of the holders vote against acceleration, the agent will be obligated under the indenture to accelerate the debentures. CEMAR expects the required notice to the indenture agent to occur in the first quarter of 2002.

23. Strategic Initiative

    In August 2001, PPL completed a strategic initiative to confirm the structural separation of PPL Electric from PPL and PPL's other affiliated companies. This initiative enabled PPL Electric to reduce business risk by securing a supply contract adequate to meet its PLR obligations, enabled PPL EnergyPlus to lock in an electric supply agreement at current favorable prices, and enabled PPL to raise capital at attractive rates for its unregulated businesses, while allowing PPL to retain valuable advantages related to operating both energy supply and energy delivery businesses.

    In connection with this initiative, PPL Electric:

• obtained a long-term electric supply contract to meet its PLR obligations, at prices generally equal to the pre-determined "capped" rates it is authorized to charge its PLR customers from 2002 through 2009 under the 1998 PUC settlement order;
• agreed to limit its businesses to electric transmission and distribution and activities relating to or arising out of those businesses;
• adopted amendments to its Articles of Incorporation and Bylaws containing corporate governance and operating provisions designed to reinforce its corporate separateness from affiliated companies;
• appointed an independent director to its Board of Directors and required the unanimous consent 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 proceeding, including any filing of a voluntary petition in bankruptcy or other similar actions;
• appointed an independent compliance administrator to review, on a semi-annual basis, its compliance with the new corporate governance and operating requirements contained in its amended Articles of Incorporation and Bylaws; and
• adopted a plan of division pursuant to the Pennsylvania Business Corporation Law. The plan of division resulted in two separate corporations. PPL Electric was the surviving corporation and a new Pennsylvania corporation was created. Under the plan of division, $5 million of cash and certain of PPL Electric's potential liabilities were allocated to the new corporation. PPL has guaranteed the obligations of the new corporation with respect to such liabilities.

  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.

  At a special meeting of PPL Electric's shareowners held on July 17, 2001, the plan of division and the amendments to PPL Electric's Articles of Incorporation and Bylaws were approved, and became effective upon filing the articles of division and the plan of division with the Secretary of State of the Commonwealth of Pennsylvania. This filing was made in August 2001.

  As part of the strategic initiative, PPL Electric solicited bids to contract with energy suppliers to meet its obligation to deliver energy to its customers from 2002 through 2009. In June 2001, PPL Electric announced that PPL EnergyPlus was the low bidder, among six bids examined, and was selected to provide the energy supply requirements of PPL Electric from 2002 through 2009. Under this contract, PPL EnergyPlus will provide electricity at pre-determined capped prices that PPL Electric is authorized to charge its PLR customers, and received a $90 million payment to offset differences between the revenues expected under the capped prices and projected market prices through the life of the supply agreement (as projected by PPL EnergyPlus at the time of its bid). The contract resulted in PPL EnergyPlus having an eight-year contract at current market prices. PPL has guaranteed the obligations of PPL EnergyPlus under the new contract.

  In July 2001, the energy supply contract was approved by the PUC and accepted for filing by the FERC.

  Also in July 2001, PPL Electric filed a shelf registration statement with the SEC to issue up to $900 million in debt. In August 2001, PPL Electric sold $800 million of senior secured bonds under this registration statement. The offering consisted of two series of bonds: $300 million of 5-7/8% Series due 2007 and $500 million of 6-1/4% Series due 2009. PPL Electric used a portion of the proceeds from these debt issuances to make the $90 million up-front payment to PPL EnergyPlus, and $280 million was used to repurchase a portion of its common stock from PPL. The remainder of the proceeds will be used for general corporate purposes.

  Taken collectively, the steps in the strategic initiative are intended to protect the customers of PPL Electric from volatile energy prices and facilitate a significant increase in leverage at PPL Electric, while lowering its cost of capital. PPL's shareowners also benefited from this initiative because it provided low-cost capital to the higher-growth, unregulated side of PPL's business.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PPL Corporation
(Millions of Dollars)
Column A		Column B		Column C					Column D		Column E
		Balance at Beginning of Period
				Additions							Balance At End of Period
				Charged to Income
Description						Other			Deductions
Year Ended December 31, 2001
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts	$	70	$	94				$	43	$	121	(a)
	Obsolete inventory - materials     and supplies		4							3		1
	Mark-to-market valuation     reserves		2		5							7
Year Ended December 31, 2000
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts		22		47		26	(b)		25		70
	Obsolete inventory -    Materials and supplies		3		5					4		4
	Mark-to-market valuation     reserves				2							2
Year Ended December 31, 1999
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts		16		22					16		22
	Obsolete inventory - materials     and supplies		11		3					11		3
(a)	Includes reserves for customer accounts receivable, California ISO, the Enron bankruptcy and other.
(b)	Includes the reserve recorded upon the acquisition and consolidation of CEMAR.

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
	2001
Operating revenues		$	1,566	$	1,409	$	1,438	$	1,312
Operating income			456		249		339		(189)
Net income (loss) before cumulative effect of a    change in accounting principle			222		117		152		(322)
Net income (loss)			222		117		152		(312)
Basic earnings per common share: (b)
	Net income before cumulative effect of a    change in accounting principle		1.53		0.80		1.04		(2.20)
	Net income		1.53		0.80		1.04		(2.13)
Diluted earnings per common share: (b)
	Net income before cumulative effect of a    change in accounting principle		1.52		0.80		1.04		(2.19)
	Net income		1.52		0.80		1.04		(2.12)
Dividends declared per common share-basic (c)			0.265		0.265		0.265		0.265
Price per common share
	High	$	46.75	$	62.36	$	56.50	$	37.65
	Low	$	33.88	$	44.03	$	30.99	$	31.20
	2000
Operating revenues		$	1,413	$	1,297	$	1,458	$	1,515
Operating income			320		241		313		328
Net income before extraordinary items			142		92		136		117
Net income			142		92		136		128
Basic earnings per common share: (b)
	Net income before extraordinary items		0.99		0.64		0.94		0.81
	Net income		0.99		0.64		0.94		0.88
Diluted earnings per common share: (b)
	Net income before extraordinary items		0.99		0.64		0.94		0.80
	Net income		0.99		0.64		0.94		0.87
Dividends declared per common share-basic (c)			0.265		0.265		0.265		0.265
Price per common share
	High	$	24.00	$	25.00	$	44.44	$	46.13
	Low	$	18.38	$	20.38	$	21.94	$	37.56
(a)	Quarterly results can vary depending on weather and the forward pricing of power. In addition, earnings in 2001 and 2000 were affected by unusual items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.
(b)	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.
(c)	PPL has paid quarterly cash dividends on its common stock in every year since 1946. The dividends declared per share in 2001 and 2000 were $1.06. The most recent regular quarterly dividend paid by PPL was 26.5 cents per share (equivalent to $1.06 per annum) paid January 1, 2002. In January 2002, PPL announced an increase to its quarterly common stock dividend, payable April 1, 2002, to 36 cents per share (equivalent to $1.44 per annum.) Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, financial requirements and other factors.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information for this item concerning directors of PPL will be set forth in the sections entitled "Nominees for Directors," and "Directors Continuing in Office" in PPL's 2002 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2001, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PPL is set forth at the end of Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

Information for this item for PPL 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's 2002 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2001, and which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information for this item for PPL will be set forth in the section entitled "Stock Ownership" in PPL's 2002 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2001, and which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information for this item for PPL will be set forth in the section entitled "Certain Transactions Involving Directors or Executive Officers" in PPL's 2002 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2001, and which information is incorporated herein by reference.

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

(a) 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. On March 20, 2001, PPL Energy Funding transferred $100 to PPL Energy Supply as an initial capital contribution and $1,873 million in 2001 as additional capital contributions. Such transactions were exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. PPL Energy Supply has made no other sales of unregistered membership interests.

(b) Distributions on the membership interests will be paid as determined by PPL Energy Supply's Board of Managers. PPL Energy Supply made cash distributions of $463 million to PPL Energy Funding in 2001.

ITEM 6. SELECTED FINANCIAL DATA

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

PPL ENERGY SUPPLY, LLC
ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis of the results of operations and financial condition of PPL Energy Supply is abbreviated as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K. Such analysis should be read in conjunction with the financial statements in Item 8.

Corporate Realignment

On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution operations from its generation operations and to better position the companies and their affiliates in the new competitive marketplace. The corporate realignment included the following key features:

• PPL Electric contributed its generation and certain other related assets, along with associated liabilities, to new competitive generation subsidiaries of PPL Generation. In connection with the contribution, PPL Energy Funding, the parent company of PPL Generation, assumed $670 million aggregate principal amount of PPL Electric's debt issued to affiliated companies.

• PPL Electric also contributed assets associated with its wholesale energy marketing activities, along with associated liabilities, to its wholly-owned subsidiary, PPL EnergyPlus, and contributed its interest in PPL EnergyPlus to PPL Energy Funding.

• PPL Electric distributed in a tax-free spin-off all of the outstanding shares of stock of PPL Energy Funding to PPL, which resulted in PPL Energy Funding becoming a wholly-owned subsidiary of PPL.

• PPL's unregulated power subsidiary, PPL Global, also transferred its U.S. electric generation subsidiaries to PPL Generation.

• PPL Electric entered into agreements with PPL EnergyPlus for the purchase of electricity to meet all of PPL Electric's requirements through 2001 as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act and its wholesale contractual obligations to certain municipalities.

As a result of the corporate realignment:

• PPL Generation's principal business is owning and operating U.S. generation facilities through various subsidiaries;

• PPL EnergyPlus' principal business is competitive wholesale and retail energy marketing;

• PPL Global's principal businesses are the acquisition and development of both U.S. and international energy projects, and ownership and operation of international energy projects; and

• PPL Electric's principal businesses are the regulated 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 Energy Supply was formed in November 2000. In May 2001, PPL Energy Funding contributed its interests in PPL Generation, PPL EnergyPlus and PPL Global to PPL Energy Supply. PPL Energy Supply serves as the parent company for substantially all of PPL's competitive businesses.

Basis of Presentation

PPL Energy Supply's financial statements include financial information from predecessor businesses. The financial information for such entities has been combined together as one collective predecessor for purposes of satisfying the SEC's financial statement requirements, based on formation or acquisition dates of the respective businesses. Certain of PPL Energy Supply's assets were not operated as discrete businesses, and as a result, performance for prior years and historical predecessor financial information may not be indicative of PPL Energy Supply's present or future performance. See Note 1 to the Financial Statements for a discussion of the predecessor entities that comprise PPL Energy Supply.

Results of Operations

PPL Energy Supply's net income was $174 million in 2001, compared to net income (on a predecessor basis) of $242 million in 2000 and a net loss of $35 million in 1999.

Earnings in 2001 were positively impacted by a full year of operating results of the Pennsylvania generating assets contributed in the July 1, 2000 corporate realignment, but were adversely impacted by write-downs of international energy projects and the cancellation of generation projects.

PPL Energy Supply expects that lower wholesale prices will adversely impact earnings in 2002. Additionally, PPL Global anticipates writing off the remaining balance of its investment in CEMAR, approximately $100 million, in 2002. See Note 21 for additional information.

The following discussion explains significant changes in principal items on the Statement of Income, comparing 2001 to 2000, and 2000 to 1999.

In many cases the reasons for significant changes are due to the acquisition of the generation and marketing assets from PPL Electric in July 2000, as described in the "Corporate Realignment" discussion above.

Certain items on the Statement of Income have also been impacted by PPL Global's investment in CEMAR in 2000. The results of CEMAR are included for the entire year in 2001, but were included for just the last three months of 2000.

Certain items on the Statement of Income have also been impacted by the acquisition of Montana generating assets. PPL acquired the generating assets from Montana Power in December 1999. As such, the results of PPL Montana are included for all of 2000 and 2001, but only for the last two weeks of 1999.

Operating Revenues

Wholesale Energy Marketing and Trading

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

		2001 vs. 2000			2000 vs. 1999
Domestic
	Eastern markets		$	1,092		$	1,364
	Western markets			91			417
			$	1,183		$	1,781

The increase in wholesale energy marketing revenues in 2001 and 2000 were primarily due to the corporate realignment in July 2000. As part of the realignment, PPL Electric entered into power sales agreements with PPL EnergyPlus for the purchase of electricity to meet its obligations as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. These purchases, which are part of the eastern market revenues, totaled $1,302 million in 2001 and $540 million for the six months ended December 31, 2000.

Wholesale marketing revenues in eastern markets also increased by $375 million and $576 million in 2001 and 2000 due to wholesale contracts that were transferred from PPL Electric to PPL EnergyPlus effective with the July 1, 2000 realignment.

The increase in western markets revenues in 2001 was primarily due to higher wholesale energy prices in the first half of 2001, related to an energy supply shortage in the western U.S. Revenues in the western markets increased in 2000 reflecting a full year of PPL Montana operation in 2000, as opposed to approximately two weeks in 1999.

Retail Electric and Gas

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

		2001 vs. 2000				2000 vs. 1999
Retail Electric Revenue
	Domestic electric supply		$	(225	)		$	94
	International electric delivery			88				75
				(137	)			169
Retail Gas Revenue				22				49
Retail Revenues - total			$	(115	)		$	218

Operating revenues from retail electric operations decreased by $137 million in 2001 compared with 2000 primarily due to the expiration of contracts with existing customers, as PPL EnergyPlus reduced its emphasis on the retail energy supply business. Partially offsetting this decrease were higher PPL Global revenues from the acquisition of CEMAR.

Operating revenues from retail electric operations increased by $169 million in 2000 compared with 1999. PPL EnergyPlus provided 15.5% more electricity to domestic retail customers in 2000 as compared to 1999. Revenues from international electric delivery were $75 million greater in 2000 as compared to 1999, due to the acquisition of CEMAR and higher sales volumes in Chile, El Salvador and Bolivia.

PPL EnergyPlus' increase in retail gas revenue in both periods was related to intensified gas marketing efforts and increased retail pricing attributable to higher wholesale gas commodity costs.

Energy Related Businesses

Energy related businesses (see Note 1 to Financial Statements) contributed $33 million and $24 million to operating income in 2001 and 2000. Positive contributions from PPL Global and from PPL EnergyPlus' mechanical contracting and engineering subsidiaries were partially offset by pre-tax operating losses from PPL EnergyPlus' synfuel projects. (However, after recording tax credits associated with synfuel operations, the synfuel projects contributed approximately $19 million to net income for 2001.)

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates increased by $59 million in 2001 compared with 2000. This was primarily due to PPL Global's higher equity earnings from its investment in WPD (South West) and other international investments, and the recording of earnings from its investment in WPD (South Wales), which was acquired in September 2000.

Fuel

Fuel costs increased by $231 million in 2001 compared with 2000 due to the inclusion of PPL Generation subsidiaries as predecessors of PPL Energy Supply beginning in July 2000.

Fuel costs increased by $267 million in 2000 compared with 1999 due to the inclusion of PPL Generation subsidiaries as predecessors of PPL Energy Supply in July 2000, and fuel costs related to PPL Montana's full year of operation in 2000.

Energy Purchases

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

		2001 vs. 2000			2000 vs. 1999
Domestic
	Eastern markets		$	22		$	446
	Western markets			44			132
International				47			46
			$	113		$	624

The increase in energy purchases in 2001 from 2000 for the eastern markets was due to the transfer of the wholesale energy marketing business from PPL Electric to PPL EnergyPlus as part of the corporate realignment. Western market purchases increased because of higher power costs in 2001 in the western U.S. The increase in international energy purchases was due to the purchases of CEMAR.

The increase in energy purchases in 2000 from 1999 was primarily in the eastern markets due to the transfer of the wholesale energy marketing functions from PPL Electric to PPL EnergyPlus as part of the corporate realignment. The increase in western market energy purchases reflects a full year of operation by PPL Montana in 2000, as opposed to approximately two weeks in 1999.

Other Operation and Maintenance

Other operation and maintenance expenses increased by $283 million in 2001 when compared to 2000. The transfer of PPL Electric generation assets in the corporate realignment was the primary reason for the increase, as well as additional operating expenses associated with PPL Global's acquisition of CEMAR. Also contributing to the increase was a gain on the sale of emission allowances in 2000.

Other operation and maintenance expenses increased by $425 million in 2000 when compared with 1999. The transfer of PPL Electric generation assets to PPL Generation in the corporate realignment was the primary reason for the increase. Also contributing to the increase were PPL Montana's full year of operation in 2000 compared to two weeks in 1999, and PPL Global's acquisition of CEMAR. These increases were partially offset by the gain on the sale of emission allowances in 2000.

Transmission

Since PPL Energy Supply owns no domestic transmission or distribution facilities, other than facilities to interconnect its generation with the electric transmission system, its PPL EnergyPlus, PPL Montana and other PPL Generation subsidiaries must pay the owners of transmission systems to deliver the energy these subsidiaries supply to retail and wholesale customers. Transmission expenses in 2000 were associated with a full year of PPL Montana's operation, in which $12 million of transmission expenses were incurred, and the operation of the assets of the other PPL Generation assets subsequent to July 1, 2000, which amounted to $42 million.

Depreciation

Depreciation increased by $68 million in 2001 compared with 2000. This increase was primarily due to the inclusion of generation assets transferred from PPL Electric in the July 1, 2000 corporate realignment. Also contributing to the increase were the inclusion of CEMAR's transmission, distribution and other assets recorded subsequent to its acquisition by PPL Global, and to SCR technology installed at the Montour plant during the third quarter 2000 outage.

Depreciation increased by $69 million in 2000 compared with 1999. About $53 million of the increase was due to the inclusion of the generation assets transferred from PPL Electric to PPL Generation. Also, expenses in 2000 included a full year of depreciation related to PPL Montana, as compared to approximately two weeks of such expenses in 1999. Finally, depreciation of CEMAR's transmission, distribution and other assets was recorded subsequent to its acquisition by PPL Global in June 2000.

Taxes, Other Than Income

Taxes, other than income taxes, decreased by $15 million in 2001 compared to 2000. The decrease was primarily in the gross receipts tax corresponding to lower retail electric revenues and a reduction in Pennsylvania's gross receipts tax rate. Changes in the gross receipts tax do not significantly affect earnings as they are substantially recovered in revenues.

Taxes, other than income taxes, increased by $34 million in 2000 compared to 1999. This was due to PPL EnergyPlus' gross receipts tax increase (that corresponds to its increased revenues), real estate taxes associated with the generation assets acquired in the corporate realignment, increased capital stock tax, and the inclusion of a full year of PPL Montana's taxes.

Project Development

Project development costs increased $14 million in both 2001 and 2000 over prior years, as PPL Global increased the number of domestic projects it was developing.

Other Charges

Other charges of $486 million in 2001 consisted of the write-down of international energy projects (see Note 21) and the cancellation of generation development projects (see Note 9).

Other charges of $51 million in 1999 consisted of the write-downs of PPL Global's investments in WPD and two smaller projects.

Other Income - net

Other income increased by $34 million in 2001 compared with 2000. This increase was due to a loss contingency recorded by PPL Generation in 2000 for an unasserted claim under the Clean Air Act.

Other income decreased by $100 million in 2000 compared with 1999. This decrease was due to a loss contingency recorded by PPL Generation in 2000 for an unasserted claim under the Clean Air Act and a gain in 1999 on the sale of SWEB's electric supply business ($78 million pre-U.S. tax).

Interest Expense

Interest expense decreased by $80 million in 2001 compared with 2000. This decrease reflects the contribution to PPL Energy Supply of PPL Energy Funding's notes receivable from PPL Global, thereby eliminating the associated intercompany interest expense. This decrease in interest expense was partially offset by the interest expense associated with the $500 million senior unsecured notes issued by PPL Energy Supply in October 2001.

Interest expense increased by $75 million in 2000 compared with 1999, primarily due to increased borrowings by PPL Global and the interest expense of PPL Montana.

Income Taxes

Income tax expense increased by $149 million in 2001 compared with 2000. This was primarily due to higher pre-tax domestic book income and deferred income tax valuation allowances recorded on the company's investments in Brazil and the U.K. (see Note 21). These increases were reduced by the recognition of federal synfuel tax credits.

Income tax expense increased by $154 million in 2000 compared with 1999. This was primarily due to higher pre-tax book income.

Acquisitions and Development

From time to time, PPL Energy Supply and its affiliates are involved in negotiations with third parties regarding acquisitions, joint ventures and other arrangements which may or may not result in definitive agreements. See Note 9 to the Financial Statements for information regarding recent acquisitions and development activities.

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

At December 31, 2001, PPL Global had domestic generation projects, either announced or under development, which would provide 2,440 MW of additional generation. See Item 2. "Properties" for additional information. In January 2002, construction activities were completed on the Griffith project, located near Kingman, Arizona, and the facility began commercial operations. Griffith is currently in the process of applying for membership in the Southwest Reserve Sharing Group. Acceptance into the Southwest Reserve Sharing Group would allow Griffith to sell significantly more of the plant's generation at firm prices and require fewer reserves for the firm sales.

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

Critical Accounting Policies

PPL Energy Supply's financial condition and results of operations are necessarily impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Energy Supply, and require estimates or other judgments of matters inherently uncertain. 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.)

1) Price Risk Management

PPL Energy Supply follows the guidance of SFAS 133, "Accounting for Derivative Instrument and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative Instrument and Certain Hedging Activities," and interpreted by DIG issues (together, "SFAS 133") and EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" for its activities in the area of price risk management. PPL Energy Supply utilizes forward contracts, futures contracts, options and swaps as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by price and foreign currency volatility. 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. EITF 98-10 requires that derivative and non-derivative contracts that are designated as trading activities be marked to market through earnings.

PPL Energy Supply markets and/or purchases electricity, gas, oil, capacity, and ancillary products such as transmission congestion contracts. PPL Energy Supply uses exchange prices and external broker quotes to value electricity, gas, and oil contracts. Since there are no market quotes available for capacity and ancillary products, PPL Energy Supply values these products using internal models to forecast future cash flows. PPL Energy Supply then recognizes a modeling reserve for values calculated using internal models to recognize the lack of independence in the valuation of the contracts. Therefore, the net value of the capacity and ancillary products on the financial statements is their amortized cost.

The circumstances and intent existing at the time that energy transactions are entered into determine their accounting designation. These designations are verified by PPL's trading controls group on a daily basis. The following is a brief summary of certain guidelines that have been provided to the traders who are responsible for contract designation:

• Any wholesale and retail contracts to sell electricity that are expected to be delivered from PPL Energy Supply generation are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery. Most wholesale electricity sales contracts in the eastern and western U.S. markets receive "normal" treatment. The methodology utilized in determining the amount of sales that can be delivered from PPL Energy Supply generation is based on a calculation approved by the RMC. This calculation uses market prices compared to dispatch rates as well as planned and forced outage rates by plant by month.

• "Trading around the assets" means that PPL EnergyPlus matches a contract to sell electricity, previously to be delivered from PPL Energy Supply generation, with a physical or financial contract to purchase electricity. These contracts can qualify for fair value hedge treatment. When the contracts' terms are identical, there is no earnings impact until delivery.

• Physical electricity purchases needed to meet obligations due to a change in the physical load or generation forecasts are considered "normal."

• Physical electricity purchases that increase PPL Energy Supply's long position and any energy sale or purchase considered a "market call" are speculative with unrealized gains or losses recorded immediately through earnings.

• Financial electricity transactions, which can be settled in cash, cannot be considered "normal" because they need not result in physical delivery. These transactions receive cash flow hedge treatment if they lock in the price PPL Energy Supply will receive or pay for energy in the spot market. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive 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 Energy Supply will pay in the spot market. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income.

• 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.

In addition to energy-related transactions, PPL Energy Supply may enter into foreign currency contracts to hedge risk associated with foreign currency exchange rates. As with energy transactions, the circumstances and intent existing at the time of the transaction determine its accounting designation, which is subsequently verified by PPL's trading controls group on a daily basis. The following is a summary of the guidelines that have been provided to the treasury department which is responsible for contract designation:

• Transactions entered into to lock in an interest rate prior to a debt issuance are considered 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 are considered fair value hedges with no earnings impact until the debt is terminated because the hedged debt is also marked to market.

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

To record derivative assets at their net realizable value, PPL Energy Supply reduces the assets' carrying value to recognize differences in counterparty credit quality and potential illiquidity in the market.

• The credit adjustment takes into account the bond ratings (and the implied default rates) of the counterparties that have an out-of-the-money position with PPL Energy Supply. The more counterparties who have, for example, a BBB rating instead of an A rating, the larger the adjustment.

• 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 it wanted to close an open sales position or PPL Energy Supply might have to accept the "ask" price if it wanted to close an open purchase position.

At December 31, 2001, PPL Energy Supply had assets of $204 million and liabilities of $152 million that were accounted for under SFAS 133 and EITF 98-10. Member's Equity included $46 million of net unrealized derivative gains, after-tax, in "Accumulated other comprehensive income." During the year ended December 31, 2001, PPL Energy Supply recorded $7 million in pre-tax income for net unrealized mark-to-market gains, primarily on derivative instruments used for speculative (non-hedge) purposes. During this period, PPL Energy Supply also reclassified into earnings an after-tax loss of $7 million for derivatives that no longer qualified as hedges.

See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," for further discussion regarding price risk management, and sensitivities of hedged portfolios to changes in prices and interest rates.

2) Pension and Other Postretirement Benefits

As described in Note 12, PPL Energy Supply subsidiaries sponsor various pension and 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 Energy Supply follows the guidance of SFAS 87, "Employers' Accounting for Pensions" and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" 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 those assumed is a guiding principle of these standards. This 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 as follows:

• Discount Rate - The discount rate is used to record the value of benefits, which are based on future projections, in terms of today's dollars.

• Expected Return on Plan Assets - Management projects the future return on plan assets based principally on prior performance. The projected future value of assets reduces the benefit obligation a company will record.

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

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

• Amortization of Gains/(Losses) - Management can select the method by which gains or losses are recognized in financial results. These gains or losses are created when actual results differ from estimated results based on the above assumptions.

At December 31, 2001, PPL Energy Supply had been allocated accrued pension and postretirement liabilities of $124 million. These liabilities are included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet.

During 2001, PPL made changes to its pension plan assumptions related to the discount rate, the rate of compensation increase and the method of amortization of gains/(losses).

A variance in the discount rate, expected return on plan assets, rate of compensation increase or amortization method could have a significant impact on the pension costs recorded under SFAS 87.

A variance in the health care cost trend assumption could have a significant impact on costs recorded under SFAS 106 for postretirement medical expense. The impact of a one-percentage point variance in that assumption is calculated by actuaries and is detailed in Note 12 to the Financial Statements.

3) Asset Impairment

PPL Energy Supply and its subsidiaries review long-lived assets for impairment when events or circumstances indicate carrying amounts may not be recoverable. Assets subject to this review, and for which impairments have been recorded in 2001 or prior years, include international equity investments and consolidated international energy projects.

Reviews were performed for equity investments in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." APB Opinion No. 18 provides that "a loss in value of an investment which is other than a temporary decline should be recognized." PPL Energy Supply identifies and measures loss in value of equity investments based upon a comparison of fair value to carrying value.

Through December 31, 2001, such reviews were also performed for generation plant and consolidated international energy projects in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." On January 1, 2002, PPL Energy Supply adopted SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS 121. For long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss only if the carrying amount is not recoverable from undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. Refer to Note 17 for additional information on SFAS 144.

At December 31, 2001, PPL Global evaluated its international investments for impairment, as events and circumstances indicated that the carrying value of its investments in Brazil (CEMAR) and the U.K. (WPD 1953 and WPDL) may not be recoverable. The events that led to these impairment reviews were:

• CEMAR: a prolonged drought that caused electricity rationing, an unfavorable regulatory environment and disruption of Brazil's electricity markets, all of which indicated that the future cash flow stream would be adversely impacted.

• WPD 1953 and WPDL: the Enron bankruptcy led to an impairment review of WPD 1953's equity investment in the Teesside generating station, in which Enron was a part owner, operator and purchaser of the station's output. PPL Global's investments in WPD 1953 and WPDL were then tested for impairment, based on the loss of cash flow from the Teesside impairment and the forecasted reduction in operating cash flows at WPD 1953 and WPDL.

In 2001, PPL Global recorded pre-tax impairment charges of $336 million. Impairments included: $179 million for its investment in CEMAR, $134 million for its investment in WPD 1953 and WPDL, $21 million for its share of the Teesside impairment recorded by WPD 1953 and approximately $2 million for another international investment.

In determining asset impairments, management must make significant judgments and estimates to calculate the fair value of an investment. Fair value is developed through consideration of several valuation methods including comparison to market multiples, comparison of similar recent sales transactions and discounted cash flow. Discounted cash flow is calculated by estimating future cash flow streams, applying appropriate discount rates to determine the present values of the cash flow streams, and then assigning probabilities to the various cash flow scenarios. The impairment is then recorded based on the excess of the carrying value of the investment over fair value.

Changes in assumptions and estimates included within the impairment reviews could result in significantly different results than those identified above and recorded in the Financial Statements.

In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL Energy Supply adopted SFAS 142 on January 1, 2002. Refer to Note 17 for additional information on SFAS 142.

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 that provide specific guidance and additional requirements related to accounting for leases. 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 significant assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life. Changes in these assumptions could result in a significant change to the amounts recognized in the financial statements.

In addition to uncertainty inherent in management assumptions, leasing transactions become increasingly complex when they involve 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), or unconsolidated special purpose entities (SPEs) (entities that retain ownership of the property, plant and equipment and the related financing). GAAP requires that SPEs be consolidated if several conditions exist, including if the owners of the SPEs have not made an initial substantive residual equity capital investment that is at risk during the entire lease term.

At December 31, 2001, PPL Energy Supply participated in four major leasing transactions involving unconsolidated SPEs. In accordance with GAAP, these SPEs were not consolidated because the equity owners (entities unrelated to PPL Energy Supply) were required to contribute and maintain a minimum of 3% equity interest throughout the life of the SPEs.

See Note 10 for additional information related to operating lease payments.

5) Contingencies

PPL Energy Supply periodically records 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." 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."

SFAS 5 does not permit the accrual of gain contingencies under any circumstances. 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) that the amount of the loss can be reasonably estimated.

The accrual of a contingency involves considerable judgment on the part of management. 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. The largest contingency on PPL Energy Supply's balance sheet is the loss accrual for above market NUG purchase commitments, being the difference between the above market contract terms and the fair value of the energy. This loss accrual of $854 million was recorded in 1998 by PPL Electric, when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above market cost of the 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 loss contingency associated with the commitment to make above market NUG purchases was recorded. This loss accrual for the above market portion of NUG purchase commitments was recorded because it was probable the loss had been incurred and the estimate of future energy prices could be reasonably determined, using forward pricing information. This loss accrual was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment. PPL EnergyPlus periodically reviews the reasonableness of the remaining accrual, which was $580 million at December 31, 2001.

PPL Energy Supply has also recorded contingencies for uncollectible accounts, environmental remediation, taxes and litigation in situations where management determined it was probable a loss had been incurred and it could be reasonably estimated.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Instruments

PPL Energy Supply actively manages the market risk inherent in its commodity, debt, and foreign currency and equity positions as detailed in Note 18 to the Financial Statements. PPL Energy Supply has a comprehensive risk management policy to manage the risk exposures related to counterparty credit, energy prices, interest rates and foreign currency exchange rates. An RMC comprised of senior officers of PPL oversees the risk management function. Nonetheless, adverse changes in commodity prices, interest rates, foreign currency exchange rates and equity prices may result in losses in earnings, cash flows and/or fair values. The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions, due to reliance on model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of reasonably possible losses.

Commodity Price Risk

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

As of December 31, 2001, PPL Energy Supply estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of its non-hedge portfolio by an insignificant amount, as compared to $6 million at December 31, 2000. A similar adverse movement in market prices would have decreased the value of its hedge portfolio by approximately $8 million, as compared to $292 million at December 31, 2000. However, the change in the value of the hedge portfolio would have been offset by an increase in the value of the underlying commodity, the electricity generated. The decline in forward prices from 2000 is the primary reason for the differences between the 2001 and the 2000 sensitivity analyses. In addition to commodity price risk, PPL Energy Supply's commodity positions are also subject to operational and event risks including, among others, increases in load demand and forced outages at power plants.

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

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

Commodity Price Risk - PLR Contract

Currently, PPL Electric and PPL EnergyPlus have a power supply agreement under which PPL EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement) energy, capacity, and ancillary services to fulfill PPL Electric's PLR obligation through 2001. PPL EnergyPlus also has contracted to supply PPL Electric with long-term power for the period 2002 through 2009. See Note 15 to the Financial Statements for additional information. As a result, PPL Electric has shifted any electric price risk relating to its PLR obligation to PPL EnergyPlus for 2001 through 2009.

Interest Rate Risk

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

At December 31, 2001, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $4 million.

PPL Energy Supply is also exposed to changes in the fair value of its debt portfolio. At December 31, 2001, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was $2 million, as compared to $1 million at December 31, 2000.

PPL utilizes various risk management instruments to reduce PPL Energy Supply's exposure to adverse interest rate movements for future anticipated financings. While PPL Energy Supply is exposed to changes in the fair value of these instruments, they are designed such that any economic loss in value should be offset by interest rate savings at the time the future anticipated financing is completed. At December 31, 2001, and December 31, 2000, PPL Energy Supply had not entered into any such instruments.

See Notes 7 and 18 to the Financial Statements for a discussion of financial derivative instruments outstanding at December 31, 2001.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities and net investments.

During the first quarter of 2001, PPL entered into contracts for the forward purchase of 51 million euros to pay for certain equipment in 2002 and 2003. The estimated value of these forward purchases as of December 31, 2001, being the amount PPL would have to pay to terminate them, was $3 million. At December 31, 2000, PPL had a forward purchase contract for 37 million euros. The estimated amount that PPL would have had to pay to terminate the forward purchases was insignificant.

Nuclear Decommissioning Fund - Securities Price Risk

In order to meet NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of December 31, 2001, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL 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, 2001, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $17 million reduction in the fair value of the assets, as compared to an $18 million reduction at December 31, 2000.

PPL Electric's 1998 restructuring settlement agreement provides for the collection of authorized nuclear decommissioning costs through the CTC. Additionally, PPL Electric is permitted to seek recovery from customers of up to 96% of any increases in these costs. Under the power supply agreement 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. Therefore, PPL Energy Supply's securities price risk is expected to remain insignificant.

Report of Independent Accountants

To the Board of Managers and Sole Member
of PPL Energy Supply, LLC:

In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 176 present fairly, in all material respects, the financial position of PPL Energy Supply, LLC and its subsidiaries ("PPL Energy Supply") at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 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 index appearing under Item 14(a)(2) 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 PPL Energy Supply'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 auditing standards generally accepted in the United States of America, which 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 18 to the consolidated financial statements, PPL Energy Supply changed its method of accounting for derivative and hedging activities pursuant to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement 133). PPL Energy Supply also changed its method of accounting for amortizing unrecognized gains or losses in the annual pension expense/income determined under Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions, as discussed in Note 12 to the consolidated financial statements.

PricewaterhouseCoopers LLP
Philadelphia, PA
February 4, 2002

PPL Energy Supply, LLC
Management's Report on Responsibility for Financial Statements

The management of PPL Energy Supply is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PPL Energy Supply.

PPL Energy Supply's consolidated financial statements have been audited by PricewaterhouseCoopers LLP (PWC), independent certified public accountants. PWC's appointment as auditors was previously ratified by the shareowners of PPL. Management has made available to PWC all PPL Energy Supply's financial records and related data, as well as the minutes of board of managers' meetings. Management believes that all representations made to PWC during its audit were valid and appropriate.

PPL Energy Supply maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control.

Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PPL maintains an internal auditing program to evaluate PPL Energy Supply's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and PWC's recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PPL Energy Supply's system of internal control is adequate to accomplish the objectives discussed in this report.

The Board of Managers, acting through PPL's Audit Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit Committee, which is composed of four independent directors, meets periodically with management, the internal auditors and PWC to review the work of each. PWC and the internal auditors have free access to PPL's Audit Committee and to the Board of Managers, without management present, to discuss internal accounting control, auditing and financial reporting matters.

Management also recognizes its responsibility for fostering a strong ethical climate so that PPL Energy Supply's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the business policies and guidelines of PPL Energy Supply's operating subsidiaries. These policies and guidelines address: the necessity of ensuring open communication within PPL Energy Supply; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information.

William F. Hecht

President

John R. Biggar

Vice President

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
			2001			2000		1999
Operating Revenues
	Wholesale energy marketing and trading		$	3,010	$		1,827	$	46
	Retail electric and gas			764			879		661
	Energy related businesses			501			347		209
	Equity in earnings of unconsolidated affiliates (Notes 1 and 3)			127			68		58
	Total			4,402			3,121		974
Operating Expenses
	Operation
		Fuel		500			269		2
		Energy purchases		1,491			1,378		754
		Other operation and maintenance		758			475		50
		Transmission		52			54		1
	Depreciation (Note 1)			157			89		20
	Taxes, other than income (Note 5)			38			53		19
	Project development			30			16		2
	Energy related businesses			468			323		207
	Other charges
		Write-down of international energy projects		336					51
		Cancellation of generation projects		150
Total				3,980			2,657		1,106
Operating Income (Loss)				422			464		(132)
Other Income - net				68			34		134
Income Before Interest Expense				490			498		2
Interest Expense				47			127		52
Income Before Income Taxes and Minority Interest				443			371		(50)
Income Taxes (Note 5)				274			125		(29)
Minority Interest (Note 1)				(2)			4		14
Income (Loss) Before Cumulative Effect of a
Change in Accounting Principle				171			242		(35)
Cumulative Effect of a Change in Accounting Principle
(net of income taxes) (Note 12)				3
Net Income (Loss)			$	174		$	242	$	(35)
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)
				2001		2000		1999
Cash Flows From Operating Activities
	Net income (loss)			$	174	$	242	$	(35)
	Adjustments to reconcile net income (loss) to net cash
	provided by (used in) operating activities
		Depreciation			157		89		20
		Nuclear fuel amortization			58		30
		Amortization - energy commitments			(119)		(68)
		Dividends received			103		4		29
		Gain on sale of electric energy projects							(78)
		Cancellation of generation projects			150
		Write-down of international energy projects			336				51
		Equity in earnings of unconsolidated affiliates			(127)		(68)		(58)
		Deferred revenue, advance payment on PLR supply			90
		Deferred income taxes and investment tax credits			14		(19)		26
		Pension income			(23)
		Cumulative effect of change in accounting principle			(3)
	Change in current assets and current liabilities
		Accounts receivable			47		(9)		(254)
		Accounts payable			(145)		242		32
		Other - net			(84)		201		28
	Other operating activities				(6)		(29)		(10)
			Net cash provided by (used in) operating activities		622		615		(249)
Cash Flows From Investing Activities
	Expenditures for property, plant and equipment				(380)		(280)		(37)
	Proceeds from the sale of electric energy projects								123
	Proceeds from PPL Montana sale/leaseback						410
	Investment in generating assets and electric energy    projects				(312)		(575)		(1,066)
	Net (increase) decrease in notes receivable from    affiliates				986		(914)		54
	Other investing activities - net				(16)		8
			Net cash provided by (used in) investing activities		278		(1,351)		(926)
Cash Flows From Financing Activities
	Issuance of long-term debt				729
	Retirement of long-term debt				(9)		(42)		(145)
	Contributions from Member				953		17		643
	Distributions to Member				(463)		(142)
	Net increase (decrease) in short-term debt				(193)		(180)		362
	Net increase (decrease) in short-term debt payable to     affiliates				(1,200)		1,122		341
	Other financing activities - net				(12)		9
			Net cash provided by (used in) financing activities		(195)		784		1,201
Effect of Exchange Rates on and Cash Equivalents					(3)
Net Increase in Cash and Cash Equivalents					702		48		26
	Cash and Cash Equivalents at Beginning of Period				130		82		56
	Cash and Cash Equivalents at End of Period			$	832	$	130	$	82
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest (net of amount capitalized)		$	53	$	27
		Income taxes		$	60	$	117	$	(64)
Non-cash Contributions from Member
		Intercompany notes and accounts receivable (Note 8)		$	920
		Net assets transferred in corporate realignment    (Note 16)				$	1,588
		Property, equipment, financing and acquisition costs						$	23
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)
		2001		2000
Assets
Current Assets
	Cash and cash equivalents (Note 1)	$	832	$	130
	Accounts receivable (less reserve: 2001, $100; 2000, $52)		344		355
	Accounts receivable from affiliated companies (Note 15)		113		128
	Notes receivable from affiliated companies (Note 15)		305		1,279
	Unbilled revenues		114		142
	Fuel, materials and supplies - at average cost		209		154
	Prepayments		39		31
	Price risk management assets (Notes 1 and 18)		123		73
	Deferred income taxes		17		38
	Other		34		46
			2,130		2,376
Investments
	Investment in unconsolidated affiliates - at equity (Notes 1 and 3)		586		800
	Investment in unconsolidated affiliates - at cost (Note 1)		114		46
	Note receivable from affiliated companies		90
	Nuclear plant decommissioning trust fund (Note 6)		276		268
	Other		13		4
			1,079		1,118
Property, Plant and Equipment - net (Note 1)			3,480		3,389
Other Noncurrent Assets
	Goodwill, net (Note 1)		328		452
	Deferred income taxes				59
	Other		152		69
			480		580
		$	7,169	$	7,463
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)
		2001		2000
Liabilities and Equity
Current Liabilities
	Short-term debt (Note 8)	$	118	$	170
	Short-term debt payable to affiliated companies (Note 15)				2,120
	Long-term debt		24		33
	Accounts payable		493		380
	Accounts payable to affiliated companies (Note 15)		47		169
	Above market NUG contracts (Note 14)		87		93
	Wholesale energy commitments (Note 14)		13		23
	Taxes		102		145
	Distributions payable		1		93
	Deferred revenue on PLR energy supply to affiliate (Note 15)		11
	Price risk management liabilities (Notes 1 and 18)		97		77
	Other		151		46
			1,144		3,349
Long-term Debt			737		159
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 5)		55		82
	Above market NUG contracts (Note 14)		493		581
	Wholesale energy commitments (Note 14)		65		76
	Nuclear plant decommissioning (Note 6)		294		280
	Deferred revenue on PLR energy supply to affiliate (Note 15)		79
	Other		292		305
			1,278		1,324
Commitments and Contingent Liabilities (Note 14)
Minority Interest			38		54
Member's Equity			3,972		2,577
		$	7,169	$	7,463
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
			For the Years Ended December 31,
			2001		2000		1999
Member's equity at beginning of year			$	2,577	$	922	$	297
	Member's contributions			1,873		1,540		711
	Net income (loss) (a)			174		242		(35)
	Other comprehensive income, net of tax:
		Foreign currency translation adjustments (a)		(234)		15		(51)
		Unrealized gain on qualifying derivatives (a)		46
		Minimum pension liability adjustments (a)		(1)
	Distributions to Member			(463)		(142)
Total Member's Equity			$	3,972	$	2,577	$	922
(a) Statement of Comprehensive Income (Note 1):
	Net income (loss)		$	174	$	242	$	(35)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments, net of tax of $15, $6, $6		(234)		15		(51)
		Unrealized gain on qualifying derivatives, net of tax of $29		46
		Minimum pension liability adjustments		(1)
	Total other comprehensive income (loss)			(189)		15		(51)
	Comprehensive Income (loss)		$	(15)	$	257	$	(86)
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
		2001			2000		Maturity (a)
6.40% Senior Unsecured Notes		$	500	(b)			November 1, 2011
18% Banco Rural S.A. - Brazilian real denominated			6	(d)		25	2002
5% - 10% Electrobras - Brazilian real denominated			73	(d)		98	2012
13% Electronorte S.A. - U.S. dollar denominated			15	(d)		19	2005
6% - 8% Brazilian Govt. - U.S. dollar denominated				(d)		4	2014-2024
LIBOR Brazilian Govt. - U.S. dollar denominated			9	(d)		6	2001-2024
6.20% Bonds - UF denominated debt			71	(c)			2006
6.40% Bonds - UF denominated debt			59	(c)			2022
6% Bolivian Govt.			11			11	2001-2013
2.96% - 18% UF denominated debt with various banks			9			15	2002-2013
9% Note payable			3			10	2002-2004
Other Long-Term Debt			9			4	2002-2011
			765			192
Unamortized discount			(4)
			761			192
Less amount due within one year			(24)			(33)
	Total Long-Term Debt	$	737		$	159
(a)	Aggregate long-term debt maturities through 2006 are (millions of dollars); 2002, $24; 2003, $41; 2004, $25; 2005; $19; 2006, $79. There are no debt securities outstanding that have sinking fund requirements.
(b)	In October 2001, PPL Energy Supply issued $500 million of 6.40% Senior Unsecured Notes due 2011.
(c)	During the last quarter of 2001, PPL Global's subsidiary Emel issued long-term debt of $127 million in 6.20% and 6.40% inflation-linked bonds.
(d)	In 2001, PPL Global's subsidiary CEMAR issued $99 million of long-term debt. A portion of CEMAR's debt was reclassified as short-term debt in conjunction with CEMAR's impairment. (See Note 21.)
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

PPL ENERGY SUPPLY, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies and Basis of Presentation

   Business

   PPL Energy Supply is an indirect wholly-owned subsidiary of PPL. PPL Energy Supply was formed as a subsidiary of PPL Energy Funding in November 2000 to engage in competitive energy businesses. In May 2001, PPL Energy Funding contributed its interests in PPL Generation, PPL EnergyPlus and PPL Global to PPL Energy Supply, after receipt of required regulatory approvals. As a result, PPL Energy Supply is now the parent of PPL Generation, PPL EnergyPlus, PPL Global and PPL Investment Corporation. PPL Energy Funding is the sole Member of PPL Energy Supply.

   The principal business of PPL Generation is owning and operating U.S. generating facilities through various subsidiaries. The principal business of PPL EnergyPlus is unregulated wholesale and retail energy marketing. PPL Global's principal businesses are the acquisition and development of both U.S. and international energy projects, and the ownership and operation of international energy projects. PPL Investment Corporation makes loans to subsidiaries of PPL Energy Supply and affiliates of PPL.

   Predecessor Businesses and Basis of Presentation

   The SEC requires financial information of a registrant's predecessors for all periods prior to a registrant's existence. The following business and asset acquisitions were identified as predecessors to PPL Energy Supply:

   1950 - Realty Company of Pennsylvania

   1960 - Lady Jane Collieries, Inc.

   1968 - Pennsylvania Mines, LLC

   1975 - Greene Manor Coal Company

   1976 - PPL Interstate Energy Company

   1977 - BDW Corporation

   1995 - PPL Global, LLC; PPL Spectrum, Inc.

   1998 - PPL EnergyPlus, LLC; H. T. Lyons, Inc.; McClure Company

   1999 - generation assets acquired from Montana Power (forming PPL Montana, LLC); PPL Rights, Inc.; Burns Mechanical, Inc.; McCarl's Inc.; PPL Energy Services Northeast, Inc. (formerly Western Mass. Holdings, Inc.); PPL Synfuel Investments, LLC; PPL Somerset, LLC; PPL Maine, LLC

   2000 - Clymer Fuel, LLC; generation assets transferred by PPL Electric Utilities in the July 1, 2000 corporate realignment (formed as subsidiaries of PPL Generation, LLC. See Note 16).

   Since acquisition or formation, each entity identified above remained a wholly-owned subsidiary of PPL or its subsidiaries. Therefore, the entities listed above have been combined as one collective predecessor for purposes of satisfying SEC financial statement requirements, based on their respective acquisition or formation dates. In the balance of these notes, "PPL Energy Supply" refers to the predecessors of PPL Energy Supply as presented above.

   Certain line items in these PPL Energy Supply financial statements may not be consistent with the financial statements previously issued in connection with the Securities Act of 1934 filing requirements of PPL, due to reclassifications, as well as eliminations at different levels of consolidation.

   Consolidation

   PPL Energy Supply consolidates the financial statements of its affiliates when it has control. All significant intercompany transactions have been eliminated. Minority interests in operating results and equity ownership are reflected in the consolidated financial statements.

   The consolidated financial statements reflect the accounts of all controlled affiliates on a current basis, with the exception of certain PPL Global investments. It is the policy of PPL Global to consolidate foreign affiliates and record equity in earnings of affiliates on a lag, based on the availability of financial data on a U.S. GAAP basis:

• Equity earnings from WPD 1953, the parent of WPD (South West) and WPD (South Wales), and WPDL are recorded on a one-month lag. PPL Global has 51% equity ownership interests in these entities but has joint control of these investments with Mirant. Earnings from all other foreign equity method investments are recorded on a three-month lag.

• PPL Global consolidates the results of controlled subsidiaries, Emel, EC, the Bolivian subsidiaries and other investments, on a one-month lag. The results of CEMAR are consolidated on a three-month lag. The portion of the subsidiaries' earnings owned by outside shareowners is included in "Minority Interest" in the consolidated financial statements.

  PPL Global's 8.5% investment in CGE is accounted for using the cost method. Dividends from CGE are recorded as income when received.

  Use of Estimates/Contingencies

  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 assets and 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.

  PPL Energy Supply records loss contingencies in accordance with SFAS 5, "Accounting for Contingencies."

  Property, Plant and Equipment

  Following are the classes of Property, Plant and Equipment, with the associated accumulated depreciation at December 31 (millions of dollars):

  		2001		2000
  Electric plant
  	Generation	$	7,208	$	6,801
  	Transmission and distribution		561		769
  	Nuclear fuel		127		320
  	Construction work in progress		146		226
  	General		174		149
  Gas and oil			67		67
  Other property			96		94
  			8,379		8,426
  Less: Accumulated depreciation			4,899		5,037
  		$	3,480	$	3,389

  Property, plant and equipment is recorded at original costs, unless impaired under the provisions of SFAS 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of." Original cost includes material, labor, contractor costs, construction overheads and capitalized interest. The cost of repairs and minor replacements are charged to expense as incurred. When a component of property, plant or equipment 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 is retired or that was depreciated under the composite or group method, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income, unless otherwise required by regulators.

  Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite and group methods. The annual provisions for depreciation have been computed principally in accordance with the following ranges of asset lives: generation, 5-50 years; transmission and distribution, 30-40 years; and general, 5-58 years. PPL Energy Supply periodically reviews and adjusts the depreciable lives of its fixed assets.

  Asset Impairment

  Long-lived assets and identifiable intangibles held and used by PPL Energy Supply and its subsidiaries are reviewed for impairment when events or circumstances indicate carrying amounts may not be recoverable. Such reviews are performed in accordance with SFAS 121. Impairment losses on such long-lived assets are recognized when book values exceed expected undiscounted future cash flow with the impairment measured on a discounted future cash flows basis. Equity investments are reviewed for impairment in accordance with APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." APB Opinion No. 18 provides that "a loss in value of an investment which is other than a temporary decline should be recognized." PPL Energy Supply identifies and measures loss in value of equity investments based upon a comparison of fair value to carrying value. See Note 17 for the impact of SFAS 144 on accounting for asset impairments.

  Amortization of Goodwill

  Goodwill is amortized on a straight-line basis over a period not to exceed 40 years. The excess cost over the fair value of investments accounted for under the equity method is amortized on a straight-line basis over a period not in excess of 40 years. The unamortized excess cost (goodwill element) is reported in "Investment in unconsolidated affiliates - at equity" on the Balance Sheet. See Note 3 for more information. See Note 17 for the impact of SFAS 142 on accounting for goodwill.

  Accounting for Price Risk Management

  PPL Energy Supply enters into commodity contracts for the physical purchase and sale of energy as well as energy contracts that can be settled financially. Through PPL, PPL Energy Supply enters into interest rate derivative contracts to hedge its exposure to changes in the fair value of its debt instruments, as well as its exposure to variability in expected cash flows associated with existing debt instruments or forecasted transactions. Through PPL, PPL Energy Supply also enters into foreign currency derivative contracts to hedge foreign currency exposures, including firm commitments, recognized assets or liabilities, forecasted transactions or net investments.

  As of January 1, 2001, contracts that meet the definition of a derivative were accounted for under SFAS 133, "Accounting for Derivative Instrument and Hedging Activities." Certain energy contracts have been excluded from SFAS 133's requirements because they meet the definition of a "normal sale or purchase" under DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity." These contracts are reflected in the financial statements using the accrual method of accounting. See Note 18 for additional information on SFAS 133.

  Under SFAS 133, all derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is executed, PPL Energy Supply designates the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), a foreign currency fair value or cash flow hedge ("foreign currency" hedge), a hedge of a net investment in a foreign operation, or a non-hedge derivative. Changes in the fair value of a derivative that is highly effective as, and is designated and qualifies as, a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk, are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as, and is designated as and qualifies as, a cash flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows being hedged. Changes in the fair value of derivatives that are designated as and qualify as, foreign currency hedges are recorded in either current-period earnings or other comprehensive income, depending on whether the hedge transaction is a fair value hedge or a cash flow hedge. If however, a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in the cumulative translation adjustments account within equity. Changes in the fair value of derivatives that are not designated as hedging instruments are reported in current-period earnings.

  In addition, PPL Energy Supply has entered into non-derivative contracts that meet the definition of energy trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." In accordance with EITF 98-10, energy trading contract gains and losses from changes in market prices are marked to market through earnings.

  For 1999 and 2000, PPL EnergyPlus used EITF 98-10 to account for its commodity forward and financial contracts. As such, contracts that did not meet the definition of energy trading contracts, as defined by EITF 98-10, were reflected in the financial statements using the accrual method of accounting. The gains or losses on interest rate derivative contracts that settled prior to the adoption of SFAS 133 were deferred and are being recognized over the life of the debt. Market gains and losses on foreign currency derivative contracts that settled prior to the adoption of SFAS 133 were recognized in accordance with SFAS 52, "Foreign Currency Translation," and are included in "Foreign currency translation adjustments," a component of Member's Equity on the Balance Sheet.

  Gains and losses from changes in market prices of energy sales contracts are accounted for in "Wholesale energy marketing and trading" revenues; gains and losses from changes in market prices of energy purchase contracts are accounted for in "Energy purchases" on the Statement of Income. The amortized gains and losses from interest rate derivative contracts are accounted for in "Interest Expense."

  Revenue Recognition

  "Retail electric and gas" and "Wholesale energy marketing and trading" revenues are recorded based on 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.

  "Energy related businesses" revenue includes revenues from PPL Global and the mechanical contracting and engineering subsidiaries. PPL Global's revenue reflects its proportionate share of affiliate earnings under the equity method of accounting, as described in the "Consolidation" section of Note 1, and dividends received from its investments are accounted for using the cost method. 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. Costs include all direct material and labor costs and job-related overhead. Provisions for estimated loss on uncompleted contacts, if any, are made in the period in which such losses are determined.

  Income Taxes

  The income tax provision for PPL Energy Supply is calculated in accordance with SFAS 109, "Accounting for Income Taxes." The taxable income or loss is included in the consolidated federal income tax return of PPL. The income tax provision for PPL Energy Supply is calculated in accordance with an intercompany tax sharing policy which provides that the taxable income be calculated as if PPL Energy Supply filed a separate return.

  Leases

  See Note 10 for a discussion on accounting for leases.

  Pension and Other Postretirement Benefits

  See Note 12 for a discussion on accounting for pension and other postretirement benefits.

  Cash Equivalents

  All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents.

  Comprehensive Income

  Comprehensive income consists of net income and other comprehensive income, defined as changes in Member's equity from transactions other than with the Member. Other comprehensive income consists of foreign currency translation adjustments, unrealized gains or losses on available-for-sale securities and qualifying derivatives, and the excess of additional pension liability over unamortized prior service costs. Comprehensive income is reflected on the Statement of Member's Equity and Comprehensive Income, and "Accumulated other comprehensive income" is included in Member's Equity on the Balance Sheet. The accumulated other comprehensive income of PPL Energy Supply at December 31, 2001 and 2000 was $(226) million and $(37) million, respectively.

  Foreign Currency Translation

  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 other comprehensive income. The effect of translation adjustments on other comprehensive income, net of income taxes, is disclosed in the Statement of Member's Equity and Comprehensive Income. Gains or losses relating to foreign currency transactions are recognized in income currently. The aggregate transaction gain was $8 million in 2001, and was not significant in 2000.

  Project Development

  PPL Global expenses the costs of evaluating potential acquisition and development opportunities as incurred. Acquisition and development costs are capitalized upon approval of the investment by the PPL Global Board of Managers and the Finance Committee of PPL's Board of Directors or, if later, the achievement of sufficient project milestones such that the economic viability of the project is reasonably assured. The level of assurance needed for capitalization of such costs requires that all major uncertainties be resolved and that there is a high probability that the project will proceed as planned, or that such costs will be recoverable through long-term operations, a financing or a sale.

  The continued capitalization of project development and acquisition costs is subject to on-going risks related to successful completion. In the event that PPL Global determines that a particular project is no longer viable, previously capitalized costs are charged to expense in the period that such determination is made.

  Reclassification

  Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the current presentation.

2. Segment and Related Information

   PPL Energy Supply's reportable segments are Supply and International. The Supply group consists of the domestic energy marketing, generation and domestic development operations of PPL Energy Supply. The International group includes PPL Global's responsibility for the acquisition, development, ownership and operation of international energy projects. The majority of PPL Global's international investments are located in the U.K., Chile, El Salvador and Brazil. Segments include direct charges, as well as an allocation of indirect corporate costs, for services provided by PPL Services. These service costs include functions such as financial, legal, human resources and information services.

   See Note 15 for discussion of the contract between PPL Electric and PPL EnergyPlus.

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

   		2001			2000			1999
   Income Statement Data
   Revenues from external customers
   	Supply	$	3,827		$	2,666		$	556
   	International		575			455			418
   			4,402			3,121			974
   Equity in earnings of unconsolidated affiliates
   	Supply		14			(10	)		1
   	International		113			78			57
   			127			68			58
   Depreciation
   	Supply		126			68			3
   	International		31			21			17
   			157			89			20
   Amortizations - nuclear fuel and energy commitments
   	Supply		61			38
   			61			38
   Interest and dividend income
   	Supply		61			29			5
   	International		2			14
   			63			43			5
   Interest expense
   	Supply		(48	)		90			33
   	International		95			37			19
   			47			127			52

      

   Income taxes
   	Supply		237			111		(72	)
   	International		37			14		43
   			274			125		(29	)
   Net Income (loss)
   	Supply		489			182		(91	)
   	International		(315	)		60		56
   		$	174		$	242	$	(35	)
   		2001			2000		1999
   Cash Flow Data
   Expenditures for property, plant and equipment
   	Supply	$	254		$	246	$	33
   	International		126			34		4
   			380			280		37
   Investment in generating assets and electric energy projects
   	Supply		176			102		841
   	International		136			473		225
   		$	312		$	575	$	1,066

   
   

   		As of December 31,
   		2001		2000
   Balance Sheet Data
   Net investment in unconsolidated affiliates - at equity
   	Supply	$	211	$	165
   	International		375		635
   			586		800
   Total assets
   	Supply		5,730		5,585
   	International		1,439		1,878
   		$	7,169	$	7,463

   		2001		2000		1999
   Geographic Data
   Revenues from external customers
   	Domestic	$	3,827	$	2,666	$	556
   	Foreign		575		455		418
   		$	4,402	$	3,121	$	974

   
   

   		As of December 31,
   		2001		2000
   Property, plant and equipment
   	Domestic	$	2,893	$	2,651
   	Foreign		587		738
   		$	3,480	$	3,389

   The Supply segment information reported at the PPL Energy Supply level will not be consistent with the Supply segment information reported at the PPL level. Additional Supply segment functions exist at PPL that are outside of PPL Energy Supply. Further, certain income items exist at the PPL Energy Supply level, but are eliminated at the PPL level. Lastly, certain expense items are fully allocated to the segments at the PPL level only.

3. Investment in Unconsolidated Affiliates - at Equity

   PPL Energy Supply's investment in unconsolidated affiliates accounted for under the equity method was $586 million and $800 million at December 31, 2001 and 2000. The most significant investment was PPL Global's investment in WPD 1953, which was $328 million at December 31, 2001 and $479 million at December 31, 2000. WPD 1953 owns WPD (South West) and WPD (South Wales). See Note 21 for a discussion on the write-down of international energy projects. At December 31, 2001, PPL Global had a 51% equity ownership interest in WPD 1953, but shared joint control with Mirant. Accordingly, PPL Global accounts for its investment in WPD 1953 (and other investments where it has majority ownership but lacks control) under the equity method of accounting.

   Investment in unconsolidated affiliates accounted for under the equity method at December 31, 2001, and the effective equity ownership percentages, were as follows:

   PPL Global:

   Bolivian Generating Group, LLC - 29.3%

   Latin American Energy & Electricity Fund I, LP - 16.6%

   Aguaytia Energy, LLC - 11.4%

   Hidrocentrais Reunidas, LDA - 50.0%

   Hidro Iberica, B. V. - 50.0%

   WPD 1953 - 51.0%

   WPDL - 51.0%

   PPL Generation:

   Safe Harbor Water Power Corporation - 33.3%

   Bangor Pacific Hydro Associates - 50.0%

   Southwest Power Partners, LLC - 50.0%

   Summarized below is financial information from the financial statements of these affiliates accounted for by the equity method (millions of dollars):

   Balance Sheet Data
   	As of December 31,
   	2001			2000
   Current Assets	$	612	$		396
   Noncurrent Assets		5,517			4,904
   Current Liabilities		502			409
   Noncurrent Liabilities		3,955			3,365

   Income Statement Data

   	2001		2000		1999
   Revenues (a)	$	647	$	491	$	1,101
   Operating Income		328		251		203
   Net Income (a)		248		127		419

   1. The decrease in revenues and net income in 2001 and 2000 from 1999 were in part due to the sale of the supply business of WPD (South West), formerly SWEB, in the fourth quarter of 1999.

4. Sales to Other Electric Utilities

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

   PPL EnergyPlus had a contract to provide BG&E with 129,000 kilowatts, or 6.6%, of PPL Susquehanna's share of capacity and related energy from the Susquehanna station. PPL EnergyPlus provided 407 million kWh to BG&E through May 2001, at which point the contract ended.

   PPL Montana provided power to Montana Power under two wholesale transition sales agreements. One agreement expired in December 2001 and the second agreement expires in June 2002. See Note 14 for more information regarding a new power supply agreement beginning in July 2002.

5. Income and Other Taxes

   For 2001, 2000 and 1999 the corporate federal income tax rate was 35%. The statutory corporate net income tax rates for Pennsylvania and Montana were 9.99% and 6.75%.

   The tax effects of significant temporary differences comprising PPL Energy Supply's net deferred income tax asset were as follows (millions of dollars):

   			2001			2000
   Deferred Tax Assets
   	Deferred investment tax credits	$	47		$	52
   	NUG contracts & buybacks		272			318
   	Accrued pension costs		25			34
   	Deferred foreign income taxes		109			59
   	Cancellation of generation projects		60
   	Impairment write-down		61
   	Valuation allowance		(172	)		(8	)
   	Other		98			83
   			500			538
   Deferred Tax Liabilities
   	Electric plant - net		358			333
   	Foreign investments		14			15
   	Deferred foreign income taxes		42			52
   	Other		10			4
   			424			404
   Net deferred tax asset		$	76		$	134

   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 as follows (millions of dollars):

   		2001			2000			1999
   Income Tax Expense
   	Provision-Federal	$	210		$	109		$	(46	)
   	Provision-State		44			24			(19	)
   	Provision-Foreign		8			11			10
   			262			144			(55	)
   	Deferred-Federal		(22	)		(10	)		25
   	Deferred-State		2			1			1
   	Deferred-Foreign		44			(4	)
   			24			(13	)		26

   	Investment tax credit, net-federal		(12	)		(6	)
   	Total	$	274		$	125		$	(29	)
   Total income tax expense-Federal		$	176		$	93		$	(21	)
   Total income tax expense-State			46			25			(18	)
   Total income tax expense-Foreign			52			7			10
   	Total	$	274		$	125		$	(29	)

   		2001			2000			1999
   Reconciliation of Income Tax Expense
   	Indicated federal income tax    on pre-tax income before    cumulative effect of a change    in accounting principle at    statutory tax rate - 35%	$	155		$	130		$	(17	)
   Increase/(decrease) due to:
   	State income taxes		31			16			(12	)
   	Amortization of investment tax   credit		(8	)		(4	)
   	Write-down of international energy projects		100						18
   	Difference related to income   recognition of foreign   affiliates		(17)			(14	)		(22	)
   	Foreign income taxes		52			7			10
   	Foreign income tax credits		(40	)		(6	)
   	Other		1			(4	)		(6	)
   			119			(5	)		(12	)
   Total income tax expense		$	274		$	125		$	(29	)
   Effective income tax rate			61.9%			33.6%			58.8%

   		2001		2000		1999
   Taxes, Other Than Income
   	State gross receipts	$	7	$	24	$	18
   	State capital stock		11		10
   	Property and other		20		19		1
   		$	38	$	53	$	19

   PPL Global does not pay or record U.S. income taxes on the undistributed earnings of its foreign subsidiaries and its 20% to 50% owned corporate joint ventures where management has determined that the earnings are permanently reinvested in the companies that produced them. The cumulative undistributed earnings are included in Member's Equity on the Balance Sheet. The amounts considered permanently reinvested at December 31, 2001 and 2000 were $38 million and $27 million. It is not practical to estimate the amount of taxes that might be payable on these foreign earnings if they were remitted to PPL Global.

6. Nuclear Decommissioning Costs

   The cost to decommission the Susquehanna station is based on a site-specific study to dismantle and decommission each unit immediately following final shutdown. PPL Susquehanna's 90% share of the total estimated cost of decommissioning the Susquehanna station was approximately $724 million in 1993 dollars. This estimate includes decommissioning the radiological portions of the station and the cost of removal of non-radiological structures and materials.

   Decommissioning costs are recorded as a component of depreciation expense. Beginning in January 1999, in accordance with the PUC Final Order, $130 million of decommissioning costs are being recovered from customers through the CTC over the 11-year life of the CTC rather than the remaining life of Susquehanna. The recovery will include a return on unamortized decommissioning costs. Decommissioning charges were $24 million in 2001, and $13 million for the six months ended December 31, 2000.

   Amounts collected from PPL Electric's customers for decommissioning, less applicable taxes, are deposited in external trust funds for investment and can be used only for future decommissioning costs. Accrued nuclear decommissioning costs were $294 million and $280 million at December 31, 2001 and 2000, and are included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet.

   In November 2001, PPL Susquehanna notified the NRC that it intends to file for 20-year license renewals for each of the Susquehanna units. If approved, the operating licenses would be extended from 2022 to 2042 for Unit 1 and from 2024 to 2044 for Unit 2.

   See Note 17 for additional information on SFAS 143, which could have a material impact on the accounting for the decommissioning of the Susquehanna station.

7. Financial Instruments

   The carrying amount on the Balance Sheet and the estimated fair value of PPL Energy Supply's financial instruments were as follows (millions of dollars):

   			December 31, 2001				December 31, 2000
   				Carrying Amount		Fair Value		Carrying Amount		Fair Value
   Assets
   	Cash and cash equivalents (a)		$	832	$	832	$	130	$	130
   	Nuclear plant decommissioning trust fund (a)			276		276		268		268
   	Price risk management assets-current: (c)
   		Energy		22		22		7		7
   	Price risk management assets -noncurrent: (c)
   		Energy		44		44		1		1
   	Other investments (a)			13		13		4		4
   	Other financial instruments included in other current assets (a)			1		1		12		12
   Liabilities
   	Long-term debt (b)			761		725		192		192
   	Short-term debt (a)			118		118		170		170
   	Price risk management liabilities - current: (c)
   		Energy		12		12				201	(d)
   	Price risk management liabilities- noncurrent: (c)
   		Energy		7		7				61	(d)
   	Other financial instruments included in other current liabilities (a)			12		12

   (a) The carrying value of these financial instruments generally is based on established market prices and approximates fair value.
   b) The fair value generally is based on quoted market prices for the securities where available and estimates based on current rates offered to PPL where quoted market prices are not available.
   (c) Valued using either exchange-traded market quotes or prices obtained through third-party brokers. See Note 18 about the various uses of derivative financial instruments at PPL Energy Supply.
   (d) These contracts were classified as non-trading under EITF 98-10 and were not required to be marked to fair value on the Balance Sheet in 2000.
   

   This table excludes derivative and non-derivative energy contracts that do not meet the definition of a financial instrument because physical delivery is expected.

8. Credit Arrangements and Financing Activities

   Credit Arrangements

   In June 2001, PPL Energy Supply entered into two credit facilities: a $600 million 364-day facility and a $500 million three-year facility. Obligations of PPL Energy Supply under these credit facilities were guaranteed by PPL. The PPL guarantee fell away in connection with PPL Energy Supply's issuance of senior notes described in "Financing Activities" below. At December 31, 2001, no borrowings were outstanding under any of these facilities, and there were $26 million of letters of credit issued under the $500 million three-year facility.

   In addition, in June 2001, PPL Energy Supply entered into a 364-day revolving-credit facility with PPL Capital Funding. PPL guaranteed PPL Capital Funding's obligations under this agreement. The credit facility and related guarantee were terminated as of December 20, 2001, and at that time no borrowings were outstanding under this credit facility.

   PPL Montana has a $100 million working capital credit facility which matures in November 2002. The maturity date may be extended with the consent of the lenders. This facility provides that up to $75 million of the commitment may be used to cause lenders to issue letters of credit. In the event that PPL Montana were to draw upon this facility or cause lenders to issue letters of credit on its behalf, PPL Montana would be required to reimburse the issuing lenders. At December 31, 2001, $44 million of loans were outstanding under this facility and $25 million of letters of credit were issued.

   In April 2001, PPL Montana executed a new credit facility to allow for incremental letter of credit capacity of $150 million. There were no amounts outstanding under this facility at December 31, 2001. PPL executed a commitment to the lenders under PPL Montana's $150 million credit facility that PPL will provide (or cause PPL Energy Supply to provide) letters of credit at such times and in such amounts as are necessary to permit PPL Montana to remain in compliance with its fixed price forward energy contracts or its derivative financial instruments entered into to manage energy price risks, to the extent that PPL Montana cannot provide such letters of credit under its existing credit agreements. No such letters of credit had been issued as of December 31, 2001.

   Financing Activities

   PPL Energy Supply established a $1.1 billion commercial paper program during December 2001. At December 31, 2001, there was no commercial paper outstanding.

   In October 2001, PPL Energy Supply sold $500 million aggregate principal amount of its 6.40% senior unsecured notes due 2011 in a private placement, and agreed to make an exchange offer to exchange the privately-placed senior notes for publicly-registered senior notes. The exchange offer was completed in February 2002. The new registered senior notes have the same material financial terms as the old senior notes. Proceeds of the senior note offering will be used to fund generation development and for general corporate purposes.

   In 2001, PPL Global subsidiaries Emel and CEMAR issued $127 million and $99 million of long-term debt. A portion of CEMAR's debt was reclassified to short-term debt in conjunction with CEMAR's impairment. (See Note 21.)

   In 2001, PPL Energy Supply's Member's Equity increased from approximately $2.6 billion to $4.0 billion, primarily due to contributions from PPL Energy Funding. PPL Energy Funding contributed $920 million of notes and accounts receivable (primarily due from PPL Global) to PPL Investment Corporation, PPL Energy Supply's financing subsidiary. This contribution was recorded as additional member's equity, and reduced PPL Energy Supply's consolidated short-term debt payable to affiliates. PPL Energy Funding also contributed $490 million in cash, net of $463 million of distributions it received from PPL Energy Supply.

   See Note 10 for a description of PPL Energy Supply's lease financings.

9. Acquisitions, Development and Divestitures

   Domestic Generation Projects

   In January 2001, PPL Montour acquired an additional interest in the coal-fired Conemaugh Power Plant from Potomac Electric Power Company. Under the terms of the acquisition agreement, PPL Montour and a subsidiary of Allegheny Energy, Inc. jointly acquired a 9.72% interest in the 1,711 MW plant. PPL Montour paid $78 million for this additional 83 MW interest. The purchase increased PPL Montour's ownership interest to 16.25% in the two-unit plant.

   In August 2001, construction began on the University Park Energy project, a 540 MW natural gas-fired facility located in University Park, Illinois and on the Sundance Energy project, a 450 MW natural gas-fired facility in Pinal County, Arizona. The projects are expected to be in service during the summer of 2002 at an estimated total project cost of approximately $675 million. PPL Susquehanna also announced plans to increase the capacity of its Susquehanna nuclear plant by 100 MW with the installation of more efficient steam turbines on each of the two units. These improvements will be made in 2003 and 2004 and are expected to cost approximately $120 million.

   In December 2001, PPL Global and the Long Island Power Authority entered into agreements to build two 80 MW combustion turbine power facilities at sites in Shoreham and Edgewood on Long Island, New York. Both facilities are expected to be in service during the summer of 2002 at an estimated total project cost of approximately $180 million.

   In December 2001, a PPL Global subsidiary entered into a synthetic lease financing transaction for the development, construction and operation of its Lower Mt. Bethel combined-cycle generating facility. The Air Quality Plan Approval issued by the Pennsylvania DEP for construction of the Lower Mt. Bethel facility has been appealed by the New Jersey DEP. PPL Energy Supply and the PPL Global subsidiary intend to work with the Pennsylvania DEP in opposing this appeal. In addition, the local township zoning hearing board granted zoning approval for the facility, but the approval has been appealed by a township resident as to the decibel levels allowed. An additional appeal was filed by the same resident to the township's issuance of a building permit pending the outcome of the zoning appeal. PPL Energy Supply and the PPL Global subsidiary are aggressively opposing the zoning and building permit appeals. As a result of these three appeals, substantial additional requirements could be imposed on the construction and operation of the facility. If, as a result of these appeals, the construction of the facility could not be completed by September 30, 2004, the PPL Global subsidiary, or PPL Energy Supply as guarantor, could be called upon to repay approximately 90% of the then-outstanding facility costs, plus a make-whole premium on the total amount of debt commitments. Alternatively, PPL Energy Supply could, subject to certain conditions, purchase the facility from the lessor, offer to assume 100% of the outstanding debt, and pay a reduced make-whole premium to any debtholder that does not accept such offer.

   In light of continuing declines in wholesale energy prices in the eastern and western U.S. markets, PPL Global is scaling back its generation development program. As a result, in December 2001, PPL Global made a decision to cancel approximately 2,100 MW of previously planned generation development in Pennsylvania and Washington state. These projects were in the early stage of development and would have had an estimated capital cost of $1.3 billion. The charge for cancellation of these generation projects, which was primarily due to cancellation fees under turbine purchase contracts, was approximately $150 million, and is reported on the Statement of Income as "Cancellation of generation projects," a component of "Other Charges."

   International Distribution Projects

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

   In May 2001, WPDL successfully completed the sale of Hyder's water business, Welsh Water, to the Welsh firm Glas Cymru Cyfyngedig for one British pound sterling and the assumption of all of Welsh Water's debt.

   In September 2001, PPL Global increased its capital investment by 4.9% in CEMAR by purchasing the 25.7 billion shares of CEMAR that were held by CEMAR's employees at a price of $13 million. The increase resulted in a total 89.6% ownership in CEMAR.

   In December, 2001, PPL Global purchased an 80% interest in El Salvador Telecom, a small telecommunications company in El Salvador, for an initial investment of $8 million.

   In December 2001, PPL Global recorded impairment charges for its investments in CEMAR, WPD 1953 and WPDL. See Note 21 for additional information.

10. Leases

    PPL Energy Supply applies the provisions of SFAS 13, "Accounting for Leases", to all leasing transactions. In addition, PPL applies the provisions of numerous other accounting pronouncements that provide specific guidance and additional requirements related to accounting for leases.

    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. The proceeds from this sale approximated $410 million. PPL Montana used the proceeds to reduce outstanding debt and make distributions to its parent, PPL Generation. PPL Montana leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, through four non-cancelable operating leases. The leases provide two renewal options based on the economic useful life of the generation assets.

    In November 2000, a PPL Global subsidiary entered into a $555 million operating lease arrangement for turbine generator units, and related equipment (SCRs, transformers and spare engines). Certain obligations of the PPL Global subsidiary under this lease financing, including payment obligations, have been guaranteed by PPL. The units are expected to go into service as they are completed, beginning in 2002.

    In May 2001, a PPL Global subsidiary entered into an operating lease arrangement, initially for $900 million and increased in July 2001 to $1.06 billion upon syndication, for the development, construction and operation of several commercial power generation facilities. Certain obligations of the PPL Global subsidiary under this lease financing, including payment obligations, have been guaranteed by PPL Energy Supply. In February 2002, the PPL Global subsidiary reduced the available commitment under the lease to approximately $700 million. There is a residual value guarantee that is expected to be up to $545 million at the end of the lease.

    In December 2001, a PPL Global subsidiary entered into an operating lease arrangement for $455 million for the development, construction and operation of a 600 MW gas-fired combined-cycle generation facility located in Lower Mt. Bethel Township, Northampton County, Pennsylvania. The facility is expected to be operational in 2004. Certain obligations of the PPL Global subsidiary under this lease financing, including payment obligations, have been guaranteed by PPL Energy Supply. There is a residual value guarantee that is expected to be up to $321 million at the end of the lease.

    In addition to the leasing arrangements discussed above, PPL Energy Supply also has leases for vehicles, office space, land, personal computers and other equipment. Total future minimum lease payments for all operating leases are estimated as follows (millions of dollars): 2002, $343; 2003, $92; 2004, $136; 2005, $131; 2006, $99; and thereafter, $865.

11. Stock-Based Compensation

    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 as well as stock options may be granted to officers and other key employees of PPL and other affiliated companies, including PPL Energy Supply. Awards under the Plans are made in the common stock of PPL 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. Each Plan limits the number of shares available for awards to two percent of the outstanding common stock of PPL on the first day of each calendar year. The maximum number of options which can be awarded under each Plan to any single eligible employee in any calendar year is 1.5 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 or is forfeited or the rights to the participant terminate, any shares of common stock 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. However, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death. Restricted shares vest fully if control of PPL changes, as defined by the Plans.

    Restricted stock awards of 141,289; 227,858; and 25,100 shares, with per share weighted-average fair values of $42.68, $21.52, and $26.77, were granted in 2001, 2000 and 1999 to employees of PPL Energy Supply subsidiaries. Compensation expense for 2001 was $3 million and was not significant in 2000 and 1999. At December 31, 2001, there were 442,836 restricted shares outstanding. These awards currently vest from three to twenty-three years from the date of grant.

    Stock Options

    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. The CLC and CCGC have discretion to accelerate the exercisability of the options. All options expire no later than ten years from the grant date. The options become exercisable if control of PPL changes, as defined by the Plans.

    PPL applies APB Opinion No. 25 "Accounting for Stock Issued to Employees," and related interpretations in accounting for stock options. Since stock options are granted at the then current market price, no compensation cost has been recognized. Compensation calculated in accordance with the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," for 2001, 2000 and 1999 would not have been significant.

    A summary of stock option activity follows:

    Stock Option Activity		Number of Options		Weighted Average Exercise Price
    Balance at December 31, 1998
    	Options granted	226,680			$	26.85
    	Options forfeited	(78,780	)		$	26.84
    Balance at December 31, 1999		147,900			$	26.85
    (0 options exercisable)
    	Options granted	583,330			$	22.67
    	Options exercised	(28,495	)		$	26.84
    	Options forfeited	(46,980	)		$	25.05
    Balance at December 31, 2000		655,755			$	23.27
    (69,463 options exercisable)
    	Options granted	306,130			$	43.16
    	Options exercised	(167,446	)		$	23.92
    	Options forfeited	(53,100	)		$	29.91
    	Options transferred	(66,160	)		$	22.88
    Balance at December 31, 2001		675,179			$	31.64
    (88,436 options exercisable)

    The weighted average fair values of options at their grant date during 2001, 2000 and 1999 were $10.42, $3.35 and $2.37. The estimated fair value of each option granted was calculated using a modified Black-Scholes option-pricing model. The weighted average assumptions used in the model were as follows:

    	2001	2000	1999
    Risk-free interest rate	5.46%	6.74%	5.61%
    Expected option term	10 yrs	10 yrs	10 yrs
    Expected stock volatility	30.24%	19.79%	16.19%
    Dividend yield	4.28%	5.70%	6.60%

    Outstanding options had a weighted-average remaining life of 8.3 years at December 31, 2001.

12. Retirement and Postemployment Benefits

    Pension and Other Postretirement Benefits

    Various subsidiaries of PPL Energy Supply sponsor pension and other postretirement and postemployment benefit plans. PPL Energy Supply follows the guidance of SFAS 87, "Employers' Accounting for Pensions" and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" for these benefits.

    PPL Montana sponsors a funded, noncontributory defined benefit plan covering substantially all employees. CEMAR sponsors a funded, contributory defined benefit plan covering substantially all employees. PPL Montana and PPL Global also sponsor supplemental retirement plans that provide benefits to key management employees through unfunded nonqualified plans.

    PPL Montana also sponsors a postretirement plan to provide for certain health care and life insurance benefits for its employees upon retirement.

    Employees of other PPL Generation subsidiaries and PPL EnergyPlus are provided with pension and postretirement benefits under plans sponsored by PPL Services Corporation.

    Net pension and postretirement medical benefit costs for the domestic plans sponsored by PPL Montana and PPL Global were (millions of dollars):

    		Pension Benefits							Postretirement Medical Benefits
    	2001			2000			1999			2001		2000
    Service cost	$	2		$	2		$	0.2		$	0.2	$	0.2
    Interest cost		4			2			0.2			0.3		0.3
    Expected return on plan assets		(3	)		(2	)
    Prior service cost								0.2
    Net periodic pension and postretirement benefit cost	$	3		$	2		$	0.6		$	0.5	$	0.5

      Net pension costs for the international plan sponsored by CEMAR were (millions of dollars):
    
    

    	Pension Benefit 2001
    Service cost		$	1
    Interest cost			3
    Expected return on plan assets			(3	)
    Net periodic pension and postretirement benefit cost		$	1

    PPL Generation subsidiaries and PPL EnergyPlus are allocated a portion of the liabilities and costs of the pension plans sponsored by PPL Services based on their participation in those plans. The liabilities assumed by PPL Energy Supply for these plans total $49 million at December 31, 2001. PPL Energy Supply was allocated net periodic pension credits of $(23) million in 2001. Amounts allocated in 2000 and 1999 were not significant.

    In 2001, PPL changed its method of amortizing unrecognized gains or losses in the annual pension expense/income determined under SFAS 87, "Employers' Accounting for Pensions." This change resulted in a cumulative-effect credit of $3 million after-tax, which is reflected as a "Cumulative Effect of a Change in Accounting Principle" on the Statement of Income. Under the old method, unrecognized gains and losses in excess of ten percent of the greater of the plan's projected benefit obligation or market-related value of plan assets were amortized on a straight-line basis over the estimated average future service period of plan participants. Under the new method, a second corridor will be utilized for unrecognized gains and losses in excess of thirty percent of the plan's projected benefit obligation. Unrecognized gains and losses outside the second corridor will be amortized on a straight-line method over a period equal to one-half of the average future service period of the plan participants. The new method is preferable under SFAS 87 because it provides more current recognition of gains and losses, thereby lessening the accumulation of unrecognized gains and losses.

    The pro-forma effect of retroactive application of this change in accounting principle would have reduced net income by $3 million in 2001 and increased net income by $2 million in 2000 and by $1 million in prior periods.

    PPL Generation subsidiaries and PPL EnergyPlus are also allocated a portion of the liabilities and costs of the postretirement medical plans sponsored by PPL Services based on their participation in those plans. Postretirement medical costs allocated to PPL Energy Supply were approximately $9 million in 2001 and were not significant in 2000 and 1999. At December 31, 2001, the balance in PPL Energy Supply's allocated share of the total postretirement medical liability was $3 million.

    Postretirement medical costs at December 31, 2001 for the PPL Montana sponsored plan were based on the assumption that costs would increase 7% in 2001, then the rate of increase would decline gradually to 6% in 2006 and thereafter. A one percentage point change in the assumed health care cost trend assumption would increase the service cost and interest cost by $27,000 and increase the postretirement benefit obligation by $234,000. A one percent decrease in the assumed health care cost trend assumption would decrease the service cost and interest cost by $24,000 and decrease the postretirement benefit obligation by $203,000.

    The following assumptions were used in the valuation of PPL Montana and PPL Global domestic benefit obligations:

    Pension Benefits

    	2001	2000	1999
    Discount rate	7.25%	7.5%	7.0%
    Expected return on plan assets	9.2%	9.2%	8.5%
    Rate of compensation increase	4.25%	4.75%

    
    Postretirement Medical Benefits
    

    	2001	2000	1999
    Discount rate	7.25%	7.5%	7.0%
    Rate of compensation increase	4.25%	4.75%	5.0%

    
    The funded status of the domestic PPL Montana and PPL Global plans was as follows (millions of dollars):
    

    		Pension Benefits						Postretirement Medical Benefits
    			2001			2000			2001			2000
    Change in Benefit Obligation
    Benefit Obligation, January 1		$	42		$	35		$	4		$	4
    	Service cost		2			2
    	Interest cost		4			2			1
    	Plan amendments		4
    	Actuarial (gain)/loss		1			(2	)
    	Net transfer out		(1	)
    	Net benefits paid		(1	)
    Benefit Obligation, December 31			51			37			5			4
    Change in Plan Assets
    Plan assets at fair value, January 1			35			24
    	Actual return on plan assets		(1	)		1
    	Acquisition/divestitures					3
    	Net benefits paid		(1	)
    Plan assets at fair value, December 31			33			28
    Funded Status
    Funded Status of Plan			(18	)		(9	)		(5	)		(4	)
    Unrecognized actuarial loss			6
    Unrecognized prior service cost			5			2
    Asset(liability) recognized		$	(7	)	$	(7	)	$	(5	)	$	(4	)
    Amounts recognized in the Balance Sheet consist of:
    	Prepaid benefit cost	$	1
    	Accrued benefit liability		(8	)	$	(7	)	$	(5	)	$	(4	)
    	Additional minimum liability		(5	)		(1	)
    	Intangible asset		3			1
    	Accumulated other comprehensive income		2
    Net Amount Recognized		$	(7	)	$	(7	)	$	(5	)	$	(4	)

    The following assumptions were used in the international CEMAR benefit obligations:
    

    	Pension Benefits 2001
    Discount rate	10.24%
    Expected return on plan assets	10.24%
    Rate of compensation increase	7.12%

    The funded status of the international CEMAR plan was as follows (millions of dollars):

    
    

    		Pension Benefits 2001
    Change in Benefit Obligation
    Benefit Obligation, January 1
    	Service cost		$	1
    	Interest cost			3
    	Plan amendments			1
    	Actuarial (gain)/loss			4
    	Acquisition/divestitures			30
    	Net benefits paid			(2	)
    Benefit Obligation, December 31				37
    Change in Plan Assets
    Plan assets at fair value, January 1
    	Actual return on plan assets			(2	)
    	Employer contributions			1
    	Participant contributions			1
    	Acquisition/divestitures			23
    	Net benefits paid			(2	)
    Plan assets at fair value, December 31				21
    Funded Status
    Funded Status of Plan				(16	)
    Unrecognized transition assets				8
    Asset/(liability) recognized			$	(8	)

    The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were (in millions) $81, $65 and $47, as of December 31, 2001 and $4, $2 and $0 as of December 31, 2000.

    Subsidiaries engaged in the mechanical contracting business make contributions to various union-sponsored multiemployer pension and health and welfare plans. Contributions of $14 million, $10 million and $8 million were made in 2001, 2000 and 1999.

    Savings Plans

    Substantially all U.S. employees of PPL Energy Supply are eligible to participate in deferred savings plans (401(k)s). Company contributions to the plans charged to operating expense were $5 million in 2001, $4 million in 2000 and $1 million in 1999.

    Substantially all employees of PPL Generation and PPL EnergyPlus are eligible to participate in the PPL ESOP. These companies receive a small allocation of their share of the cost.

    Postemployment Benefits

    PPL Generation and PPL EnergyPlus provide health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses were not significant in 2001, 2000 or 1999.

    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. There is no limit on the number of years of service in calculation of the benefit obligation.

    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 was payable at each balance sheet date. The combined liabilities for these plans at December 31, 2001 and 2000 were $6 million, and are recorded in "Deferred Credits and Noncurrent Liabilities - Other" on the Balance Sheet.

13. Jointly-Owned Facilities

    At December 31, 2001, subsidiaries of PPL Energy Supply owned undivided interests in the following facilities (millions of dollars):

    		Ownership Interest	Electric Plant in Service		Other Property			Accumulated Depreciation			Construction Work in Progress
    PPL Generation
    Generating Stations
    	Susquehanna	90.00%	$	4,196					$	3,525		$	24
    	Keystone	12.34%		71						46			6
    	Wyman	8.33%		15						2
    	Conemaugh	16.25%		185						58			4
    Merrill Creek Reservoir		8.37%				$	22			12

    PPL Montana also has 50% and 30% undivided leasehold interests in Colstrip Units 1 and 2 and Colstrip Unit 3, respectively.

    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.

14. Commitments and Contingent Liabilities

    PPL Energy Supply and its subsidiaries are involved in numerous legal proceedings, claims and litigation in the ordinary course of business. PPL Energy Supply and its subsidiaries cannot predict the ultimate outcome of such matters, or whether such matters may result in material liabilities.

    Wholesale Energy Commitments

    As part of the purchase of generation assets from Montana Power, PPL Montana agreed to supply electricity under two wholesale transition service agreements. In addition, PPL Montana assumed a power purchase agreement and another power sales agreement. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $118 million as the estimated fair value of these agreements at the acquisition date. This liability is being amortized over the agreement terms as adjustments to "Wholesale energy marketing and trading" revenues and "Energy purchases" on the Statement of Income. The unamortized balance at December 31, 2001 was $78 million and is included in "Other" in the "Deferred Credits and Other Noncurrent Liabilities" section of the Balance Sheet.

    In October 2001, PPL announced that PPL EnergyPlus reached an agreement to supply Montana Power with an aggregate of 450 MW of energy to be supplied by PPL Montana. The delivery term of this new contract is for five years beginning July 1, 2002, which is the day after the termination date of the last of the two existing contracts, pursuant to which PPL Montana presently supplies energy to Montana Power for its default supply.

    Under the agreement, PPL EnergyPlus will supply 300 MW of around-the-clock electricity and 150 MW of on-peak electricity. In December 2001, the agreement was accepted for filing by the FERC. No further regulatory approvals are required under this agreement.

    Liability for Above Market NUG Contracts

    In 1998 when its generation business was deregulated, PPL Electric recorded a loss accrual for above market contracts with NUGs of $854 million. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy purchases" on the Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment, effective July 1, 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. The liabilities associated with these above market NUG contracts were $580 million at December 31, 2001.

    Commitments - Acquisitions and Development Activities

    PPL Global and its subsidiaries have committed additional capital and extended loans to certain affiliates, joint ventures and partnerships in which they have an interest. At December 31, 2001, PPL Global and its subsidiaries had approximately $561 million of such commitments. The majority of these commitments were for the purchase of LM-6000 turbine generators from General Electric. The General Electric commitments have been reduced due to the decision to cancel generation projects as described in Note 9.

    MPSC Order

    In June 2001, the MPSC issued an order (MPSC Order) in which it found that Montana Power must continue to provide electric service to its customers at tariffed rates until its transition plan under the Montana Electricity Utility Industry Restructuring and Customer Choice Act is finally approved, and that purchasers of generating assets from Montana Power must provide electricity to meet Montana Power's full load requirements at prices to Montana Power that reflect costs calculated as if the generating assets had not been sold. PPL Montana purchased Montana Power's interests in two coal-fired plants and 11 hydroelectric units in 1999.

    In July 2001, PPL Montana filed a complaint against the MPSC with the U.S. District Court in Helena, Montana, challenging the MPSC Order. In its complaint, PPL Montana asserted, among other things, that the Federal Power Act preempts states from exercising regulatory authority over the sale of electricity in wholesale markets, and requested the court to declare the MPSC action preempted, unconstitutional and void. In addition, the complaint requested that the MPSC be enjoined from seeking to exercise any authority, control or regulation of wholesale sales from PPL Montana's generating assets.

    At this time, PPL Energy Supply cannot predict the outcome of the proceedings related to the MPSC Order, what actions the MPSC, the Montana Legislature or any other governmental authority may take on these or related matters, or the ultimate impact on PPL Energy Supply and PPL Montana of any of these 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 unnamed advisors and consultants of Montana Power, and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to and participated in a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. PPL Energy Supply and PPL Montana are unable to predict the outcome of this matter.

    Employee Litigation

    In April 2000, three employees at PPL Montana's Colstrip facility were severely burned when an equipment fault in Colstrip unit 1 caused electrical arcing. In May 2000, the injured employees and their spouses filed litigation for their injuries in Montana district court against Montana Power. PPL Montana was subsequently named as a party defendant to the pending litigation, and a trial has been scheduled for June 2002. At this time, PPL Energy Supply and PPL Montana cannot predict the ultimate outcome of this matter.

    PUC Investigation Order

    In November 2001, the PJM Market Monitor publicly released a report prepared for the PUC entitled "Capacity Market Questions" relating to the pricing of installed capacity in the PJM daily market during the first quarter of 2001. The report concludes that PPL EnergyPlus (identified in the report as "Entity 1") was able to exercise market power to raise the market-clearing price above the competitive level during that period. PPL EnergyPlus does not agree with the Market Monitor's conclusions that it exercised market power; in addition, the Market Monitor acknowledged in his report that PJM's standards and rules did not prohibit PPL EnergyPlus' conduct. In November 2001, the PUC issued an Investigation Order directing its Law Bureau to conduct an investigation into the PJM capacity market and the allegations in the Market Monitor's report. In January 2002, PPL filed comments as requested by the Investigation Order. The Order does not suggest what, if any, action the PUC may take as a result of the investigation, other than considering possible changes to its competitive safeguards. While PPL EnergyPlus and PPL Electric have filed comments with the PUC as part of the investigation, they have both taken the position that the PUC does not have jurisdiction to regulate the PJM capacity markets as those markets are for wholesale electricity transactions and accordingly are within the exclusive jurisdiction of the FERC. In addition, PPL EnergyPlus and PPL Electric believe that PPL EnergyPlus' actions under review were at all times lawful and consistent with the rules of the market. At this time, neither PPL EnergyPlus nor PPL Electric can predict the outcome of the PUC investigation or what action the PUC may take in connection with the investigation.

    FERC Market-based Rates

    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to make wholesale sales of electric power and related products at market-based rates. In that order, the FERC directed PPL EnergyPlus to file an updated market analysis within three years of the date of the order, and every three years thereafter. PPL EnergyPlus filed its initial updated market analysis in December 2001. Several parties thereafter filed interventions and protests requesting that, in light of the PJM Market Monitor's report described above, PPL EnergyPlus be required to provide additional information demonstrating that it has met the FERC's market power tests necessary for PPL EnergyPlus to continue its market-based rate authority. PPL EnergyPlus has responded to those protests and interventions. PPL EnergyPlus has taken the position 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. The matter is currently pending before the FERC.

    Energy Supply to Energy West Resources, Inc.

    In July 2001, PPL Montana filed an action in state court and a responsive pleading in federal court, both related to a breach of contract by Energy West Resources, Inc. (Energy West), a Great Falls, Montana-based energy aggregator. PPL Montana is seeking a judgment that Energy West violated the terms of the contract under which it supplies energy to Energy West and should pay damages of at least $7.5 million. All litigation in this matter has been consolidated in the U.S. district court for the District of Montana, Great Falls Division, and is proceeding in that forum. PPL Energy Supply and PPL Montana cannot predict the ultimate outcome of these proceedings.

    Proposed Montana Hydroelectric Initiative

    In January 2002, the Montana Secretary of State certified, in accordance with applicable statutes, that it had approved the form of a proposed Montana "Hydroelectric Security Act" initiative. The proposed initiative may be placed on the November 2002 statewide ballot if sufficient signatures are obtained prior to June 21, 2002. Among the stated purposes of the proposed initiative is to create an elected Montana public power commission to determine whether purchasing hydroelectric dams in Montana is in the public interest. Such a commission could decide to acquire PPL Montana's hydroelectric dams either pursuant to a negotiated purchase or an acquisition at fair market value through the power of condemnation. At this time, PPL, PPL Energy Supply and PPL Montana cannot predict whether the proposed initiative will garner enough signatures for placement on the November 2002 statewide ballot, whether there will be a successful legal challenge to the initiative, whether it would pass if on the ballot or what impact, if any, the measure might ultimately have upon PPL Montana or its hydroelectric operations. PPL Montana has declared its opposition to, and intends to vigorously oppose, the initiative.

    Nuclear Insurance

    PPL Susquehanna is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PPL Susquehanna is also a member of an insurance program which provides 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, 2001, this maximum assessment was about $20 million.

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

    Environmental Matters

    In connection with the corporate realignment, effective July 1, 2000, PPL Generation assumed air, water and residual waste contingent liabilities associated with the generation assets of PPL Electric.

    Air

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

    The Bush administration and certain members of Congress have made proposals regarding possible amendments to the Clean Air Act. These amendments could require significant further reductions in NO_x, SO₂ and mercury and could possibly require measures to limit CO₂.

    The Pennsylvania DEP has finalized regulations requiring further seasonal (May-June) NO_x reductions to 80% from 1990 levels starting in 2003. These further reductions are based on the requirements of the Northeast Ozone Transport Region Memorandum of Understanding and two EPA ambient ozone initiatives: the September 1998 EPA State Implementation Plan (SIP) call (i.e., EPA's requirement for states to revise their SIPs) issued under Section 110 of the Clean Air Act, requiring reductions from 22 eastern states, including Pennsylvania; and the EPA's approval of petitions filed by Northeastern states, requiring reductions from sources in 12 Northeastern states and Washington D.C., including PPL Energy Supply sources. The EPA's SIP-call was substantially upheld by the D.C. Circuit Court of Appeals in an appeals proceeding. Although the Court extended the implementation deadline to May 2004, the Pennsylvania DEP has not changed its rules accordingly. PPL Energy Supply expects to achieve the 2003 NO_x reductions with the recent installation of SCR technology on the Montour units and the possible use of SCR or SNCR technology on a Brunner Island unit.

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

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

    In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation and commenced enforcement activities against other utilities. Although the EPA has threatened to continue expanding its enforcement actions, the future direction of the "New Source" requirements is presently unclear. Therefore, at this time, PPL Energy Supply is unable to predict whether such EPA enforcement actions will be brought with respect to any of its affiliates' plants. However, the EPA regional offices that regulate plants in Pennsylvania (Region III) and Montana (Region VIII) have indicated an intention to issue information requests to all utilities in their jurisdiction, and the Region VIII Office has issued such a request to PPL Montana's Corette plant. PPL Energy Supply has responded to the information request. PPL Energy Supply cannot presently predict what, if any, action the EPA might take following PPL Energy Supply's responses to such information requests. Should the EPA or any state initiate one or more enforcement actions against any PPL Energy Supply subsidiary, compliance with any such enforcement actions could result in additional capital and operating expenses in amounts which are not now determinable, but which could be significant.

    The EPA is also proposing to revise its regulations in a way that will require power plants to meet "New Source" performance standards and/or undergo "New Source" review for many maintenance and repair activities that are currently exempt.

    The New Jersey DEP and some New Jersey residents have raised environmental concerns with respect to the Martins Creek Plant, particularly with respect to SO₂ emissions. PPL Martins Creek is discussing these concerns with the New Jersey DEP. In addition, the plant experienced several opacity violations in the first and second quarters of 2001 for which it paid a civil penalty of $30,300 and funded an environmental project for $90,000. The cost of addressing New Jersey's SO₂ concerns and the opacity issues is not now determinable but could be significant. See Note 9 for information on the Lower Mt. Bethel appeal by the New Jersey DEP.

    Water/Waste

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

    A final NPDES permit has been issued to the Brunner Island plant. The permit contains a provision requiring further studies on the thermal impact of the cooling water discharge from the plant. Depending on the outcome of these studies, the plant could be subject to capital and operating costs that are not now determinable but could be significant.

    The EPA has significantly tightened the water quality standard for arsenic. The lower standard may require PPL Energy Supply subsidiaries to further treat wastewater and/or take abatement action at several of their power plants, the cost of which is not now determinable, but which could be significant.

    The EPA recently finalized requirements for new or modified water intake structures. These requirements will affect where generating facilities are built, will establish intake design standards, and could lead to requirements for cooling towers at new and modified power plants. Another new rule, expected to be finalized in 2003, will address existing structures. Each of these rules are also expected to result in increased operating costs in amounts which are not now determinable, but which could be significant.

    Montana Issues

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

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

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

    General

    Certain of PPL Energy Supply's subsidiaries have electric distribution operations in the U.K. and Latin America. PPL Energy Supply believes that these operations are in compliance with applicable laws and government regulations to protect the environment. PPL Energy Supply is not aware of any material or administrative proceeding against these companies with respect to any environmental matter.

    Due to the environmental issues discussed above or other environmental matters, PPL Energy Supply 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 Energy Supply subsidiaries also may incur capital expenditures, operating expenses and other costs in amounts which are not now determinable, but which could be significant.

    Credit Support

    PPL provides certain guarantees for PPL Energy Supply and its subsidiaries. As of December 31, 2001, PPL had guaranteed certain obligations under power purchase and sales agreements of PPL EnergyPlus for up to $1 billion and of PPL Montana for up to $138 million. PPL has also guaranteed certain obligations of other PPL Energy Supply subsidiaries, totaling $256 million at December 31, 2001. PPL Energy Supply also guarantees certain obligations under power purchase and sales agreements for PPL EnergyPlus totaling $121 million and certain obligations of other subsidiaries totaling $600 million.

    See Note 8 for discussion of credit support for PPL Montana and guarantees under PPL Energy Supply's credit facilities.

    Source of Labor Supply

    At December 31, 2001, PPL Energy Supply and its subsidiaries had 7,302 full-time employees. This included 2,550 in PPL Generation, 1,943 in PPL EnergyPlus, 44 in PPL Global, and 2,765 in several Central and South American electric companies controlled by PPL Global.

    Approximately 55%, or 2,500 employees, of PPL Energy Supply's domestic workforce are members of labor unions, with three IBEW locals representing the majority of them. The bargaining agreement with the largest union was negotiated in 1998 and expires in May of 2002. New contracts were also concluded with two IBEW locals in Montana. PPL Montana is currently negotiating with the Teamsters Union for a new agreement.

15. Related Party Transactions

    PPL, through PPL Capital Funding and other subsidiaries, provides certain funding and credit support for PPL Energy Supply and its subsidiaries. Such funding includes loans that are due on demand with interest charged at a rate based on PPL Capital Funding's short-term borrowing rate. In addition, PPL Energy Supply has notes receivable from other affiliates of PPL. Interest earned on loans to affiliated companies and interest incurred on borrowings from affiliated companies are included in "Other Income - net" and "Interest Expense," respectively, in the Statement of Income. Intercompany interest income (in millions) was $57 and $13 for 2001 and 2000, respectively. Intercompany interest expense (in millions) was $26, $86 and $37 in 2001, 2000, and 1999, respectively. Notes receivable from affiliated companies at December 31, 2001 were $395 million. There were no notes payable to affiliated companies at December 31, 2001.

    PPL Global provided temporary financing to WPDL and WPD 1953 in connection with the acquisition of Hyder. The outstanding loan receivables and accrued interest, 154.5 million British pounds sterling (approximately $220 million), were repaid in May 2001.

    At December 31, 2000, PPL Global had a $135 million note payable to an affiliate of WPD 1953. The note was denominated in U.S. dollars, and provided for interest at market rates. PPL Global repaid this note in January 2001.

    As part of the corporate realignment, PPL Electric entered into power sales agreements with PPL EnergyPlus for the purchase of electricity to meet its obligations as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. Under the terms of these agreements, this electricity was purchased by PPL Electric at the applicable shopping credits authorized by the PUC, plus nuclear decommissioning costs, less state taxes. These sales totaled $1.3 billion in 2001 and $540 million in the last half of 2000, and are included in "Wholesale energy marketing and trading" on the Statement of Income. These agreements expired on December 31, 2001.

    In June 2001, PPL EnergyPlus executed a new contract, effective January 1, 2002, to supply all of PPL Electric's PLR load from 2002 through 2009. Under this contract, PPL EnergyPlus will provide electricity at the pre-determined capped prices that PPL Electric is authorized to charge its PLR customers. In addition, PPL Electric paid PPL EnergyPlus $90 million to offset differences between the revenues expected under the capped prices and projected market prices through the life of the supply agreement (as projected by PPL EnergyPlus at the time of its contract offer). The contract resulted in PPL EnergyPlus having an eight-year contract at current market prices. PPL has guaranteed the obligations of PPL EnergyPlus under the new contract. In July 2001, the contract was approved by the PUC and accepted for filing by the FERC.

    Also as part of the corporate realignment, PPL Electric executed a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates, and then sells the electricity at the same price to PPL EnergyPlus. These expenses totaled $176 million in 2001 and $85 million in the last half of 2000, and are included in "Energy purchases" on the Statement of Income.

    Since PPL Energy Supply owns no domestic transmission or distribution facilities, other than facilities to interconnect its generation with the electric transmission system, PPL EnergyPlus, PPL Montana and other PPL Generation subsidiaries must pay PPL Electric, the owner of a 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.

    Corporate functions such as financial, legal, human resources and information services were transferred to PPL Services in the corporate realignment. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that are not directly charged to PPL subsidiaries is allocated to certain of the subsidiaries based on the relative capital invested by PPL in these subsidiaries. For 2001 and the six months ended December 31, 2000, PPL Services charged PPL Energy Supply subsidiaries approximately $80 million and $19 million for direct expenses, and allocated these entities approximately $39 million and $14 million of overhead costs.

16. Corporate Realignment

    On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution operations from its recently deregulated generation operations and to better position the companies and their affiliates in the new competitive marketplace. The realignment included PPL Electric's transfer of certain generation and related assets, and associated liabilities, to PPL and PPL Energy Funding at book value. PPL Energy Funding contributed certain of these generating and unregulated marketing assets and liabilities at a net book value of approximately $1.6 billion, to PPL Generation and PPL EnergyPlus. The following increases (in millions) resulted from these non-cash contributions:

    Assets
    Notes receivable from affiliated companies	$	427
    Unrealized energy trading gains		105
    Nuclear plant decommissioning trust fund		269
    Property, plant and equipment		1,932
    Fuel, materials and supplies		144
    Other assets		30
    	$	2,907
    Liabilities and Equity
    Unrealized energy trading losses	$	105
    Above market NUG contracts		723
    Deferred income taxes		52
    Other noncurrent liabilities		394
    Other liabilities		45
    Member's equity		1,588
    	$	2,907

    PPL Energy Supply was subsequently formed as a subsidiary of PPL Energy Funding, to serve as the parent company for the unregulated subsidiaries. As a result of the corporate realignment, PPL Generation's principal business is owning and operating U.S. generating facilities through various subsidiaries; PPL EnergyPlus' principal business is unregulated wholesale and retail energy marketing; and PPL Global's principal businesses are the acquisition and development of both U.S. and international energy projects, and the ownership and operation of international projects.

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

17. New Accounting Standards

    SFAS 141

    In June 2001, the FASB issued SFAS 141, "Business Combinations," which eliminates the pooling-of-interest method of accounting for business combinations and requires the use of the purchase method. In addition, SFAS 141 requires the reassessment of intangible assets to determine if they are appropriately classified either separately or within goodwill. SFAS 141 is effective for business combinations initiated after June 30, 2001. PPL Energy Supply adopted SFAS 141 on July 1, 2001, with no material impact on the financial statements.

    SFAS 142

    In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL Energy Supply adopted SFAS 142 on January 1, 2002.

    In accordance with the provisions of SFAS 142, PPL Energy Supply ceased amortization of goodwill and all intangible assets with indefinite useful lives. The elimination of amortization will result in $16 million less expense (pre-tax) in 2002. In addition, PPL Energy Supply is in the process of conducting the transition impairment analysis and may record a goodwill impairment of up to $100 million (pre-tax) as a change in accounting principle in the first quarter of 2002. The potential impairment relates to reporting units within the International segment.

    SFAS 143

    In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," on the accounting for obligations associated with the retirement of long-lived assets. SFAS 143 requires a liability to be recognized in the financial statements for retirement obligations meeting specific criteria. Measurement of the initial obligation is to approximate fair value, with an equivalent amount recorded as an increase in the value of the capitalized asset. The asset will be depreciated in accordance with normal depreciation policy and the liability will be increased, with a charge to the income statement, until the obligation is settled. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The potential impact of adopting SFAS 143 is not yet determinable, but may be material.

    SFAS 144

    In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss only if the carrying amount is not recoverable from undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. For long-lived assets to be disposed of, SFAS 144 establishes a single accounting model based on the framework established in SFAS 121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. SFAS 144 also broadens the reporting of discontinued operations. PPL Energy Supply adopted SFAS 144 on January 1, 2002, with no material impact on the financial statements.

18. Derivative Instruments and Hedging Activities

    PPL Energy Supply adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. Upon adoption and in accordance with the transition provisions of SFAS 133, PPL Energy Supply recorded a cumulative-effect credit of $11 million in earnings, included as an increase to "Wholesale energy marketing and trading" revenues and a decrease to "Energy purchases" on the Statement of Income. PPL Energy Supply also recorded a cumulative-effect charge of $182 million in "Accumulated other comprehensive income", a component of Member's Equity. As of December 31, 2001, the balance in "Accumulated other comprehensive income" related to unrealized gains and losses on qualifying derivatives was a net gain of $46 million, as a result of reclassifying part of the transition adjustment into earnings, changes in market prices and the adoption of DIG Issue C15 (see discussion in "Implementation Issues" below).

    Management of Market Risk Exposures

    PPL Energy Supply's market risk exposure is the adverse effect on the value of a transaction that results from a change in commodity prices. The market risk associated with commodity prices is managed by the establishment and monitoring of parameters that limit the types and degree of market risk that may be undertaken. PPL Energy Supply actively manages the market risk inherent in its positions. The PPL Board of Directors has adopted risk management policies to manage the risk exposures related to energy prices. These policies monitor and assist in controlling these market risks and use derivative instruments to manage some associated commodity activities.

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

    PPL Energy Supply utilizes forward contracts, futures contracts, options and swaps as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity prices. All derivatives are recognized on the balance sheet at their fair value, unless they meet SFAS 133's criteria for exclusion (see discussion in "Implementation Issues" below).

    Fair Value Hedges

    PPL Energy Supply enters into financial contracts to hedge a portion of the fair values of firm commitments of forward electricity sales. These contracts range in maturity through 2004. For the twelve months ended December 31, 2001, PPL Energy Supply recognized a net gain of $7 million resulting from firm commitments that no longer qualified as fair value hedges (reported in "Wholesale energy marketing and trading" revenues and "Energy purchases" on the Statement of Income). PPL Energy Supply did not recognize any gains or losses from the ineffective portion of fair value hedges.

    Cash Flow Hedges

    PPL Energy Supply enters into physical and financial contracts including, forwards, futures and swaps, to hedge the price risk associated with electric, gas and oil commodities. These contracts range in maturity through 2008. For the twelve months ended December 31, 2001, PPL Energy Supply recorded a net gain of $28 million in "Accumulated other comprehensive income" relating to these contracts.

    As a result of an unplanned outage and changes in other economic conditions, PPL Energy Supply discontinued certain cash flow hedges which resulted in a net loss of $14 million for the twelve months ended December 31, 2001 (reported in "Wholesale energy marketing and trading" revenues on the Statement of Income). The impact on the financial statements resulting from cash flow hedge ineffectiveness for the twelve months ended December 31, 2001 was immaterial.

    As of December 31, 2001, the deferred net gain on derivative instruments in "Accumulated other comprehensive income" expected to be reclassified into earnings during the next twelve months was $11 million.

    Implementation Issues

    On June 29, 2001, the FASB issued definitive guidance on DIG Issue C15: "Scope Exceptions: Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity." Issue C15 provides additional guidance on the classification and application of SFAS 133 relating to purchases and sales of electricity utilizing forward contracts and options. This guidance became effective as of July 1, 2001. In December 2001, the FASB revised the guidance in Issue C15, principally related to the eligibility of options for the normal purchases and normal sales exception. The revised guidance is effective as of January 1, 2002.

    Purchases and sales of forward electricity and option contracts that require physical delivery and which are expected to be used or sold by the reporting entity in the normal course of business would generally be considered "normal purchases and normal sales" under SFAS 133. These transactions, while within the scope of SFAS 133, are not required to be marked to fair value in the financial statements because they qualify for the normal purchases and sales exception. As of December 31, 2001, "Accumulated other comprehensive income" included a net gain of $11 million related to forward transactions classified as cash flow hedges prior to the adoption of DIG Issue C15 guidance. This gain will be reversed from "Accumulated other comprehensive income" and recognized in earnings as the contracts deliver through 2008.

    Unrealized Gains/(Losses) on Qualifying Derivatives

    (Millions of Dollars)

    (After-tax)

    December 31, 2001

    Cumulative unrealized gains on    derivatives, beginning of period:		$	0
    Unrealized gains (losses) arising    during period:
    	Cumulative effect of change in accounting    principle at January 1, 2001		(182	)
    	Net reclassification into earnings		2
    	Net change associated with current    period hedging transactions		226
    Unrealized gain on qualifying derivatives			46
    Cumulative unrealized gains on qualifying    derivatives, end of period		$	46

    Credit Concentration

    PPL Energy Supply enters into contracts with many entities for the purchase and sale of energy. Most of these contracts are considered a normal part of doing business and as such the mark-to-market value of these contracts is not reflected in the financial statements. However, the mark-to-market value of these contracts is considered when committing to new business from a credit perspective. At year-end, PPL Energy Supply had a credit exposure of $678 million to energy trading partners. The majority of this amount was the mark-to-market value of multi-year contracts for energy sales. Therefore, if the counterparties fail to perform their obligations, PPL Energy Supply would not experience an immediate financial loss, but would experience lower revenues in future years to the extent that replacement sales could not be made at the same prices as the defaulted contracts. Of the $678 million, five counterparties account for 80% of the exposure. No other individual counterparty accounted for more than 2% of the exposure. The largest exposure, $206 million, was to PPL Electric, under the long-term contract to provide PPL Electric's PLR load. PPL Electric has posted collateral in an amount of $56 million related to this exposure in accordance with its contract with PPL Energy Supply. The other four counterparties have an "investment grade" credit rating from Standard & Poors with the exception of one counterparty that is a governmental agency and as such is not rated. With the exception of the governmental agency, PPL Energy Supply has the right to request collateral from each of these counterparties in the event their credit rating falls below investment grade. It is also PPL Energy Supply's policy to enter into netting agreements with each of its counterparties to minimize credit exposure.

19. Sales to California Independent System Operator and to Other Pacific Northwest Purchasers

    PPL Energy Supply, through PPL Montana, has made approximately $18 million of sales to the California ISO, for which PPL Energy Supply has not yet been paid in full. Given the myriad of electricity supply problems presently faced by the California electric utilities and the California ISO, PPL Energy Supply cannot predict whether or when it will receive payment. As of December 31, 2001, PPL Energy Supply has fully reserved for possible underrecoveries of payments for these sales.

    Litigation arising out of the California electric supply situation has been filed at the FERC and in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these proceedings allege abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, among other things, and seek price caps on wholesale sales in California and other western power markets, refunds of excess profits allegedly earned on these sales of energy, and other relief, including treble damages and attorneys' fees. Certain of PPL Energy Supply's subsidiaries have intervened in the FERC proceedings in order to protect their interests, but have not been named as defendants in any of the court actions alleging abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws. PPL Montana has been named as a defendant in a declaratory judgment action initiated by the State of California to prevent certain members of the California Power Exchange from seeking compensation for the State's seizure of certain energy contracts. PPL Montana is a member of the California Power Exchange, but it has no energy contracts with or through the California Power Exchange and has not sought compensation in connection with the State's seizure.

    Attorneys general in several western states, including California, have begun investigations related to the electricity supply situation in California and other western states. The FERC has determined that all sellers of energy in the California markets, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001 and has initiated an evidentiary hearing concerning refund amounts. The FERC also is considering whether to order refunds for sales made in the Pacific Northwest, including sales made by PPL Montana. The FERC Administrative Law Judge assigned to this proceeding has recommended that no refunds be ordered for sales into the Pacific Northwest. The FERC presently is considering this recommendation. PPL Energy Supply and PPL Montana cannot predict whether or the extent to which any of its subsidiaries will be the target of any governmental investigation or named in these lawsuits, refund proceedings or other lawsuits, the outcome of any such proceedings or whether the ultimate impact on PPL Montana of the electricity supply situation in California and other western states will be material.

20. Enron Bankruptcy

    In connection with the December 2, 2001 bankruptcy filings by Enron Corporation and its affiliates ("Enron"), certain PPL Energy Supply subsidiaries have terminated certain electricity and gas agreements with Enron. PPL Energy Supply and its subsidiaries' 2001 earnings exposure associated with termination of these contracts was approximately $8 million after-tax, and is recorded in "Wholesale energy marketing and trading" and "Energy purchases" on the Statement of Income. Additionally, certain of these contracts with Enron extended through 2006, and were at prices more favorable to PPL Energy Supply than current market prices. However, there is no further accounting charge to be recorded. PPL expects to make a claim in Enron's bankruptcy proceeding with respect to all amounts payable by Enron resulting from the termination of these contracts.

21. Write-down of International Energy Projects

    PPL Global has a 51% economic interest in WPD 1953, a 15.4% equity investor in Teeside Power Limited, the owner of the 1,875 MW Teesside Power Station, located in northeast England. Through its European affiliates, Enron was an owner, the operator and power purchaser of the station's output. As a result of Enron being placed into receivership in the U.K. and its default on obligations under the power purchase agreements, WPD 1953 wrote off its entire equity investment in Teesside Power Limited. PPL Global's share of the impairment loss was $21 million and is included in "Write-down of international energy projects," a component of "Other Charges" on the Statement of Income.

    In connection with the Enron bankruptcy and the probable resulting loss of Teesside cash flows, PPL and its subsidiaries evaluated the carrying value of the investment in WPD 1953 and WPDL. Fair value, measured using discounted cash flows, was compared to the carrying value to determine whether impairment existed at December 31, 2001. Fair value was determined considering the loss of the value of the future cash flows from the Teesside Power Station and a forecasted reduction in future operating cash flows at WPD 1953 and WPDL. The probability-weighted impairment loss was $117 million, after-tax. The pre-tax charge was $134 million, and was recorded as a charge to "Write-down of international energy projects."

    PPL Global owns 89.6% of CEMAR, which distributes and sells electricity in Brazil, under a 30-year concession agreement with the government. The combined effects of growth in demand, decreased rainfall on the country's heavily hydroelectric-dependent generating capacity and delays in the development of new non-hydroelectric generation have led to shortages of electricity in certain regions. As a result, the Brazilian government implemented countrywide electricity rationing in mid-2001. In addition, the wholesale energy markets in Brazil have been substantially disrupted. CEMAR's results of operations, its cash flows, and its continued ability to meet its financial obligations have deteriorated due to the continuing impact of the electricity rationing, the disruption in the energy markets, the failure of the electricity regulator to adequately address these problems, the resulting effects on the Brazilian capital markets and related factors.

    In December 2001 and January 2002, the Brazilian electricity regulator issued tariff rulings that CEMAR believes are inadequate to compensate for CEMAR's rationing-related losses and to meet its ongoing operational and financial requirements. Moreover, CEMAR believes that these tariff rulings demonstrate that the regulator may not take the necessary steps to resolve the current problems in a satisfactory manner. In addition, the Brazilian wholesale energy markets continue to be disrupted and recent actions by the electricity regulator indicate that adequate compensation to CEMAR for its transactions in that market may not be made. Finally, the continued problems in the Brazilian energy market and the lack of appropriate regulatory actions have significantly decreased the availability of local financing for CEMAR.

    As a result of the above events, PPL Global estimates that the long-term viability of the CEMAR operation is jeopardized and that there is minimal probability of positive future cash flows. Consequently, at December 31, 2001, PPL Global recorded an impairment loss in the carrying value of its net assets in CEMAR of $179 million, reflected in "Write-down of international energy projects." In addition, CEMAR increased its valuation allowance in deferred tax assets, thereby recording $44 million in additional foreign deferred income taxes. A related $6 million credit to "Minority Interest" was also reflected on the Statement of Income. The net result of these transactions was a $217 million charge to earnings. PPL Global currently anticipates writing off the remaining portion of its CEMAR investment, approximately $100 million, in 2002.

    As a result of the financial difficulties discussed above, CEMAR has failed to pay certain of its creditors for obligations when due. CEMAR is currently in discussions with creditors, governmental officials, regulators and other parties to address these problems.

    In addition, CEMAR expects that it will not be in compliance with the financial covenants in its $150 million debenture indenture when it closes its books for the quarter ended December 31, 2001. In that case, CEMAR will be required to notify the indenture agent. In accordance with the indenture, the agent will call a meeting of the holders of the debentures within three business days of the notice to hold a vote regarding the acceleration of the debentures. Unless three-fourths of the holders vote against acceleration, the agent will be obligated under the indenture to accelerate the debentures. CEMAR expects the required notice to the indenture agent to occur in the first quarter of 2002.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PPL Energy Supply, LLC
(Millions of Dollars)
Column A		Column B			Column C				Column D		Column E
		Balance at Beginning of Period
				Additions							Balance at End of Period
				Charged to Income
Description						Other			Deductions
Year Ended December 31, 2001
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts	$	52	$	63				$	15	$	100(a)
	Obsolete inventory - Materials and supplies		4							3		1
	Mark-to-market valuation reserves		2		5							7
Year Ended December 31, 2000
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts		3		24		26	(b)		1		52
	Obsolete inventory - Materials and supplies				4							4
	Mark-to-market valuation reserves				2							2
Year Ended December 31, 1999
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts						3					3
	Obsolete inventory - Materials and supplies
(a)	Includes reserves for customer accounts receivable, California ISO, the Enron bankruptcy and other.
(b)	Includes the reserve recorded for the acquisition and consolidation of CEMAR.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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.

ITEM 11. EXECUTIVE COMPENSATION

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.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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 AND SUBSIDIARIES

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

Additional information for this item is set forth in the sections entitled "Quarterly Financial Data" and "Shareowner and Investor Information" of this report.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
					2001 (g)		2000 (g)		1999			1998			1997
PPL Electric Utilities Corporation (a)
Income Items -- millions
	Operating revenues			$	2,694	$	3,336	$		3,952	$		3,643	$		3,049
	Operating income (b)				419		669			749			801			790
	Net income (loss)				119		261			398			(587)			308
Balance Sheet Items -- millions (c)
	Property, plant and equipment, net				2,445		2,401			4,345			4,331			6,820
	Recoverable transition costs				2,174		2,425			2,647			2,819
	Total assets				5,921		6,023			9,092			8,838			9,472
	Long-term debt				3,459		3,126			3,505			2,569			2,633
	Company-obligated mandatorily redeemable
			preferred securities of subsidiary trusts holding solely company debentures		250		250			250			250			250
	Preferred stock
			With sinking fund requirements		31		46			46			295			295
			Without sinking fund requirements		51		51			51			171			171
	Common equity				931		1,160			1,296			1,730			2,612
	Short-term debt						59			183			91			45
	Total capital provided by investors				4,722		4,692			5,331			5,106			6,006
	Capital lease obligations (d)									125			168			171
Financial Ratios
	Return on average common equity -- %				11.09		19.40			25.59			28.21			11.75
	Embedded cost rates (c)
			Long-term debt -- %		6.81		6.88			6.97			7.56			7.91
			Preferred stock -- %		5.81		5.87			5.87			6.09			6.90
			Preferred securities -- %		8.44		8.44			8.44			8.44			8.43
	Times interest earned before income taxes				1.89		2.81			3.75			4.22			3.67
	Ratio of earnings to fixed charges -- total
			enterprise basis (e)		1.9		2.7			3.5			3.9			3.5
	Ratio of earnings to fixed charges and dividends on preferred stock--total enterprise basis (e)				1.8		2.5			3.0			3.0			2.8
Sales Data
	Customers (thousands)(c)				1,298		1,270			1,270			1,257			1,247
	Electric energy sales delivered -- millions of kWh
		Residential			12,269		11,924			11,704			11,156			11,434
		Commercial			12,130		11,565			11,002			10,597			10,309
		Industrial			10,000		10,224			10,179			10,227			10,078
		Other			211		194			160			164			143
			Service area sales		34,610		33,907			33,045			32,144			31,964
			Wholesale energy sales (f)		924		17,548			31,715			36,708			21,454
			Total electric energy sales delivered		35,534		51,455			64,760			68,852			53,418
(a)	The earnings for each year were affected by unusual items. These adjustments affected earnings available to PPL. See "Earnings" in Review of the Financial Condition and Results of Operations for a description of unusual items in 2001, 2000 and 1999.
(b)	Operating income of 1997 restated to conform to the current presentation.
(c)	At year-end.
(d)	PPL Electric terminated its capital lease in 2000.
(e)	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, interest on capital lease obligations and the estimated interest component of other rentals.
(f)	After the July 1, 2000, corporate realignment, PPL Electric only has wholesale sales to municipalities and NUG purchases that are resold to PPL EnergyPlus.
(g)	Comparability of Selected Financial and Operating Data for 2001 and 2000 to prior years is affected by the corporate realignment on July 1, 2000, in which PPL Electric transferred its electric generation and related assets to PPL and its affiliates. (See Note 12 to the Financial Statements for additional discussion.)

PPL ELECTRIC UTILITIES CORPORATION
ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income comparing 2001 to 2000, and 2000 to 1999. Certain items on the Statement of Income have been impacted by the corporate realignment undertaken by PPL and PPL Electric effective July 1, 2000. See Note 12 to the Financial Statements for information regarding the corporate realignment.

The Statement of Income of PPL Electric for 2001 and the last six months of 2000 include the results of its post-realignment activities (the transmission and distribution of electricity in its service territory and the supply of electricity as a PLR in this territory under Pennsylvania's Customer Choice Act). The results for the first six months of 2000 and the entire year 1999 also include PPL Electric's former electric generation and unregulated wholesale and retail marketing functions. The following adjustments are made when comparing results of operations, to make the periods more comparable:

• When comparing 2001 with 2000, the estimated results of operations of the electric generation and unregulated marketing assets for the first six months of 2000 are eliminated for purposes of comparability.

• When comparing 2000 with 1999, the estimated results of operations of the electric generation and unregulated marketing assets during the second half of 1999 are eliminated for purposes of comparability.

Earnings

The earnings of PPL Electric were impacted by several unusual items. Refer to specific Notes to the Financial Statements for discussion of certain of these unusual items. The unusual items without note references are discussed in "Other Income - net" and "Other Operation Expenses."

		(Millions of dollars)
			2001		2000		1999
Net income			$	119	$	261	$	398
Unusual items (net of tax):
	Accounting method change - pensions    (Note 9)			5
	Environmental insurance recoveries					24
	Sale of Sunbury plant and related assets							42
	Securitization (Note 2)							19
Net income from core operations			$	114	$	237	$	337

The decrease in net income from core operations in 2001 compared with 2000 was primarily due to the corporate realignment completed on July 1, 2000. After eliminating the estimated results of the electric generation and marketing assets transferred in the corporate realignment from the results of the first half of 2000, comparable earnings for 2000 would have been an estimated $68 million. The $114 million earnings from core operations for 2001 were $46 million higher than the comparable earnings for 2000.

This increase was primarily the effect of:

• higher delivery revenues due to a 2.1% increase in sales;
• lower interest expense due to lower short-term debt levels; and
• lower operating costs, including lower pension expense; partially offset by
• higher taxes other than income, due to credits for PURTA and local property tax accruals, recorded in 2000.

The decrease in net income from core operations in 2000 compared with 1999 was primarily due to the corporate realignment. After eliminating the estimated results of the electric generation and marketing assets from the earnings in the second half of 1999, comparable earnings for 1999 would have been an estimated $228 million. The $237 million adjusted earnings for 2000 were $9 million higher than the comparable earnings for 1999. This increase was primarily the effect of:

• higher margins on wholesale energy transactions;
• the end of the one-year 4% rate reduction for delivery customers;
• a 2.6% increase in electric delivery sales; and
• gains on sales of emission allowances and lower pension expenses; partially offset by
• higher interest expense and income taxes, and the write-off of a regulatory asset for the loss incurred in the Retail Access Pilot Program.

Operating Revenues

Retail Electric

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

		2001 vs. 2000				2000 vs.1999
PPL Electric
	Electric delivery		$	12			$	28
	PLR electric generation supply			284				32
PPL EnergyPlus
	Electric generation supply			(259	)			(155	)
	Other			(4	)			6
			$	33			$	(89	)

After eliminating the revenues of assets transferred in the corporate realignment from the results for the first half of 2000, retail electric revenues increased by $292 million in 2001 compared to 2000. This increase in revenues was primarily due to:

• higher PPL Electric revenues as a PLR resulting from the return of shoppers due to fewer alternate suppliers under the Customer Choice Act, and a decreased emphasis on the retail supply business by PPL EnergyPlus; and
• increased deliveries of electricity, primarily in commercial and residential markets.

After eliminating the revenues of assets transferred in the corporate realignment from the results for the second half of 1999, operating revenues from retail electric operations increased by $150 million during 2000 compared with 1999. This was primarily due to an increase in PPL EnergyPlus' supply volumes in the first half of 2000 compared with the same period in 1999. Also contributing to the increase were higher PPL Electric retail delivery and PLR supply sales in 2000. This was due to increased usage by commercial and residential customers and fewer service territory customers selecting a supplier other than PPL Electric.

Pursuant to the Customer Choice Act and a restructuring settlement with the PUC, PPL Electric is required, through 2009, to provide electricity at pre-determined prices to its delivery customers who do not select an alternate supplier. While these supply rates vary by customer class, the settlement provides for average rates ranging from 4.16 cents per kWh in 2001, increasing to 5.02 per kWh in 2009. As part of this settlement agreement, PPL Electric also agreed to a cap on its average transmission and distribution rates of 1.74 cents per kWh through 2004.

Wholesale Energy Marketing and Trading

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

	2001 vs. 2000				2000 vs. 1999
Bilateral sales		$	(519	)	$	(337	)
PJM			(64	)		(44	)
Cost-based contracts			(46	)		(85	)
Gas & oil sales			(149	)		(143	)
NUG purchases sold to PPL EnergyPlus			92			84
Other			5			(5	)
		$	(681	)	$	(530	)

After eliminating the revenues of assets transferred in the corporate realignment from the results for the first half of 2000, and making other pro-forma adjustments, wholesale revenues increased by $17 million during 2001 compared with 2000. This increase was primarily due to the sale of power (purchased from NUGs) to PPL EnergyPlus.

After eliminating the revenues of assets transferred in the corporate realignment from the results for the second half of 1999, wholesale energy marketing and trading revenues increased by $153 million in 2000 compared with 1999. This increase was primarily due to increased bilateral sales revenues due to higher market pricing and increased sales volumes to other counterparties. In 2001 and going forward, PPL Electric wholesale sales are and will be derived solely from NUG purchases that PPL Electric resells to PPL EnergyPlus and sales to municipalities.

Fuel

Effective with the July 1, 2000 corporate realignment, the generation of electricity, and the acquisition of fuel for that generation, was transferred to PPL Generation.

Electric fuel costs decreased by $245 million in 2000 compared with 1999. After eliminating the expenses associated with assets transferred in the corporate realignment from the results for the second half of 1999, electric fuel costs decreased by $20 million in 2000 compared with 1999. This decrease was attributed to lower generation because of the Holtwood plant closing and the sale of the Sunbury plant in 1999, plant outages and reduced operation of less economical units. Lower nuclear fuel expense also contributed to the decrease in electric fuel costs. During the first quarter of 1999, there was a charge of $5 million to accrue for the increase in estimated costs for dry cask canisters for on-site spent fuel storage at the Susquehanna plant.

Energy Purchases

Energy purchases increased by $93 million in 2001 compared with 2000. After eliminating the expenses associated with assets transferred in the corporate realignment from the results for the first half of 2000, energy purchases increased by $290 million during 2001 compared with 2000. The increase reflects higher purchases of electricity from PPL EnergyPlus to meet PPL Electric's higher PLR obligation.

Energy purchases increased by $22 million in 2000 compared with 1999. After eliminating the expenses of assets transferred in the corporate realignment from the results for the second half of 1999, energy purchases increased by $301 million during 2000 compared with 1999. During the first half of 2000, energy purchases increased by $166 million over the same period in 1999. This was primarily due to higher purchases to support PPL EnergyPlus' increased unregulated retail electric and gas sales. Also, higher per-unit prices for these purchases contributed to the increase in energy purchases, coupled with recognized losses on certain long-term forward transactions. The remainder of the increase during 2000, $135 million, represents the estimated increase in PPL Electric's purchases to support its PLR load in the second half of 2000, as noted above.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs increased by $24 million in 2001 compared with 2000. This increase was primarily due to the collection of CTC revenues related to prior year CTC deferrals of amounts in excess of the rate cap. The increase also reflects higher amortization of intangible transition property due to lower interest expense on the transition bonds.

Amortization of recoverable transition costs increased by $33 million in 2000 compared with 1999. This increase was the result of recording twelve months of amortization in 2000 as compared to five months of amortization recorded in 1999. This increase was partially offset by a decrease in CTC revenues related to a deferral of CTC amounts in excess of the rate cap.

Other Operation Expenses

Other operation expenses decreased by $123 million in 2001 compared with 2000. After eliminating the expenses of assets transferred in the corporate realignment from the results for the first half of 2000, other operation expenses increased by $3 million in 2001 compared with 2000. This increase was primarily due to an insurance settlement for environmental liability coverage recorded in 2000 (as a reduction of expenses), partially offset by lower pension expense and lower corporate expenses from PPL Services.

Other operation expenses decreased by $237 million from 1999 to 2000. After eliminating the expenses of assets transferred in the corporate realignment from the results for the second half of 1999, other operation expenses decreased by $86 million during 2000 compared with 1999. This decrease was primarily the result of environmental insurance recoveries, gains on the sale of emission allowances and a decrease in pension costs, offset by increased costs of wages and benefits.

Maintenance Expenses

Maintenance expenses decreased by $96 million in 2001 compared with 2000. After eliminating the expenses of assets transferred in the corporate realignment from the results for the first half of 2000, maintenance expenses decreased by $15 million in 2001 when compared with 2000. This decrease was primarily the result of allocating more rents for office space to the user business lines in 2001 compared to 2000, as well as lower overhead line maintenance.

Maintenance expenses decreased by $54 million in 2000 compared with 1999. After eliminating the expenses associated with assets transferred in the corporate realignment from the results for the second half of 1999, maintenance expenses were unchanged during 2000 compared with 1999.

Depreciation

Depreciation decreased by $76 million in 2001 compared with 2000. After eliminating the expenses of assets transferred in the corporate realignment from the results for the first half of 2000, depreciation decreased by $8 million during 2001 compared with 2000. This decrease reflects a change in life characteristics for transmission and distribution property.

Depreciation decreased by $66 million in 2000 compared with 1999. After eliminating the expenses of assets transferred in the corporate realignment from the results for the second half of 1999, depreciation decreased by $3 million from 1999 to 2000.

Taxes, Other Than Income

Taxes, other than income, decreased by $18 million in 2001 compared with 2000. After eliminating the expenses of assets transferred in the corporate realignment from results for the first half of 2000, taxes, other than income increased by $12 million. This increase was primarily due to credits to PURTA and local property tax accruals recorded in the third quarter of 2000.

Other Income - net

Other income decreased by $80 million in 2000 compared with 1999. After eliminating the other income of assets transferred in the corporate realignment from the results for the second half of 1999 (including a $66 million pre-tax gain on the sale of the Sunbury plant and related assets), other income decreased by $28 million during 2000 compared with 1999. This decrease was primarily due to a charge of $12 million resulting from a PUC ruling requiring the write-off of the regulatory asset for the loss incurred in Pennsylvania's Retail Access Pilot Program, and an adverse FERC decision regarding investments in PJM.

Financing Costs

Interest expense decreased by $9 million in 2001 compared with 2000. This decrease was primarily the result of lower outstanding commercial paper and intercompany borrowings.

Interest expense increased by $25 million in 2000 compared with 1999. Interest on long-term debt increased by $17 million. This increase was primarily associated with the issuance of transition bonds by PPL Transition Bond Company in August 1999, offset by retirements of mortgage bonds. Interest on short-term debt increased by $8 million. This change was primarily due to an increase in intercompany loans outstanding and a reduction in AFUDC in 2000.

Dividends on preferred securities decreased by $11 million from 1999 to 2000. This decrease was the result of PPL Electric's repurchase of preferred stock held by PPL.

Income Taxes

Income tax expense decreased by $106 million in 2001 compared with 2000. After eliminating the estimated income associated with assets transferred in the corporate realignment from the results for the first half of 2000, income taxes increased by $2 million during 2001 compared with 2000. This reflects an increase in pro-forma pre-tax book income.

Income tax expense increased by $20 million in 2000 compared with 1999. After eliminating the estimated income associated with assets transferred in the corporate realignment from the results for the second half of 1999, income taxes increased by $68 million during 2000 compared with 1999. This increase was primarily due to a release of deferred taxes no longer required due to securitization, recognized in the third quarter of 1999.

Financial Condition

Liquidity

At December 31, 2001, PPL Electric's net cash position was $79 million, consisting entirely of cash and cash equivalents and no short-term debt. Cash and cash equivalents are derived from cash from operations, cash from financing activities and cash from investing activities. PPL Electric derives steady cash flows from operations through the delivery of electricity to customers over transmission and distribution networks. In 2001, PPL Electric signed a full requirements contract with PPL EnergyPlus to meet its PLR requirements through 2009, in order to eliminate the energy price exposure associated with purchasing energy in the open market to meet PLR load. Cash from operations in 2001 was $392 million compared to $803 million in 2000. The decrease was primarily due to the corporate realignment completed in July 2000 which transferred certain generation and related assets and associated liabilities to PPL and its unregulated subsidiaries.

Net cash used in financing activities was $148 million in 2001 and $519 million in 2000. The primary uses of cash in financing activities in 2001 were the retirement of PPL Electric's long-term debt, the repurchase of its common stock from PPL and the payment of dividends. A commercial paper program at PPL Electric totaling $400 million is maintained to meet short-term cash needs. The amount of commercial paper that could be outstanding under PPL Electric's program is limited to the amount of its unused credit line. If the existing credit ratings of these commercial paper program ratings were lowered, it is unlikely that there would be sufficient investor demand for the commercial paper and PPL Electric would have to borrow against its unsecured credit line if internal cash flows were insufficient to meet short-term cash needs.

PPL Electric maintains an unsecured credit line of $402 million that is available as a backstop for its commercial paper program or for direct borrowings. The credit line is also available to issue up to $200 million in letters of credit that may be needed for credit enhancements and margin requirements resulting from PPL Electric's PLR energy contract with PPL EnergyPlus or other contracting activities. PPL Electric's maximum collateral requirement associated with the PLR contract is $300 million. In January 2002, PPL Electric provided PPL EnergyPlus with cash collateral of $56 million. This credit line contains financial and other covenants that if not met, would limit or restrict the ability to borrow or issue letters of credit or cause early payment of outstanding borrowings. At this time, PPL Electric believes that these covenants will not limit access to these funding sources.

Under its credit line, PPL Electric must maintain a debt to capitalization percentage not greater than 70%. At December 31, 2001 and December 31, 2000, PPL Electric's debt to total capitalization percentage, as developed in accordance with its credit line, was 57% and 43%, respectively.

PPL Electric also has available funding sources that are provided through off-balance sheet leasing arrangements. These financing arrangements provide funds for equipment such as computers, vehicles and tools. As of December 31, 2001, PPL Electric had approximately $90 million of funding capacity available to it through those leasing arrangements. These financing arrangements contain covenants that, if not met, 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.

At December 31, 2001, the estimated contractual cash obligations of PPL Electric were as follows (in millions):

Contractual Cash Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term Debt (a)	$	3,467	$	274	$	939	$	1,033	$	1,221
Capital Lease Obligations
Operating Leases		98		29		31		20		18
Unconditional Purchase    Obligations
Other Long-term Obligations		1,206		165		497		331		213
Total Contractual Cash    Obligations	$	4,771	$	468	$	1,467	$	1,384	$	1,452

(a) Includes $1.9 billion 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.

At December 31, 2001, PPL Electric provided a guarantee in the amount of $7 million in support of Safe Harbor Water Power Corporation, in which PPL Electric had an ownership interest prior to the corporate realignment.

At December 31, 2001, the estimated commercial commitments of PPL Electric were as follows (in millions):

					Amount of Commitment Expiration per period
Other Commercial Commitments		Total Amounts Committed		Less than 1 year		1-3 years	4-5 years	Over 5 years
Lines of Credit (a)
	Standby Letters of    Credit
	Draws Under Lines    of Credit
Guarantees
	Debt	$	7					$	7
	Performance
Standby Repurchase    Obligations
Other Commercial    Commitments
Total Commercial    Commitments		$	7					$	7

(a) Available credit facilities of $402 million.

Terms governing the various securities issued by PPL Electric contain financial and other covenants that require compliance in order to avoid defaults and accelerations of payments. At this time, PPL Electric believes that it will be able to meet these covenant requirements. In order to meet its maturing obligations in future years, PPL Electric expects that it will have to continue to access both the bank and capital securities markets. The long-term debt and similar securities and their maturities are included in the table of Contractual Cash Obligations above.

Net cash used in investing activities in 2001 was $432 million, compared to $69 million in 2000. The increase in 2001 was primarily the result of a loan to PPL and affiliates. In 2002, PPL Electric's expenditures for property, plant and equipment are expected to increase primarily to accommodate an automated meter reading project initiated in late 2001. PPL Electric anticipates that its capital requirements will be funded from cash on hand, loan repayments from affiliates and cash from operations in 2002.

Energy Marketing and Trading Activities

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

Related Party Transactions

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

For additional information on related party transactions, see Note 11 to the Financial Statements.

Capital Expenditure Requirements

The schedule below shows PPL Electric's current capital expenditure projections for the years 2002-2006 and actual spending for the year 2001 (millions of dollars):

			Actual		Projected
			2001		2002		2003		2004		2005		2006
Construction expenditures
	Transmission and    distribution facilities		$	124	$	213	$	219	$	192	$	163	$	182
	Environmental
	Other			29		22		22		22		22		22
		Total Capital    Expenditures	$	153	$	235	$	241	$	214	$	185	$	204

Construction expenditures include AFUDC which is expected to be less than $4 million in each of the years 2002-2006.

PPL Electric's capital expenditure projections for the years 2002-2006 total about $1.1 billion. Capital expenditure plans are revised from time-to-time to reflect changes in conditions.

Cash Flow

Cash and cash equivalents decreased by $403 million more during 2001 compared with 2000. The reasons for this change were:

• A $411 million decrease in cash provided by operating activities, primarily due to the operating income of assets transferred in the corporate realignment. This decrease also reflects the $90 million up-front payment made to PPL EnergyPlus under the long-term energy supply contract.

• A $363 million increase in cash used in investing activities, primarily due to an increase in net loans to parent and affiliates, offset by lower expenditures for property, plant and equipment due to the transfer of generating assets in the corporate realignment.

• A $371 million decrease in cash used in financing activities. This reflects the issuance of the senior secured bonds in 2001, net of cash used to repurchase common stock from PPL.

Environmental Matters

See Note 10 to the Financial Statements for a discussion of environmental matters.

Competition

The electric utility industry has experienced, and may continue to experience, an increase in the level of competition in the energy supply market at both the state and federal levels. PPL Electric's PLR supply business will be affected by customers who select alternate suppliers under the Customer Choice Act.

In July 2001, the FERC issued orders calling for the formation of one RTO throughout the Mid-Atlantic region (PJM), New York and New England. In response, PPL Electric is taking the position that a single northeastern RTO is a significant step forward in establishing a reliable and properly functioning wholesale electricity market in the region. PPL Electric strongly supports the most comprehensive amalgamation of the existing and proposed northeast power pools, including the establishment of a single RTO as well as the elimination of marketplace distinctions and control area boundaries. The FERC's northeastern RTO proceeding is continuing.

Critical Accounting Policies

PPL Electric's financial condition and results of operations are necessarily impacted by the methods, assumptions and estimates used in the application of critical accounting policies. 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.)

1)  Pension and Other Postretirement Benefits

As described in Note 9, PPL Electric participates in, and is allocated a share 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 Pension" and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" 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 those assumed is a guiding principle of these standards. This 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 as follows:

• Discount Rate - The discount rate is used to record the value of benefits, which are based on future projections, in terms of today's dollars.

• Expected Return on Plan Assets - Management projects the future return on plan assets based principally on prior performance. The projected future value of assets reduces the benefit obligation a company will record.

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

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

• Amortization of Gains/(Losses) - Management can select the method by which gains or losses are recognized in financial results. These gains or losses are created when actual results differ from estimated results based on the above assumptions.

At December 31, 2001, PPL Electric had been allocated accrued pension and postretirement liabilities of $71 million. These liabilities are included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet.

During 2001, PPL made changes to its assumptions related to the discount rate, the rate of compensation increase and the method of amortization of gains/(losses).

A variance in the discount rate, expected return on plan assets, rate of compensation increase or amortization method could have a significant impact on the pension costs recorded under SFAS 87.

A variance in the health care cost trend assumption could have a significant impact on costs recorded under SFAS 106 for postretirement medical expense.

2)  Contingencies

PPL Electric periodically records 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." 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."

SFAS 5 does not permit the accrual of gain contingencies under any circumstances. For loss contingencies, the loss must be accrued if (1) information is available that it is probable that the loss has been incurred, given the likelihood of the uncertain future events; and (2) that the amount of the loss can be reasonably estimated.

The accrual of a contingency involves considerable judgment on the part of management. 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. The largest contingency on PPL Electric's balance sheet had been the loss accrual for above market NUG purchase commitments, being the difference between the above market contract terms and the fair value of the energy. This loss accrual of $854 million was recorded in 1998, when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above market cost of the 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 loss contingency associated with the commitment to make above market NUG purchases was recorded. This loss accrual for the above market portion of NUG purchase commitments was recorded because it was probable the loss had been incurred and the estimate of future energy prices could be reasonably determined, using forward pricing information. This loss accrual was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment.

PPL Electric has also recorded contingencies for uncollectible accounts, environmental remediation, taxes and litigation in situations where management determined it was probable a loss had been incurred and it could be reasonably estimated.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Instruments

Commodity Price Risk

PPL Electric and PPL EnergyPlus had a long-term power supply agreement under which PPL EnergyPlus sold to PPL Electric, at a predetermined pricing arrangement, energy, capacity and ancillary services to fulfill PPL Electric's PLR obligation through 2001. PPL EnergyPlus has contracted to supply PPL Electric with long-term power for the period 2002 through 2009. As a result, PPL Electric has shifted any electric price risk relating to its PLR obligation to PPL EnergyPlus for 2001 through 2009.

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which increases interest rate risk. PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant at December 31, 2001, compared to $2 million at December 31, 2000.

PPL Electric is also exposed to changes in the fair value of its debt portfolio. At December 31, 2001, PPL Electric estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $56 million, compared to $20 million at December 31, 2000.

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

Nuclear Decommissioning Fund - Securities Price Risk

In connection with the corporate realignment, effective July 1, 2000, the nuclear decommissioning fund was transferred to, and will be maintained by, PPL Susquehanna.

Report of Independent Accountants

To the Board of Directors and Shareowner of
PPL Electric Utilities Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 176 present fairly, in all material respects, the financial position of PPL Electric Utilities Corporation and its subsidiaries ("PPL Electric") at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 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 index appearing under Item 14(a)(2) 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 PPL Electric'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 auditing standards generally accepted in the United States of America, which 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 9 to the consolidated financial statements, PPL Electric changed its method of accounting for amortizing unrecognized gains or losses in the annual pension expense/income determined under Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions.

PricewaterhouseCoopers LLP
Philadelphia, PA
February 4, 2002

PPL Electric Utilities Corporation
Management's Report on Responsibility for Financial Statements

The management of PPL Electric is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission for regulated businesses. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PPL Electric.

PPL Electric's consolidated financial statements have been audited by PricewaterhouseCoopers, LLP (PWC) independent certified public accountants. PWC's appointment as auditors was previously ratified by the shareowners of PPL. Management has made available to PWC all PPL Electric's financial records and related data, as well as the minutes of shareowner's and directors' meetings. Management believes that all representations made to PWC during its audit were valid and appropriate.

PPL Electric maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control.

Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PPL maintains an internal auditing program to evaluate PPL Electric's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and PWC's recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PPL Electric's system of internal control is adequate to accomplish the objectives discussed in this report.

The Board of Directors, acting through PPL's Audit Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit Committee, which is composed of four independent directors, meets periodically with management, the internal auditors and PWC to review the work of each. PWC and the internal auditors have free access to PPL's Audit Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters.

Management also recognizes its responsibility for fostering a strong ethical climate so that PPL Electric's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in PPL Electric's business policies and guidelines. These policies and guidelines address: the necessity of ensuring open communication within PPL Electric; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information.

Michael E. Bray
Vice Chair and President

Joseph J. McCabe
Vice President and Controller

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
			2001		2000		1999
Operating Revenues
	Retail electric		$	2,457	$	2,424	$	2,513
	Wholesale energy marketing and trading			209		890		1,420
	Energy related businesses			28		22		19
	Total			2,694		3,336		3,952
Operating Expenses
	Operation
		Fuel				200		445
		Energy purchases		1,502		1,409		1,387
		Other		237		360		597
		Amortization of recoverable transition costs		251		227		194
	Maintenance			51		147		201
	Depreciation (Note 1)			91		167		233
	Taxes, other than income (Note 4)			116		134		129
	Energy related businesses			27		23		17
	Total			2,275		2,667		3,203
Operating Income				419		669		749
Other Income - net				16		17		97
Income Before Interest Expense				435		686		846
Interest Expense				230		239		214
Income Before Income Taxes				205		447		632
Income Taxes (Note 4)				65		171		151
Income Before Extraordinary Items				140		276		481
Extraordinary Items (net of income taxes) (Note 2)						11		(46)
Income Before Cumulative Effect of a Change in Accounting
	Principle			140		287		435
Cumulative Effect of a Change in Accounting Principle (net of income taxes) (Note 9)				5
Income Before Dividends on Preferred Securities				145		287		435
Dividends - Preferred Securities				26		26		37
Net Income			$	119	$	261	$	398
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)
				2001		2000		1999
Cash Flows From Operating Activities
	Net income			$	119	$	261	$	398
	Extraordinary items (net of income taxes)						11		(46)
	Net income before extraordinary items				119		250		444
	Adjustments to reconcile net income before extraordinary items to net cash provided by operating activities
		Depreciation			91		167		233
		Amortizations - recoverable transition costs and other			260		189		149
		Gain on sale of generating assets							(65)
		Nuclear fuel amortization					28		59
		Dividend requirements - preferred securities			26		26		37
		Deferred income taxes and investment tax credits			31		(9)		(73)
		Prepayment on PLR energy supply from affiliate			(90)
		Pension expense (income)			(24)		(4)		6
		Cumulative effect of change in accounting principle			(5)
	Change in current assets and current liabilities
		Accounts receivable			(76)		(22)		44
		Accounts payable			113		192		(106)
		Other - net			(41)		(1)		(11)
	Other operating activities - net				(12)		(13)		(72)
			Net cash provided by operating activities		392		803		645
Cash Flows From Investing Activities
	Expenditures for property, plant and equipment				(134)		(242)		(300)
	Loan to parent and affiliates - net				(280)		142		(60)
	Sale of generating assets								99
	Sale of nuclear fuel to trust						27		14
	Other investing activities - net				(18)		4		1
			Net cash used in investing activities		(432)		(69)		(246)
Cash Flows From Financing Activities
	Issuance of long-term debt				800				2,419
	Retirement of long-term debt				(465)		(380)		(1,497)
	Purchase of treasury stock				(280)				(632)
	Retirement of preferred stock				(15)				(380)
	Payments on capital lease obligations						(11)		(59)
	Payment of common and preferred dividends				(107)		(140)		(231)
	Termination of nuclear fuel lease						(154)
	Cash of subsidiaries divested in corporate realignment (Note 12)						(73)
	Net increase (decrease) in short-term debt				(59)		239		92
	Other financing activities - net				(22)				(90)
			Net cash used in financing activities		(148)		(519)		(378)
Net Increase (Decrease) in Cash and Cash Equivalents					(188)		215		21
	Cash and Cash Equivalents at Beginning of Period				267		52		31
	Cash and Cash Equivalents at End of Period			$	79	$	267	$	52
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest (net of amount capitalized)		$	50	$	227	$	202
		Income taxes		$	63	$	91	$	192
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)
			2001		2000
Assets
Current Assets
	Cash and cash equivalents (Note 1)		$	79	$	267
	Accounts receivable (less reserve: 2001, $19; 2000, $16)			178		173
	Accounts receivable from parent and affiliates (Note 11)			18		99
	Notes receivable from parent and affiliates (Note 11)			350		70
	Income tax receivable			36		51
	Unbilled revenues			131		137
	Fuel, materials and supplies - at average cost			27		30
	Prepayment on PLR energy supply from affiliate (Note 11)			11
	Deferred income taxes			41		35
	Other			12		13
				883		875
Investments				35		18
Property, Plant and Equipment - net
	Electric utility plant in service (Note 1)
		Transmission and distribution		2,227		2,183
		General		182		180
				2,409		2,363
	Construction work in progress			32		33
		Electric utility plant		2,441		2,396
	Other property			4		5
				2,445		2,401
Regulatory and Other Noncurrent Assets (Note 1)
	Recoverable transition costs			2,174		2,425
	Prepayment on PLR energy supply from affiliate (Note 11)			79
	Other			305		304
				2,558		2,729
			$	5,921	$	6,023
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)
		2001		2000
Liabilities and Equity
Current Liabilities
	Short-term debt (Note 7)			$	59
	Long-term debt	$	274		240
	Accounts payable		34		62
	Accounts payable to parent and affiliates (Note 11)		122		207
	Taxes		74		51
	Interest		34		20
	Dividends		6		23
	Other		40		62
			584		724
Long-term Debt			3,185		2,886
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 4)		757		724
	Other (Note 1)		132		182
			889		906
Commitments and Contingent Liabilities (Note 10)
Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures			250		250
Preferred Stock
	With sinking fund requirements		31		46
	Without sinking fund requirements		51		51
			82		97
Shareowner's Common Equity
	Common stock		1,476		1,476
	Additional paid-in capital		51		55
	Treasury stock (Note 1)		(912)		(632)
	Earnings reinvested		332		277
	Capital stock expense and other		(16)		(16)
			931		1,160
		$	5,921	$	6,023
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

 

CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY AND COMPREHENSIVE INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
				For the Years Ended December 31,
				2001		2000		1999
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					55		55		70
	Return of capital in conjunction with plan of division				(5)
	Other				1				(15)
Additional paid-in capital at end of year					51		55		55
Treasury stock at beginning of year					(632)		(632)
	Treasury stock purchased				(280)				(632)
Treasury stock at end of year					(912)		(632)		(632)
Earnings reinvested at beginning of year					277		419		210
	Net income (b)				119		261		398
	Cash dividends declared on common stock				(64)		(132)		(189)
	Common distribution in corporate realignment						(271)
Earnings reinvested at end of year					332		277		419
Accumulated other comprehensive income (loss) at beginning of year							(6)		(6)
	Transfer of minimum pension liability in corporate realignment (b), (c)						6
Accumulated other comprehensive income (loss) at end of year									(6)
Capital stock expense and other at beginning of year					(16)		(16)		(20)
	Other								4
Capital stock expense and other at end of year					(16)		(16)		(16)
Total Shareowner's Common Equity				$	931	$	1,160	$	1,296
Common stock shares at beginning of year (a)					102,230		102,230		157,300
	Treasury stock purchased				(24,200)				(55,070)
Common stock shares at end of year					78,030		102,230		102,230
(a)	In thousands. No par value. 170 million shares authorized. All common shares of PPL Electric stock are owned by PPL.
(b)	Statement of Comprehensive Income (Note 1):
	Net income			$	119	$	261	$	$398
	Other comprehensive income, net of tax:
			Transfer of minimum pension liability in corporate realignment				6
	Total other comprehensive income						6
		Comprehensive Income		$	119	$	267	$	398
(c)	The adjustment in 2000 represents the transfer of the minimum pension liability to PPL Services in the corporate realignment.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

 

CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries(a)
(Millions of Dollars)
							Shares Outstanding
			Outstanding						Shares Authorized
			2001		2000		2001
Preferred Stock -- $100 par, cumulative
	4-1/2%		$	25	$	25	247,524		629,936
	Series			57		72	568,665		10,000,000
			$	82	$	97
Details of Preferred Stock (b)
										Sinking Fund Provisions
								Optional  Redemption  Price Per  Share
							Shares  Outstanding			Shares to be Redeemed Annually
			Outstanding									Redemption Period
			2001		2000		2001
With Sinking Fund Requirements
	Series Preferred
		5.95%			$	1
		6.125%	$	17		31	167,500		(c)	(d)		2003-2005
		6.15%		10		10	97,500		(c)	97,500		April 2003
		6.33%		4		4	46,000		(c)	46,000		July 2003
			$	31	$	46
Without Sinking Fund Requirements
	4-1/2% Preferred		$	25	$	25	247,524	$	110.00
	Series Preferred
		3.35%		2		2	20,605		103.50
		4.40%		12		12	117,676		102.00
		4.60%		3		3	28,614		103.00
		6.75%		9		9	90,770		(c)
			$	51	$	51
Decreases in Preferred Stock
				2001			2000			1999
				Shares	Amount		Shares	Amount		Shares	Amount
	4-1/2% Preferred			(134)						(282,531)	$	(28)
	Series Preferred
		3.35%								(21,178)		(2)
		4.40%								(111,097)		(12)
		4.60%								(34,386)		(3)
		5.95%		(10,000)	$	(1)				(290,000)		(29)
		6.05%								(250,000)		(25)
		6.125%		(148,000)		(14)				(834,500)		(84)
		6.15%								(152,500)		(15)
		6.33%								(954,000)		(95)
		6.75%								(759,230)		(76)
Decreases in Preferred Stock normally represent: (i) the redemption of stock pursuant to sinking fund requirements; or (ii) shares redeemed pursuant to optional provisions. There were no issuances or redemptions of preferred stock in 2000 through these provisions. The decreases in 1999 indicated above represent PPL Electric's purchase and cancellation of its preferred stock which had been held by PPL. PPL Electric used $380 million of securitization proceeds to effect this repurchase.
(a)	Each share of PPL Electric's preferred stock entitles the holder to one vote on any question presented to PPL Electric's shareowners meetings. There were 5 million shares of PPL Electric's preference stock authorized; none were outstanding at December 31, 2001 and 2000, respectively.
(b)	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 for which such price is $100 per share (plus in each case any unpaid dividends).
(c)	These series of preferred stock are not redeemable prior to 2003: 6.125%, 6.15%, 6.33% and 6.75%.
(d)	Shares to be redeemed annually on October 1 as follows: 2003-2004, 57,500; 2005, 52,500.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

 

CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31, PPL Electric Utilities Corporation and Subsidiaries (a)
(Millions of Dollars)
			Outstanding			Outstanding
		2001		2000		2001	Authorized	Maturity (b)
Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures - $25 per security
	8.10%	$	150	$	150	6,000,000	6,000,000	July 2027
	8.20%		100		100	4,000,000	4,000,000	April 2027
		$	250	$	250
(a)	PPL Capital Trust and PPL Capital Trust II issued to the public a total of $250 million of preferred securities through two Delaware statutory business trusts holding solely PPL Electric debentures. PPL Electric owns all of the common securities of the subsidiary trusts, representing the remaining undivided beneficial ownership interest in the assets of the trusts. The proceeds derived from the issuance of the preferred securities and the common securities were used by PPL Capital Trust and PPL Capital Trust II to acquire $103 million and $155 million principal amount of PPL Electric Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures"). Thus, the preferred securities are supported by a corresponding amount of Subordinated Debentures issued by PPL Electric to the trusts. In addition, PPL Electric has guaranteed all of the trusts' obligations under the preferred securities, to the extent the trusts have funds available for payment.
(b)	The preferred securities are subject to mandatory redemption, in whole or in part, upon the repayment of the Subordinated Debentures at maturity or their earlier redemption. At the option of PPL Electric, the Subordinated Debentures are redeemable on and after April 1, 2002 (for the 8.20% securities) and July 1, 2002 (for the 8.10% securities) in whole at any time or in part from time to time. The amount of preferred securities subject to such mandatory redemption will be equal to the amount of related Subordinated Debentures maturing or being redeemed. The redemption price is $25 per preferred security plus an amount equal to accumulated and unpaid distributions to the date of redemption.
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
		2001			2000		Maturity (a)
First Mortgage Bonds (b)
	7-3/4%	$	28		$	28	May 1, 2002
	6-7/8%		19			19	February 1, 2003
	6-7/8%		25			25	March 1, 2004
	6-1/2%		110	(c)		125	April 1, 2005
	6.55%		146	(d)		150	March 1, 2006
	6-1/8%			(e)		200	May 1, 2006
	7-3/8%		10			10	2012-2016
	9-3/8%			(f)		5	2017-2021
	6-3/4% to 8-1/2%		83			83	2022-2026
First Mortgage Pollution Control Bonds (b)
	6.40% Series H		90			90	November 1, 2021
	5.50% Series I		53			53	February 15, 2027
	6.40% Series J		116			116	September 1, 2029
	6.15% Series K		55			55	August 1, 2029
Senior Secured Bonds (b)
	5-7/8%		300	(g)			August 15, 2007
	6-1/4%		500	(g)			August 15, 2009
			1,535			959
Series 1999-1 Transition Bonds
	6.08% to 7.15%		1,923	(h)		2,164	2001-2008
1.54% Pollution Control Revenue Bonds			9			9	June 1, 2027
			3,467			3,132
Unamortized discount			(8)			(6)
			3,459			3,126
Less amount due within one year			(274)			(240)
	Total Long-Term Debt	$	3,185		$	2,886
(a)	Aggregate long-term debt maturities through 2006 are (millions of dollars): 2002, $274; 2003, $274; 2004, $289; 2005, $376; 2006, $434. 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 transmission and distribution 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 transmission and distribution plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture.
(c)	In September 2001, PPL Electric redeemed and retired $15 million of its First Mortgage Bonds, 6-1/2% Series due 2005.
(d)	In December 2001, PPL Electric redeemed and retired $4 million of its First Mortgage Bonds, 6.55% Series due 2006.
(e)	In May 1998, PPL Electric issued $200 million First Mortgage Bonds, 6-1/8% Reset Put Securities Series due 2006. In connection with this issuance, PPL Electric assigned to a third party the option to call the bonds from the holders on May 1, 2001. PPL Electric purchased the call option in March 2001, and did not exercise the call option. These bonds would have matured on May 1, 2006, but were required to be surrendered by the existing holders on May 1, 2001 through the automatic exercise of a mandatory put by the trustee on behalf of the bondholders.
(f)	In July 2001, PPL Electric redeemed and retired all of its outstanding First Mortgage Bonds, 9-3/8% Series due 2021, at an aggregate par value of $5 million through the maintenance and replacement fund provisions of its Mortgage.
(g)	In August 2001, PPL Electric issued $300 million of 5-7/8% Senior Secured Bonds due 2007 and $500 million of 6-1/4% Senior Secured Bonds due 2009.
(h)	In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. The bonds were issued in eight different classes, with expected average lives of 1 to 8.7 years. Bond principal payments of $241 million were made in 2001.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

PPL ELECTRIC UTILITIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

   Business and Consolidation

   PPL is the parent holding company of PPL Energy Funding, PPL Electric, PPL Gas Utilities, PPL Services and PPL Capital Funding. PPL Electric is the principal utility 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.

   The consolidated financial statements include the accounts of PPL Electric and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. See Note 12 for information on the corporate realignment.

   Use of Estimates/Contingencies

   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 assets and 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.

   PPL Electric records loss contingencies in accordance with SFAS 5, "Accounting for Contingencies."

   Accounting Records

   The accounting records for PPL Electric are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the PUC.

   Regulation

   Historically, PPL Electric accounted for its 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. PPL Electric discontinued application of SFAS 71 for the generation portion of its business, effective June 30, 1998. In connection with the corporate realignment, effective July  1, 2000, the generating and certain other related assets, along with associated liabilities, were contributed to new unregulated subsidiaries of PPL Generation. PPL Electric's remaining regulated business continues to be subject to SFAS 71.

   Property, Plant and Equipment

   Following are the classes of electric utility plant in service with the associated accumulated depreciation at December 31 (millions of dollars):

   	2001		2000
   Transmission and distribution	$	3,609	$	3,521
   General		312		309
   		3,921		3,830
   Less: Accumulated depreciation		1,512		1,467
   	$	2,409	$	2,363

   Property, plant and equipment at December 31, 2001 is recorded at original cost. Original cost includes material, labor, contractor costs, construction overheads and AFUDC.

   When a component of regulated property, plant or equipment is retired, the original cost plus the cost of retirement, less salvage, is charged to accumulated depreciation.

   Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite and group methods. The annual provisions for depreciation have been computed principally in accordance with the following ranges of asset lives: transmission and distribution, 15-80 years, and general, 10-80 years. PPL Electric periodically reviews and adjusts the depreciable lives of its fixed assets if approved by regulators.

   Recoverable Transition Costs

   Based on the PUC Final Order, PPL Electric was amortizing its competitive transition (or stranded) costs over an eleven-year transition period effective January 1, 1999. In August 1999, competitive transition costs of $2.4 billion were converted to intangible transition costs when securitized by the issuance of transition bonds. The intangible transition costs are being amortized over the life of the transition bonds, August 1999 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.

   Revenue Recognition

   "Retail electric" and "Wholesale energy marketing and trading" revenues are recorded based on 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.

   Income Taxes

   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 4 for additional information.

   PPL Electric deferred investment tax credits when they were utilized, and is amortizing the deferrals over the average lives of the related assets.

   PPL Electric and its subsidiaries are included in the consolidated federal income tax return of PPL.

   Leases

   PPL Electric applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL Electric applies the provisions of numerous other accounting pronouncements that provide specific guidance and additional requirements related to accounting for leases.

   Payments on leased property, classified as operating leases, are estimated as follows (millions of dollars): 2002, $29; 2003, $18; 2004, $13; 2005, $11; and 2006, $9; and thereafter, $18. These leases include vehicles, personal computers and other equipment.

   Pension and Postretirement Benefits

   See Note 9 for discussion on accounting for pension and other postretirement benefits.

   Cash Equivalents

   All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents.

   Treasury Stock

   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.

   Reclassification

   Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the current presentation.

2. Extraordinary Items

   In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. PPL Electric used a portion of the securitization proceeds to repurchase $1.5 billion of its first mortgage bonds. The premiums and related expenses to reacquire these bonds were $59 million, net of tax. PPL Electric's customers will benefit from securitization through an expected average rate reduction of approximately one percent for the period the transition bonds are outstanding. With securitization, a substantial portion of the CTC has been replaced with an ITC, which passes 75% of the net financing savings back to customers. In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that was no longer required because of securitization. The net securitization impact of the bond repurchase and the deferred tax change was a gain of $19 million.

   SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt,'' requires that a material aggregate gain or loss from the extinguishment of debt be classified as an extraordinary item, net of the related income tax effect. The $59 million loss associated with the bond repurchase was treated as an extraordinary item. Details were as follows (millions of dollars):

   Reacquisition cost of debt	$	1,554
   Net carrying amount of debt		(1,454	)
   Extraordinary charge pre-tax		100
   Tax effects		(41	)
   Extraordinary charge	$	59

   This extraordinary charge was partially offset in December 1999 with a credit relating to wholesale power activity. In December 2000, there was an additional extraordinary credit relating to wholesale power activity.

3. Sales to Other Electric Utilities

   As part of the corporate realignment on July 1, 2000, PPL Electric's contracts for sales to other electric utilities were assigned to PPL EnergyPlus, which was transferred to an unregulated subsidiary of PPL. See Note 12 for information on the corporate realignment.

4. Income and Other Taxes

   For 2001, 2000 and 1999 the corporate federal income tax rate was 35%, and the Pennsylvania corporate net income tax rate was 9.99%.

   The tax effects of significant temporary differences comprising PPL Electric's net deferred income tax liability were as follows (millions of dollars):

   		2001		2000
   Deferred Tax Assets
   	Deferred investment tax credits	$	12	$	13
   	NUG contracts & buybacks				8
   	Accrued pension costs		31		47
   	Contribution in aid of construction		41		32
   	Other		63		64
   			147		164
   Deferred Tax Liabilities
   	Electric utility plant - net		494		479
   	Restructuring - CTC		220		223
   	Taxes recoverable through future rates		99		100
   	Reacquired debt costs		12		12
   	Other		11		8
   			836		822
   Net deferred tax liability		$	689	$	658

   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 as follows (millions of dollars):

   			2001			2000			1999
   Income Tax Expense
   	Current-Federal		$	31		$	144		$	190
   	Current -State			6			35			35
   				37			179			225
   	Deferred-Federal			27			(10	)		53
   	Deferred-State			4			10			(110	)
   				31						(57	)
   	Investment tax credit, net-federal			(3	)		(8	)		(17	)
   		Total	$	65		$	171		$	151
   Total income tax expense-Federal			$	55		$	126		$	226
   Total income tax expense-State				10			45			(75	)
   		Total	$	65		$	171		$	151

   			2001			2000			1999 (a)
   Reconciliation of Income Tax Expense
   	Indicated federal income tax on    pre-tax income before extraordinary    items and cumulative effect of a    change in accounting principle at    statutory tax rate - 35%	$	72		$	156		$	221
   Increase/(decrease) due to:
   	State income taxes		4			29			(51	)
   	Flow through of depreciation    differences not previously    normalized					2			3
   	Amortization of investment tax credit		(3	)		(7	)		(12	)
   	Other		(8	)		(9	)		(10	)
   			(7	)		15			(70	)
   Total income tax expense		$	65		$	171		$	151
   Effective income tax rate			31.7%			38.3%			23.9%

   (a) In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that were no longer required because of securitization.

   			2001			2000			1999
   Taxes, Other than Income
   	State gross receipts	$	105		$	117		$	105
   	State utility realty		4			6			12
   	State capital stock		8			12			11
   	Property and other		(1	)		(1	)		1
   		$	116		$	134		$	129

5. Nuclear Decommissioning Costs

   Prior to July 1, 2000, an annual provision for PPL Electric's share of the future cost to decommission the Susquehanna station, equal to the amount allowed in utility rates, was charged to depreciation expense. Such amounts were invested in external trust funds which could only be used for future decommissioning costs. In connection with the corporate realignment, effective July 1, 2000, the generating and certain other related assets, along with associated liabilities related to the operation and decommissioning of the Susquehanna nuclear station, were transferred to PPL Susquehanna.

6. Financial Instruments

   The carrying amount on the Balance Sheet and the estimated fair value of PPL Electric's financial instruments are as follows (millions of dollars):

   		December 31, 2001				December 31, 2000
   		Carrying Amount		Fair Value		Carrying Amount		Fair Value
   Assets
   	Cash and cash equivalents (a)	$	79	$	79	$	267	$	267
   	Other investments (a)		35		35		18		18
   	Other financial instruments    included in other current    assets (a)						1		1
   Liabilities
   	Long-term debt (b)		3,459		3,575		3,126		3,147
   	Company-obligated    mandatorily redeemable    preferred securities of    subsidiary trusts holding    solely company debentures (b)		250		253		250		250
   	Preferred stock with sinking    fund requirements (b)		31		31		46		46
   	Short-term debt (a)						59		59

   (a) The carrying value of these financial instruments generally is based on established market prices and approximates fair value.

   (b) The fair value generally is based on quoted market prices for the securities where available and estimates based on current rates offered to PPL Electric where quoted market prices are not available.

7. Credit Arrangements and Financing Activities

   In order to enhance liquidity, and as a credit back-stop to the commercial paper programs, PPL Electric, PPL Capital Funding and PPL (as guarantor for PPL Capital Funding) shared a 364-day $750 million credit facility and a five-year $300 million credit facility, each with a group of banks. In June 2001, these credit facilities were terminated and PPL Electric obtained a new $400 million 364-day revolving-credit facility. No borrowings were outstanding under this facility at December 31, 2001.

   During December 2001, PPL Electric terminated its existing commercial paper program and established a new program. At December 31, 2001, PPL Electric had no commercial paper outstanding.

   In March 2001, PPL Electric bought back an option related to its 6-1/8% Reset Put Securities due 2006. The option would have permitted a third party to remarket these securities at higher interest rates in May 2001. PPL Electric retired the $200 million, 6-1/8% Reset Put Securities in May 2001.

   In July 2001, PPL Electric retired all of its outstanding First Mortgage Bonds, 9-3/8% Series due 2021, at $5 million aggregate par value through the maintenance and replacement fund provisions of the 1945 First Mortgage Bond Indenture.

   In August 2001, PPL Electric issued $800 million of senior secured bonds as part of a strategic initiative. See Note 15 for additional information. PPL Electric used a portion of these proceeds to repurchase $280 million of its common stock from PPL.

   In September 2001, PPL Electric repurchased $15 million aggregate par value of its First Mortgage Bonds, 6-1/2% Series due 2005, at a market value that approximated par value.

   During December 2001, PPL Electric repurchased $4 million par value of its First Mortgage Bonds, 6.55% Series due 2006, at a market value that approximated par value. PPL Electric also repurchased 148,000 shares of its 6-1/8% Series Preferred Stock, also at a market value that approximated par value.

   During the year 2001, PPL Transition Bond Company made principal payments on bonds totaling $241 million.

8. Stock-Based Compensation

   Under the PPL Incentive Compensation Plan ("ICP") and the Incentive Compensation Plan for Key Employees ("ICPKE") (together, the "Plans"), restricted shares of common stock as well as stock options may be granted to officers and other key employees of PPL, PPL Electric and other affiliated companies. Awards under the Plans are made in the common stock of PPL 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. Each Plan limits the number of shares available for awards to two percent of the outstanding common stock of PPL on the first day of each calendar year. The maximum number of options which can be awarded under each Plan to any single eligible employee in any calendar year is 1.5 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 or is forfeited or the rights to the participant terminate, any shares of common stock 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. However, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death. Restricted shares vest fully if control of PPL changes, as defined by the Plans.

   Restricted stock awards of 19,410; 25,790; and 13,380 shares, with per share weighted-average fair values of $44.79, $20.46 and $26.65, were granted to employees of PPL Electric in 2001, 2000 and 1999. Compensation expense for these three years was not significant. At December 31, 2001, there were 58,030 restricted shares outstanding. These awards currently vest three years from the date of grant.

   Stock Options

   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 (including PPL Electric), in installments as determined by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE. The CLC and CCGC have discretion to accelerate the exercisability of the options. All options expire no later than ten years from the grant date. The options become exercisable if control of PPL changes, as defined by the Plans.

   PPL applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for stock options. Since stock options are granted at market price, no compensation cost has been recognized. Compensation calculated in accordance with the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," was not significant.

   A summary of stock option activity follows:

   Stock Option Activity		Number of Options			Weighted Average Exercise Price
   Balance at December 31, 1998
   	Options granted		47,090			$	26.84
   Balance at December 31, 1999			47,090			$	26.84
   	Options granted		58,310			$	22.65
   Balance at December 31, 2000			105,400			$	24.53
   (15,699 options exercisable)
   	Options granted		92,450			$	43.16
   	Options exercised		(33,908	)		$	25.04
   Balance at December 31, 2001			163,942			$	34.92
   (16,924 options exercisable)

   The weighted average fair values of options at their grant date during 2001, 2000 and 1999 were $10.42, $3.37 and $2.37. The estimated fair value of each option granted was calculated using a modified Black-Scholes option-pricing model. The weighted average assumptions used in the model were as follows:

   	2001	2000	1999
   Risk-free interest rate	5.46%	6.75%	5.61%
   Expected option term	10 yrs	10 yrs	10 yrs
   Expected stock volatility	30.24%	19.66%	16.19%
   Dividend yield	4.28%	5.70%	6.60%

   Outstanding options had a weighted-average remaining life of 8.5 years at December 31, 2001.

9. Retirement and Postemployment Benefits

   Pension and Other Postretirement Benefits

   In connection with the corporate realignment on July 1, 2000, sponsorship of the various pension and postretirement benefit plans was transferred from PPL Electric to PPL Services to provide for participation by any of the newly realigned companies. Substantially all employees of PPL Electric are covered by a defined benefit plan and will become eligible for certain health care and life insurance benefits upon retirement through plans sponsored by PPL Services.

   The net periodic pension costs (or credits) allocated to PPL Electric were approximately $(30) million in 2001, $(8) million in 2000 and $10 million in 1999. Periodic pension cost charged or (credited) to operating expense was approximately $(24) million in 2001, $(6) million in 2000 and $8 million in 1999. The cost or credit in excess of amounts recorded to expense were allocated to construction and other non-expense accounts. At December 31, 2001, the recorded balance of PPL Electric's allocated share of the total pension liability was $68 million.

   In 2001, PPL changed its method of amortizing unrecognized gains or losses in the annual pension expense/income determined under SFAS 87. This change resulted in a cumulative-effect credit of $5 million after-tax, which is reflected as a "Cumulative Effect of a Change in Accounting Principle" on the Statement of Income. Under the old method, unrecognized gains and losses in excess of ten percent of the greater of the plan's projected benefit obligation or market-related value of plan assets were amortized on a straight-line basis over the estimated average future service period of plan participants. Under the new method, a second corridor will be utilized for unrecognized gains and losses in excess of thirty percent of the plan's projected benefit obligation. Unrecognized gains and losses outside the second corridor will be amortized on a straight-line method over a period equal to one half of the average future service period of the plan participants. The new method is preferable under SFAS 87 because it provides more current recognition of gains and losses, thereby lessening the accumulation of unrecognized gains and losses.

   The pro-forma effect of retroactive application of this change in accounting principle would have reduced net income by $5 million in 2001 and would have increased net income by $4 million in 2000, and by $1 million in prior periods.

   Postretirement medical costs recorded by PPL Electric were approximately $15 million in 2001, $24 million in 2000 and $25 million in 1999. The decrease in postretirement medical costs is the result of the corporate realignment. This resulted in postretirement medical costs being allocated between the regulated and unregulated businesses. Postretirement medical costs charged to operating expense were approximately $11 million in 2001, $19 million in 2000 and $20 million in 1999. Costs in excess of amounts charged to expense were charged to construction and other non-expense accounts. At December 31, 2001, the balance in PPL Electric's allocated share of the total postretirement medical liability was $3 million.

   At December 31, 2001, PPL Electric had a regulatory asset of $6 million relating to postretirement benefits that is being amortized and recovered in rates, with a remaining life of 11 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, 2001, the liability was $22 million. The liability is the net of $52 million of estimated future benefit payments offset by $30 million of available assets in a PPL Electric-funded VEBA trust.

   Savings Plans

   Substantially all employees of PPL Electric are eligible to participate in deferred savings plans (401(k)s). Contributions to the plans charged to operating expense approximated $2 million in 2001, $4 million in 2000 and $4 million in 1999.

   Substantially all employees of PPL Electric are also eligible to participate in PPL's ESOP.

   Postemployment Benefits

   PPL Electric provides health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses were not significant in 2001, 2000 or 1999.

10. Commitments and Contingent Liabilities

    PPL Electric is involved in numerous legal proceedings, claims and litigation in the ordinary course of business. PPL Electric cannot predict the ultimate outcome of such matters, or whether such matters may result in material liabilities.

    Environmental Matters

    In connection with the corporate realignment, effective July 1, 2000, any air, water and residual waste contingent liabilities associated with the generation assets of PPL Electric were assumed by PPL Generation.

    Superfund and Other Remediation

    In 1995, PPL Electric entered into a consent order with the Pennsylvania DEP to address a number of sites where it may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; and oil or other contamination which may exist at some of PPL Electric's former generating facilities. In conjunction with the July 1, 2000 corporate realignment, PPL Electric's generating facilities were transferred to subsidiaries of PPL Generation. As of December 31, 2001, work has been completed on approximately 80% of the sites included in the consent order.

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

    Guarantees of Affiliated Companies

    At December 31, 2001, PPL Electric provided a guarantee in the amount of $7 million in support of Safe Harbor Water Power Corporation, in which PPL Electric had an ownership interest prior to the corporate realignment. PPL Holtwood now has this ownership interest.

    Source of Labor Supply

    As of December 31, 2001, PPL Electric had a total of 3,594 full-time employees with approximately 76%, or 2,735, being members of the IBEW Local Union 1600. The agreement with the IBEW Local Union 1600 was negotiated in 1998 and expires in May 2002.

11. Related Party Transactions

    As part of the corporate realignment, PPL Electric entered into power sales agreements with PPL EnergyPlus for the purchase of electricity to meet its obligations as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. Under the terms of these agreements, this electricity was purchased by PPL Electric at the applicable shopping credits authorized by the PUC, plus nuclear decommissioning costs, less state taxes. These purchases total $1.3 billion in 2001 and $540 million in the last half of 2000, and are included in "Energy purchases" on the Statement of Income. These agreements expired on December 31, 2001. See Note 15 for information regarding the new agreement whereby PPL EnergyPlus began providing electricity for PPL Electric's PLR load obligation on January 1, 2002.

    Also as part of the corporate realignment, PPL Electric executed a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates and then sells the electricity at the same price to PPL EnergyPlus. These revenues totaled $176 million in 2001 and $85 million in the last half of 2000, and are included in Operating Revenues as "Wholesale energy marketing and trading" on the Statement of Income.

    In August 2001, PPL Electric made a $90 million payment to PPL EnergyPlus in connection with the generation supply agreements between the companies. See Note 15 for additional information.

    In December 2001, PPL Electric made two loans from excess cash to PPL Energy Funding in the aggregate principal amount of $350 million. In connection with these loans, PPL Energy Funding issued to PPL Electric a demand promissory note in the original principal amount of $150 million requiring interest to be paid monthly at an annual interest rate of 4.0%, and a one-year term promissory note in the original principal amount of $200 million requiring interest to be paid monthly at an annual interest rate of 6.5%.

    PPL Electric has notes receivable from other affiliates of PPL that are due on demand. These notes were issued as a result of PPL's process for efficiently managing its overall cash position whereby PPL Electric, from time to time, may loan excess cash to affiliates at market rates. Interest earned on loans to affiliated companies and interest incurred on borrowings from affiliated companies are included in "Other Income - net" and "Interest Expense," respectively, in the Statement of Income. Intercompany interest income was $5 million and $22 million for the twelve months ended December 31, 2001 and 2000. Intercompany interest expense was $8 million for the twelve months ended December 31, 2000 and was not significant in 2001.

    Corporate functions such as financial, legal, human resources and information services were transferred to PPL Services in the corporate realignment. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that are not directly charged to PPL subsidiaries is allocated to certain of the subsidiaries based on the relative capital invested by PPL in these subsidiaries. PPL Services charged PPL Electric approximately $68 million in 2001 and $22 million in the last half of 2000 for direct expenses. PPL Services also allocated PPL Electric overhead costs of approximately $28 million in 2001 and $41 million in the last half of 2000. While the allocation of overhead costs decreased in 2001 from 2000, direct expense allocations increased. This was primarily due to an intensified effort to identify more products and services as direct support in 2001, resulting in lower overhead costs.

12. Corporate Realignment

    On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution operations from its recently deregulated generation operations and to better position the companies and their affiliates in the new competitive marketplace. The realignment included PPL Electric's transfer of certain generation and related assets, and associated liabilities, to PPL and its unregulated subsidiaries at book value. The net book value of this transfer, recorded effective July 1, 2000, was $271 million.

    This $271 million non-cash dividend to PPL had a significant impact on the consolidated assets and liabilities of PPL Electric. As indicated on the Statement of Cash Flows of PPL Electric, approximately $73 million of cash and cash equivalents of consolidated affiliates was divested as a result of the realignment distribution. The following major reductions in consolidated assets and liabilities resulted from the non-cash dividend (millions of dollars):

    Assets
    Cash and cash equivalents		$	73
    Other current assets			331
    Investments			578
    Property, plant and equipment			1,969
    Other noncurrent assets			16
    			2,967
    Liabilities and Equity
    Current liabilities			767
    Deferred credits and other
    	noncurrent liabilities		1,935
    Minimum pension liability
    	component of accumulated other comprehensive income		(6	)
    			2,696
    	Net Dividend	$	271

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

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

13. New Accounting Standards

    SFAS 141

    In June 2001, the FASB issued SFAS 141, "Business Combinations," which eliminates the pooling-of-interest method of accounting for business combinations and requires the use of the purchase method. In addition, SFAS 141 requires the reassessment of intangible assets to determine if they are appropriately classified either separately or within goodwill. SFAS 141 is effective for business combinations initiated after June 30, 2001. PPL Electric adopted SFAS 141 on July 1, 2001, with no material impact on the financial statements.

    SFAS 142

    In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL Electric adopted SFAS 142 on January 1, 2002, with no material impact on the financial statements.

    SFAS 143

    In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," on the accounting for obligations associated with the retirement of long-lived assets. SFAS 143 requires a liability to be recognized in the financial statements for retirement obligations meeting specific criteria. Measurement of the initial obligation is to approximate fair value, with an equivalent amount recorded as an increase in the value of the capitalized asset. The asset will be depreciated in accordance with normal depreciation policy and the liability will be increased, with a charge to the income statement, until the obligation is settled. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The potential impact of adopting SFAS 143 is not yet determinable, but may be material.

    SFAS 144

    In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss only if the carrying amount is not recoverable from undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. For long-lived assets to be disposed of, SFAS 144 establishes a single accounting model based on the framework established in SFAS 121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. SFAS 144 also broadens the reporting of discontinued operations. PPL Electric adopted SFAS 144 on January 1, 2002, with no material impact on the financial statements.

14. Derivative Instruments and Hedging Activities

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

15. Strategic Initiative

    In August 2001, PPL completed a strategic initiative to confirm the structural separation of PPL Electric from PPL and PPL's other affiliated companies. This initiative enabled PPL Electric to reduce business risk by securing a supply contract adequate to meet its PLR obligations and enabled PPL Electric to lower its capital costs.

    In connection with this initiative, PPL Electric:

• obtained a long-term electric supply contract to meet its PLR obligations, at prices generally equal to the pre-determined "capped" rates it is authorized to charge its PLR customers from 2002 through 2009 under the 1998 PUC settlement order;
• agreed to limit its businesses to electric transmission and distribution and activities relating to or arising out of those businesses;
• adopted amendments to its Articles of Incorporation and Bylaws containing corporate governance and operating provisions designed to reinforce its corporate separateness from affiliated companies;
• appointed an independent director to its Board of Directors and required the unanimous consent 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 proceeding, including any filing of a voluntary petition in bankruptcy or other similar actions;
• appointed an independent compliance administrator to review, on a semi-annual basis, its compliance with the new corporate governance and operating requirements contained in its amended Articles of Incorporation and Bylaws; and
• adopted a plan of division pursuant to the Pennsylvania Business Corporation Law. The plan of division resulted in two separate corporations. PPL Electric was the surviving corporation and a new Pennsylvania corporation was created. Under the plan of division, $5 million of cash and certain of PPL Electric's potential liabilities were allocated to the new corporation. PPL has guaranteed the obligations of the new corporation with respect to such liabilities.

  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.

  At a special meeting of PPL Electric's shareowners held on July 17, 2001, the plan of division and the amendments to PPL Electric's Articles of Incorporation and Bylaws were approved, and became effective upon filing the articles of division and the plan of division with the Secretary of State of the Commonwealth of Pennsylvania. This filing was made in August 2001.

  As part of the strategic initiative, PPL Electric solicited bids to contract with energy suppliers to meet its obligation to deliver energy to its customers from 2002 through 2009. In June 2001, PPL Electric announced that PPL EnergyPlus was the low bidder, among six bids examined, and was selected to provide the energy supply requirements of PPL Electric from 2002 through 2009. Under this contract, PPL EnergyPlus will provide electricity at pre-determined capped prices that PPL Electric is authorized to charge its PLR customers, and received a $90 million payment to offset differences between the revenues expected under the capped prices and projected market prices through the life of the supply agreement (as projected by PPL EnergyPlus at the time of its bid). The contract resulted in PPL EnergyPlus having an eight-year contract at current market prices. PPL has guaranteed the obligations of PPL EnergyPlus under the new contract.

  In July 2001, the energy supply contract was approved by the PUC and accepted for filing by the FERC.

  Also in July 2001, PPL Electric filed a shelf registration statement with the SEC to issue up to $900 million in debt. In August 2001, PPL Electric sold $800 million of senior secured bonds under this registration statement. The offering consisted of two series of bonds: $300 million of 5-7/8% Series due 2007 and $500 million of 6-1/4% Series due 2009. PPL Electric used a portion of the proceeds from these debt issuances to make the $90 million up-front payment to PPL EnergyPlus, and $280 million was used to repurchase a portion of its common stock from PPL. The remainder of the proceeds will be used for general corporate purposes.

  Taken collectively, the steps in the strategic initiative are intended to protect the customers of PPL Electric from volatile energy prices and facilitate a significant increase in leverage at PPL Electric, while lowering its cost of capital.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PPL Electric Utilities Corporation
(Millions of Dollars)
Column A		Column B			Column C		Column D		Column E
		Balance at Beginning of Period
				Additions					Balance at End of Period
				Charged to Income
Description						Other	Deductions
Year Ended December 31, 2001
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts	$	16	$	30	$	$	27	$	19
Year Ended December 31, 2000
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts		18		22			24		16
	Obsolete inventory - Materials     and supplies		2		1			3
Year Ended December 31, 1999
Reserves deducted from assets in the Balance Sheet
	Uncollectible accounts		15		22			19		18
	Obsolete inventory -   Materials     and supplies		11					9		2

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
	2001
Operating revenues		$	700	$	625	$	687	$	682
Operating income			121		92		96		110
Net income before cumulative effect of a change in accounting principle			34		21		26		33
Net income			34		21		26		38
	2000
Operating revenues		$	1,127	$	1,006	$	570	$	633
Operating income			268		217		100		84
Net income (loss) before extraordinary items			131		95		25		(1)
Net income			131		95		25		10
(a)	PPL Electric's business is seasonal in nature with peak sales periods generally occurring in the winter months. In addition, earnings in several quarters were affected by several unusual items. Lastly, PPL Electric transferred its electric generation and related assets as part of a corporate realignment in July 2000. Accordingly, comparisons among quarters of 2000 and comparisons between 2001 and 2000 may not be indicative of overall trends and changes in operations.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information for this item concerning directors of PPL Electric will be set forth in the sections entitled "Nominees for Directors," and "Directors Continuing in Office" in PPL Electric's 2002 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2001, 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

Information for this item for PPL Electric 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 2002 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2001, and which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information for this item for PPL Electric will be set forth in the section entitled "Stock Ownership" in PPL Electric's 2002 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2001, and which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PPL MONTANA, LLC AND SUBSIDIARIES

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

(a)  There is no established public trading market for PPL Montana's membership interests. PPL indirectly owns all of PPL Montana's outstanding membership interests. In 1999, PPL indirectly transferred $417 million to PPL Montana as a capital contribution. Such transaction was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. PPL Montana has made no other sales of unregistered membership interests.

(b)  Distributions on the membership interests will be paid as determined by PPL Montana's Board of Managers. PPL Montana made cash distributions indirectly to PPL of $167 million in 2001 and $50 million in 2000.

ITEM 6. Selected Financial Data

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

PPL MONTANA, LLC AND SUBSIDIARIES
Item 7. Review of the Financial Condition and Results of Operations

The following analysis of the results of operations and financial condition of PPL Montana is abbreviated as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K. Such analysis should be read in conjunction with the financial statements in Item 8.

PPL Montana was formed in 1998 to acquire, own, lease and operate the Montana generation assets. The aggregate purchase price for the Montana generation assets, which PPL Montana acquired on December 17, 1999, was $767 million, which included a $760 million payment to Montana Power and $7 million for transaction expenses. PPL Montana funded the acquisition with a $402 million indirect equity contribution from PPL and a $365 million draw under its credit facility. After the acquisition closed, PPL made additional indirect equity contributions of approximately $15 million. PPL is also required to provide an additional indirect equity contribution of a maximum of $97 million in the event that PPL Montana purchases a portion of Montana Power's interest in the Colstrip Transmission System.

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

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income, comparing 2001 to 2000.

Operating Revenues

Wholesale energy marketing and trading revenues increased by $71 million in 2001 compared with 2000. The increase was primarily due to higher wholesale energy prices in the first half of 2001, resulting from an energy supply shortage in the western U.S.

In June 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. as a result of the California energy crisis. These price controls have had the effect of lowering spot and forward energy prices in the western U.S. where PPL Montana sells power.

PPL Montana had two transition agreements to supply wholesale electricity to Montana Power to serve its retail load not served by other providers or provided by Montana Power's remaining generation. One agreement provided for the sale of 200 MW from PPL Montana's leasehold interest in Colstrip Unit 3 until December 17, 2001. The second agreement requires PPL Montana to supply Montana Power's actual remaining customer load. This second agreement will expire on the earlier of June 30, 2002 or when Montana Power's remaining customer load is zero.

In October 2001, PPL announced that PPL EnergyPlus had reached an agreement to supply Montana Power with an aggregate of 450 MW of energy to be supplied by PPL Montana. The delivery term of this new contract would be for five years beginning July 1, 2002, which is the day after the termination date of the last of the two existing contracts, pursuant to which PPL Montana presently supplies energy to Montana Power for its default supply. Under the new agreement, PPL EnergyPlus will supply 300 MW of around-the-clock electricity and 150 MW of on-peak electricity. In December 2001, the agreement was accepted for filing by the FERC. No further regulatory approvals are required under this agreement. See Note 9 for additional information on the MPSC Order.

Operating Expense

Operating expenses increased by $64 million in 2001 compared with 2000. Operation expenses consist mainly of expenses for fuel, energy purchases, transmission tariffs, plant operations and maintenance, lease rental payments, and general and administrative expenses. The increase was primarily due to increased power costs in the western U.S. during the first half of 2001.

Generation decreased by 740 million kWh in 2001 compared with 2000. This decrease was primarily the result of lower hydroelectric generation caused by the lower than normal water flow in the northwestern U.S.

Critical Accounting Policies

PPL Montana's financial condition and results of operations are necessarily impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Montana, and require estimates or other judgements of matters inherently uncertain. Changes in the estimates or other judgements 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.)

1) Price Risk Management

PPL Montana follows the guidance of SFAS 133, "Accounting for Derivative Instrument and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative Instrument and Certain Hedging Activities," and interpreted by DIG issues (together, "SFAS 133") and EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" for its activities in the area of price risk management. PPL Montana utilizes forward contracts and swaps as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by price volatility. 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. EITF 98-10 requires that derivative and non-derivative contracts that are designated as trading activities be marked to market through earnings.

PPL Montana markets and/or purchases electricity using contracts that are considered derivatives. PPL Montana uses external broker quotes to value electricity contracts.

The circumstances and intent existing at the time that energy transactions are entered into determine their accounting designation. These designations are verified by PPL Montana's trading controls group on a daily basis. The following is a summary of the guidelines that have been provided to the traders who are responsible for contract designation:

• Any wholesale and retail contracts to sell energy that are expected to be delivered from PPL Montana generation are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery. Most wholesale electricity sales contracts receive "normal" treatment. The methodology utilized in determining the amount of sales that can be delivered from PPL Montana generation is based on a calculation approved by the RMC. This calculation uses market prices compared to dispatch rates as well as planned and forced outage rates by plant by month.

• "Trading around the assets" means that PPL Montana matches a contract to sell electricity, previously to be delivered from PPL Montana generation, with a physical or financial contract to purchase electricity. These contracts can qualify for fair value hedge treatment. When the contracts' terms are identical, there is no earnings impact until delivery.

• Physical purchases needed to meet obligations due to a change in the physical load or generation forecasts are considered "normal."

• Physical electricity purchases that increase PPL Montana's long position and any sale or purchase considered a "market call" are speculative with unrealized gains or losses recorded immediately through earnings.

• Financial electricity transactions, which can be settled in cash, cannot be considered "normal" because they need not result in physical delivery. These transactions receive cash flow hedge treatment if they lock in the price PPL Montana will receive or pay for energy in the spot market. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income.

• 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.

To record derivative assets at their net realizable value, PPL Montana reduces the assets' carrying value to recognize differences in counterparty credit quality and potential illiquidity in the market:

• The credit adjustment takes into account the bond ratings (and the implied default rates) of the counterparties that have an out-of-the-money position with PPL Montana. The more companies who have, for example, a BBB rating instead of an A rating, the larger the adjustment.

• 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 Montana might have to accept the "bid" price if it wanted to close an open sales position or PPL Montana might have to accept the "ask" price if it wanted to close an open purchase position.

At December 31, 2001, PPL Montana had assets of $68 million and liabilities of $15 million that were accounted for under SFAS 133 and EITF 98-10. Member's Equity included $33 million of net unrealized derivative gains, after-tax. During the year ended December 31, 2001, PPL Montana recorded $1 million in pre-tax income for net unrealized mark-to-market gains, primarily on derivative instruments used for speculative (non-hedge) purposes. During this period, PPL Montana also reclassified into earnings an after-tax gain of $7 million for derivatives that no longer qualified as hedges.

See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," for further discussion regarding price risk management, and sensitivities of hedged portfolios to changes in prices and interest rates.

2) Leasing

PPL Montana applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL Montana applies the provisions of numerous other accounting pronouncements that provide specific guidance and additional requirements related to accounting for leases. 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 significant assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life. Changes in these assumptions could result in a significant change to the amounts recognized in the financial statements.

In addition to uncertainty inherent in management assumptions, leasing transactions become increasingly complex when they involve 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), or special purpose entities (SPEs) (entities that retain ownership of the property, plant and equipment and the related financing). GAAP requires that SPEs be consolidated if several conditions exist, including if the owners of the SPEs have not made an initial substantive residual equity capital investment that is at risk during the entire lease term.

At December 31, 2001, PPL Montana has a leasing transaction involving unconsolidated SPEs. These SPEs were appropriately not consolidated in accordance with GAAP because the equity owners (entities unrelated to PPL Montana) were required to contribute and maintain a minimum of 3% equity interest throughout the life of the SPEs.

See Note 5 for additional information related to operating lease payments.

3) Contingencies

PPL Montana periodically records the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL Montana's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies." 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."

SFAS 5 does not permit the accrual of gain contingencies under any circumstances. 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) that the amount of the loss can be reasonably estimated.

The accrual of a contingency involves considerable judgement on the part of management. PPL Montana uses its internal expertise, the resources of other PPL affiliates, 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. The largest contingency on PPL Montana's balance sheet is the loss accrual related to wholesale power commitments. These wholesale power commitments were assumed when PPL Montana acquired its generating assets in December 1999. At December 31, 2001, the unamortized liability on the Balance Sheet was $78 million. PPL Montana periodically reviews the reasonableness of the remaining accrual.

PPL Montana has also recorded contingencies for uncollectible accounts, environmental issues, taxes and litigation in situations where management determined it was probable a loss had been incurred and it could be reasonably estimated.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Sensitive Instruments

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

Commodity Price Risk

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

PPL Montana estimated that a 10% adverse movement in market prices across the markets PPL Montana operates in, and across all time periods, would have decreased the value of the non-trading portfolio by approximately $49 million at December 31, 2001, as compared to $43 million at December 31, 2000. A similar adverse movement in market prices would decrease the value of the trading portfolio by an insignificant amount at December 31, 2001, as compared to $300,000 at December 31, 2000. However, the change in the value of the non-trading portfolio would have been offset by an increase in the value of the underlying commodity, the electricity generated. The decline in forward prices from 2000 to 2001 is the primary reason for the differences between 2001 and 2000 sensitivity analyses. In addition to commodity price risk, PPL Montana's commodity positions are also subject to operational and event risks including, among others, increases in load demand and forced outages at generating plants.

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

Interest Rate Risk

PPL Montana may use borrowings to provide funds for its operations. PPL Montana may utilize various financial derivative products and risk management techniques to adjust the mix of fixed and floating-rate interest rates in its debt portfolio and thereby reduces its exposure to adverse interest rate movements. PPL Montana had $44 million in borrowings outstanding as of December 31, 2001.

Report of Independent Accountants

To the Board of Managers and Member of
PPL Montana, LLC

In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 176 present fairly, in all material respects, the financial position of PPL Montana, LLC and its subsidiaries at December 31, 2001 and 2000 and the results of their operations and their cash flows for the years ending December 31, 2001 and 2000 and the period from inception (December 17, 1999) to December 31, 1999 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 index appearing under Item 14(a)(2) 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 PPL Montana'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 auditing standards generally accepted in the United States of America, which 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 12 to the consolidated financial statements, PPL Montana changed its method of accounting for derivative and hedging activities pursuant to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement 133).

PricewaterhouseCoopers LLP
Minneapolis, MN
February 4, 2002

PPL Montana, LLC
Management's Report on Responsibility for Financial Statements

The management of PPL Montana is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatements and present fairly the financial position, results of operations and cash flows of PPL Montana.

PPL Montana's consolidated financial statements have been audited by PricewaterhouseCoopers LLP (PWC), independent certified public accountants. PWC's appointment as auditors was previously ratified by the shareowners of PPL. Management has made available to PWC all PPL Montana's financial records and related data, as well as the minutes of board of manager's meetings. Management believes that all representations made to PWC during its audit were valid and appropriate.

PPL Montana maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control.

Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PPL maintains an internal auditing program to evaluate PPL Montana's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and PWC's recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PPL Montana's system of internal control is adequate to accomplish the objectives discussed in this report.

The Board of Managers, acting through PPL's Audit Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit Committee, which is composed of four independent directors, meets periodically with management, the internal auditors and PWC to review the work of each. PWC and the internal auditors have free access to PPL's Audit Committee and to the Board of Managers, without management present, to discuss internal accounting control, auditing and financial reporting matters.

Management also recognizes its responsibility for fostering a strong ethical climate so that PPL Montana's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the business policies and guidelines of PPL Montana. These policies and guidelines address: the necessity of ensuring open communication within PPL Montana; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information.

Bradley E. Spencer
Chief Operating Officer and Vice President

Craig D. Bartholomew
Controller

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM INCEPTION (DECEMBER 17, 1999) TO DECEMBER 31, 1999
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
				2001		2000		1999
Operating Revenues
	Wholesale energy marketing and trading		$	517	$	446	$	10
	Other			3		3
	Total			520		449		10
Operating Expenses
	Operation
		Fuel		30		32		1
		Energy purchases		178		111		1
		Other operation and maintenance		101		95		4
		Transmission		8		13		1
	Depreciation (Note 1)			10		13		1
	Taxes, other than income (Note 3)			16		15		1
	Total			343		279		9
Operating Income				177		170		1
Other Income - net				3
Income Before Interest Expense				180		170		1
Interest Expense				9		25		2
Income (Loss) Before Income Taxes				171		145		(1)
Income Taxes (Note 3)				68		58
Income (Loss) Before Extraordinary Item				103		87		(1)
Extraordinary Item (net of income taxes) (Note 2)						(1)
Net Income (Loss)			$	103	$	86	$	(1)
The accompanying Notes to the Consolidated Financial Statements are an integral part of the financial statements.

 

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM INCEPTION (DECEMBER 17, 1999) to DECEMBER 31, 1999
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
							2001		2000		1999
Cash Flows From Operating Activities
	Net income (loss)					$	103	$	86	$	(1)
	Extraordinary item (net of income taxes)								(1)
	Income (loss) before extraordinary item						103		87		(1)
	Adjustments to reconcile net income (loss) before extraordinary
		items to net cash provided by (used in) operating activities
			Allowance for doubtful accounts				28		19
			Depreciation and amortization				10		15		2
			Wholesale energy commitment amortization				(20)		(19)		(1)
			Deferred income taxes				7		(11)		3
			Changes in current assets and liabilities:
				Accounts receivable			38		(97)		(13)
				Accounts payable to Member			(27)		41		(3)
				Accounts receivable/payable to affiliate			(22)		17
				Accounts payable and accrued expenses			(17)		57		10
				Other			(11)		(9)		1
					Net cash provided by (used in) operating activities		89		100		(2)
Cash Flows From Investing Activities
	Purchase of assets										(760)
	Proceeds from sale of assets						5		410
	Expenditures for property, plant and equipment						(26)		(14)
					Net cash provided by (used in) investing activities		(21)		396		(760)
Cash Flows From Financing Activities
	Borrowings on short-term debt										365
	Repayments of short-term debt								(365)
	Borrowings on revolving line of credit						60		23		15
	Repayments on revolving line of credit						(16)		(28)		(10)
	Member contributions										395
	Distribution to member						(167)		(50)
					Net cash provided by (used in) financing activities		(123)		(420)		765
Net Increase (Decrease) in Cash and Cash Equivalents							(55)		76		3
Cash and Cash Equivalents at Beginning of Period							79		3
Cash and Cash Equivalents at End of Period						$	24	$	79	$	3
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest				$	2	$	16	$	2
		Income taxes				$	88	$	1
	Gain deferred on sale of assets							$	8
	Property, equipment, financing and acquisition costs
		contributed by Member								$	23
The accompanying Notes to the Consolidated Financial Statements are an integral part of the financial statements.

 

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
			2001		2000
Assets
Current Assets
	Cash and cash equivalents (Note 1)	$	24	$	79
	Accounts receivable (less reserve: 2001, $47; 2000, $18)		22		87
	Accounts receivable from joint owners		6		7
	Accounts receivable from affiliated companies		4
	Fuel, materials and supplies - at average cost		6		5
	Price risk management assets (Note 12)		14		2
	Deferred income taxes (Note 3)		4		20
	Prepayments and other		4		3
			84		203
Noncurrent Assets
	Property, plant and equipment - net (Note 1)		440		428
	Deferred income taxes (Note 3)		20		31
	Other		107		34
		$	651	$	696
Liabilities and Equity
Current Liabilities
	Accounts payable	$	36	$	50
	Accounts payable to affiliated companies				18
	Accounts payable to Member		11		38
	Revolving line of credit (Note 4)		44
	Accrued expenses		14		17
	Price risk management liabilities (Note 12)		4
	Wholesale energy commitments (Note 9)		13		23
			122		146
Noncurrent Liabilities
	Employee benefit obligations		16		8
	Wholesale energy commitments (Note 9)		65		75
	Other		27		14
			108		97
Commitments and Contingent Liabilities (Note 9)
Member's Equity			421		453
		$	651	$	696
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

   

CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM INCEPTION (DECEMBER 17, 1999) TO DECEMBER 31, 1999
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
			2001		2000		1999
Member's equity at beginning of year			$	453	$	417
	Member contributions						$	418
	Net income (loss) (a)			103		86		(1)
	Distribution to Member			(167)		(50)
Member's equity at end of year				389		453		417
Accumulated other comprehensive income at beginning of year
	Unrealized gain on qualifying derivatives (a)			33
	Minimum pension liability adjustment (a)			(1)
Accumulated other comprehensive income at end of year				32
Total Member's Equity and Accumulated Other Comprehensive Income			$	421	$	453	$	417
(a) Statement of Comprehensive Income:
	Net income (loss)		$	103	$	86	$	(1)
	Other comprehensive income, net of tax:
		Unrealized gain on qualifying derivatives, net of tax of $21		33
		Minimum pension liability adjustment		(1)
	Total other comprehensive income			32
	Comprehensive income (loss)		$	135	$	86	$	(1)
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

PPL MONTANA, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

   Business and Consolidation

   The consolidated financial statements include the accounts of PPL Montana, a Delaware limited-liability company, and its direct wholly-owned subsidiaries PPL Colstrip I, LLC and PPL Colstrip II, LLC . The subsidiaries have no assets or operations and bear no relationship to Colstrip Units 1 and 2. All significant intercompany accounts and transactions have been eliminated. PPL Montana Holdings, LLC is the sole Member of PPL Montana and is an indirect wholly-owned subsidiary of PPL.

   Nature of Operations

   PPL Montana commenced operations December 17, 1999 after the purchase of substantially all the generation assets and certain contracts of the utility division of Montana Power. PPL Montana operates steam generation and hydroelectric facilities throughout Montana. PPL Montana has been designated as an EWG under the Federal Power Act and sells wholesale power throughout the western U.S.

   Use of Estimates/Contingencies

   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 assets and 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.

   PPL Montana records loss contingencies in accordance with SFAS 5, "Accounting for Contingencies."

   Property, Plant and Equipment

   Following are the classes of property, plant and equipment, with the associated accumulated depreciation at December 31 (millions of dollars):

   		2001		2000
   Electric generation plant (including jointly- owned plant)	$	386	$	383
   Non-generation property		42		27
   Land		15		15
   Construction work in progress		14		13
   		457		438
   Less: Accumulated depreciation		17		10
   	$ 440		$	428

   Property, plant and equipment is recorded at original cost, unless impaired under the provisions of SFAS 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of." Original cost includes material, labor, contractor costs, construction overheads and capitalized interest. The cost of repairs and minor replacements are charged to expense as incurred. Maintenance and repair costs include costs associated with major planned overhauls that do not improve or replace an existing asset or extend its useful life. When a component of property, plant or equipment 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 is retired or sold that was depreciated under the composite or group method, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income.

   Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite and group methods. The annual provisions for depreciation have been computed principally in accordance with the following ranges of asset lives: electric generation in plans service, 5-50 years and non-generation property, 5-40 years. PPL Montana periodically reviews and adjusts the depreciable lives of its fixed assets.

   Allowance for Doubtful Accounts

   PPL Montana maintains its allowance for doubtful accounts based on management's evaluation of the ultimate collectibility of all receivables. In 2001, PPL Montana recorded a receivable related to the termination of forward contracts with Enron. The receivable has been fully reserved.

   Inventories

   Inventories consist mainly of fuel and materials and supplies. Inventories are stated at the lower of cost or market. Cost is determined under the average cost method and includes the purchase price and transportation costs of the coal.

   Accounting for Price Risk Management

   PPL Montana enters into commodity contracts for the physical purchase and sale of energy as well as energy contracts that can be settled financially.

   As of January 1, 2001, contracts that meet the definition of a derivative were accounted for under SFAS 133, "Accounting for Derivative Instrument and Hedging Activities." Certain energy contracts have been excluded from SFAS 133's requirements because they meet the definition of a "normal sale or purchase" under DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity." These contracts are reflected in the financial statements using the accrual method of accounting. See Note 12 for additional information on SFAS 133.

   Under SFAS 133, all derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is executed, PPL Montana designates the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), or a non-hedge derivative. Changes in the fair value of a derivative that is highly effective as, and is designated and qualifies as, a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk, are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as, and is designated as and qualifies as, a cash flow hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability of cash flows being hedged. Changes in the fair value of derivatives that are not designated as hedging instruments are reported in current- period earnings.

   In addition, PPL Montana may enter into non-derivative contracts that meet the definition of energy trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." In accordance with EITF 98-10, energy trading contract gains and losses from changes in market prices are marked to market through earnings.

   For 1999 and 2000, PPL Montana used EITF 98-10 to account for its commodity forward and financial contracts. As such, contracts that did not meet the definition of energy trading contracts, as defined by EITF 98-10, were reflected in the financial statements using the accrual method of accounting.

   Gains and losses from changes in market prices of energy sales contracts are accounted for in "Wholesale energy marketing and trading" revenues, and gains and losses from changes in market prices of energy purchase contracts are accounted for in "Energy purchases" on the Statement of Income. The amortized gains and losses from interest rate derivative contracts would be accounted for in "Interest expense."

   Financial Instruments

   At December 31, 2001, the carrying value of cash and cash equivalents, price risk management assets and liabilities, and the revolving line of the credit approximated fair value due to either the short-term nature of the instruments or variable interest rates associated with the financial instruments. At December 31, 2000, except for price risk management liabilities, the carrying amount on the balance sheet approximated the estimated fair value of the financial instruments. The carrying value of the price risk management liabilities was $0 and the fair value was $257 million at December 31, 2000, due to the fact that these contracts were classified as non-trading under EITF 98-10 and were not required to be marked to fair value on the balance sheet in 2000.

   Revenue Recognition

   "Wholesale energy marketing and trading" revenues on the Statement of Income are recorded based on the amount of electricity delivered to wholesale customers through the last day of each reporting period.

   Income Taxes

   PPL Montana is a limited liability company and has elected to be disregarded as a separate entity for federal and state income tax purposes. PPL Montana's taxable income or loss is included in the consolidated federal and state income tax returns of PPL. The Member is a party to a tax sharing policy that provides that the Member is responsible for taxes associated with PPL Montana's operations. The income tax provision for PPL Montana is calculated in accordance with SFAS 109, "Accounting for Income Taxes." Income taxes are presented in the accompanying financial statements as if PPL Montana files separate returns. The current tax benefit or provision recognized for each period is reported in "Accounts receivable from" or "Accounts payable to" Member, on the Balance Sheet as applicable.

   Leases

   See Note 5 for a discussion on accounting for leases.

   Cash Equivalents

   All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents.

   Comprehensive Income

   Comprehensive income consists of net income and other comprehensive income, defined as changes in Member's equity from transactions other than with the Member. Other comprehensive income consists of unrealized gains or losses on qualifying derivatives and the excess of additional pension liability over unamortized prior service costs. Comprehensive income is reflected on the Statement of Member's Equity and Other Comprehensive Income. The "Accumulated other comprehensive income" of PPL Montana at December 31, 2001 was $32 million.

   Reclassifications

   Certain amounts in the 2000 and 1999 financial statement have been reclassified to conform to the current presentation.

2. Extraordinary Item

   During 2000, PPL Montana repaid certain financing debt and reduced the commitments under the revolving credit facility. In accordance with SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," an extraordinary loss of approximately $1 million (net of $700,000 of income tax benefit) was recorded to write-off deferred loan fees.

3. Income and Other Taxes

   For 2001, 2000 and 1999, the corporate federal income tax rate was 35% and the Montana corporate income tax rate was 6.75%.

   The tax effects of significant temporary differences comprising PPL Montana's net deferred income tax asset were as follows (millions of dollars):

   			2001		2000
   Deferred Tax Assets
   	Accrued retirement costs	$	5	$	3
   	Wholesale energy commitments		30		39
   	Allowance for doubtful accounts		19		7
   	Other				2
   			54		51
   Deferred Tax Liabilities
   	Property, plant and equipment		9
   	Mark to market		20
   	Other		1
   			30
   Net deferred tax asset		$	24	$	51

   Details of the components of income tax expense (benefit), a reconciliation of federal income taxes derived from statutory tax rates applied to income (loss) from continuing operations for accounting purposes and details of taxes other than income are as follows (millions of dollars):

   			2001		2000
   Income Tax Expense (Benefit)
   	Current - Federal	$	50	$	57
   	Current - State		11		12
   			61		69
   	Deferred - Federal		5		(9	)
   	Deferred - State		2		(2	)
   			7		(11	)
   		$	68	$	58

      

   				2001			2000
   Reconciliation of effective income tax rate:
   	Income tax expense (benefit) on pre-tax income at statutory tax rate - 35%		$	60		$	51
   	State income taxes			9			6
   	Other			(1	)		1
   		Total income tax expense	$	68		$	58
   Effective income tax rate				39.8	%		39.8	%
   Taxes, Other Than Income:
   	Property taxes		$	14		$	13
   	Generation taxes			2			2
   			$	16		$	15

   Income tax expense and taxes, other than income were not significant in 1999.

4. Credit Arrangements and Financing Activities

   PPL Montana has a $100 million working capital credit facility which matures in November 2002. The maturity date may be extended with the consent of the lenders. This facility provides that up to $75 million of the commitment may be used to cause lenders to issue letters of credit. In the event that PPL Montana were to draw upon this facility and cause lenders to issue letters of credit on its behalf, PPL Montana would be required to reimburse the issuing lenders. At December 31, 2001, $44 million of loans were outstanding under this facility and $25 million of letters of credit were issued.

   The working capital facility provides that the interest rate, at the option of PPL Montana, may be based on either the LIBOR plus an Applicable Rate, or the adjusted base rate as defined in the agreement. The interest rate, as defined above, is separately fixed for the term of each advance. The weighted average interest rate on the working capital facility was 4.40% for the year ended December 31, 2001.

   In April 2001, PPL Montana executed a new credit facility to allow for incremental letter of credit capacity of $150 million. There were no amounts outstanding under this facility at December 31, 2001. PPL has executed a commitment to the lenders under PPL Montana's $150 million credit facility that PPL will provide (or cause PPL Energy Supply to provide) letters of credit at such times and in such amounts as are necessary to permit PPL Montana to remain in compliance with its fixed-price forward energy contracts or its derivative financial instruments entered into to manage energy price risks, to the extent that PPL Montana cannot provide such letters of credit under its existing credit agreements. No such letters of credit had been issued as of December 31, 2001.

   The credit facilities restrict the sale of assets and require that PPL Montana maintain certain financial ratios, related to, among other things, cash flow, additional indebtedness and net worth and restrict the sale of assets. PPL Montana was in compliance with these requirements as of December 31, 2001 and 2000 and for the years then ended.

5. Leases

   PPL Montana applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL Montana applies the provisions of numerous other accounting pronouncements that provide specific guidance and additional requirements related to accounting for leases.

   In July 2000, PPL Montana sold its interest in the Colstrip electric plant to owner lessors who are leasing the assets back to PPL Montana under four thirty-six year operating leases. The proceeds from this sale approximated $410 million. PPL Montana recorded a deferred gain on sale of approximately $8 million, which is being amortized into "Other operation and maintenance" in the Statement of Income over the term of the operating lease on a straight-line basis. PPL Montana used the sale proceeds to reduce outstanding debt and make distributions to its parent, PPL Generation.

   PPL Montana leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, through four non-cancelable operating leases. The 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 requires PPL Montana to maintain certain financial ratios related to cash flow and net worth. Rent expense charged to operations and maintenance expense has been recognized on a straight-line basis and was $21 million and $9 million for the years ended December 31, 2001 and 2000.

   PPL Montana leases a portion of a building under a non-cancelable operating lease, which expires in 2002. PPL Montana also leases operating equipment under various short-term leases.

   The future minimum lease payments under operating leases are as follows (millions of dollars):

   Year Ended
   December 31,
   	2002	$	49
   	2003		47
   	2004		44
   	2005		38
   	2006		38
   Thereafter			493
   		$	709

6. Stock-Based Compensation

   Certain officers and employees of PPL Montana participate in the Incentive Compensation Plan ("ICP") and Incentive Compensation Plan for Key Employees ("ICPKE") (together, the "Plans") of PPL. Under the Plans, restricted shares of common stock as well as stock options may be granted to officers and other key employees. Awards under the Plans are made in the common stock of PPL 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. Each Plan limits the number of shares available for awards to two percent of the common outstanding stock of PPL on the first day of each calendar year. The maximum number of options which can be awarded under each Plan to any single employee in any calendar year is 1.5 million shares. Any portion of these shares that has not been granted may be carried over and used in any subsequent year. If any award lapses or is forfeited or the rights to the participant terminate, any shares of common stock 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's common stock are outstanding shares with full voting and dividend rights. However, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death. Restricted shares vest fully if control of PPL changes, as defined by the Plans.

   Restricted stock awards of 1,630 and 25,308 shares, with per share weighted-average fair values of $45.09 and $24.45, were granted in 2001 and 2000. No awards were made at December 31, 1999. Compensation expense for 2001 and 2000 was not significant. At December 31, 2001, there were 2,580 restricted shares outstanding. These awards currently vest three years from the date of grant.

   Stock Options

   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. The CLC and CCGC have discretion to accelerate the exercisability of the options. All options expire no later than ten years from the grant date. The options become exercisable if control of PPL changes, as defined in the Plan.

   PPL Montana applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for stock options. Since stock options are granted at the then current market price, no compensation cost has been recognized. Compensation calculated in accordance with the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," was not significant.

   A summary of the stock option activity follows:

    

   		2001					2000
   		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
   Outstanding at beginning of year			100,420		$	21.79		30,240		$	26.85
   	Granted		5,860		$	43.16		73,180		$	19.91
   	Exercised							(3,000	)	$	26.85
   	Forfeited		(16,390	)	$	19.91
   	Transferred*		(68,170	)	$	22.68
   Outstanding Dec. 31			21,720		$	26.18		100,420		$	21.79

   *Represents employees transferred to other PPL affiliates.

   The weighted-average fair values of options at their grant date during 2001 and 2000 were $10.42 and $3.35. The estimated fair value of each option granted was calculated using a modified Black-Scholes option pricing model. The weighted average assumptions used in the model were as follows:

   	2001	2000
   Risk free interest rate	5.46%	6.74 %
   Expected option term	10 years	10 years
   Expected stock volatility	30.24%	19.79 %
   Dividend yield	4.28%	5.70 %

   Outstanding options had a weighted-average remaining life of 7.3 years at December 31, 2001.

7. Retirement and Postemployment Benefits

   Pension and Other Postretirement Benefits

   PPL Montana follows the guidance of SFAS 87, "Employers' Accounting for Pensions" and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" for these benefits.

   PPL Montana has a funded, noncontributory defined benefit pension plan covering substantially all employees. Funding is based upon actuarially determined computations that consider the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974.

   PPL Montana also provides supplemental retirement benefits to officers through unfunded nonqualified retirement plans. Substantially all employees will become eligible for certain health care and life insurance benefits upon retirement.

   In conjunction with the purchase of generation assets from Montana Power, PPL Montana recorded a liability for assumed pension and postretirement medical benefit obligations. No net periodic pension and postretirement benefit costs, actuarial gains, return on plan assets or contributions were recorded for the period from inception to December 31, 1999.

   Net pension and postretirement benefit costs were (millions of dollars):

   		Pension Benefits							Postretirement Medical Benefits
   			2001			2000				2001		2000
   Service cost		$	2		$	2		$		0.2	$	0.2
   Interest cost			3			2				0.3		0.2
   Expected return on plan assets			(2	)		(2	)
   	Net periodic pension and postretirement benefit cost	$	3		$	2		$		0.5	$	0.4

   The net periodic pension cost charged to operating expenses was $3 million in 2001 and $700,000 in 2000. Retiree health and benefit cost charged to operating expenses was $400,000 in 2001 and $300,000 in 2000.

   Postretirement medical costs at December 31, 2001 were based on the assumption that costs would decrease gradually from 7% in 2001 to 6% in 2006 and thereafter. A one percent increase in the assumed health care cost trend assumption would increase the service cost and interest cost by $27,000 and increase the postretirement benefit obligation by $234,000. A one percent decrease in the assumed health care cost trend assumption would decrease the service cost and interest cost by $24,000 and decrease the postretirement benefit obligation by $203,000.

   The following assumptions were used in the valuation of the benefit obligations:

   Pension Benefits
   	2001	2000	1999
   Discount rate	7.25%	7.5%	7.0%
   Expected return on plan assets	9.2%	9.2%	8.0%
   Rate of compensation increase	4.25%	4.75%	5.0%

   
   
   

   Postretirement Medical Benefits
   	2001	2000	1999
   Discount rate	7.25%	7.5%	7.0%
   Rate of compensation increase	4.25%	4.75%	5.0%

   The funded status of the combined plans was as follows (millions of dollars):

   		Pension Benefits							Postretirement Medical Benefits
   			2001			2000				2001		2000
   Change in Benefit Obligation
   Benefit Obligation, January 1		$	33		$	30		$		4	$	3
   	Service cost		2			1				1		1
   	Interest cost		3			2
   	Plan amendments		3			1
   	Actuarial gain		1			(1	)
   	Net transfer (out)		(1	)
   	Benefit Obligation, Dec. 31	$	41		$	33		$		5	$	4

   Change in Plan Assets
   Plan assets at fair value, January 1		$	28		$	24
   	Actual return on plan assets		(2	)		1
   	Contribution					3
   	Plan assets at fair value, Dec. 31	$	26		$	28		$			$
   Funded Status
   Funded status of plan		$	(15	)	$	(6	)	$	(5	)	$	(4	)
   Unrecognized net gain (loss)			6			1
   Unrecognized prior service cost			3			1
   	Liability recognized	$	(6	)	$	(4	)	$	(5	)	$	(4	)

   The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $41 million, $37 million, and $260,000 at December 31, 2001 and $1 million, $200,000 and $0, at December 31, 2000.

   Savings Plan

   Substantially all employees are eligible to participate in a 401(k) savings plan. PPL Montana contributed approximately $1 million to the 401(k) plan in both 2001 and 2000. The 1999 contribution was not significant.

8. Jointly-Owned Facilities

   PPL Montana is the operator of the jointly-owned coal-fired generating units comprising the Colstrip steam generation facility. At December 31, 2001 and 2000, PPL Montana has a 50% leasehold interest in Colstrip Units 1 and 2 and a 30% leasehold interest in Colstrip Unit 3 under an operating lease (see Note 5 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 in the Statements 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 $6 million and $7 million at December 31, 2001 and 2000.

   At December 31, 2001, Montana Power continues to own a 30% leasehold interest in Colstrip Unit 4. As part of the purchase of generation assets from Montana Power, PPL Montana and Montana Power entered into a reciprocal sharing agreement to govern each party's responsibilities regarding the operation of Colstrip Units 3 and 4, and 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.

9. Commitments and Contingent Liabilities

   PPL Montana is involved in numerous legal proceedings, claims and litigation in the ordinary course of business. PPL Montana cannot predict the ultimate outcome of such matters, or whether such matters may result in material liabilities.

   Wholesale Energy Commitments

   As part of the purchase of generation assets from Montana Power, PPL Montana agreed to supply electricity under two wholesale transition service agreements. In addition, PPL Montana assumed a power purchase agreement and another power sales agreement. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $118 million as the estimated fair value of the agreements at the acquisition date. This liability is being amortized over the agreement terms as an adjustment to "Wholesale energy marketing and trading" revenues and "Energy purchases," on the Statement of Income. The unamortized balance at December 31, 2001 was $78 million.

   PPL Montana had two transition agreements to supply wholesale electricity to Montana Power to serve its retail load not served by other providers or provided by Montana Power's remaining generation. One agreement provided for the sale of 200 MW from PPL Montana's leasehold interest in Colstrip Unit 3 until it expired in December 2001. The second agreement requires PPL Montana to supply Montana Power's actual remaining customer load. This second agreement will expire on the earlier of June 30, 2002 or when Montana Power's remaining customer load is zero.

   In October 2001, PPL announced that PPL EnergyPlus reached an agreement to supply Montana Power with an aggregate of 450 MW of energy to be supplied by PPL Montana. The delivery term of this new contract would be for five years beginning July 1, 2002, which is the day after the termination date of the last of the two existing transition agreements.

   Under the agreement, PPL EnergyPlus will supply 300 MW of around-the-clock electricity and 150 MW of on-peak electricity. In December 2001, the agreement was accepted for filing by the FERC. No further regulatory approvals are required under this agreement.

   Environmental Matters

   Air

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

   The Bush administration and certain members of Congress have made proposals regarding possible amendments to the Clean Air Act. These amendments could require significant further reductions in NO_x, SO₂, and mercury and could possibly require measures to limit CO₂.

   The EPA has also developed new standards for ambient levels of ozone and fine particulates in the U.S. These standards were challenged and remanded to the EPA by the D.C. Circuit Court of Appeals in 1999. However, on appeal to the United States Supreme Court, the D. C. Circuit Court's decision was reversed in part and remanded to the D. C. Circuit Court. The new particulates standard, if finalized, may require further reductions in SO₂for certain PPL Energy Supply subsidiaries and year-round NO_x reductions commencing in 2010-2012 at SIP-call levels in Pennsylvania, and at slightly less stringent levels in Montana. The revised ozone standard, if finalized, is not expected to have a material effect on facilities of PPL Montana.

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

   In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation and commenced enforcement activities against other utilities. Although the EPA has threatened to continue expanding its enforcement actions, the future direction of the "New Source" requirements is presently unclear. The EPA's regional offices that regulate PPL Montana's generation plants have indicated an intention to issue information requests to all utilities in its jurisdiction and have issued such a request to PPL Montana related to the J.E. Corette Steam Electric Station. PPL Montana has responded to the information request. PPL Montana cannot presently predict what, if any, action the EPA might take following PPL Montana's responses to such information requests. Should the EPA or any state initiate one or more enforcement actions against PPL Montana, compliance with any such enforcement actions could result in additional capital and operating expenses in amounts which are not now determinable, but which could be significant.

   The EPA is also proposing to revise its regulations in a way that will require power plants to meet "New Source" performance standards and/or undergo "New Source" review for many maintenance and repair activities that are currently exempt.

   Water/Waste

   The EPA has significantly lowered the water quality standard for arsenic. The lowered standard may require PPL Montana to further treat wastewater and/or take abatement action at its power plants, the cost of which is not now determinable but could be significant.

   The EPA recently finalized requirements for new or modified water intake structures. These requirements will affect where generating facilities are built, will establish intake design standards, and could lead to requirements for cooling towers at new and modified power plants. Another new rule, expected to be finalized in 2003, will address existing structures. Each of these rules could impose costs on PPL Montana which are not now determinable but which could be significant.

   Remediation

   In conjunction with its divestiture, Montana Power prepared a Phase I and Phase II Environmental Site Assessment. The assessment identifies approximately $7 million of future capital expenditures through the year 2020 related to various groundwater remediation issues. Additional capital expenditures could be required in amounts which are not now determinable, but which could be material.

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

   General

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

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

   Credit Support

   PPL guaranteed certain obligations under power purchases and sales agreements of PPL Montana for up to $138 million. As of December 31, 2001, there were no guarantees outstanding under the power purchase and sales agreements.

   Source of Labor Supply

   As of December 31, 2001, PPL Montana had 485 full-time employees. Approximately 65% of the PPL Montana employees are represented by IBEW locals, and 2% are represented by the Teamsters. In 2001, PPL Montana reached a new three-year contract with the employees represented by IBEW Local 1638 and reached a new four-year contract with IBEW Local 44. PPL Montana is currently negotiating with the Teamsters for a new employment agreement.

   MPSC Order

   In June 2001, the MPSC issued an order (MPSC Order) in which it found that Montana Power must continue to provide electric service to its customers at tariffed rates until its transition plan under the Montana Electricity Utility Industry Restructuring and Customer Choice Act is finally approved, and that purchasers of generating assets from Montana Power must provide electricity to meet Montana Power's full load requirements at prices to Montana Power that reflect costs calculated as if the generation assets had not been sold. PPL Montana purchased Montana Power's interests in two coal-fired plants and eleven hydroelectric units in 1999.

   In July 2001, PPL Montana filed a complaint against the MPSC with the U.S. District Court in Helena, Montana, challenging the MPSC Order. In its complaint, PPL Montana asserted, among other things, that the Federal Power Act preempts states from exercising regulatory authority over the sale of electricity in wholesale markets, and requested the court to declare the MPSC action preempted, unconstitutional and void. In addition, the complaint requested that the MPSC be enjoined from seeking to exercise any authority, control or regulation of wholesale sales from PPL Montana's generating assets.

   At this time, PPL Montana cannot predict the outcome of the proceedings related to the MPSC Order, what actions the MPSC, the Montana Legislature or any other governmental authority may take on these or related matters, or the ultimate impact on PPL Montana of any of these 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 unnamed advisors and consultants of Montana Power, and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to, and participated in, a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. PPL Montana is unable to predict the outcome of this matter.

   Employee Litigation

   In April 2000, three employees at PPL Montana's Colstrip facility were severely burned when an equipment fault in Colstrip Unit 1 caused electrical arcing. In May 2000, the injured employees and their spouses filed litigation for their injuries in Montana district court against Montana Power. PPL Montana was subsequently named as a party defendant to the pending litigation and a mediation conference has been scheduled for May 2002. A trial has been scheduled for June 2002. At this time, PPL Montana cannot predict the ultimate outcome of these proceedings.

   Energy Supply to Energy West Resources, Inc.

   In July 2001, PPL Montana filed an action in state court and a responsive pleading in federal court, both related to a breach of contract by Energy West Resources, Inc. (Energy West), a Great Falls, Montana-based energy aggregator. PPL Montana is seeking a judgment that Energy West violated the terms of the contract under which it supplies energy to Energy West and should pay damages of at least $7.5 million. All litigation in this matter has been consolidated in the U. S. District Court for the District of Montana, Great Falls Division, and is proceeding in that forum. PPL Montana cannot predict the ultimate outcome of these proceedings.

10. Related Party Transactions

    PPL has interests in other entities with which PPL Montana has transactions. Although transactions with these entities cannot be presumed to be at arms length, it is the intention of the parties and PPL Montana that these transactions be conducted at terms comparable to those available with third parties.

    PPL Montana has executed a brokering and contract management agreement with PPL EnergyPlus. The agreement authorizes PPL EnergyPlus to act as exclusive agent in managing PPL Montana's wholesale energy supply and energy and capacity purchase contracts. The agreement also grants PPL EnergyPlus express authority and responsibility for managing the sale of energy in excess of wholesale contract commitments. PPL Montana retains title to all energy that is sold into the wholesale market. PPL Montana must pay PPL EnergyPlus a fee to cover its annual operating expenses related to its responsibilities under the brokering and contract management agreement. The total amount paid to PPL EnergyPlus was $5 million for both years ended December 31, 2001 and 2000 and is included in "Other operations and maintenance" on the Statement of Income. The amounts due to PPL EnergyPlus at December 31, 2001 and 2000 were $500,000 and $400,000, and are included in "Accounts receivable from affiliated companies" on the Balance Sheet.

    PPL Montana has a memorandum of understanding ("MOU") with PPL EnergyPlus regarding the supply of energy to satisfy PPL EnergyPlus' obligations under its retail contracts. The MOU was effective through December 31, 2001. PPL Montana has renewed the MOU with substantially the same terms. The MOU provides that PPL Montana will provide the energy necessary for PPL EnergyPlus to supply energy services to its customers, taking into account PPL Montana's energy commitments to third parties under wholesale supply agreements. PPL EnergyPlus will take title to the energy and has the sole authority to sell the energy and assumes all customer credit risks.

    The MOU provides for two different pricing mechanisms, dependent upon the underlying PPL EnergyPlus retail contract structure. If PPL EnergyPlus sells power at a fixed price during the contract term, PPL Montana will supply energy to PPL EnergyPlus for the term of the contact at the Mid-Columbia forward price agreed upon by PPL Montana and PPL EnergyPlus at the date the contract is executed. If PPL EnergyPlus enters into a floating price agreement, PPL Montana will supply energy to PPL EnergyPlus for the term of the contract at a floating price. The floating price PPL EnergyPlus will pay will be the Mid-Columbia forward price plus $1.00 per MWh. If PPL EnergyPlus enters into a retail contract to sell energy at a price that is structured with both fixed and floating components, the pricing will use a combination of the above mechanisms. Total energy sales to PPL EnergyPlus were $80 million and $33 million for the years ended December 31, 2001 and 2000 and are included in "Wholesale energy marketing and trading" revenues on the Statement of Income. The amount due from PPL EnergyPlus was $4 million and $13 million at December 31, 2001 and 2000, and is included on the balance sheet. There were no sales to PPL EnergyPlus under the MOU for the period from inception to December 31, 1999.

    PPL has guaranteed certain obligations of PPL Montana for up to $20 million under power purchase and sales agreements at December 31, 2000. There were no guarantees at December 31, 2001.

    Corporate functions such as financial, legal, human resources and information services were transferred to PPL Services in the corporate realignment. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that are not directly charged to PPL subsidiaries is allocated to certain of the subsidiaries based on the relative capital invested by PPL in these subsidiaries. PPL Services charged PPL Montana approximately $7 million for direct expenses and $3 million for overhead costs in 2001. Similar charges totaled approximately $4 million in 2000.

11. New Accounting Standards

    SFAS 141

    In June 2001, the FASB issued SFAS 141, "Business Combinations," which eliminates the pooling-of-interest method of accounting for business combinations and requires the use of the purchase method. In addition, SFAS 141 requires the reassessment of intangible assets to determine if they are appropriately classified either separately or within goodwill. SFAS 141 is effective for business combinations initiated after June 30, 2001. PPL Montana adopted SFAS 141 on July 1, 2001, with no material impact on the financial statements.

    SFAS 142

    In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL Montana adopted SFAS 142 on January 1, 2002, with no material impact on the financial statements.

    SFAS 143

    In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," on the accounting for obligations associated with the retirement of long-lived assets. SFAS 143 requires a liability to be recognized in the financial statements for retirement obligations meeting specific criteria. Measurement of the initial obligation is to approximate fair value, with an equivalent amount recorded as an increase in the value of the capitalized asset. The asset will be depreciated in accordance with normal depreciation policy and the liability will be increased, with a charge to the income statement, until the obligation is settled. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The potential impact of adopting SFAS 143 is not yet determinable, but may be material.

    SFAS 144

    In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss only if the carrying amount is not recoverable from undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. For long-lived assets to be disposed of, SFAS 144 establishes a single accounting model based on the framework established in SFAS 121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. SFAS 144 also broadens the reporting of discontinued operations. PPL Montana adopted SFAS 144 on January 1, 2002, with no material impact on the financial statements.

12. Derivative Instruments and Hedging Activities

    PPL Montana adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. Upon adoption and in accordance with the transition provisions of SFAS 133, PPL Montana had no recorded cumulative-effect adjustment in earnings. PPL Montana recorded a cumulative-effect charge of $156 million in "Accumulated other comprehensive income," a component of Member's Equity. As of December 31, 2001, the balance in Member's Equity related to unrealized gains and losses on qualifying derivatives was a net gain of $33 million, as a result of the reclassifying part of the transition adjustment into earnings and changes in market prices.

    Management of Market Risk Exposures

    PPL Montana's primary market risk exposures are associated with commodity prices. PPL Montana actively manages the market risk inherent in its commodity positions. The Board of Managers of PPL Montana has adopted a risk management policy to manage the risk exposures related to energy prices. This policy monitors and assists in controlling market risk and use of derivative instruments to manage some associated commodity activities.

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

    PPL Montana utilizes financial and physical contracts as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price volatility. All derivatives are recognized on the balance sheet at their fair value, unless they meet SFAS 133's criteria for exclusion.

    Fair Value Hedges

    PPL Montana enters into financial contracts to hedge a portion of the fair value of firm commitments of forward electricity sales. These contracts range in maturity through 2003. For the twelve months ended December 31, 2001, PPL Montana did not recognize any gains or losses resulting from the ineffective portion of fair value hedges or from firm commitments that no longer qualified as fair value hedge items.

    Cash Flow Hedges

    PPL Montana enters into financial swap contracts to hedge the price risk associated with electric commodities. These contracts range in maturity through 2006.

    As a result of changes in economic conditions, PPL Montana discontinued hedge accounting for certain cash flow hedges which resulted in a net gain of $7 million for the twelve months ended December 31, 2001 (reported in "Wholesale energy marketing and trading" revenues on the Statement of Income). The impact on the financial statements resulting from cash flow hedge ineffectiveness for the twelve months ended December 31, 2001 was immaterial.

    As of December 31, 2001, the net unrealized gain on derivative instruments in "Accumulated other comprehensive income" expected to be reclassified into earnings during the next twelve months was $11 million.

    Unrealized Gains/Losses on Qualifying Derivatives
    (Millions of Dollars)
    (After-tax)

    		December 31, 2001
    Cumulative unrealized gain on qualifying derivatives, beginning of period:			$	0
    Unrealized gains (losses) arising during period:
    	Cumulative effect of change in accounting principle at January 1, 2001			(156	)
    	Net reclassification into earnings			7
    	Net change associated with current period hedging transactions			182
    Unrealized gain on qualifying derivatives				33
    Cumulative unrealized gain on qualifying derivatives, end of period			$	33

    Credit Concentration

    PPL Montana enters into contracts with many entities for the purchase and sale of energy. Most of these contracts are considered a normal part of doing business and as such the mark-to-market value of these contracts is not reflected in the financial statements. However, the mark-to-market value of these contracts is considered when committing to new business from a credit perspective. At year-end, PPL Montana had a credit exposure of $271 million to energy trading partners. The majority of this amount was the mark-to-market value of multi-year contracts for energy sales. Therefore, if the counterparties fail to perform their obligations, PPL Montana would not experience an immediate financial loss, but would experience lower revenues in future years to the extent that replacement sales could not be made at the same prices as the defaulted contracts. Of the $271 million, three counterparties account for 95% of the exposure. No other individual counterparty accounted for more than 2% of the exposure. Each of the three primary counterparties has at least a BBB+ credit rating. PPL Montana has the right to request collateral from each of these counterparties in the event their credit rating falls below investment grade. It is also PPL Montana's policy to enter into netting agreements with each of its counterparties to minimize credit exposure.

13. Sales to California Independent System Operator and to Other Pacific Northwest Purchasers

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

    Litigation arising out of the California electricity supply situation has been filed at the FERC and in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these proceedings allege abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, and seek price caps on wholesale sales in California and other western power markets, refunds of excess profits allegedly earned on these sales of energy, and other relief, including treble damages and attorneys fees. PPL Montana has intervened in the FERC proceedings in order to protect its interests, but has not been named as a defendant in any of the court actions alleging abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws among other things. PPL Montana has been named as a defendant in a declaratory judgment action initiated by the State of California to prevent certain members of the California Power Exchange from seeking compensation for the State's seizure of certain energy contracts. PPL Montana is a member of the California Power Exchange, but it has no energy contracts with or through the California Power Exchange and has not sought compensation in connection with the State's seizure.

    Attorneys general in several western states, including California, have begun investigations related to the electricity supply situation in California and other western states. The FERC has determined that all sellers of energy in the California markets, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001 and has initiated an evidentiary hearing concerning refund amounts. The FERC also is considering whether to order refunds for sales made in the Pacific Northwest, including sales made by PPL Montana. The FERC Administrative Law Judge assigned to this proceeding has recommended that no refunds be ordered for sales into the Pacific Northwest. The FERC presently is considering this recommendation. PPL Montana cannot predict whether or the extent to which it will be the target of any governmental investigation or named in these lawsuits, refund proceedings or other lawsuits, the outcome of any such proceedings or whether the ultimate impact on PPL Montana of the electricity supply situation in California and other western states will be material.

14. Regulatory Issues

    PPL Montana has eleven hydroelectric facilities and one storage reservoir licensed by the FERC pursuant to the Federal Power Act under long-term licenses which expire on varying dates from 2009 through 2040. Pursuant to Section 8(e) of the Federal Power Act, the FERC approved the transfer from Montana Power of all pertinent licenses and any amendments thereto, for the ownership and operation of these facilities purchased by PPL Montana.

    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 habitat. The implementation will require payments totaling approximately $6 million between 2002 to 2020. Additionally, PPL Montana is required to make annual payments to the Confederated Salish and Kootenai Tribes for the use of the property the Kerr Dam occupies. PPL Montana expensed approximately $15 million and $14 million for the years ended December 31, 2001 and 2000 and $534,000 for the period from inception through December 31, 1999.

    PPL Montana is 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. The operations of its generating facilities are subject to the Occupational Safety and Health Act of 1970 and comparable state statutes. In addition, PPL Montana is subject to the jurisdiction of the NRC in connection with the operation by its coal plants of certain level and density monitoring devices. Management believes at this time that it is operating in accordance with the laws and regulations of the various agencies and there are no current actions which will have a material effect on its business, financial condition or results of operations.

15. Pending Transactions

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

    The Montana Power APA, previously assigned to PPL Montana by PPL Global, provided if neither the PSE or PGE acquisitions are consummated, PPL Montana is required to purchase a portion of Montana Power's interest in the 500-kilovolt Colstrip Transmission System ("CTS") for $97 million, for which regulatory approval has been received. PPL Montana is currently in discussions with Montana Power to pursue alternatives to acquiring this entire interest in the CTS as contemplated by the APA. These discussions are ongoing; therefore, PPL Montana cannot predict whether it will buy all or less than all of Montana Power's entire interest in the CTS, or what the purchase price will be if a purchase occurs.

16. Proposed Montana Hydroelectric Initiative

    In January 2002, the Montana Secretary of State certified, in accordance with applicable statutes, that it had approved the form of a proposed Montana "Hydroelectric Security Act" initiative. The proposed initiative may be placed on the November 2002 statewide ballot if sufficient signatures are obtained prior to June 21, 2002. Among the stated purposes of the proposed initiative is to create an elected Montana public power commission to determine whether purchasing hydroelectric dams in Montana is in the public interest. Such commission could decide whether to acquire PPL Montana's hydroelectric dams either pursuant to a negotiated purchase or an acquisition at fair market value through the power of condemnation. At this time, PPL Montana cannot predict whether the proposed initiative, will garner enough signatures for placement on the November 2002 statewide ballot, whether there will be a successful legal challenge to the initiative whether it would pass if on the ballot or what impact, if any, the measure might ultimately have upon PPL Montana or its hydroelectric operations. PPL Montana has declared its opposition to, and intends to vigorously oppose, the initiative.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

PPL Montana, LLC

(Millions of Dollars)

Column A

Column B

Column C

Column D

Column E

Balance at Beginning of Period

Additions

Balance at End of Period

Charged to Income

Description

Other

Deductions

Year Ended December 31, 2001

Reserves deducted from assets in    the Balance Sheet

Uncollectible accounts

$

18

$

30

$

1

$

47

(a)

Obsolete inventory - Materials    and supplies

2

1

1

Mark-to-market valuation reserves

1

1

Year Ended December 31, 2000

Reserves deducted from assets in    the Balance Sheet

Uncollectible accounts

18

18

Obsolete inventory - Materials    and supplies

2

2

a) Includes reserves for customer accounts receivable, California ISO, the Enron bankruptcy and other.

ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

Item 11 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 12 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Item 13 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:
	1. Financial Statements - included in response to Item 8.
		PPL Corporation
			Report of Independent Accountants
			Consolidated Statement of Income for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statement of Cash Flows for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Balance Sheet at December 31, 2001 and 2000
			Consolidated Statement of Shareowners' Common Equity and Comprehensive Income
				for each of the Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statement of Preferred Stock at December 31, 2001 and 2000
			Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at
				December 31, 2001 and 2000
			Consolidated Statement of Long-Term Debt at December 31, 2001 and 2000
			Notes to Consolidated Financial Statements
		PPL Energy Supply, LLC
			Report of Independent Accountants
			Consolidated Statement of Income for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statement of Cash Flows for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Balance Sheet at December 31, 2001 and 2000
			Consolidated Statement of Member's Equity and Comprehensive Income
				for each of the Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statement of Long-Term Debt at December 31, 2001 and 2000
			Notes to Consolidated Financial Statements
		PPL Electric Utilities Corporation
			Report of Independent Accountants
			Consolidated Statement of Income for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statement of Cash Flows for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Balance Sheet at December 31, 2001 and 2000
			Consolidated Statement of Shareowner's Common Equity and Comprehensive Income
				for each of the Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statement of Preferred Stock at December 31, 2001 and 2000
			Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at
				December 31, 2001 and 2000
			Consolidated Statement of Long-Term Debt at December 31, 2001 and 2000
			Notes to Consolidated Financial Statements

		PPL Montana, LLC
			Report of Independent Accountants
			Consolidated Statement of Income for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statement of Cash Flows for each of the
				Three Years Ended December 31, 2001, 2000 and 1999
			Consolidated Balance Sheet at December 31, 2001 and 2000
			Consolidated Statement of Member's Equity and Comprehensive Income
				for each of the Three Years Ended December 31, 2001, 2000 and 1999
			Notes to Consolidated Financial Statements
	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, 2001
		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
		Exhibit Index on page 184.
(b) Reports on Form 8-K:
	The following Reports on Form 8-K were filed during the three months ended December 31, 2001:
	Report dated October 1, 2001 - PPL Montana
	Item 5. Other Events
		Announced the appointments of Roger Petersen to President of PPL Global and James H. Miller to President of PPL Montana.
	Report dated October 15, 2001 - PPL and PPL Montana
	Item 5. Other Events
		Press release dated October 16, 2001 regarding an agreement to supply 450 MW of electricity to Montana Power over a five-year period beginning July 1, 2002.
	Item 7. Exhibits
		Press release dated October 16, 2001 regarding an agreement to supply 450 MW of electricity to Montana Power over a five-year period beginning July 1, 2002.
	Report dated October 24, 2001 - PPL
	Item 5. Other Events
		Press release dated October 24, 2001 regarding PPL's third quarter earnings and forecasted earnings for 2001 and 2002.
	Item 7. Exhibits
		Press release dated October 24, 2001 regarding PPL's third quarter earnings and forecasted earnings for 2001 and 2002.

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 2002 meeting for PPL Corporation will be held on Friday, April 26, 2002, at Lehigh University's Stabler Arena, at the Goodman Campus Complex located in Lower Saucon Township, outside Bethlehem, Pennsylvania. The 2002 meeting for PPL Electric will be held Monday, April 22, 2002 at the Clarion Hotel, 9th & Hamilton Streets, Allentown, Pennsylvania.

Proxy and Information Statement Material: A proxy statement and information statement and notice of PPL's and PPL Electric's annual meetings are mailed to all shareowners of record as of February 28, 2002.

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 2002 record dates for dividends are expected to be March 8, June 10, September 10, and December 10.

Direct Deposit of Dividends: Shareowners may choose to have their dividend checks deposited directly into their checking or savings account. Quarterly dividend payments are electronically credited on the dividend date, or the first business day thereafter.

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: Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to PPL for safekeeping.

Lost Dividend or Interest Checks: Dividend or interest 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.

Transfer of Stock or Bonds: Stock or bonds may be transferred from one name to another or to a new account in the name of another person. Please contact Investor Services regarding transfer instructions.

Bondholder Information: Much of the information and many of the procedures detailed here for shareowners also apply to bondholders. Questions related to bondholder accounts should be directed to Investor Services.

Lost Stock or Bond Certificates: Please contact Investor Services for an explanation of the procedure to replace lost stock or bond certificates.

PPL Annual Report: Published and mailed in mid-March to all shareowners of record.

Shareowner News: An easy-to-read newsletter containing current items of interest to shareowners -- published and mailed at the beginning of each quarter.

Periodic Mailings: Letters regarding new investor programs, special items of interest, or other pertinent information are mailed on a non-scheduled basis as necessary.

Duplicate Mailings: The annual report and other investor publications are mailed to each investor account. If you have more than one account, or if there is more than one investor in your household, you may contact Investor Services to request that only one publication be delivered to your address. Please provide account numbers for all duplicate mailings.

Shareowner Information Line: Shareowners can get detailed corporate and financial information 24 hours a day using the 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.

The toll-free Shareowner Information Line is 1-800-345-3085.

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.

Shareowners can also obtain information from PPL's Internet home page (www.pplweb.com). Shareowners can access PPL Securities and Exchange Commission filings, stock quotes and historical performance. Visitors to our website can provide their E-mail address and indicate their desire to receive future earnings or news releases automatically.

Investor Services: For any questions you have or additional information you require about PPL and its subsidiaries, please call the Shareowner Information Line, or write to:

Manager-Investor Services
PPL Corporation
Two North Ninth Street
Allentown, PA 18101

Internet Access: For updated information throughout the year, check out our home page at http://www.pplweb.com. You may also contact Investor Services via E-mail at invserv@pplweb.com.

Registered shareowners can access account information by visiting shareowneronline.com.

Listed Securities:	Fiscal Agents:
New York Stock Exchange	Stock Transfer Agents and
	Registrars
PPL Corporation:	Wells Fargo Bank Minnesota, N.A.
Common Stock (Code: PPL)	Shareowner Services
	161 North Concord Exchange
PPL Electric Utilities Corporation:	South St. Paul, MN 55075-1139
4-1/2% Preferred Stock
(Code: PPLPRB)	PPL Services Corporation
4.40% Series Preferred Stock	Investor Services Department
(Code: PPLPRA)
	Dividend Disbursing Office and
PPL Capital Trust:	Dividend Reinvestment Plan Agent
8.20% Preferred Securities	PPL Services Corporation
(Code: PPLPRC)	Investor Services Department
PPL Capital Trust II:	Mortgage Bond Trustee
8.10% Preferred Securities	Bankers Trust Co.
(Code: PPLPRD)	Attn: Security Transfer Unit
	P.O. Box 291569
PPL Capital Funding Trust I:	Nashville, TN 37229
7.75% PEPSSM Units
(Code: PPLPRE)	Indenture Trustee
	JPMorgan Chase Bank
Philadelphia Stock Exchange	450 West 33rd Street
	New York, NY 10001
PPL Corporation:
Common Stock	Bond Interest Paying Agent
	PPL Electric Utilities Corporation
PPL Electric Utilities Corporation	Investor Services Department
4-1/2% Preferred Stock
3.35% Series Preferred Stock
4.40% Series Preferred Stock
4.60% Series Preferred Stock

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, President
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
William F. Hecht -		Director
Chairman, President
and Chief Executive
Officer
By /s/ John R. Biggar		Principal Financial Officer and
John R. Biggar -		Director
Executive Vice President
and Chief Financial Officer
By /s/ Joseph J. McCabe		Principal Accounting Officer
Joseph J. McCabe -
Vice President and
Controller
Frederick M. Bernthal	Stuart Heydt	Directors
John W. Conway	W. Keith Smith
E. Allen Deaver	Susan M. Stalnecker
William J. Flood
By /s/ John R. Biggar
John R. Biggar, Attorney-in-fact        Date: March 1, 2002

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
William F. Hecht -		Principal Executive Officer and Manager
President
By /s/ James E. Abel		Principal Financial Officer and
James E. Abel -		Manager
Treasurer
By /s/ Joseph J. McCabe		Principal Accounting Officer
Joseph J. McCabe -		and Manager
Controller
Managers:
/s/ William F. Hecht	/s/ James E. Abel	/s/ Robert J. Grey
William F. Hecht	James E. Abel	Robert J. Grey
/s/ John R. Biggar	/s/ Lawrence E. De Simone	/s/ Joseph J. McCabe
John R. Biggar	Lawrence E. De Simone	Joseph J. McCabe
Date: March 1, 2002

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/ Michael E. Bray

Michael E. Bray -

Vice Chairman and 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/ Michael E. Bray
Michael E. Bray -		Principal Executive Officer and Director
Vice Chairman and President
By /s/ James E. Abel		Principal Financial
James E. Abel -		Officer
Treasurer
By /s/Joseph J. McCabe		Principal Accounting
Joseph J. McCabe -		Officer
Vice President and Controller
Directors:
/s/ William F. Hecht	/s/ Paul T. Champagne	/s/ Robert J. Grey
William F. Hecht	Paul T. Champagne	Robert J. Grey
/s/ John R. Biggar	/s/ Dean A. Christiansen	/s/ James H. Miller
John R. Biggar	Dean A. Christiansen	James H. Miller
/s/ Michael E. Bray	/s/ Lawrence E. De Simone	/s/ Roger L. Petersen
Michael E. Bray	Lawrence E. De Simone	Roger L. Petersen
Date: March 1, 2002

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 Montana, LLC

(Registrant)

By /s/ James H. Miller

James H. Miller -

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/ James H. Miller
James H. Miller -		Principal Executive Officer and Manager
President
By /s/ James E. Abel		Principal Financial Officer and
James E. Abel -		Manager
Treasurer
By /s/ Craig D. Bartholomew		Principal Accounting Officer
Craig D. Bartholomew -
Controller
Managers:
/s/ James H. Miller	/s/ Albert J. Fioravanti
James H. Miller	Albert J. Fioravanti
/s/ James E. Abel	/s/ Bradley E. Spencer
James E. Abel	Bradley E. Spencer
Date: March 1, 2002

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	-	Articles of Incorporation of PPL Corporation (Exhibit B to Proxy Statement of PPL Electric Utilities Corporation and Prospectus of PPL Corporation, dated March 9, 1995)
3(a)-2	-	Articles of Amendment of PPL Corporation (Exhibit 3.2 to PPL Corporation Form S-3 (Registration Statement Nos. 333-54504, 333-54504-01 and 333-54504-02))
*3(a)-3	-	Amended and Restated Articles of Incorporation of PPL Electric Utilities Corporation
3(a)-4	-	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(a)-5	-	Certificate of Formation of PPL Montana, LLC (Exhibit 3.1 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
3(b)-1	-	Bylaws of PPL Corporation (Exhibit 3(ii)(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 1998)
*3(b)-2	-	Bylaws of PPL Electric Utilities Corporation
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))
3(b)-4	-	Limited Liability Company Agreement and Bylaws of PPL Montana, LLC, effective as of December 17, 1999 (Exhibit 3.2 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
4(a)-1	-	Amended and Restated Employee Stock Ownership Plan, effective January 1, 2000 (Exhibit 4(a) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
*4(a)-2	-	Amendment No. 1 to said Employee Stock Ownership Plan, effective January 1, 2001
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 July 1, 1991, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated July 29, 1991)
4(b)-4	-	Supplement, dated as of May 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated June 1, 1992)
4(b)-5	-	Supplement, dated as of November 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(b)-29 to PPL Electric Utilities Corporation Form 10-K Report (File 1-905) for the year ended December 31, 1992)
4(b)-6	-	Supplement, dated as of February 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated February 16, 1993)
4(b)-7	-	Supplement, dated as of April 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated April 30, 1993)
4(b)-8	-	Supplement, dated as of October 1, 1993, 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 29, 1993)
4(b)-9	-	Supplement, dated as of February 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 11, 1994)
4(b)-10	-	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)-11	-	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)-12	-	Supplement, dated as of September 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K (File No. 1-905) dated October 3, 1994)
4(b)-13	-	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)-14	-	Supplement, dated as of August 1, 1995, to said Mortgage and Deed of Trust (Exhibit 6(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1995)
4(b)-15	-	Supplement, dated as of April 1, 1997 to said Mortgage and Deed of Trust (Exhibit 4(b)-17 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1997)
4(b)-16	-	Supplement, dated as of May 5, 1998, to said Mortgage and Deed of Trust (Exhibit 4.3 to PPL Electric Utilities Corporation Form 8-K Report (File No. I-905) dated May 1, 1998)
4(b)-17	-	Supplement, dated as of June 1, 1999, 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, 1999)
4(b)-18	-	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)-19	-	Supplement, dated as of January 1, 2002, to said Mortgage and Deed of Trust
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(d)-1	-	Junior Subordinated Indenture, dated as of April 1, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to Registration Statement No. 333-20661)
4(d)-2	-	Amended and Restated Trust Agreement, dated as of April 8, 1997, among PPL Electric Utilities Corporation, JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-20661)
4(d)-3	-	Guarantee Agreement, dated as of April 8, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.6 to Registration Statement No. 333-20661)
4(e)-1	-	Amended and Restated Trust Agreement, dated as of June 13, 1997, among PPL Electric Utilities Corporation, JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-27773)
4(e)-2	-	Guarantee Agreement, dated as of June 13, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.6 to Registration Statement No. 333-27773)
4(f)-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(f)-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(f)-3	-	Trust Securities Guarantee Agreement, dated as of May 9, 2001 (Exhibit 4.10 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(f)-4	-	Amended and Restated Trust Agreement, dated as of May 9, 2001, among PPL Corporation, PPL Capital Funding, Inc., JPMorgan Chase Bank (formerly The Chase Manhattan Bank) as Property Trustee, Chase Manhattan Bank USA National Association, as Delaware Trustee, John R. Biggar and James E., Abel, as Administrative Trustees, and the several Holders of the Trust Securities (Exhibit 4.8 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(g)-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(g)-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(h)-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(h)-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(h)-3	-	Registration Rights Agreement 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))
10(a)	-	$600 million 364-Day Credit Agreement, dated as of June 26, 2001, among PPL Energy Supply, LLC, PPL Corporation and the banks named therein (Exhibit 10(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2001)
10(b)	-	$500 million Three-Year Credit Agreement, dated of as June 26, 2001, among PPL Energy Supply, LLC, PPL Corporation and the banks named therein (Exhibit 10(b) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2001)
10(c)	-	$400 million 364-Day Credit Agreement, dated as of June 26, 2001, among PPL Electric Utilities Corporation and the banks named therein (Exhibit 10(c) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2001)
10(d)	-	Credit Agreement dated as of November 16, 1999, among PPL Montana, LLC and the banks named therein (Exhibit 10.8 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
10(e)	-	$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(f)	-	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(g)	-	Master Power Purchase and Sale Agreement, dated as of October 15, 2001, between The Montana Power Company and PPL Montana, LLC
*10(h)	-	Amended and Restated Parent Guaranty, dated as of November 30, 2000, by PPL Corporation in favor of Large Scale Distributed Generation Statutory Trust
10(i)	-	Amended and Restated PPL Energy Supply, LLC Guarantee, dated as of July 17, 2001, in favor of Large Scale Distributed Generation II Statutory Trust (Exhibit 10.6 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
*10(j)	-	Guaranty, dated as of December 21, 2001, from PPL Energy Supply, LLC in favor of LMB Funding, Limited Partnership
10(k)	-	Pollution Control Facilities 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(l)	-	Amended and Restated Operating Agreement of the PJM Interconnection, L.L.C., dated February 6, 2002.
[_]10(m)	-	Amended and Restated Directors Deferred Compensation Plan, effective February 14, 2000 (Exhibit 10(h) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
[_]10(n)-1	-	Amended and Restated Officers Deferred Compensation Plan, effective February 14, 2000 (Exhibit 10(i)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
[_]10(n)-2	-	Amendment No. 1 to said Officers Deferred Compensation Plan, effective July 1, 2000 (Exhibit 10(i)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
[_]10(n)-3	-	Amendment No. 2 to said Officers Deferred Compensation Plan, effective July 1, 2000 (Exhibit 10(i)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
*[_]10(n)-4	-	Amendment No. 3 to said Officers Deferred Compensation Plan, effective January 1, 2001
*[_]10(n)-5	-	Amendment No. 4 to said Officers Deferred Compensation Plan, effective August 17, 2001
[_]10(o)-1	-	Amended and Restated Supplemental Executive Retirement Plan, effective October 1, 1999 (Exhibit 10(j)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
[_]10(o)-2	-	Amendment No. 1 to said Supplemental Executive Retirement Plan, effective July 1, 2000 (Exhibit 10(j)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
*[_]10(o)-3	-	Amendment No. 2 to said Supplemental Executive Retirement Plan, effective January 1, 2001
*[_]10(o)-4	-	Amendment No. 3 to said Supplemental Executive Retirement Plan, effective August 17, 2001
[_]10(p)-1	-	Amended and Restated Incentive Compensation Plan, effective February 14, 2000 (Exhibit 10(k) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
*[_]10(p)-2	-	Amendment No. 1 to said Incentive Compensation Plan, effective January 1, 2001
[_]10(q)	-	Short-Term Incentive Plan (Schedule B to Proxy Statement of PPL Corporation, dated March 12, 1999)
*[_]10(r)	-	Form of Severance Agreement entered into between PPL Corporation and the Executive Officers listed in this Form 10-K Report
*[_]10(s)	-	Form for Retention Agreement entered into between PPL Corporation and Messrs. Champagne, De Simone, Miller and Petersen
10(t)	-	Equity Contribution Agreement, among PPL Corporation, PPL Montana, LLC, and The Chase Manhattan Bank, as Trustee (Exhibit 10.15 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
10(u)	-	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(v)	-	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(w)	-	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))
*12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*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 Fixed Charges
*12(d)	-	PPL Montana, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*18a	-	Letter of PricewaterhouseCoopers LLP - PPL Corporation
*18b	-	Letter of PricewaterhouseCoopers LLP - PPL Energy Supply, LLC
*18c	-	Letter of PricewaterhouseCoopers LLP - PPL Electric Utilities Corporation
*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
*23(c)	-	Consent of PricewaterhouseCoopers LLP - PPL Electric Utilities Corporation
*24	-	Power of Attorney
*99	-	PPL Corporate Organization (Selected Subsidiaries)

EX-3

Exhibit 3(a)-3

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

PPL ELECTRIC UTILITIES CORPORATION

ARTICLE I.

The name of the Corporation is

PPL ELECTRIC UTILITIES CORPORATION

ARTICLE II.

The location and post office address of the registered office of the Corporation in this Commonwealth is

Two North Ninth Street

Allentown, Pennsylvania 18101

ARTICLE III.

The purpose or purposes for which the Corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania are to engage in, and do any lawful act concerning, any or all lawful business for which a corporation may be incorporated under said Business Corporation Law, including but not limited to:

1.The supply of light, heat or power to the public by means of electricity or by any other means.

2.The production, generation, manufacture, transmission, storage, distribution or furnishing of artificial or natural gas, electricity or steam or air conditioning or refrigerating services, or any combination thereof to or for the public.

3.The diverting, pumping or impounding of water for the development or furnishing of hydroelectric power to or for the public.

4.The transportation of artificial or natural gas, electricity, petroleum or petroleum products or water or any combination of such substances for the public.

5.The diverting, developing, pumping, impounding, distributing or furnishing of water from either surface or subsurface sources to or for the public.

6.Manufacturing, processing, owning, using and dealing in personal property of every class and description, engaging in research and development, the furnishing of services, and acquiring, owning, using and disposing of real property of every nature whatsoever.

ARTICLE IV.

The term for which the Corporation is to exist is perpetual.

ARTICLE V.

The aggregate number of shares which the Corporation shall have authority to issue is 185,629,936 shares, divided into 629,936 shares of 41/2% Preferred Stock, par value $100 per share; 10,000,000 shares of Series Preferred Stock, par value $100 per share; 5,000,000 shares of Preference Stock, without nominal or par value; and 170,000,000 shares of Common Stock, without nominal or par value.

ARTICLE VI.

The designations, preferences, qualifications, limitations, restrictions, and the special or relative rights in respect of the shares of each class shall be as follows:

Division A - 41/2% PREFERRED STOCK

SECTION 1.Dividend Rate. The 41/2% Preferred Stock shall be entitled to dividends, as provided in Division C, at the rate of four and one-half percent (41/2%) per annum, such dividends to be cumulative from the date of issuance thereof.

SECTION 2.Restrictions on Certain Corporate Action.

(A)Upon the vote of a majority of all the Directors of the Corporation and of a majority of the total number of shares of stock then issued and outstanding and entitled to vote, the Corporation may from time to time create or authorize one or more other classes of stock with such designations, rights, privileges, limitations, preferences, voting powers, prohibitions, restrictions or qualifications of the voting and other rights and powers and terms as to redemption as may be determined by said vote, which may be the same or different from the designations, rights, privileges, limitations, preferences, voting powers, prohibitions, restrictions or qualifications of the classes of stock of the Corporation then authorized; provided, however, that no new class of stock shall hereafter be created or authorized which is entitled to dividends or shares in distribution of assets on a parity with or in priority to the 41/2% Preferred Stock, nor shall there be created or authorized any securities convertible into shares of any such stock, unless the holders of record of not less than two-thirds of the number of shares of 41/2% Preferred Stock then outstanding shall consent thereto in writing or by voting therefor in person or by proxy at the meeting of shareholders at which the creation or authorization of such new class of stock or such convertible securities is considered. Any such vote may authorize any shares of any class then authorized but unissued to be issued as shares of such new class or classes.

(B)The expressed rights, privileges, terms and conditions of the 41/2% Preferred Stock then outstanding shall not be amended, altered, changed or repealed in a manner substantially prejudicial to the holders thereof unless the holders of record of not less than two-thirds of the number of shares of the 41/2% Preferred Stock then outstanding shall consent thereto in writing or by voting therefor in person or by proxy at the meeting of shareholders at which such amendment, alteration, change or repeal is considered.

Division B - SERIES PREFERRED STOCK

SECTION 1.Division into Series.

(A)All shares of Series Preferred Stock shall be identical except that the dividend rate, the amount to which such shares shall be entitled upon redemption and upon liquidation, the sinking fund, if any, as well as the provisions, if any, with respect to convertibility may vary between different series. The Series Preferred Stock may be divided into, and issued from time to time, in one or more series, each of such series to have such distinctive designation, terms, relative rights, privileges, limitations, preferences and voting powers and such prohibitions, restrictions, and qualifications of the voting and other rights and powers as are fixed and determined in this Article VI or in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors as provided in this Division B.

(B)Authority is hereby expressly granted to the Board of Directors to establish one or more series of Series Preferred Stock and with respect to each series to fix and determine by resolution or resolutions providing for the issue of such series:

(1)the number of shares to constitute such series and the distinctive designation thereof to distinguish the shares thereof from the shares of all other series and classes;

(2)the dividend rate on the shares of such series, and the date or dates from which dividends shall be cumulative;

(3)the amount to which shares of such series shall be entitled upon redemption;

(4)the amount to which shares of such series shall be entitled upon liquidation;

(5)the amount of the sinking fund, if any, for the purchase or redemption of shares of such series; and

(6)the terms and conditions, if any, upon which the shares of such series may be converted into other securities of the Corporation

SECTION 2.Restrictions on Certain Corporate Action.

(A)Upon the vote of a majority of all of the Directors of the Corporation and of a majority of the total number of shares of stock then issued and outstanding and entitled to vote, the Corporation may from time to time create or authorize one or more classes of stock in addition to the Series Preferred Stock, the 41/2% Preferred Stock, the Preference Stock and the Common Stock, with such designations, rights, privileges, limitations, preferences, voting powers, prohibitions, restrictions or qualifications of the voting and other rights and powers and terms as to redemption as may be determined by said vote, which may be the same or different from the designations, rights, privileges, limitations, preferences, voting powers, prohibitions, restrictions or qualifications of the classes of stock of the Corporation then authorized; provided, however, that no new class of stock shall hereafter be created or authorized which is entitled to dividends or shares in distribution of assets on a parity with or in priority to the Series Preferred Stock, nor shall there be created or authorized any securities convertible into shares of any such stock, unless the holders of record of not less than two-thirds of the number of shares of the Series Preferred Stock and the 41/2% Preferred Stock then outstanding (consenting or voting as a single class separate from the holders of the Preference Stock and the Common Stock) shall consent thereto in writing or by voting therefor in person or by proxy at the meeting of shareholders at which the creation or authorization of such new class of stock or such convertible securities is considered. Any such vote may authorize any shares of any class then authorized but unissued to be issued as shares of such new class or classes.

(C)The provisions of this Section 2 of this Division B requiring the approval of a specified percentage of the holders of the Series Preferred Stock and the 41/2% Preferred Stock voting or consenting as a class shall be construed as in addition to and not in substitution for, any provisions of Division A of this Article VI requiring the approval of the holders of a specified percentage of the 41/2% Preferred Stock.

(D)The expressed rights, privileges, terms and conditions of the Series Preferred Stock then outstanding, insofar as they are set forth in the foregoing subsections of this Section 2 shall not be amended, altered, changed or repealed in a manner substantially prejudicial to the holders thereof unless (1) the holders of record of not less than two-thirds of the number of shares of the Series Preferred Stock and the 41/2% Preferred Stock then outstanding (consenting or voting as a single class separate from the holders of the Preference Stock and the Common Stock) shall consent thereto in writing or by voting therefor in person or by proxy at the meeting of shareholders at which such amendment, alteration, change or repeal is considered, and (2) the expressed rights, privileges, terms and conditions of the 41/2% Preferred Stock, are, at the same time, similarly amended, altered, changed or repealed. The expressed rights, privileges, terms and conditions of the Series Preferred Stock then outstanding, other than those set forth in the foregoing subsections of this Section 2, shall not be amended, altered, changed or repealed in a manner substantially prejudicial to the holders thereof unless the holders of record of not less than two-thirds of the number of shares of the Series Preferred Stock then outstanding shall consent thereto in writing or by voting therefor in person or by proxy at the meeting of shareholders at which such amendment, alteration, change or repeal is considered.

SECTION 3.Variations Among Series of Series Preferred Stock.

(A)4.60% Series Preferred Stock. The terms of the "4.60% Series Preferred Stock," in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows: the dividend rate shall be 4.60% per annum, and dividends on each share of such series shall be cumulative from the date or dates of initial issue of shares of such series; the redemption price shall be $103 per share at any time; $103 per share shall be payable upon any voluntary liquidation, dissolution or winding up of the Corporation and $100 per share shall be payable upon any involuntary liquidation, dissolution or winding up of the Corporation. The number of shares of this series authorized is 63,000 shares.

(B)4.40% Series Preferred Stock. The terms of the "4.40% Series Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows: the dividend rate shall be 4.40% per annum, and dividends on each share of such series shall be cumulative from the date or dates of the initial issue of shares of such series; the redemption price shall be $102 per share at any time; $102 per share shall be payable upon any voluntary liquidation, dissolution or winding up of the Corporation and $100 per share shall be payable upon any involuntary liquidation, dissolution or winding up of the Corporation. The number of shares of this series authorized is 229,214 shares.

(C)3.35% Series Preferred Stock. The terms of the "3.35% Series Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows: the dividend rate shall be 3.35% per annum and dividends on each share of such Series shall be cumulative from the date or dates of the initial issue of shares of such series; the redemption price shall be $103.50 per share at any time; $103.50 per share shall be payable upon any voluntary liquidation, dissolution or winding up of the Corporation and $100 per share shall be payable upon any involuntary liquidation, dissolution or winding up of the Corporation. The number of shares of this series authorized is 53,248 shares.

(D)6.75% Series Preferred Stock. The terms of the "6.75% Series Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows:

(1)The dividend rate shall be 6.75% per annum and dividends on each share of such Series shall be cumulative from the date or dates of the initial issue of shares of such series;

(2)Shares of this Series are not redeemable prior to October 1, 2003. On or after October 1, 2003, the Corporation may, by resolution of the Board of Directors or the Executive Committee of the Board of Directors, redeem all, or from time to time, any part of the outstanding shares of this Series, at the following redemption prices per share:

If Redeemed During Twelve Month Period Ending September 30	Redemption      Prices
2004	103.38%
2005	103.04
2006	102.70
2007	102.36
2008	102.03
2009	101.69
2010	101.35
2011	101.01
2012	100.68
2013	100.34

and thereafter at $100.00 per share. Any shares of this Series which are redeemed, repurchased or otherwise reacquired by the Corporation shall, until further action by the Board of Directors or the Executive Committee of the Board of Directors, have the status of authorized and unissued shares of Series Preferred Stock, without designation as to series.

(3)$100.00 per share shall be payable upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation. The shares of this Series shall not be convertible into shares of any other class or classes or into any other securities of the Corporation. The number of shares of this series authorized is 850,000 shares.

(E)6.125% Series Preferred Stock. The terms of the "6.125% Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows:

(1)The dividend rate shall be 6.125% per share per annum and dividends on each share of such Series shall be cumulative from the date or dates of the initial issue of shares of such Series;

(2)So long as any shares of this Series remain outstanding, the Corporation, after full dividends on all outstanding shares of the 41/2% Preferred Stock and the Series Preferred Stock, including this Series, for all past dividend periods shall have been paid or set aside, shall redeem as and for a sinking fund for the retirement of this Series (the "6.125% Sinking Fund"), out of funds legally available therefor, (i) annually on October 1 in each of the years 2003 through 2007, 57,500 shares of this Series, and (ii) on October 1, 2008, the remaining shares of this Series. The Corporation's obligation to make redemptions for the 6.125% Sinking Fund on any such October 1 as provided in this subparagraph (2) (such obligations on each such date being herein called the "6.125% Sinking Fund Obligation") shall be cumulative so that if on any such October 1 the funds of the Corporation legally available for the 6.125% Sinking Fund shall be insufficient to permit the Corporation to discharge its 6.125% Sinking Fund Obligation on such date, or if for any other reason such 6.125% Sinking Fund Obligation shall not have been discharged in full on such date, then such 6.125% Sinking Fund Obligation, to the extent not discharged, shall become an additional 6.125% Sinking Fund Obligation for each succeeding October 1 until fully discharged. The price at which shares of this Series shall be called for redemption through the 6.125% Sinking Fund shall be $100 per share, plus an amount equal to accumulated and unpaid dividends to the date of such redemption computed as provided in Section 5 of Division C of Article VI of these Amended and Restated Articles of Incorporation. The Corporation's 6.125% Sinking Fund Obligation may be discharged, in whole or part, by the application of any shares of this Series purchased or otherwise acquired by the Corporation on or before such date. If the Corporation shall for any reason fail to discharge in full its 6.125% Sinking Fund Obligation on any such October 1, the Corporation shall not thereafter, unless and until such 6.125% Sinking Fund Obligation and its 6.125% Sinking Fund Obligation for each and every prior October 1 shall have been discharged in full, declare or pay any dividend on, or make any other distribution of property with respect to, or purchase or otherwise acquire, any of its Common Stock.

(3)Shares of this Series are not redeemable prior to October 1, 2003. On and after October 1, 2003, the Corporation may, by resolution of the Board of Directors or the Executive Committee of the Board of Directors, redeem all, or from time to time, any part of the outstanding shares of this Series at $100 per share. Any shares of this Series which are redeemed, repurchased or otherwise reacquired by the Corporation shall, until further action by the Board of Directors or the Executive Committee of the Board of Directors, have the status of authorized and unissued shares of Series Preferred Stock, without designation as to series.

(4)$100.00 per share shall be payable upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation. The shares of this Series shall not be convertible into shares of any other class or classes or into any other securities of the Corporation. The number of shares of this series authorized is 1,150,000 shares.

(F)6.33% Series Preferred Stock. The terms of the "6.33% Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows:

(1)The dividend rate shall be 6.33% per share per annum and dividends on each share of such Series shall be cumulative from the date or dates of the initial issue of shares of such Series;

(2)So long as any shares of this Series remain outstanding, the Corporation, after full dividends on all outstanding shares of the 41/2% Preferred Stock and the Series Preferred Stock, including this Series, for all past dividend periods shall have been paid or set aside, shall redeem as and for a sinking fund for the retirement of this Series (the "6.33% Sinking Fund"), out of funds legally available therefor, (i) annually on July 1 in each of the years 2003 through 2007, 50,000 shares of this Series, and (ii) on July 1, 2008, the remaining shares of this Series. The Corporation's obligation to make redemptions for the 6.33% Sinking Fund on any such July 1 as provided in this subparagraph (2) (such obligations on each such date being herein called the "6.33% Sinking Fund Obligation") shall be cumulative so that if on any such July 1 the funds of the Corporation legally available for the 6.33% Sinking Fund shall be insufficient to permit the Corporation to discharge its 6.33% Sinking Fund obligation on such date, or if for any other reason such 6.33% Sinking Fund Obligation shall not have been discharged in full on such date, then such 6.33% Sinking Fund Obligation, to the extent not discharged, shall become an additional 6.33% Sinking Fund Obligation for each succeeding July 1 until fully discharged. The price at which shares of this Series shall be called for redemption through the 6.33% Sinking Fund shall be $100 per share, plus an amount equal to accumulated and unpaid dividends to the date of such redemption computed as provided in Section 5 of Division C of Article VI of these Amended and Restated Articles of Incorporation. The Corporation's 6.33% Sinking Fund Obligation may be discharged, in whole or part, by the application of any shares of this Series purchased or otherwise acquired by the Corporation on or before such date. If the Corporation shall for any reason fail to discharge in full its 6.33% Sinking Fund Obligation on any such July 1, the Corporation shall not thereafter, unless and until such 6.33% Sinking Fund Obligation and its 6.33% Sinking Fund Obligation for each and every prior July 1 shall have been discharged in full, declare or pay any dividend on, or make any other distribution of property with respect to, or purchase or otherwise acquire, any of its Common Stock.

(3)Shares of this Series are not redeemable prior to October 1, 2003. On and after October 1, 2003, the Corporation may, by resolution of the Board of Directors or the Executive Committee of the Board of Directors, redeem all, or from time to time, any part of the outstanding shares of this Series at $100 per share. Any shares of this Series which are redeemed, repurchased or otherwise reacquired by the Corporation shall, until further action by the Board of Directors or the Executive Committee of the Board of Directors, have the status of authorized and unissued shares of Series Preferred Stock, without designation as to series.

(4)$100.00 per share shall be payable upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation. The shares of this Series shall not be convertible into shares of any other class or classes or into any other securities of the Corporation. The number of shares of this series authorized is 1,000,000 shares.

(G)5.95% Series Preferred Stock. The terms of the "5.95% Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows:

(1)The dividend rate shall be 5.95% per share per annum and dividends on each share of such Series shall be cumulative from the date or dates of the initial issue of shares of such Series;

(2)The Corporation, after full dividends on all outstanding shares of the 41/2% Preferred Stock and the Series Preferred Stock including this Series, for all past dividend periods shall have been paid or set aside, shall redeem as and for a sinking fund for the retirement of this Series (the "5.95% Sinking Fund"), out of funds legally available therefor, on April 1, 2001, all of the outstanding shares of this Series. If on April 1, 2001, the required number of shares shall not be redeemed because of the lack of legally available funds, or for any other reason, the amount required to be redeemed shall be carried forward until such obligation is fully discharged. The price at which shares of this Series shall be called for redemption through the 5.95% Sinking Fund shall be $100 per share, plus an amount equal to accumulated and unpaid dividends to the date of such redemption computed as provided in Section 5 of Division C of Article VI of these Amended and Restated Articles of Incorporation. If the Corporation shall for any reason fail to discharge in full its 5.95% Sinking Fund obligation on April 1, 2001, the Corporation shall not thereafter, unless and until such 5.95% Sinking Fund obligation shall have been discharged in full, declare or pay any dividend on, or make any other distribution of property with respect to, or purchase or otherwise acquire, any of its Common Stock. Any shares of this Series which are redeemed, repurchased or otherwise reacquired by the Corporation shall, until further action by the Board of Directors or the Executive Committee of the Board of Directors, have the status of authorized and unissued shares of Series Preferred Stock, without designation as to series.

(3)The amount per share for this Series payable to the holders thereof upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be $100. The shares of this Series shall not be convertible into shares of any other class or classes or into any other securities of the Corporation. The number of shares of this Series authorized is 300,000 shares.

(H)6.05% Series Preferred Stock. The terms of the "6.05% Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows:

(1)The dividend rate shall be 6.05% per share per annum and dividends on each share of such Series shall be cumulative from the date or dates of the initial issue of shares of such Series;

(2)The Corporation, after full dividends on all outstanding shares of the 41/2% Preferred Stock and the Series Preferred Stock, including this Series, for all past dividend periods shall have been paid or set aside, shall redeem as and for a Sinking Fund for the retirement of this Series (the "6.05% Sinking Fund"), out of funds legally available therefor, on April 1, 2002, all of the outstanding shares of this Series. If on April 1, 2002, the required number of shares shall not be redeemed because of the lack of legally available funds, or for any other reason, the amount required to be redeemed shall be carried forward until such obligation is fully discharged. The price at which shares of this Series shall be called for redemption through the 6.05% Sinking Fund shall be $100 per share, plus an amount equal to accumulated and unpaid dividends to the date of such redemption computed as provided in Section 5 of Division C of Article VI of these Amended and Restated Articles of Incorporation. If the Corporation shall for any reason fail to discharge in full its 6.05% Sinking Fund obligation on April 1, 2002, the Corporation shall not thereafter, unless and until such 6.05% Sinking Fund obligation shall have been discharged in full, declare or pay any dividend on, or make any other distribution of property with respect to, or purchase or otherwise acquire, any of its Common Stock. Any shares of this Series which are redeemed, repurchased or otherwise reacquired by the Corporation shall, until further action by the Board of Directors or the Executive Committee of the Board of Directors, have the status of authorized and unissued shares of Series Preferred Stock, without designation as to series.

(3)The amount per share for this Series payable to the holders thereof upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be $100. The shares of this Series shall not be convertible into shares of any other class or classes or into any other securities of the Corporation. The number of shares of this Series authorized is 250,000 shares.

(I)6.15% Series Preferred Stock. The terms of the "6.15% Preferred Stock" in the respects in which the shares of such series may vary from shares of other series of the Series Preferred Stock shall be as follows:

(1)The dividend rate shall be 6.15% per share per annum and dividends on each share of such Series shall be cumulative from the date or dates of the initial issue of shares of such Series;

(2)The Corporation, after full dividends on all outstanding shares of the 41/2% Preferred Stock and the Series Preferred Stock, including this Series, for all past dividend periods shall have been paid or set aside, shall redeem as and for a sinking fund for the retirement of this Series (the "6.15% Sinking Fund"), out of funds legally available therefor, on April 1, 2003, all of the outstanding shares of this Series. If on April 1, 2003, the required number of shares shall not be redeemed because of the lack of legally available funds, or for any other reason, the amount required to be redeemed shall be carried forward until such obligation is fully discharged. The price at which shares of this Series shall be called for redemption through the 6.15% Sinking Fund shall be $100 per share, plus an amount equal to accumulated and unpaid dividends to the date of such redemption computed as provided in Section 5 of Division C of Article VI of these Amended and Restated Articles of Incorporation. If the Corporation shall for any reason fail to discharge in full its 6.15% Sinking Fund obligation on April 1, 2003, the Corporation shall not thereafter, unless and until such 6.15% Sinking Fund obligation shall have been discharged in full, declare or pay any dividend on, or make any other distribution of property with respect to, or purchase or otherwise acquire, any of its Common Stock. Any shares of this Series which are redeemed, repurchased or otherwise reacquired by the Corporation shall, until further action by the Board of Directors or the Executive Committee of the Board of Directors, have the status of authorized and unissued shares of Series Preferred Stock, without designation as to series.

(3)The amount per share for this Series payable to the holders thereof upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be $100. The shares of this Series shall not be convertible into shares of any other class or classes or into any other securities of the Corporation. The number of shares of this Series authorized is 250,000 shares.

(J)For the purposes of the foregoing paragraphs (A) through (I), the terms "involuntary liquidation, dissolution or winding up" shall include, without being limited to, a liquidation, dissolution or winding up of the Corporation resulting in the distribution of all of the net proceeds of a sale, lease or conveyance of all or substantially all of the property or business of the Corporation to any governmental body including, without limitation, any municipal corporation or political subdivision or authority.

Division C - PROVISIONS APPLICABLE TO BOTH THE 41/2%

PREFERRED STOCK AND THE SERIES PREFERRED STOCK

SECTION 1.General. The term "Preferred Stock" whenever used in this Article VI, shall be deemed to include the 41/2% Preferred Stock, the Series Preferred Stock and any other class of stock entitled to dividends on a parity with the 41/2% Preferred Stock and Series Preferred Stock.

SECTION 2.Dividends.

(A)The shares of Preferred Stock shall be entitled to the payment of dividends on a parity with each other at the rate or rates established by or pursuant to the provisions of this Article VI and in preference to the Preference Stock and the Common Stock, but only when and as declared by the Board of Directors, out of funds legally available for the payment of dividends.

(B)Said dividends shall be payable quarterly on January 1, April 1, July 1 and October 1 of each year or otherwise as the Board of Directors may determine, to shareholders of record as of a date not exceeding forty (40) days and not less than ten (10) days preceding such dividend payment dates, to be fixed by the Board of Directors. The holders of the Preferred Stock shall not be entitled to receive any dividends thereon out of net profits or surplus earnings other than dividends established by or pursuant to this Article VI.

SECTION 3.Preferences In Distribution. The shares of the 41/2% Preferred Stock and the Series Preferred Stock shall be entitled to share on a parity with each other, and shall have a preference over the Preference Stock and the Common Stock, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, or upon any distribution of assets, other than net profits or surplus earnings until there shall have been paid in respect of the shares of:

(A)41/2% Preferred Stock-the full par value thereof, or

(B)Series Preferred Stock-the liquidation price fixed as provided in Division B;

plus, in either case, an amount, if any, by which an amount equivalent to the annual dividend upon such shares from the date after which dividends thereon became cumulative to the date of liquidation exceeds the dividends actually paid thereon or declared and set apart for payment thereon from such date to the date of liquidation. The 41/2% Preferred Stock and the Series Preferred Stock shall not receive any share in any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or in any distribution of assets in excess of the aggregate amount specified in this section.

SECTION 4.Voting Rights.

(A)Except as otherwise provided in these Amended and Restated Articles of Incorporation, each share of the 41/2% Preferred Stock, the Series Preferred Stock, the Common Stock and (if, and to the extent, stated in the resolution or resolutions providing for the issue of a series of Preference Stock) the Preference Stock shall be equal in voting power and shall entitle the holder thereof to one vote upon any question presented to any shareholders meeting, it being hereby agreed and declared that a majority in number of shares regardless of the class to which such shares may belong is a majority in value or in interest within the meaning of any statute or law requiring the consent of stockholders holding a majority in interest or a greater amount in value of stock of the Corporation.

(B)If and when dividends payable on any shares of Preferred Stock shall be in default in an amount equivalent to the annual dividend, or more, per share, and thereafter until all dividends on the Preferred Stock (of all classes and series) in default shall have been paid, the holders of the Preferred Stock voting as a single class, separate from the holders of the Preference Stock and the Common Stock, shall be entitled to elect the smallest number of directors necessary to constitute a majority of the full Board of Directors, and the holders of the Common Stock and the Preference Stock (if, and to the extent, stated in the resolution or resolutions providing for the issue of a series of Preference Stock), voting separately as a class, shall have the right to elect the remaining directors of the Corporation. The terms of office, as directors, of all persons who may be directors of the Corporation at the time shall terminate upon the election of a majority of the Board of Directors by the holders of the Preferred Stock, except that, if the holders of the Preference Stock and/or the Common Stock shall not have exercised their right to elect directors of the Corporation (either by voting together as a single class or by voting separately as two distinct classes, as the case may be) because of the lack of a quorum consisting of a majority of the required class, then such remaining directors shall be elected by the directors whose term of office is thus terminated and who have not been elected by the holders of the Preferred Stock as a class; and in that event, such elected directors shall hold office for the interim period, pending such time s a quorum of the requisite class shall be present at a meeting held for the election of directors.

(C)If and when all dividends then in default on the Preferred Stock, then outstanding, shall be paid (and such dividends shall be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the holders of the Preferred Stock shall be divested of any special right with respect to the election of directors and the voting power of the holders of the Preferred Stock and the holders of the Common Stock and the Preference Stock (to the extent stated in the resolution or resolutions providing for the issue of a series of Preference Stock) shall revert to the status existing before the first dividend payment date on which dividends on any shares of the Preferred Stock were not paid in full; but always subject to the same provisions for vesting such special rights in the holders of the Preferred Stock in case of further like default or defaults on dividends thereon. Upon the termination of any such special voting right, the terms of office of all persons who may have been elected directors of the Corporation by vote of the holders of the Preferred Stock, as a class, pursuant to such special voting right shall forthwith terminate, and the resulting vacancies shall be filled by the vote of a majority of the remaining directors.

(D)In case of any vacancy in the office of a director occurring among the directors elected by the holders of the Preferred Stock, voting as a single class separate from the holders of the Common Stock and the holders of any series of Preference Stock with voting rights, the remaining directors elected by the holders of the Preferred Stock, by affirmative vote of a majority thereof, or the remaining director so elected if there be but one, may elect a successor or successors to hold office for the unexpired terms of the director or directors whose place or places shall be vacant.

(E)In case of any vacancy in the office of a director occurring among the directors not elected by the holders of the Preferred Stock, the remaining directors not elected by the holders of the Preferred Stock, by affirmative vote of a majority thereof, or the remaining such director if there be but one, may elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant.

(F)Whenever the right shall have accrued to the holders of the Preferred Stock to elect directors, voting as a single class separate from the holders of the Common Stock and the holders of any series of Preference Stock with voting rights, then upon request in writing signed by any holder of the Preferred Stock entitled to vote, delivered by registered mail or in person to the president, a vice president or secretary of the Corporation, it shall be the duty of such officer forthwith to cause notice to be given to the shareholders entitled to vote of a meeting to be held at such time as such officer may fix, not less than ten (10) nor more than sixty (60) days after the receipt of such request, for the purpose of electing directors. At all meetings of shareholders held for the purpose of electing directors during such time as the holders of a class or classes of stock shall have the special right, voting as a single class, separate from the holders of the other class or classes of stock (not entitled to such special right), to elect directors, the presence in person or by proxy of the holders of a majority of such other class or classes of stock (counted either separately as single classes or together as a single class, as the case may be) shall be required to constitute a quorum of such class or classes for the election of directors, and the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or classes of stock entitled to such special right shall be required to constitute a quorum of such class or classes for the election of directors; provided, however, that the absence of a quorum of the holders of any such class or classes of stock shall not prevent the election at any such meeting or any adjournment thereof of directors by any other class or classes if the necessary quorum of the holders of stock of such other class or classes is present in person or by proxy at such meeting or adjournment thereof; and provided further that in the event a quorum of the holders of the Preferred Stock is not present, then the election of the directors elected by the holders of any other class or classes of stock shall not become effective and the directors so elected by such other class or classes of stock shall not assume their offices and duties until the holders of the Preferred Stock shall have elected the directors they shall be entitled to elect; and provided further, however, that in the absence of a quorum of the holders of stock of any class, a majority of the holders of the stock of such class who are present in person or by proxy shall have the power to adjourn the election of the directors to be elected by such class from day to day or for such longer periods, not exceeding 15 days, each, as such majority shall direct without notice other than announcement at the meeting until the requisite number of holders of such class shall be present in person or by proxy.

SECTION 5.Redemption.

(A)By a majority vote of the Board of Directors of the Corporation:

(1)the 41/2% Preferred Stock may be redeemed in whole or in part at any time at One Hundred Ten Dollars ($110.00) per share, or

(2)any series of Series Preferred Stock may be redeemed in whole or in part at any time at the redemption price fixed and determined as specified in Division B;

plus, in either case, an amount, if any, by which an amount equivalent to the annual dividend upon such shares from the date after which dividends thereon became cumulative to the date of redemption exceeds the dividends actually paid thereon or declared and set apart for payment thereon from such date to the date of redemption. If, pursuant to such vote, less than all of the shares of any class or series thereof of the Preferred Stock are to be redeemed, the shares to be redeemed shall be selected by lot, in such manner as the Board of Directors of the Corporation shall determine, by a bank or trust company chosen for that purpose by the Board of Directors of the Corporation.

(B)Nothing herein contained shall limit any right of the Corporation to purchase or otherwise acquire any shares of the Preferred Stock.

(C)Notice of the intention of the Corporation to redeem shares of the Preferred Stock or any thereof shall be mailed thirty (30) days before the date of redemption to each holder of record of the shares to be redeemed, at his last known post office address as shown by the records of the Corporation. At any time after such notice has been mailed as aforesaid, the Corporation may deposit the aggregate redemption price (or the portion thereof not already paid in the redemption of shares so to be redeemed) with any bank or trust company in the City of Philadelphia, Pennsylvania; City of Allentown, Pennsylvania; or in the City of New York, New York, named in such notice, payable in amounts aforesaid to the respective orders of the record holders of the shares so to be redeemed, on endorsement and surrender of their certificates, and thereupon said holders shall cease to be shareholders with respect to said shares and from and after the making of such deposit, said holders shall have no interest in or claim against the Corporation with respect to said shares, but shall be entitled only to receive said moneys from said bank or trust company with interest, if any, allowed by such bank or trust company on such moneys deposited as provided in this subsection (C), on endorsement and surrender of their certificates as aforesaid.

(D)Any moneys so deposited, plus interest thereon, if any, and remaining unclaimed at the end of six years from the date fixed for redemption, if thereafter requested by resolution of the Board of Directors of the Corporation, shall be repaid to the Corporation and in the event of such repayment to the Corporation, such holders of record of the shares so redeemed as shall not have made claim against such moneys prior to such repayment to the Corporation shall be deemed to be unsecured creditors of the Corporation for an amount without interest equivalent to the amount deposited, plus interest thereon, if any, allowed by such bank or trust company, as above stated, for the redemption of such shares and so paid to the Corporation.

Division D - PREFERENCE STOCK

SECTION 1.General. To the extent permitted by these Amended and Restated Articles of Incorporation, the Board of Directors, by majority vote of a quorum, shall have the authority to issue shares of Preference Stock from time to time in one or more series, and to fix by resolution, at the time of issuance of each of such series, the distinctive designations, terms, relative rights, privileges, qualifications, limitations, options, conversion rights, preferences, and voting powers, and such prohibitions, restrictions and qualifications of voting or other rights and powers thereof except as they are fixed and determined in this Article VI. The dividend rate or rates, dividend payment dates or other terms of a series of Preference Stock may vary from time to time dependent upon facts ascertainable outside of these Amended and Restated Articles of Incorporation if the manner in which the facts will operate to fix or change such terms is set forth in the express terms of the series or upon terms incorporated by reference to an existing agreement between the Corporation and one or more other parties or to another document of independent significance or otherwise to the extent permitted by the Business Corporation Law of 1988.

SECTION 2.Dividends. Subject to the provisions of Section 2(A) of Division C, the holders of shares of each series of Preference Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any funds legally available for the purpose under 15 Pa.C.S. 1551 (relating to distributions to shareholders) or any superseding provision of law subject to any additional limitations in the express terms of the series, cash dividends at the rate or rates and on the terms which shall have been fixed by or pursuant to the authority of the Board of Directors with respect to such series and no more, payable at such time or times as may be fixed by or pursuant to the authority of the Board of Directors. If and to the extent provided by the express terms of any series of Preference Stock, the holders of the series shall be entitled to receive such other dividends as may be declared by the Board of Directors.

SECTION 3.Liquidation of the Corporation. Subject to the provisions of Section 3 of Division C, in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Preference Stock shall be entitled to receive from the assets of the Corporation (whether capital or surplus), prior to any payment to the holders of shares of Common Stock or of any other class of stock of the Corporation ranking as to assets subordinate to the Preference Stock, the amount per share (which, in the case of an involuntary liquidation, dissolution or winding up, shall not be in excess of the original offering price per share (not including accrued dividends, if any) or $100 per share, whichever is less) which shall have been fixed and determined by the Board of Directors with respect thereto, plus the accrued and unpaid dividends thereon computed to the date on which payment thereof is made available, whether or not earned or declared. For the purposes of this section, the terms "involuntary liquidation, dissolution or winding up" shall include, without being limited to, a liquidation, dissolution or winding up of the Corporation resulting in the distribution of all of the net proceeds of a sale, lease or conveyance of all or substantially all of the property or business of the Corporation to any governmental body including, without limitation, any municipal corporation or political subdivision or authority.

SECTION 4.Conversion Privileges. In the event any series of the Preference Stock is issued with the privilege of conversion, such stock may be converted, at the option of the record holder thereof, at any time or from time to time, as determined by the Board of Directors, in the manner and upon the terms and conditions stated in the resolution establishing and designating the series and fixing and determining the relative rights and preferences thereof.

SECTION 5.Redemption. The Corporation, at its option to be exercised by its Board of Directors, may redeem the whole or any part of the Preference Stock or of any series thereof at such time or times as may be fixed by the Board, at the applicable price for each share, and upon the terms and conditions which shall have been fixed and determined by the Board with respect thereto.

SECTION 6.Voting Rights. Each holder of record of shares of a series of Preference Stock shall have full voting rights of one vote per share or such other limited, multiple, fractional or conditional or no voting rights as shall be stated in the resolution or resolutions of the Board of Directors providing for the issue of the shares of such series. Unless provided in such resolution or resolutions, no holder of shares of Preference Stock shall have cumulative voting rights.

Division E - COMMON STOCK

SECTION 1.Dividends And Shares In Distribution On Common Stock.

(A)Subject to the rights of the holders of the Senior Stock, and the Preference Stock and subordinate thereto, the Common Stock alone shall receive all further dividends and shares upon liquidation, dissolution, winding up or distribution.

(B)A consolidation or merger of the Corporation with or into any other corporation or corporations shall not be deemed a distribution of assets of the Corporation within the meaning of any provision of this Article VI.

SECTION 2.Voting Rights. Except as otherwise provided in these Amended and Restated Articles of Incorporation, each share of the 41/2% Preferred Stock, the Series Preferred Stock and the Common Stock shall be equal in voting power and shall entitle the holder thereof to one vote upon any question presented to any shareholders' meeting, it being hereby agreed and declared that a majority in number of shares (including, if and to the extent provided pursuant to Division D, shares of Preference Stock) regardless of the class to which such shares may belong is a majority in value or in interest within the meaning of any statute or law requiring the consent of stockholders holding a majority in interest or a greater amount in value of stock of the Corporation.

Division F - GENERAL

Pre-emptive Rights. The Corporation may issue or sell shares, option rights, or securities having conversion or option rights for money or otherwise without first offering them to shareholders of any class or classes.

Redemption. Any shares of the 41/2% Preferred Stock, the Series Preferred Stock, the Preference Stock and the Common Stock which are redeemed, repurchased or otherwise reacquired by the Corporation shall, until further action by the Board of Directors or the Executive Committee of the Board of Directors, have the status of authorized and unissued shares, without, in the case of the Series Preferred Stock, designation as to series.

Convertibility. Unless otherwise provided in the terms of a series of Series Preferred Stock or Preference Stock or otherwise in these Amended and Restated Articles of Incorporation, the shares of each of the 41/2% Preferred Stock, the Series Preferred Stock, the Preference Stock and the Common Stock, respectively, shall not be convertible into shares of any other class or classes or into any other securities of the Corporation.

ARTICLE VII.

A majority of the directors may amend, alter or repeal the Bylaws, subject to the power of the shareholders to change such action; provided, however, that any amendment, alteration or repeal of, or the adoption of any provision inconsistent with, Sections 3.01, 3.01.1, 3.04, 3.05, or 3.13 of the Bylaws, if by action of the shareholders, shall be only upon the affirmative vote of the shareholders entitled to cast at least two-thirds of the votes which all shareholders are entitled to cast, and if by action of the directors, shall be only upon the approval of two-thirds of the directors.

ARTICLE VIII.

These Amended and Restated Articles of Incorporation may be amended in the manner from time to time prescribed by statute and all rights conferred upon shareholders herein are granted subject to this reservation; provided, however, that, notwithstanding the foregoing (and in addition to any vote that may be required by law, these Amended and Restated Articles of Incorporation or the Bylaws), the affirmative vote of the shareholders entitled to cast at least two-thirds of the votes which all shareholders are entitled to cast shall be required to amend, alter or repeal, or to adopt any provision inconsistent with, Articles VII or VIII of these Amended and Restated Articles of Incorporation.

ARTICLE IX.

The following provisions of the Business Corporation Law of 1988 shall not be applicable to the Corporation: 15 Pa.C.S. 2538 (relating to approval of transactions with interested shareholders) and 15 Pa.C.S. Subchapter E (relating to control transactions).

ARTICLE X.

(A)The Corporation shall have at all times at least at least one individual who is an Independent Director. The Independent Director may not delegate his or her duties, authorities or responsibilities hereunder. If the Independent Director resigns, dies or becomes incapacitated, or such position is otherwise vacant, no action requiring the unanimous affirmative vote of the Directors shall be taken until a successor Independent Director is appointed by the Board of Directors and qualifies and approves such action.

(B)Notwithstanding any other provision of these Articles of Incorporation and any provision of law that otherwise so empowers the Corporation, the shareholders of the Corporation, any Director or any other Person, the Corporation shall not, and neither the shareholders of the Corporation, nor any Director nor any other Person on behalf of the Corporation shall, without the prior unanimous consent of the Directors, including the Independent Director, do any of the following: (i) make a general assignment for the benefit of creditors; (ii) file a petition commencing a voluntary bankruptcy case; (iii) file a petition or answer seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; (iv) file an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, or the entry of any order appointing a trustee, liquidator, receiver or other person or entity fulfilling a similar function for it or its assets or any substantial portion thereof; (v) seek, consent to or acquiesce in the appointment of a trustee, liquidator, receiver or other person or entity fulfilling a similar function for it or all or any substantial part of its assets; (vi) amend any provision of this Article X or Article XI, or amend Section 9.05 of the Bylaws; or (vii) take action in furtherance of any such action. In discharging their duties as Directors, including with regard to any action contemplated by the preceding sentence, or with regard to any action taken or determination made at any time when the Corporation is insolvent, the Directors of the Corporation may, in considering the best interests of the Corporation, consider the effects of any action upon any groups affected by such action, including the creditors of the Corporation. The Directors shall not be required, in considering the best interests of the Corporation or the effects of any action, to regard the interests of shareholders of the Corporation as a dominant or controlling interest or factor.

(C)As used in this Article X, the following terms shall have the following meanings:

"Affiliate" shall mean, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Independent Director" shall mean, with respect to the Corporation, a Director who is not, and within the previous five years was not (except solely by virtue of such Person's serving as, or being an Affiliate of any other Person serving as, an independent director or manager, as applicable, of any bankruptcy-remote special purpose entity that is an Affiliate of PPL Corporation or the Corporation) (i) a shareholder, member, partner, director, officer, manager, employee, Affiliate, customer, supplier or independent contractor of, or a Person that has received any benefit in any form whatever from (other than in such Director's capacity as a ratepayer or customer of the Corporation in the ordinary course of business), or a Person that has provided any service in any form whatsoever to, or any major creditor (or any Affiliate of any major creditor) of, the Corporation, PPL Corporation, or any of their Affiliates, or (ii) a Person owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability company interests or any partnership interests, as applicable, of the Corporation, PPL Corporation or any of their Affiliates, or of any major creditor (or any Affiliate of any major creditor) of any of the foregoing, or a shareholder, member, partner, director, officer, manager, employee, Affiliate, customer, supplier, creditor or independent contractor of, or a Person that has received any benefit in any form whatever from (other than in such Person's capacity as a ratepayer or customer of the Corporation in the ordinary course of business), or a Person that has provided any service in any form whatever to, such beneficial owner or any of such beneficial owner's Affiliates, or (iii) a member of the immediate family of any person described above; provided that the indirect or beneficial ownership of stock through a mutual fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an Independent Director. For purposes of this definition, "major creditor" shall mean a natural person or business entity to which the Corporation, PPL Corporation or any of their Affiliates has outstanding indebtedness for borrowed money or credit on open account in a sum sufficiently large as would reasonably be expected to influence the judgment of the proposed Independent Director adversely to the interests of the Corporation when the interests of that Person are adverse to those of the Corporation.

"Person" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company, joint stock company, corporation, trust, unincorporated organization, governmental authority or other entity.

"PPL Corporation" shall mean PPL Corporation, a Pennsylvania corporation, or any successor thereto as holder of the common stock of the Corporation, and/or any other Person that is or becomes an Affiliate of the Corporation as a result of its holding of shares of the Corporation.

ARTICLE XI.

No shareholder of the Corporation and no creditor of any shareholder of the Corporation shall have any claim on the assets of the Corporation except to the extent of any dividends or other distributions declared by the Board of Directors or otherwise expressly provided for by these Articles of Incorporation or the Business Corporation Law of the Commonwealth of Pennsylvania.

EX-3

Exhibit 3(b)-2

Bylaws of

PPL Electric Utilities Corporation

Table of Contents

Section		Page
ARTICLE I: Offices and Fiscal Year
Section 1.01.	Registered Office	1
Section 1.02.	Fiscal Year	1
Section 1.03.	Corporate Seal	1
ARTICLE II: Meetings of Shareholders
Section 2.01.	Place of Meeting	1
Section 2.02.	Annual Meeting	1
Section 2.03.	Special Meetings	1
Section 2.04.	Notice of Meetings	1
Section 2.05.	Quorum, Manner of Acting, and Adjournment	2
Section 2.06.	Organization	2
Section 2.07.	Voting and Proxies	2
Section 2.08.	Voting Lists	3
Section 2.09.	Judges of Election	3
Section 2.10.	Determination of Shareholders of Record	4
ARTICLE III: Board of Directors
Section 3.01.	Authority, Number and Qualifications	4
Section 3.01.1.	Term of Office	4
Section 3.02.	Organization	4
Section 3.03.	Resignations	4
Section 3.04.	Vacancies	4
Section 3.05.	Removal by Shareholders	5
Section 3.06.	Place of Meeting	5
Section 3.07.	Organization Meeting	5
Section 3.08.	Regular Meetings	5
Section 3.09.	Special Meetings	5
Section 3.10.	Quorum, Manner of Acting, and Adjournment	5
Section 3.11.	Executive and Other Committees	6
Section 3.12.	Compensation	6
Section 3.13.	Nominations for Election of Directors and Proposed Business to be Transacted	6
ARTICLE IV: Notice-Waivers-Meetings
Section 4.01.	Manner of Giving Notice	8
Section 4.02.	Waivers of Notice	9
Section 4.03.	Conference Telephone Meetings	9
ARTICLE V: Officers
Section 5.01.	Number, Qualifications and Designation	9
Section 5.02.	Election and Term of Office	9
Section 5.03.	Resignations	9
Section 5.04.	Removal	10
Section 5.05.	Vacancies	10
Section 5.06.	General Powers	10
Section 5.07.	Compensation	10
Section 5.08.	Standard of Care	10

Table of Contents

Section		Page
ARTICLE VI: Certificates of Stock, Transfer, Etc.
Section 6.01.	Issuance	10
Section 6.02.	Transfer	10
Section 6.03.	Share Certificates	10
Section 6.04.	Lost, Stolen, Mutilated or Destroyed Certificates	10
ARTICLE VII: Indemnification of Directors, Officers, Etc.
Section 7.01.	Personal Liability of Directors	11
Section 7.02.	Indemnification of Directors and Officers	11
Section 7.03.	Indemnification of Persons Not Indemnified Under Section 7.02	12
ARTICLE VIII: Amendments
Section 8.01.	Amendment of Bylaws	14
ARTICLE IX: Separateness
Section 9.01.	Business Activities	14
Section 9.02.	Separateness Provisions	14
Section 9.03.	Director Actions	16
Section 9.04.	Definitions	16
Section 9.05.	Amendment of Certain Provisions	16

BYLAWS

OF

PPL ELECTRIC UTILITIES CORPORATION

(a Pennsylvania Corporation)

ARTICLE I

Offices and Fiscal Year

Section 1.01. Registered Office. The registered office of the corporation in the Commonwealth of Pennsylvania shall be at Two North Ninth Street, Allentown, Pennsylvania 18101.

Section 1.02. Fiscal Year. The fiscal year of the corporation shall begin on the first day of January in each year.

Section 1.03. Corporate Seal. The corporation shall have a corporate seal in the form of a circle containing the name of the corporation, the year of incorporation and such other details, if any, as approved by the board of directors.

ARTICLE II

Meetings of Shareholders

Section 2.01. Place of Meeting. All meetings of the shareholders of the corporation shall be held at the registered office of the corporation unless another place is designated by the board of directors in the notice of such meeting.

Section 2.02. Annual Meeting. The board of directors may fix the date and time of the annual meeting of the shareholders, but if no such date and time is fixed by the board the meeting for any calendar year shall be held on the fourth Wednesday in April in such year, at 2 o'clock P.M., and at said meeting the shareholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting.

Section 2.03. Special Meetings. Special meetings of the shareholders of the corporation for any purpose or purposes may be called at any time by the Chairman of the Board, if there be one, or, in the case of a vacancy in the office, the President; or by the board of directors.

Section 2.04. Notice of Meetings. Written notice of every meeting of the shareholders, whether annual or special, shall be given to each shareholder of record entitled to vote at the meeting, at least five days prior to the day named for the meeting; provided, however, that at least ten days written notice prior to the day of the meeting shall be given in the case of any annual or special meeting at which there is to be considered any amendment to the Articles of Incorporation of the corporation, the sale of all or substantially all of its assets, or its merger with or consolidation into any other corporation. Such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting of shareholders, the general nature of the business to be transacted.

Section 2.05. Quorum, Manner of Acting, and Adjournment.

(a) Quorum. The presence in person or by proxy of shareholders entitled to cast a majority of the votes which all shareholders are entitled to cast on the particular matter shall constitute a quorum for the purposes of consideration and action on the matter. Shares of the corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the board of directors, as such, shall not be counted in determining the total number of outstanding shares for quorum purposes at any given time. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

(b) Adjournments. Any regular or special meeting of the shareholders, including one at which directors are to be elected and one which cannot be organized because a quorum has not attended, may be adjourned for such period and to such place as the shareholders present and entitled to vote shall direct.

Except as otherwise provided in the Articles of Incorporation, those shareholders entitled to vote who attend a meeting called for the election of directors that has been previously adjourned for lack of a quorum, although less than a quorum as fixed in this section, shall nevertheless constitute a quorum for the purpose of electing directors. Also, except as otherwise provided in the Articles of Incorporation, those shareholders entitled to vote who attend a meeting of shareholders that has been previously adjourned for one or more periods aggregating at least 15 days because of an absence of a quorum, although less than a quorum, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of acting upon the matter.

(c) Action by Shareholders. Except as otherwise provided in the Articles of Incorporation, a section of these bylaws adopted by the shareholders or the Business Corporation Law, whenever any corporate action is to be taken by vote of the shareholders, it shall be authorized upon receiving the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon and, if any shareholders are entitled to vote thereon as a class, upon receiving the affirmative vote of a majority of the votes cast by the shareholders entitled to vote as a class.

Section 2.06. Organization. At every meeting of the shareholders, the Chairman of the Board, or, in the case of vacancy in the office or absence of the Chairman of the Board, one of the following directors or officers: a director designated by the Chairman, the president, an executive vice president, a senior vice president, any vice president, or a Chairman chosen by the shareholders entitled to cast a majority of the votes which all shareholders present in person or by proxy are entitled to cast, shall act as Chairman; and the secretary or a person appointed by the Chairman shall act as secretary.

Section 2.07 Voting and Proxies. Except as otherwise provided by statute or in the Articles of Incorporation, every shareholder of record shall have the right to one vote for every share standing in his name on the books of the corporation.

In all elections for directors, every shareholder entitled to vote shall have the right to multiply the number of votes to which he may be entitled by the total number of directors to be elected in the same election by the holders of the class of shares of which his shares are a part, and he may cast the whole number of such votes for one candidate or he may distribute them among any two or more candidates. The candidates receiving the highest number of votes from each class or group of classes entitled to elect directors separately up to the number of directors to be elected in the same election by such class or group of classes shall be elected.

Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or by his duly authorized attorney in fact and filed with the secretary of the corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the secretary of the corporation. No unrevoked proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall any proxy, unless coupled with an interest, be voted on after three years from the date of its execution. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the secretary of the corporation. A proxy coupled with an interest shall include an unrevoked proxy in favor of a creditor of a shareholder and such a proxy shall be valid as long as the debt owed by him to the creditor remains unpaid.

Section 2.08. Voting Lists. The officer or agent of the corporation having charge of the transfer books for shares of the corporation shall make a complete list of the shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order, with the address of and the number of shares held by each. The list shall be produced and kept open at the time and place of the meeting, and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. In lieu of the making of such list, the corporation may make the information therein available at the meeting by any other means. The original share register or transfer book or a duplicate thereof, kept in Pennsylvania, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share register or transfer book, or to vote, in person or by proxy, at any meeting of shareholders.

Section 2.09. Judges of Election. In advance of any meeting of shareholders, the board of directors may appoint one or three judges of election, who need not be shareholders. If judges of election be not so appointed, the chairman of the meeting may, and on the request of any shareholder or his proxy shall, appoint judges of election at the meeting. The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with nominations by shareholders or the right to vote, count and tabulate all votes, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three judges of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.

On request of the chairman of the meeting or of any shareholder, the judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein.

Section 2.10. Determination of Shareholders of Record. The board of directors may fix a date as a record date for the determination of the shareholders entitled to notice of, or to vote at, any meeting of shareholders, which date, except in the case of an adjourned meeting, shall be not more than 90 days prior to the date of the meeting. Only shareholders of record on the date so fixed, and no others, shall be entitled to notice of, or to vote at, such meeting, notwithstanding any transfer of any shares on the books of the corporation after any such record date so fixed. When a determination of shareholders of record has been made for purposes of a meeting, the determination shall apply to any adjournment thereof unless the board of directors fixes a new record date for the adjourned meeting. The board of directors may similarly fix a record date for the determination of shareholders of record for any other purpose. If a record date is not fixed by the board of directors, the record date shall be as determined in the Business Corporation Law.

ARTICLE III

Board of Directors

Section 3.01. Authority, Number and Qualifications. The business and affairs of the corporation shall be managed under the direction of a board of directors. The board of directors shall consist of not less than six and not more than twenty directors, as shall be fixed from time to time by resolution of the board of directors. All directors of the corporation shall be natural persons of full age, but need not be residents of Pennsylvania. They shall be shareholders in the corporation. A director may also be an officer or employee of the corporation.

Section 3.01.1 Term of Office. Each director shall hold office until the expiration of the term for which he or she was selected and until a successor shall have been elected and qualified or until his or her earlier death, resignation or removal.

Section 3.02. Organization. At every meeting of the Board of Directors, the Chairman of the Board, if there be one, or, in the case of a vacancy in the office or absence of the Chairman of the Board, the Vice Chairman, or a Chairman chosen by a majority of the directors present, shall preside, and the secretary, or any person appointed by the Chairman of the meeting, shall act as secretary.

Section 3.03. Resignations. Any director of the corporation may resign at any time by giving written notice to the Chairman of the Board, if there be one, or the President, or the secretary of the corporation. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 3.04. Vacancies. The board of directors may declare vacant the office of a director if he be declared of unsound mind by an order of court, or convicted of felony, or for any other proper cause.

Except as otherwise provided in the Articles of Incorporation, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the majority vote of the directors then in office, although less than a quorum. Each director so chosen shall hold office until the next election of the class for which such director has been chosen, and until his or her successor has been selected and qualified or until his or her earlier death, resignation or removal.

If one or more directors shall resign from the board effective as of a future date, the directors then in office, including those who have so resigned, shall have power by the applicable vote to fill the vacancies, the vote thereon to take effect when the resignations become effective.

Section 3.05. Removal by Shareholders. Any director may be removed from office by vote of shareholders only upon the affirmative vote of the shareholders entitled to cast at least two-thirds of the votes which all shareholders would be entitled to cast at any annual election of directors and upon any additional vote of shareholders that may be required by law. No director elected by holders of the 4-1/2% Preferred Stock and the Series Preferred Stock of the Corporation or by the holders of the Preference Stock of the Corporation pursuant to the provisions of Article VI of the Articles of Incorporation may be removed pursuant to this Section 3.05.

Section 3.06. Place of Meeting. The board of directors may hold its meetings at such place or places within Pennsylvania, or elsewhere, as the board of directors may from time to time appoint, or as may be designated in the notice calling the meeting.

Section 3.07. Organization Meeting. Immediately after each annual election of directors or other meeting at which the entire board of directors is elected, the newly elected board of directors shall meet for the purpose of organization, election of officers, and the transaction of other business, at the place where said election of directors was held. Notice of such meeting need not be given. Such organization meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the board of directors.

Section 3.08. Regular Meetings. Regular meetings of the board of directors shall be held at such time as shall be designated from time to time by the board of directors. At such meetings, the directors shall transact such business as may properly be brought before the meeting. Notice need not be given of regular meetings held at the registered office of the corporation. If held elsewhere, the notice requirements of Section 3.06 shall apply.

Section 3.09. Special Meetings. Special meetings of the board of directors shall be held whenever called by two or more of the directors or by the Chairman of the Board, if there be one, or, in the case of vacancy in the office or absence of the Chairman of the Board, the president. Notice of every special meeting of the board of directors shall be given to each director by telephone or in writing at least 24 hours (in the case of notice by telephone, telex, TWX or facsimile transmission) or 48 hours (in the case of notice by telegraph, courier service or express mail) or five days (in the case of notice by United States mail) before the time at which the meeting is to be held. Every such notice shall state the time and place of the meeting. Neither the business to be transacted at nor the purpose of any special meeting need be specified in a notice of the meeting.

Section 3.10. Quorum, Manner of Acting, and Adjournment. A majority of the directors in office shall be present at each meeting in order to constitute a quorum for the transaction of business. Except as otherwise provided in the Articles of Incorporation or by statute, the acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the board of directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum be present, provided that the notice, if any, required by Sections 3.08 or 3.09 of this Article has been given. The directors shall act only as a board and the individual directors shall have no power as such, provided, however, that any action which may be taken at a meeting of the board may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the directors and shall be filed with the secretary of the corporation.

Section 3.11. Executive and Other Committees. The board of directors may, by resolution adopted by a majority of the directors in office, establish an Executive Committee and one or more other committees. Any committee, to the extent provided in such resolution, shall have and may exercise all of the powers and authority of the board of directors, except that no committee shall have any power or authority as to the following:

(1) The submission to shareholders of any action requiring approval of shareholders under the Business Corporation Law.

(2) The creation or filling of vacancies in the board of directors.

(3) The adoption, amendment or repeal of these bylaws.

(4) The amendment or repeal of any resolution of the board of directors that by its terms is amendable or repealable only by the board.

(5) Action on matters committed by a resolution of the board of directors to another committee of the board.

A majority of the directors in office designated to a committee shall be present at each meeting in order to constitute a quorum for the transaction of business. The acts of a majority of the committee members present at a meeting at which a quorum is present shall be the acts of the committee. Any action which may be taken at a meeting of a committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the committee members and shall be filed with the secretary of the corporation.

Each committee shall keep records of its proceedings.

Section 3.12. Compensation. The board of directors shall have the authority to fix the compensation of directors for their services as directors. A director may be a salaried officer of the corporation, but no employee shall receive a salary for serving as a director.

Section 3.13. Nominations for Election of Directors and Proposed Business to be Transacted.

(a) Director Nominations. Except as otherwise provided in or fixed by or pursuant to the provisions of Article VI of the Articles of Incorporation, nominations for the election of directors may be made by the board of directors or a committee appointed by the board of directors or by any shareholder entitled to vote in the election of directors generally. However, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice (meeting the requirements hereinafter set forth) of such shareholder's intent to make such nomination or nominations has been given by the shareholder and received by the secretary of the corporation in the manner and within the time specified by this Subsection. The notice shall be delivered to the secretary of the corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 75 days in advance of the date of such meeting; provided, however, that in the event that less than 85 days' notice or prior public disclosure of the date of the annual meeting is given, notice from the shareholders to be timely must be received not later than the tenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the earlier of (A) the seventh day following the date on which notice of such meeting is first given to shareholders or (B) the fourth day prior to the meeting. In lieu of delivery to the secretary, the notice may be mailed to the secretary by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the secretary. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had proxies been solicited with respect to such nominee by the management or board of directors of the corporation; and (e) the consent of each nominee to serve as a director of the corporation if so elected. If a judge or judges of election shall not have been appointed pursuant to these bylaws, the presiding officer of the meeting may, if the facts warrant, determine and declare to the meeting that any nomination made at the meeting was not made in accordance with the procedures of this Subsection and, in such event, the nomination shall be disregarded. Any decision by the presiding officer of the meeting made in good faith shall be conclusive and binding upon all shareholders of the corporation for any purpose.

(b) Proposed Business to be Transacted. Except as otherwise provided in Section 3.13(a) of these bylaws, at any annual meeting or special meeting of shareholders, only such business as is properly brought before the meeting in accordance with this Subsection may be transacted. To be properly brought before any meeting, any proposed business that is to be brought pursuant to this Subsection must be either (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise properly brought before the meeting by or at the direction of the board of directors, or (iii) in the case of an annual meeting of shareholders, otherwise properly brought before the meeting by a shareholder (x) who is a shareholder of record on the date of giving notice provided for in these bylaws and on the record date for the determination of shareholders entitled to vote at such annual meeting, and (y) who complies with the notice provisions set forth in this Subsection. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder's notice must be delivered to the secretary of the corporation not later than 75 days in advance of the date of such meeting; provided, however, that in the event that less than 85 days' notice or prior public disclosure of the date of the annual meeting is given, notice from the shareholders to be timely must be received not later than the tenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. In lieu of delivery to the secretary, the notice may be mailed to the secretary by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the secretary. A shareholder's notice to the secretary of the corporation, as required by this Subsection, shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class, series and number of shares of the corporation's stock which are beneficially owned by the shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder in such business, (v) all other information which would be required to be included in a proxy statement or other filing required to be filed with the Securities and Exchange Commission if, with respect to any such item of business, such shareholder were a participant in a solicitation subject to Regulation 14A under the Securities Exchange Act of 1934, as amended, and (vi) a representation that such shareholder intends to appear in person or by proxy at the annual meeting of shareholders to bring such business before the meeting. Except as provided in Section 3.13(a) of these bylaws, notwithstanding anything in the bylaws to the contrary, no business shall be conducted at any meeting of shareholders except in accordance with the procedures set forth in this Subsection, provided, however, that nothing in this Subsection shall be deemed to preclude discussion by any shareholders of any business properly brought before any such meeting. The presiding officer of a meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Subsection, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Any decision by the presiding officer of the meeting made in good faith shall be conclusive and binding upon all shareholders of the corporation for any purpose.

ARTICLE IV

Notice-Waivers-Meetings

Section 4.01 Manner of Giving Notice.

(a) General Rule. Whenever written notice is required to be given to any person under the provisions of the Articles of Incorporation, these bylaws, or the Business Corporation Law, it may be given to the person, either personally or by sending a copy thereof by first-class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, to the address (or to the telex, TWX or facsimile transmission telephone number) of the person appearing on the books of the corporation or, in the case of directors, supplied by the director to the corporation for the purpose of notice. Notice of any regular or special meeting of the shareholders (or any other notice required by the Articles of Incorporation, these bylaws, or the Business Corporation Law to be given to all shareholders or to all holders of a class or series of shares) may be given by any class of mail, postage prepaid, if the notice is deposited in the United States mail at least 20 days prior to the day named for the meeting or any corporate or shareholder action specified in the notice.

If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of facsimile transmission, when received. A notice of meeting shall specify the place, day and hour of the meeting and any other information required by any other provision of the Articles of Incorporation, these bylaws, or the Business Corporation Law.

(b) Adjourned Shareholder Meetings. When a meeting of shareholders is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the board fixes a new record date for the adjourned meeting or the Business Corporation Law requires notice of the business to be transacted and such notice has not previously been given.

Section 4.02. Waivers of Notice. Whenever any written notice is required to be given under the provisions of the Articles of Incorporation, these bylaws, or the Business Corporation Law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Except in the case of a special meeting of shareholders, neither the business to be transacted at, nor the purpose of, the meeting need be specified in the waiver of notice of such meeting.

Attendance of a person, either in person or by proxy, at any meeting, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened.

Section 4.03. Conference Telephone Meetings. One or more directors may participate in a meeting of the board, or of a committee of the board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting.

ARTICLE V

Officers

Section 5.01. Number, Qualifications and Designation. The officers of the corporation shall be a president, a secretary, a treasurer, one or more vice presidents (including executive vice presidents and senior vice presidents) and such other officers as the business of the corporation may require, including one or more assistant officers. In addition, the board of directors may elect from among its number a Chairman of the Board who, if so elected, may be chief executive officer of the corporation. One person may hold more than one office. Officers may but need not be directors or shareholders of the corporation.

Section 5.02. Election and Term of Office. The officers of the corporation shall be elected by the board of directors, and each such officer shall hold his office until the next annual organization meeting of the directors (which is held immediately following the annual meeting of shareholders), or until his death, resignation, or removal.

Section 5.03. Resignations. Any officer may resign at any time by giving written notice to the board of directors, or to the Chairman of the Board, if there be one, or the President, or the secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.04. Removal. Any officer may be removed, either for or without cause, by the board of directors whenever in the judgment of the board of directors the best interests of the corporation will be served thereby.

Section 5.05. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause, may be filled by the board of directors.

Section 5.06. General Powers. All officers of the corporation as between themselves and the corporation, shall, respectively have such authority and perform such duties in the management of the property and affairs of the corporation as may be determined by resolution of the board of directors.

Section 5.07. Compensation. The salaries or other compensation of the officers elected by the board of directors shall be fixed from time to time by the board of directors or in such manner as the board of directors shall from time to time provide.

Section 5.08. Standard of Care. In lieu of the standards of conduct otherwise provided by law, officers of the corporation shall be subject to the same standards of conduct, including standards of care and loyalty and rights of justifiable reliance, as shall at the time be applicable to directors of the corporation.

ARTICLE VI

Certificates of Stock, Transfer, Etc.

Section 6.01. Issuance. The share certificates of the corporation shall be numbered and registered in the share register and transfer books of the corporation as they are issued. They shall be signed, by facsimile or otherwise, by the Chairman of the Board, if there be one, or the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall bear the corporate seal, which may be a facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed or authenticated, or whose facsimile signature or authentication has been placed upon any share certificate shall have ceased to be such officer, transfer agent or registrar because of death, resignation or otherwise, before the certificate is issued, the certificate may be issued with the same effect as if the officer, transfer agent or registrar had not ceased to be such at the date of its issue.

Section 6.02. Transfer. Transfers of shares shall be made on the books of the corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by an attorney lawfully constituted in writing.

Section 6.03. Share Certificates. Certificates for shares of the corporation shall be in such form as provided by statute and approved by the board of directors.

Section 6.04. Lost, Stolen, Mutilated or Destroyed Certificates. In the event of loss, theft, mutilation or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the board of directors may have established concerning proof of such loss, theft, mutilation or destruction and concerning the giving, if required by such regulations, of a satisfactory bond or bonds of indemnity.

ARTICLE VII

Indemnification of Directors, Officers, Etc.

Section 7.01. Personal Liability of Directors.

(a) To the fullest extent that the laws of the Commonwealth of Pennsylvania, as now in effect or as hereafter amended, permit elimination or limitation of the liability of directors, no director of the Company shall be personally liable for monetary damages as such for any action taken, or any failure to take any action, as a director.

(b) Any amendment or repeal of this Section 7.01 which has the effect of increasing directors' liability shall operate prospectively only, and shall not affect any action taken, or any failure to act, prior to its adoption.

Section 7.02. Indemnification of Directors and Officers.

(a) Right to Indemnification. Except as prohibited by law, every director and officer of the Company shall be entitled as of right to be indemnified by the Company against reasonable expense and any liability paid or incurred by such person in connection with any actual or threatened claim, action, suit or proceeding, civil, criminal, administrative, investigative or other, whether brought by or in the right of the Company or otherwise, in which he or she may be involved, as a party or otherwise, by reason of such person being or having been a director or officer of the Company or by reason of the fact that such person is or was serving at the request of the Company as a director, officer, employee, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other entity (such claim, action, suit or proceeding hereinafter being referred to as "action"). Such indemnification shall include the right to have expenses incurred by such person in connection with an action paid in advance by the Company prior to final disposition of such action, subject to such conditions as may be prescribed by law. Persons who are not directors or officers of the Company may be similarly indemnified in respect of service to the Company or to another such entity at the request of the Company to the extent the Board of Directors at any time denominates such person as entitled to the benefits of this Section 7.02. As used herein, "expense" shall include fees and expenses of counsel selected by such person; and "liability" shall include amounts of judgments, excise taxes, fines and penalties, and amounts paid in settlement.

(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this Section 7.02 is not paid in full by the Company within thirty days after a written claim has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action that the conduct of the claimant was such that under Pennsylvania law the Company would be prohibited from indemnifying the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the conduct of the claimant was not such that indemnification would be prohibited by law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its shareholders) that the conduct of the claimant was such that indemnification would be prohibited by law, shall be a defense to the action or create a presumption that the conduct of the claimant was such that indemnification would be prohibited by law.

(c) Insurance and Funding. The Company may purchase and maintain insurance to protect itself and any person eligible to be indemnified hereunder against any liability or expense asserted or incurred by such person in connection with any action, whether or not the Company would have the power to indemnify such person against such liability or expense by law or under the provisions of this Section 7.02. The Company may create a trust fund, grant a security interest, cause a letter of credit to be issued or use other means (whether or not similar to the foregoing) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein.

(d) Non-Exclusivity; Nature and Extent of Rights. The right of indemnification provided for herein (l) shall not be deemed exclusive of any other rights, whether now existing or hereafter created, to which those seeking indemnification hereunder may be entitled under any agreement, bylaw or charter provision, vote of shareholders or directors or otherwise, (2) shall be deemed to create contractual rights in favor of persons entitled to indemnification hereunder, (3) shall continue as to persons who have ceased to have the status pursuant to which they were entitled or were denominated as entitled to indemnification hereunder and shall inure to the benefit of the heirs and legal representatives of persons entitled to indemnification hereunder and (4) shall be applicable to actions, suits or proceedings commenced after the adoption hereof, whether arising from acts or omissions occurring before or after the adoption hereof. The right of indemnification provided for herein may not be amended, modified or repealed so as to limit in any way the indemnification provided for herein with respect to any acts or omissions occurring prior to the effective date of any such amendment, modification or repeal.

Section 7.03. Indemnification of Persons Not Indemnified Under Section 7.02.

(a) Scope. The provisions of this Section 7.03 are applicable only to employees and other authorized representatives of the corporation who are not entitled to the benefits of Section 7.02 pursuant to either the terms of Section 7.02 or a resolution of the Board of Directors of this corporation.

(b) Employees; Third Party Actions. The corporation shall indemnify any employee of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was an authorized representative of the corporation (which, for the purposes of this Section 7.03, shall mean an employee or agent of the corporation, or a person who is or was serving at the request of the corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which that person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

(c) Employees; Derivative Actions. The corporation shall indemnify any employee of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an authorized representative of the corporation, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless and only to the extent that the court of common pleas of the county in which the registered office of the corporation is located or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court of common pleas or such other court shall deem proper.

(d) Other Authorized Representatives. To the extent that an authorized representative of the corporation who is not an employee of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (b) and (c) of this Section 7.03 or in defense of any claim, issue or matter therein, such person shall be indemnified by the corporation against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Such an authorized representative may, at the discretion of the corporation, be indemnified by the corporation in any other circumstances and to any extent if the corporation would be required by subsections (b) and (c) of this Section 7.03 to indemnify such person in such circumstances and to such extent if such person were or had been an employee of the corporation.

(e) Procedure for Effecting Indemnification. Indemnification under subsections (b), (c) or (d) of this Section 7.03 shall be made when ordered by a court (in which case the expenses, including attorneys' fees, of the authorized representative in enforcing such right of indemnification shall be added to and be included in the final judgment against the corporation) or shall be made upon a determination that indemnification of the authorized representative is required or proper in the circumstances because such person has met the applicable standard of conduct set forth in subsections (b) and (c) of this Section 7.03. Such determination shall be made:

(1) By the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or

(2) If such a quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so direct, by independent legal counsel in a written opinion, or

(3) By the shareholders.

(f) Advancing Expenses. Expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of an employee to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation as required in this Section 7.03 or as authorized by law and may be paid by the corporation in advance on behalf of any other authorized representative when authorized by the board of directors upon receipt of a similar undertaking.

(g) Non-Exclusivity; Nature and Extent of Rights. Each person who shall act as an authorized representative of the corporation and who is not entitled to the benefits of Section 7.02, shall be deemed to be doing so in reliance upon such rights of indemnification as are provided in this Section 7.03.

The indemnification provided by this Section 7.03 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, vote of shareholders or disinterested directors, statute or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office or position, and shall continue as to a person who has ceased to be an authorized representative of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE VIII

Amendments

Section 8.01. Amendment of Bylaws. The directors may make, amend, alter or repeal these bylaws by a vote of the majority of the members of the board of directors at any regular or special meeting duly convened after notice of that purpose; subject, however, to the power of the shareholders to make, amend, and repeal these bylaws at any annual or special meeting duly convened after notice of that purpose.

ARTICLE IX

Separateness

Section 9.01. Business Activities. The corporation shall engage, whether directly or indirectly through subsidiaries only in (i) the electric transmission and distribution businesses and (ii) those business activities that are related to or arise out of its electric transmission and distribution businesses, except to the extent mandated by, or necessary to comply with obligations imposed by, applicable law or regulation.

Section 9.02. Separateness Provisions. (a) The funds and other assets of the corporation shall not be commingled with those of any other entity, and the corporation shall maintain its accounts separate from PPL Corporation, any other Affiliate of PPL Corporation and any other Person.

(b) The corporation shall not hold itself out as being liable for the debts of PPL Corporation, any other Affiliate of PPL Corporation or any other Person, and shall conduct its own business in its own name.

(c) The corporation shall act solely in its corporate name and through its duly authorized officers or agents in the conduct of its business, shall conduct its business so as not to mislead others as to the identity of the entity or assets with which they are concerned and shall otherwise hold itself out as a separate entity. The corporation shall correct any known misunderstanding regarding its separate identity.

(d) The corporation shall maintain separate records, books of account and financial statements, and shall not commingle its records and books of account with the records and books of account of PPL Corporation, any other Affiliate of PPL Corporation or any other Person.

(e) Whenever approval of the board of directors is required by the Articles of Incorporation or these bylaws or the Business Corporation Law of the Commonwealth of Pennsylvania for any corporate action of the corporation, such approval shall be obtained. The corporation shall observe all formalities required by the Articles of Incorporation and these bylaws and the Business Corporation Law.

(f) The corporation shall at all times ensure that its capitalization is adequate in light of its business and purpose.

(g) The corporation shall not guarantee or become obligated for the debts of PPL Corporation or any of PPL Corporation's other Affiliates or make its credit available to satisfy the obligations of, or pledge its assets for the benefit of, PPL Corporation or any of PPL Corporation's other Affiliates, with the exception of (i) any guarantee of the debts of an Affiliate of the corporation in effect as of the effective date of the corporation's Plan of Division or (ii) any guarantee of the debts of any direct or indirect subsidiary of the corporation.

(h) The corporation shall pay its own liabilities out of its own funds.

(i) The corporation shall maintain an arm's-length relationship with PPL Corporation and each other Affiliate of PPL Corporation.

(j) The corporation shall allocate fairly and reasonably any overhead for office space shared with PPL Corporation or any other Affiliate of PPL Corporation.

(k) The corporation shall use its own separate stationery, invoices, checks and other business forms.

(l) Until one year and one day after all of the securities outstanding under the corporation's Indenture dated as of August 1, 2001, to the Chase Manhattan Bank as Trustee, have been paid in full, the officers and directors shall make all decisions with respect to the business and daily operations of the corporation independent of, and not dictated by, PPL Corporation or any other Affiliate of PPL Corporation, in accordance with applicable law.

Nothing in this Section 9.02 shall be construed to mean that the corporation may not commingle its funds with the funds of any special purpose subsidiary of the corporation in connection with the corporation acting as servicer or administrator for such subsidiary; that the corporation may not be treated as being the obligor on indebtedness of any special purpose subsidiary of the corporation for tax or financial accounting or reporting purposes; or that the assets and liabilities of the corporation may not be consolidated with its subsidiaries and/or with PPL Corporation and the other Affiliates of PPL Corporation for tax or financial accounting or reporting purposes.

Failure of the corporation or any director or officer on behalf of the corporation to comply with any of the foregoing restrictions shall not affect the status of the corporation as a separate legal entity.

Section 9.03. Director Actions. Without limiting the generality of Section 9.02, the corporation shall be operated in such a manner as the directors deem reasonable and necessary or appropriate to preserve the separateness of the corporation from the business of PPL Corporation, as the holder of the common stock of the corporation, or any other Affiliate thereof.

Section 9.04. Definitions. Capitalized terms used in this Article IX and not defined in these Bylaws shall have the meanings specified in the Articles of Incorporation.

Section 9.05. Amendment of Certain Provisions. The provisions of this Article IX may be not amended, repealed or replaced without the prior unanimous approval of the directors, including the Independent Director.

EX-4

Exhibit 4(a)-2

AMENDMENT NO. 1

TO

PPL EMPLOYEE STOCK OWNERSHIP PLAN

  WHEREAS, PPL Services Corporation ("PPL") has adopted the PPL Employee Stock Ownership Plan ("Plan") effective January 1, 1975; and

  WHEREAS, the Plan was amended and restated effective January 1, 2000; and

  WHEREAS, the Company desires to further amend the Plan;

  NOW, THEREFORE, the Plan is hereby amended as follows:

I.  Effective January 1, 2000 the following sections of Articles II (2.2, 2.4, 2.8, 2.21), IV (4.6, 4.7, 4.8), XI (11.5) and XIII (13.4) are deleted in their entirety.

II.  Effective January 1, 2000 the following sections of Articles II (2.14, 2.38), IV (4.1, 4.2, 4.3, 4.5), V (5.2, 5.4, 5.5), VII (7.1, 7.3, 7.5, 7.7), XI (11.3, 11.5), XII (12.4), XIII (13.3, 13.5 and 13.6) are amended to read as follows:

  2.14  "Employee" shall mean each person who is classified by a Participating Company as a common law employee of such Participating Company, and who:

  (a)  is classified by the Participating Company as (1) a Managers Compensation Plan employee, (2) a Professional Associate - Part-Time, (3) an Administrative Associate - Part-Time, or (4) a Specific Professional; or

  (b)  is a member of the International Brotherhood of Electrical Workers and is in a classification eligible to participate in this Plan pursuant to a collective bargaining agreement between such union and a Participating Company.

An individual who is not classified by a Participating Company as a common law employee shall not be an Employee regardless of whether (1) the individual is considered an employee by reason of being a leased employee (whether or not within the meaning of section 414(n) or (o) of the Code), (2) the individual is classified by a Participating Company as an independent contractor, or (3) for employment tax or other purposes, the individual is subsequently determined to be a common law employee, or not to be a leased employee or independent contractor. For purposes of determining eligibility under the Plan, the classification to which an individual is assigned by a Participating Company shall be final and conclusive, regardless of whether a court, a governmental agency or any entity subsequently finds that such individual should have been assigned to a different classification.

  2.38  "TRASOP Contributions" shall mean the contributions made by PPL in accordance with Section 4.1.

  4.1  TRASOP Contributions. Prior to January 1, 1983, PPL contributed certain TRASOP contributions subject to section 409 of the Code. Effective January 1, 1983, no further TRASOP contributions shall be made.

  4.2  Matching Contributions. Prior to January 1, 1983, Participants contributed certain Matching Contributions to be matched by PPL TRASOP contributions. Effective January 1, 1983, no further Matching Contributions shall be made.

  4.3  PAYSOP Contributions. Prior to January 1, 1987, PPL contributed certain PAYSOP contributions subject to section 409 of the Code. Effective January 1, 1987, no further PAYSOP contributions shall be made.

  4.5  Investment in Stock. All TRASOP, PAYSOP, Dividend-based, and Matching Contributions may be in cash or in Stock; provided, however, that (a) if a Contribution is in cash, the Trustee shall use such Contribution to purchase Stock from PPL Corporation or others. If a Contribution is in Stock, the number of shares contributed will be determined by the Market Value of the Stock.

  5.2  Allocation of Contributions. Contributions made for any Plan Year shall be allocated among the Participants entitled to share in the allocation of contributions pursuant to Section 3.2 in accordance with the following rules.

  (a)  Subject to Section 5.2(b), Stock acquired with the Dividend-based Contribution made with respect to a Plan Year shall be allocated, as of the close of such Plan Year, as follows:

    (1)  75% of the Dividend-based Contribution shall be allocated to the Account of each Participant to whom or on whose behalf dividends were paid at any time during the portion of such Plan Year in which the Participant was an Employee. The amount of such Stock allocated to each Participant's Account shall bear the same proportion to the total amount of such Stock allocated with respect to such Plan Year as the amount of dividends paid to such Participant during the portion of the Plan Year in which he was an Employee bears to the total amount of dividends paid to all Participants during the portion of such Plan Year in which they were Employees; and

    (2)  25% of the Dividend-based Contribution shall be allocated to the Account of each Participant who was a Participant at any time during such Plan Year. The amount of such Stock allocated to each Participant's Account shall bear the same proportion to the total amount of such Stock allocated with respect to such Plan Year as the amount of the Compensation paid to such Participant bears to the total Compensation paid to all Participants during such Plan Year.

  (b)  In the event the allocation under Section 5.2(a)(1) above for any Plan Year discriminates in favor of the Highly Compensated Eligible Employees, as determined under section 401(a)(4) of the Code and regulations thereunder, then the percentage of the Dividend-based Contribution to be allocated under Section 5.2(a)(1) shall be decreased and the percentage to be allocated under Section 5.2(a)(2) shall be correspondingly increased until the allocation under Section 5.2(a)(1) no longer discriminates in favor of the Highly Compensated Eligible Employees.

  5.4  Special Allocation Rule. No Participant may receive an allocation under the Dividend-based Contribution provided for in Section 5.2(a) above which equals or exceeds 5% of such Participant's Compensation for the Plan Year for which such allocation is being made.

  5.5  Maximum Allocation. Notwithstanding anything in this Article to the contrary, in no event shall contributions under the Plan violate the limitations set forth in section 415 of the Code, which are hereby incorporated into the Plan.

  If the amount otherwise allocable to the accounts of a Participant would exceed the limitations of section 415 of the Code as a result of a reasonable error in estimating the Participant's Compensation, the Employee Benefit Plan Board shall determine which portion of such excess amount is attributable to the Participant's (1) voluntary after-tax employee contributions under the Employee Savings Plan or Deferred Savings Plan, (2) before-tax elective deferrals under the Employee Savings Plan or Deferred Savings Plan, (3) company matching contributions under the Deferred Savings Plan or Employee Savings Plan, (4) contributions under other plans maintained by a Participating Company or 50% Affiliated Company, and (5) Dividend-based Contributions under Article IV; and the following action shall be taken, in the order of priority set forth below.

  (a)  Amounts attributable to voluntary after-tax employee contributions under the Employee Savings Plan or Deferred Savings Plan and earnings thereon shall be returned to the Participant.

  (b)  Amounts attributable to before-tax elective deferrals under the Employee Savings Plan or Deferred Savings Plan and earnings thereon shall be returned to the Participant.

  (c)  Amounts attributable to company matching contributions under the Deferred Savings Plan or Employee Savings Plan will be held in a suspense account until the following Plan Year at which time the amounts will be used to reduce matching contributions for the year.

  (d)  Amounts attributable to contributions made under other plans maintained by a Participating Company or 50% Affiliated Company shall be corrected as provided in such plans.

  (e)  Amounts attributable to excess Dividend-based Contributions under this Plan shall be allocated to the accounts of other Participants in accordance with Section 5.2. Any excess Contributions or Stock purchased with such Contributions which cannot be allocated in a Plan Year to Participants' Accounts shall be held in a suspense account until the Plan Year in which it is first possible to allocate such Contributions or Stock to Participants' Accounts.

  7.1  General. The interest of each Participant in the Fund shall be distributed in the manner, in the amount and at the time provided in this Article, except that in the event of termination of the Plan the provisions of Article X shall govern. Each Participant shall have a nonforfeitable right to all Stock allocated to his Account, except as set forth in Section 5.5. The provisions of this Article shall be construed in accordance with section 401(a)(9) of the Code and regulations thereunder.

  7.3  Beneficiary Designation.

  (a)  Death benefits under the Plan shall be paid to the surviving Spouse of a Participant, including the Spouse of a Participant who has retired or whose employment has terminated before the Effective Date, (1) unless (A) such Spouse consents in writing not to receive such benefit and consents to the specific beneficiary designated by the Participant, (B) such consent acknowledges its own effect, and (C) such consent is witnessed by a notary public; or (2) unless the Participant establishes to the satisfaction of a Plan representative either that he has no Spouse, that his Spouse cannot be located, or that his Spouse's consent is not required under such other circumstances as are prescribed under governmental regulations.

  7.5  Termination of Employment. Upon a Participant's retirement or other termination of employment with PPL and all Affiliated Companies, he shall be entitled to receive his interest in the Fund. Subject to Subsection 7.7(c), (a) if the value of his interest in the Fund exceeds $5,000, his interest shall not be paid to him or applied for his benefit until (1) he consents in writing to such payment or application, or (2) he attains his 65th birthday or (3) he dies; whichever occurs first; (b) otherwise, his interest shall be paid to him or applied for his benefit in a single sum within 60 days after such termination takes place.

  7.7  Timing of Distribution.

  (a)  A Participant entitled under this Article to receive benefits shall commence to receive benefits as soon as administratively practicable, but in no event shall any Participant receive benefits later than the earlier of the dates determined under (1), (2) or (3) below:

    (1)  the later of

      (A)  the 60th day after the close of the Plan Year in which the Participant attains his Normal Retirement Date or

      (B)  the 60^th day after the close of the Plan Year in which the Participant's employment with all Participating Companies and all Affiliated Companies terminates;

    (2)  the later of

      (A)  the April 1st that follows the end of the calendar year in which the Participant attains age 701/2; or

      (B)  (Effective only for Participants who attain age 701/2 on or after January 1, 2002.) the April 1st that follows the end of the calendar year in which the Participant's employment terminates; provided, however, that this Paragraph (a)(2)(B) shall not apply for a Participant who is a five-percent (5%) owner (as defined in section 416 of the Code) of a Participating Company at any time during the five-Plan Year period ending in the calendar year in which he attains Age 701/2 or thereafter; or

    (3)  in the event of the Participant's death, December 31 of the calendar year following the year of the Participant's death.

  (b)  If a Participant attains age 701/2 after December 31, 1995 but before January 1, 2002, and is not a 5-percent owner (within the meaning of section 416 of the Code) of a Participating Company at any time during the five-Plan Year period ending in the calendar year in which he attained age 701/2 or thereafter, such Participant may elect to receive benefits on either (1) April 1 of the calendar year following the calendar year in which he attains age 701/2, or (2) April 1 of the calendar year following the calendar year in which he terminates employment with all Participating Companies and all Affiliated Companies. Such election must be made, in a form provided by the Administrative Committee, not later than April 1 of the calendar year following the calendar year in which the Participant attains age 701/2 . If the Participant fails to make a timely election, such Participant shall receive benefits not later than April 1 of the calendar year following the calendar year in which he attained age 701/2.

  (c)  A Participant who terminates employment with a Participating Company on or after age 55, and whose Account exceeds $5,000, shall be entitled to defer payment of his benefits until a date not later than that specified in Section 7.7(a)(2).

  (d)  The Employee Benefit Plan Board shall supply to each Participant who is entitled to distribution before his death or attainment of age 65 and the value of whose Account exceeds $5,000, written information relating to his right to defer distribution under Section 7.4, 7.5 or 7.7(c). Such notice shall be furnished not less than 30 days nor more than 90 days prior to the Participant's benefit commencement date, except that such notice may be furnished less than 30 days prior to the Participant's benefit commencement date if (1) the Employee Benefit Plan Board informs the Participant that the Participant has the right to a period of at least 30 days after receiving such notice to consider the decision whether to elect a distribution, and the mode in which he desires such distribution to be made, and (2) the Participant, after receiving such notice, affirmatively elects a distribution.

  11.3  Minimum Contributions for Non-Key Employees.

  (a)  In each Plan Year in which the Plan is a Top Heavy Plan, each Eligible Employee who is not a Key Employee (except an Eligible Employee who is not a Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year or an Eligible Employee who is covered by a collective bargaining agreement) and who is actively employed by PPL on the last day of such Plan Year will receive a total minimum Company Contribution (including forfeitures) under all plans described in Section 11.2(a)(1) and (2) of not less than three percent (3%) of the Eligible Employee's annual compensation as defined in section 415 of the Code. Salary reduction contributions to such plans made on behalf of an Eligible Employee in plan years beginning after December 31, 1984 but before January 1, 1989, shall be deemed to be Company Contributions for the purpose of this Subsection.

  (b)  The percentage set forth in Section 11.3(a) shall be reduced to the percentage at which contributions, including forfeitures are made (or are required to be made) for a Plan Year for the Key Employee for whom such percentage is the highest for such Plan Year. This percentage shall be determined for each Key Employee by dividing the contribution for such Key Employee by his compensation, as defined in section 415 of the Code, for the Plan Year, determined under Section 11.4. All defined contribution plans required to be included in an Aggregation Group shall be treated as one plan for the purpose of this Section 11.3; however, this Section 11.3(b) shall not apply to any plan which is required to be included in an Aggregation Group if such plan enables a defined benefit plan in such group to meet the requirements of section 401(a)(4) or section 410 of the Code.

  (c)  If a Non-Key Employee described in Subsection (a), participates in both a defined benefit plan and a defined contribution plan described in Sections 11.2(a)(1) and (2) maintained by PPL, PPL is not required to provide such Employee with both the minimum benefit and the minimum contribution. Regulations prescribed by the Secretary of the Treasury shall serve to prevent inappropriate omissions or duplications of minimum benefits or contributions.

  12.4  Spendthrift Clause.

  (a)  No benefit payable at any time under this Plan, and no interest or expectancy herein shall be anticipated, assigned, or alienated by any Participant or beneficiary, or be subject to attachment, garnishment, levy, execution or other legal or equitable process, except for (1) an amount necessary to satisfy a federal tax levy made pursuant to section 6331 of the Code, (2) any benefit payable pursuant to a domestic relations order within the meaning of the Code or (3) an offset of a Participant's benefit as described in section 206(d)(4) of ERISA on account of a crime or fiduciary breach.

  (b)  Any attempt to alienate or assign such benefit, whether presently or thereafter payable, shall be void. No benefit shall in any manner be liable for or subject to the debts or liability of any Participant or beneficiary. If any Participant or beneficiary shall attempt to, or shall, alienate or assign his benefits under the Plan or any part thereof, or if by reason of his bankruptcy or other event happening at any time, such benefits would devolve upon anyone else or would not be enjoyed by him, then the Employee Benefit Plan Board may terminate payment of such benefit and hold or apply it to or for the benefit of the Participant or beneficiary.

  (c)  The Employee Benefit Plan Board shall review any domestic relations order to determine whether it is qualified within the meaning of section 414(p) of the Code. An order shall not be qualified unless it complies with all applicable provisions of the Plan concerning mode of payment and manner of elections. Notwithstanding the preceding sentence and any restrictions on timing of distributions and withdrawals under the Plan, an order may provide for distribution immediately or at any other time specified in the order.

  13.3  Restoration of Dividend-based Contributions. With respect to any Plan Year for which a Returning Veteran would have been a Participant, but failed to share in Dividend-based Contributions solely by reason of his Qualified Military Service, the Participating Company shall contribute to such Participant's Account an amount equal to the Dividend-based Contributions that would have been allocated to his Account, but for his absence for Qualified Military Service. Such contribution shall not include the earnings that would have accrued on such amount.

  13.4  Determination of Compensation. For purposes of determining the amount of any contributions under Section 13.3 and for applying the limits of Section 5.5, a Participant's compensation during any period of Qualified Military Service shall be deemed to equal either:

  (a)  the compensation he would have received but for such Qualified Military Service, based on the rate of pay he would have received from a Participating Company; or

  (b)  if the amount described in (a) above is not reasonably certain, his average compensation from a Participating Company during the 12-month period immediately preceding the Qualified Military Service (or, if shorter, the period of employment immediately preceding the Qualified Military Service). Such amount shall be adjusted as necessary to reflect the length of the Participant's Qualified Military Service.

  13.5  Application of Certain Limitations. For purposes of applying the limitations of Section 5.5, any contributions described in Section 13.3, shall be treated as contributions for the Limitation Year to which they relate, rather than the Limitation Year in which they are actually made.

  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 ________________, 2001.

PPL SERVICES CORPORATION

By:_______________________________

James M. Seif
Vice President-Corporate Services

EX-4

Exhibit 4(b)-19

PPL ELECTRIC UTILITIES CORPORATION

(formerly PP&L, Inc. and Pennsylvania Power & Light Company)

TO

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

_____________________________

Sixty-ninth Supplemental Indenture

Providing among other things for

Amendments to Mortgage

_____________________________

Dated as of January 1, 2002

Sixty-ninth Supplemental Indenture

SIXTY-NINTH SUPPLEMENTAL INDENTURE, dated as of the 1st day of January, 2002 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 BANKERS TRUST COMPANY, a corporation of the State of New York, whose address is 4 Albany Street, New York, New York 10006 (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 Sixty-ninth 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 Sixty-ninth 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 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	August 1, 2001

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	$28,388,000
8-1/2% Series due 2022	150,000,000	10,911,000
Pollution Control Series H	90,000,000	90,000,000
6-7/8% Series due 2003	100,000,000	18,768,000
7-7/8% Series due 2023	200,000,000	46,213,000
5-1/2% Series due 1998	150,000,000	None
6-1/2% Series due 2005	125,000,000	110,000,000
6% Series due 2000	125,000,000	None
6-3/4% Series due 2023	150,000,000	19,497,000
Pollution Control Series I	53,250,000	53,250,000
6.55% Series due 2006	150,000,000	146,000,000
7.30% Series due 2024	150,000,000	5,805,000
6-7/8% Series due 2004	150,000,000	24,767,000
7-3/8% Series due 2014	100,000,000	10,290,000
Pollution Control Series J	115,500,000	115,500,000
7.70% Series due 2009	200,000,000	325,000
Pollution Control Series K	55,000,000	55,000,000
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	200,000,000	None
57/8% Series due August 15, 2007	300,000,000	300,000,000
61/4% Series due August 15, 2009	500,000,000	500,000,000

which bonds are also sometimes called bonds of the First through Seventy-seventh Series, respectively; and

WHEREAS, Sections 113 and 116 of the Indenture (as amended by the Sixty-eighth Supplemental Indenture) provide that any modification or alteration of the Indenture may be made if (a) the Trustee shall receive the written consent (in any number of instruments of similar tenor executed by bondholders or by their attorneys appointed in writing) of the holders of a majority or more in principal amount of the bonds Outstanding under the Indenture in lieu of the holding of a meeting pursuant to Article XIX of the Indenture and in lieu of all action at such a meeting and with the same force and affect as a resolution duly adopted in accordance with the provisions of Section 113 of the Indenture and (b) such modification or alteration shall be approved by Resolution of the Board of Directors of the Company, as specified in Section 114, subject to the exceptions provided in Sections 71, 80 and 113 of the Indenture;

WHEREAS, Section 115 of the Indenture provides that instruments supplemental to the Indenture embodying any such modification or alteration may be executed and delivered by the Trustee and the Company;

WHEREAS, the Company now desires to make certain modifications or alterations of the Indenture with the consent of the holders of a majority or more in principal amount of the bonds Outstanding;

WHEREAS, the execution and delivery by the Company of this Sixty-ninth Supplemental Indenture have been duly authorized by the Board of Directors of the Company by appropriate Resolutions of said Board of Directors; and

WHEREAS, the holder of a majority or more in principal amount of the bonds Outstanding under the Indenture, has consented in writing to the modifications or alterations set forth in this Sixty-ninth Supplemental Indenture.

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.  New Definitions. Section 2 of the Indenture is hereby amended to add the following paragraphs at the end of Section 2:

The term "corporation" shall mean "corporation, limited liability company, partnership, or trust or other legal entity."

The term "corporate existence" shall mean existence as a legal entity and shall not be interpreted to prevent the Company from changing from one form of legal entity to another.

The term "stockholder" shall mean a holder of any common stock or similar equity security of the Company, a comparable member of the Company if it is a limited liability company, or the owner of comparable equity interests in the Company if the Company becomes another type of legal entity.

The term "Authorized Officer" means the Chairman of the Board, the President, any Vice President or the Treasurer of the Company, or any other person duly authorized pursuant to a Board Resolution to act in respect of matters relating to this Indenture.

The term "2001 Indenture" shall mean the Indenture dated as of August 1, 2001 between the Company and JPMorgan Chase Bank (formerly The Chase Manhattan Bank) as trustee, as amended and supplemented.

The term "2001 Trustee" shall mean JPMorgan Chase Bank (formerly The Chase Manhattan Bank) as trustee under the 2001 Indenture.

SECTION 2.  Officer's Certificate. The definition of the term "Officers' Certificate" in Section 2 of the Indenture is hereby amended to read as follows:

The term "Officer's Certificate" means a certificate signed by an Authorized Officer of the Company and delivered to the Trustee.

The term "Officers' Certificate" is hereby changed to Officer's Certificate wherever it appears in the Indenture.

SECTION 3.  Dividend Covenant. Section 39(III) of the Indenture is hereby deleted.

SECTION 4.  Release Provision. Subdivisions (1) and (2) of the first paragraph of Section 59 are hereby amended to read as follows:

(1) a written order or request signed in the name of the Company by an Authorized Officer requesting the release of such property and transmitting therewith a form of instrument or instruments to effect such release;

(2) an Officer's Certificate describing the property to be released and stating that the Company is not in default in the payment of the interest on any bonds then Outstanding hereunder and that none of the Defaults defined in Section 65 hereof has occurred and is continuing;

The text of clause (a) of subdivision (3) of the first paragraph of Section 59 of the Indenture is hereby deleted.

SECTION 5.  Insurance Provision. The first sentence of Section 37 of the Indenture is hereby amended to read as follows: "That it will keep or cause to be kept all the property subject to the Lien hereof insured against fire to the extent that property of similar character is usually so insured by companies similarly situated and operating like properties, to a reasonable amount, by reputable insurance companies, any loss, except as to materials and supplies and except at to any particular loss less than the greater of (A) Ten Million Dollars ($10,000,000) and (B) three percent (3%) of the sum of (1) the principal amount of Securities Outstanding (as defined in the 2001 Indenture) on the date of such particular loss and (2) the principal amount of Class A Bonds Outstanding (as defined in the 2001 Indenture) on the date of such particular loss, other than Class A Bonds (as defined in the 2001 Indenture) delivered to and held by the 2001 Trustee under the 2001 Indenture, to be made able to the Trustee as the interest of the Trustee may appear, or to the trustee or other holder of any mortgage or other lien constituting a Qualified Lien or a lien prior hereto upon the property subject to the Lien hereof, if the terms thereof require losses so to be made payable; or that it will, in lieu of or supplementing such insurance in whole or in part, adopt some other method or plan of protection against loss by fire at least equal in protection to the method or plan of protection against loss by fire of companies similarly situated and operating properties subject to similar fire hazards or on which properties an equal primary fire insurance rate has been set by reputable insurance companies, and that if it shall adopt such other method or plan, it will, except as to materials and supplies and except at to any particular loss less than the greater of (A) Ten Million Dollars ($10,000,000) and (B) three percent (3%) of the sum of (1) the principal amount of Securities Outstanding under the 2001 In denture on the date of such particular loss and (2) the principal amount of Class A Bonds Outstanding on the date of such particular loss, other than Class A Bonds delivered to and held by the 2001 Trustee under the 2001 Indenture, pay to the Trustee on account of any loss sustained by reasons of the destruction or damage of such property by fire, an amount of cash equal to such loss less any amounts otherwise paid to the Trustee or to the trustee or other holder of any mortgaged or other lien constituting a Qualified Lien or a lien prior hereto upon property subject to the Lien hereof, if the terms thereof require losses so to be paid.

SECTION 6.  Net Earnings Test. Any provision in this Indenture that requires a net earnings test or net earnings certificate as a condition precedent to the issuance or authentication of bonds under the Indenture is hereby deleted, including, but not limited to, the text of Section 27, the text of subdivision (6) of Section 28, and the penultimate paragraph of Section 29.

SECTION 7.  Signatures on Bonds. The first sentence of Section 14 of the Indenture is hereby amended to read as follows:

All bonds authenticated and delivered hereunder shall from time to time, be executed on behalf of the Company by an Authorized Officer, whose signature may be facsimile, and may have the corporate seal of the Company affixed or reproduced thereon attested by its Secretary, any Assistant Secretary or any other Authorized Officer, whose signature may be facsimile.

ARTICLE II.

Miscellaneous Provisions

SECTION 8.  The terms defined in the Mortgage, as heretofore supplemented, shall, for all purposes of this Sixty-ninth Supplemental Indenture, have the meanings specified in the Mortgage, as heretofore supplemented.

SECTION 9.  Whenever in this Sixty-ninth 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 Sixty-ninth 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 10.  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 Sixty-ninth 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 Sixty-eighth Supplemental Indentures, shall apply to and form part of this Sixty-ninth 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 Sixty-ninth Supplemental Indenture.

SECTION 11.  Nothing in this Sixty-ninth 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 Sixty-ninth Supplemental Indenture or by any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Sixty-ninth 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 12.  This Sixty-ninth 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 Sixty-ninth 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 BANKERS TRUST COMPANY does hereby constitute and appoint Susan Johnson, a Vice President of BANKERS TRUST COMPANY, to be its attorney for it, and in its name and as and for its corporate act and deed to acknowledge this Sixty-ninth 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 BANKERS TRUST COMPANY 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

BANKERS TRUST COMPANY

By:                                     
Name:Susan Johnson
Title:Vice President

Attest:

COMMONWEALTH OF PENNSYLVANIA)

                                                                         ) ss.:

COUNTY OF LEHIGH                                 )

On this 16^th day of January, 2002, 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 JERSEY      )

                                                    ) ss.:

COUNTY OF UNION               )

On this 28^th day of January, 2002, before me, a notary public, the undersigned officer, personally appeared SUSAN JOHNSON, who acknowledged herself to be a Vice President of BANKERS TRUST COMPANY, 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

Bankers Trust Company hereby certifies that its precise name and address as Trustee hereunder are:

Bankers Trust Company
4 Albany Street
New York, New York 10006

BANKERS TRUST COMPANY

By:                      
Name:Susan Johnson
Title:Vice President

EX-10

Exhibit 10(g)

MASTER POWER PURCHASE AND SALE AGREEMENT

COVER SHEET

This Master Power Purchase and Sale Agreement (this "Master Agreement") is made as of the following date: October 15, 2001 (the "Effective Date"). The Master Agreement, together with the exhibits, schedules and any written supplements hereto, the Party A Tariff, if any, the Party B Tariff, if any, any designated collateral, credit support or margin agreement or similar arrangement between the Parties and all Transactions (including any confirmations accepted in accordance with Section 2.3 hereto) shall be referred to as the "Agreement." The Parties to this Master Agreement are the following:

Party A:	The Montana Power Company			Party B:	PPL Montana, LLC, by and through its duly authorized agent, PPL EnergyPlus, LLC
All Notices:				All Notices:
Street:	40 E. Broadway			Street:	45 Basin Creek Road
City:	Butte, MT	Zip:	59701	City:	Butte, MT	Zip:	59701
Attn:	Dan Hickman			Attn:	Director of Trading and Marketing
Phone:	406-497-2814			Phone:	406-533-3500
Facsimile:	406-497-2629			Facsimile:	406-533-0208
Duns:	00-277-8090			Duns:	123356797
Tax ID:	81-0170530			Tax ID:	54-1928759
Invoices:				Invoices:
Attn:	Lisa Barkell			Attn:	Manager of Accounting
Phone:	406-497-3339			Phone:	406-533-3504
Facsimile:	406-497-2629			Facsimile:	406-533-0208
Scheduling:				Scheduling:
Attn:	Dan Hickman			Attn:	Preschedule Desk
Phone:	406-497-2814			Phone:	406-533-3570
Facsimile:	406-497-2629			Facsimile:	406-533-0208
Payments:				Payments:
Attn:	Lisa Barkell			Attn:	Accounting
Phone:	406-497-3339			Phone:	406-533-3502
Facsimile:	406-497-2629			Facsimile:	406-533-0208
Wire Transfer:				Wire Transfer:
Bank:	US Bank			Bank:	Mellon Bank
ABA:	092900383			ABA:	031000037
Account:	156210000816			Account:	2-959-997
Credit and Collections:				Credit and Collections:
Attn:	Ellen Senechal			Attn:	Credit Risk Manager
Phone:	406-497-2666			Phone:	610-774-6053
Facsimile:	406-497-2150			Facsimile:	610-774-5235
With additional Notices of an Event of Default or Potential Event of Default to:				With additional Notices of an Event of Default or Potential Event of Default to:
Attn:	Ellen Senechal			Attn:	PPL Corporation Office of General Counsel Two North Ninth Street Allentown, PA 18101-1179
Phone:	406-497-2666			Phone:	610-774-5529
Facsimile:	406-497-2150			Facsimile:	610-774-6726

The Parties hereby agree that the General Terms and Conditions are incorporated herein, and to the following provisions as provided for in the General Terms and Conditions:

Party A Tariff	Tariff	FERC	Dated	1/06/97	Docket Number	ER97-449-000
Party B Tariff	Tariff	FERC	Dated	8/24/99	Docket Number	ER99-3491-000

Article Two
Transaction Terms and Conditions	[ ] Optional provision in Section 2.4. If not checked, inapplicable.

Article Four
Remedies for Failure to Deliver or Receive	[x] Accelerated Payment of Damages. If not checked, inapplicable.

Article Five	[_] Cross Default for Party A:
Events of Default; Remedies	[x] Party A:	Cross Default Amount $_____________	REDACTED
	[_] Other Entity:	Cross Default Amount $____________
	[_] Cross Default for Party B
	[x] Party B:	Cross Default Amount $____________	REDACTED
	[_] Other Entity:	Cross Default Amount $____________
	5.6 Closeout Setoff
		[X] Option A (Applicable if no other selection is made.)
		[_] Option B - Affiliates shall have the meaning set forth in the Agreement unless otherwise specified as follows:
		[_] Option C (No Setoff)

Article Eight	Credit and Collateral Requirements
8.1 Party A Credit Protection:		8.2 Party B Credit Protection:
REDACTED		REDACTED

Article Ten
Confidentiality	[x] Confidentiality Applicable If not checked, inapplicable. See Explanation Below

Schedule M
	[_] Party A is a Governmental Entity or Public Power System
	[_] Party B is a Governmental Entity or Public Power System
	[_] Add Section 3.6. If not checked, inapplicable
	[_] Add Section 8.6. If not checked, inapplicable
Other Changes	Specify, if any: Yes, the following changes shall be applicable:

GENERAL TERMS AND CONDITIONS.

(a) Definitions. The following definitions are amended as set forth below:

(1) Section 1.51 is amended to (i) add the phrase "for delivery" immediately before the phrase "at the Delivery Point" in the second line and (ii) delete the phrase "at Buyer's option" from the fifth line and replace it with the following: "absent a purchase."

(2) Section 1.53 is amended to (i) delete the phrase "at the Delivery Point" from the second line and (ii) delete the phrase "at Seller's option" from the fifth line and replace it with the following: "absent a sale".

(b) Events of Default.

(1) Section 5.1(g) is amended to (i) delete the romanette numeral "(i)" from the second line, (ii) delete the phrase ", or becoming capable at such time of being declared," from the eighth and ninth lines, and (iii) delete the phrase "or (ii) a default by such Party or any other party specified in the Cover Sheet for such Party in making on the due date therefor one or more payments, individually or collectively, in an aggregate amount of not less than the applicable Cross Default Amount (as specified in the Cover Sheet)" from the ninth through thirteenth lines.

(2) Section 5.1(h)(ii) is amended to delete "three (3) Business Days" on the fourth line thereof and to substitute therefor "one (1) Business Day".

(c) Declaration of an Early Termination Date and Calculation of Settlement Amount. Section 5.2 is amended to delete the following phrase from the last two lines: "under applicable law on the Early Termination Date, as soon thereafter as is reasonably practicable)", and to add the following to the end of Section 5.2: "under applicable law on the Early Termination Date, then each such Transaction (individually, an "Excluded Transaction" and collectively, the "Excluded Transactions") shall be terminated as soon thereafter as reasonably practicable, and upon termination shall be deemed to be a Terminated Transaction and the Termination Payment payable in connection with all such Transactions shall be calculated in accordance with Section 5.3 below). The Gains and Losses for each Terminated Transaction shall be determined by calculating the amount that would be incurred or realized to replace or to provide the economic equivalent of the remaining payments or deliveries in respect of that Terminated Transaction. The Non-Defaulting Party (or its agent) may determine its Gains and Losses by reference to information either available to it internally or supplied by one or more third parties including, without limitation, quotations (either firm or indicative) of relevant rates, prices, yields, yield curves, volatilities, spreads or other relevant market data in the relevant markets. Third parties supplying such information may include, without limitation, dealers in the relevant markets, end-users of the relevant product, information vendors and other sources of market information."

(d) Notice of Payment of Termination Payment. The following shall be added to the end of Section 5.4:

"Notwithstanding any provision to the contrary contained in this Agreement, the Non-Defaulting Party shall not be required to pay to the Defaulting Party any amount under Article 5 until the Non-Defaulting Party receives confirmation satisfactory to it in its reasonable discretion (which may include an opinion of its counsel) that all other obligations of any kind whatsoever of the Defaulting Party to make any payments to the Non-Defaulting Party or any of its Affiliates under this Agreement or otherwise which are due and payable as of the Early Termination Date (including for these purposes amounts payable pursuant to Excluded Transactions) have been fully and finally performed."

(e) Limitation of Remedies, Liability and Damages. The fifteenth line of Section 7.1 is amended to delete the phrase "UNLESS EXPRESSLY HEREIN PROVIDED,".

(f) Downgrade Event. Section 8.1(d) is amended to add the following phrase after the phrase "or other credit assurance acceptable to Party A within three (3) Business Days of receipt of notice": "or fails to maintain such Performance Assurance or guaranty or other credit assurance for so long as the Downgrade Event is continuing".

(g) Downgrade Event. Section 8.2(d) is amended to add the following phrase after the phrase "or other credit assurance acceptable to Party B within three (3) Business Days of receipt of notice": "or fails to maintain such Performance Assurance or guaranty or other credit assurance for so long as the Downgrade Event is continuing".

(h) Assignment. Section 10.5 is deleted and replaced in its entirety by the following: "Neither Party shall assign this Agreement or any of its rights or obligations hereunder (whether by operation of law or otherwise) without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Despite the foregoing, either Party may, without the need for consent from the other Party (and without relieving itself from liability hereunder), (1) transfer, sell, pledge, encumber or assign this Agreement or the accounts, revenues or proceeds hereof in connection with any financing or other financial arrangements, (2) transfer or assign this Agreement to an Affiliate of such Party, or (3) transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the assets of such Party; provided, however, that in the case of (2) and (3) any such assignee shall be required to have a Credit Rating not less than a "Minimum Credit Rating" (as hereinafter defined), and shall agree in writing to be bound by the terms and conditions hereof. Transfers or assignments not in compliance with the requirements of this section shall be void. For purposes of this Section 10.5, a sale, transfer or assignment of 50 percent or more of the assets or outstanding voting securities of or other equity interests in a Party shall be deemed to constitute a transfer or assignment of this Agreement by such Party. 'Minimum Credit Rating' means, with respect to any assignment, that the prospective assignee or transferee shall have long-term, senior, unsecured debt (not supported by third party credit enhancement) that is rated by S&P at "BBB-" and by Moody's at "Baa3."

(i) Confidentiality.

(1) Section 10.11 is amended to add the phrase "or the completed Cover Sheet to this Master Agreement" immediately before the phrase "to a third party" and to add the phrase "or the Party's Affiliates'" immediately after the phrase "(other than the Party's".

(2) Article 10.11 is further amended to include the following final sentence: Each Party agrees that it will make any regulatory filings under or in connection with this Agreement under protective order, if and to the extent that the applicable regulatory agency permits such filing to be made on a confidential basis.

(j) Arbitration. The following provision is added as Section 10.12:

Arbitration. Any dispute or need of interpretation arising out of this Agreement pertaining to the calculation of a payment required pursuant to Article 4 or Article 6 or the calculation of a Termination Payment pursuant to Article 5 shall be submitted to binding arbitration by one arbitrator who has not previously been employed by either Party, and does not have a direct or indirect interest in either Party or the subject matter of the arbitration. Such arbitrator shall either be selected by mutual agreement of the Parties within 15 days after written notice from either party requesting arbitration, or failing agreement, shall be selected under the American Arbitration Association (the "AAA") Commercial Arbitration Rules, using the Expedited Procedures provided therein, as amended and effective on September 1, 2000 (the "AAA Rules"). Such arbitrator shall be familiar with the electric power industry and shall possess such other qualifications as are mutually agreed by the Parties. Such arbitration shall be held in Butte, Montana. The AAA Rules shall govern the conduct of the arbitration to the extent not inconsistent with the rules herein specified, provided that in no event shall the period between the date of written notice requesting arbitration of any dispute under this section and the date of the arbitrator's decision with respect to such dispute exceed 90 days without the written consent of both Parties. Either Party may initiate arbitration by written notice to the other Party and the arbitration shall be conducted pursuant to the AAA Rules as amended to reflect the following: (a) not later than seven days prior to the hearing date set by the arbitrator each Party shall submit a brief with a single proposal for settlement; (b) the hearing shall be conducted on a confidential basis without continuance or adjournment; (c) the arbitrator shall be limited to selecting only one of the two proposals submitted by the Parties; (d) subject to any award of attorneys' fees and expenses by the arbitrator to the prevailing Party pursuant to Section 10.13, the Parties shall divide equally the cost of the arbitrator and the hearing and each Party shall be responsible for its own expenses and those of its counsel and representatives; and (e) evidence concerning the financial position or organizational make-up of the Parties, any offer made or the details of any negotiation prior to arbitration shall not be admissible or disclosable to the arbitrator. In addition, the Parties shall in good faith endeavor to provide for an expedited and informed arbitration by utilizing cooperative discovery and procedures, including without limitation disclosure of material documents, submission and response to reasonable and focused written discovery, scheduling of material and necessary depositions, disclosure of any expert reports and the scheduling and conduct of any pre-hearing conferences and pre-hearing motions, all of which shall be consistent with the intent and purpose of using the AAA Rules. With respect to all other disputes, the Parties shall be entitled to avail themselves of all remedies available at law or in equity.

Acknowledgment of Arbitration. Each Party understands that this Agreement contains an agreement to arbitrate with respect to any payment required pursuant to Article 4 or Article 6 or the calculation of a Termination Payment pursuant to Article 5. After signing this Agreement, each Party understands that it will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration provision. Instead, each Party agrees to submit any such dispute to an impartial arbitrator. Each Party hereby represents that it has read, understands and agrees to the use of the AAA Rules in connection therewith.

(k) Attorneys Fees. The following provision is added as Section 10.13:

Attorneys Fees. "In the event of any action between the Parties relating to this Agreement or the subject matter hereof, the prevailing Party shall be entitled to recover its reasonable attorneys' fees and expenses and costs of litigation, in addition to any other relief granted or awarded."

IN WITNESS WHEREOF, the Parties have caused this Master Agreement to be duly executed as of the date first above written.

THE MONTANA POWER COMPANY		PPL MONTANA, LLC
		By: PPL ENERGYPLUS, LLC, its authorized agent
By:	____________________________	By:	____________________________
Name:	William A. Pascoe ____________________________	Name:	Paul T. Champagne ____________________________
Title:	Vice President ____________________________	Title:	President ____________________________

DISCLAIMER: This Master Power Purchase and Sale Agreement was prepared by a committee of representatives of Edison Electric Institute ("EEI") and National Energy Marketers Association ("NEM") member companies to facilitate orderly trading in and development of wholesale power markets. Neither EEI nor NEM nor any member company nor any of their agents, representatives or attorneys shall be responsible for its use, or any damages resulting therefrom. By providing this Agreement EEI and NEM do not offer legal advice and all users are urged to consult their own legal counsel to ensure that their commercial objectives will be achieved and their legal interests are adequately protected.

MASTER POWER PURCHASE AND SALE AGREEMENT
CONFIRMATION LETTER

(CONFIRMATION LETTER NO. 1 - 300 MW FIRM (LD)),

This confirmation letter shall confirm the Transaction agreed to on October 15, 2001 between THE MONTANA POWER COMPANY ("Party A") and PPL MONTANA, LLC, by and through its duly authorized agent, PPL ENERGYPLUS, LLC ("Party B") regarding the sale/purchase of the Product under the terms and conditions as follows:

Seller:	PPL MONTANA, LLC, by and through its duly authorized agent, PPL ENERGYPLUS, LLC
Buyer:	THE MONTANA POWER COMPANY
Product:
[]	Into _________________, Seller's Daily Choice
[X]	Firm (LD)
[]	Firm (No Force Majeure)
[]	System Firm
	(Specify System:		__________________________________________)
[]	Unit Firm
	(Specify Unit(s):		__________________________________________)
[]	Other		__________________________________________
[]	Transmission Contingency (If not marked, no transmission contingency)
	[]	FT-Contract Path Contingency		[]	Seller	[]	Buyer
	[]	FT-Delivery Point Contingency		[]	Seller	[]	Buyer
	[]	Transmission Contingent		[]	Seller	[]	Buyer
	[]	Other transmission contingency
	(Specify:		__________________________________________)

Contract Quantity: 300 MWh/hr., 7x24 Base Load, during the Delivery Period set forth below.

Delivery Points:

Primary Delivery Points:

Party A shall designate each of the following delivery points (each, a "Primary Delivery Point"), in a Delivery Point Maximum Quantity (as hereinafter defined) equal to the amount set forth opposite the applicable Delivery Point, as a firm network delivery point into Party A's Transmission System (as hereinafter defined) under the Network Service Agreement (as hereinafter defined):

Primary Delivery Point			Delivery Point Maximum Quantity
PPL Westside Hydro Generation				75 MW
	Thompson Falls:			25 MW
		the 100 kV bus in the original Thompson Falls Powerhouse
	Kerr:			50 MW
		the 100 kV bus in Party A's Kerr Switchyard
PPL Eastside Hydro Generation				150 MW
	Mystic:			2 MW
		the 50 kV bus at Party A's Line Creek Substation
	Madison:			6 MW
		the 100 kV bus in Party A's Bradley Creek Substation
	Hauser:			11 MW
		the 69 kV bus located in the Hauser Powerhouse
	Holter:			22 MW
		the 100 kV bus located in the Holter Powerhouse
	Black Eagle:			9 MW
		the 100 kV bus located at Party A's Riverview Substation
	Rainbow, Cochrane, Ryan:			78 MW
		the 69 kV bus located at Party A's Rainbow Substation, or
		the 100 kV bus located at Party A's Rainbow Substation
	Morony:			22 MW
		the 100 kV bus at Party A's Great Falls switchyard
	Corette			50 MW
		the 100 kV bus in Party A's Billings Steam Plant switchyard
	Colstrip 1-2			25 MW
		the 230kV bus in Party A's Colstrip switchyard

"Delivery Point Maximum Quantity" means the maximum transmission capacity amount designated, in accordance with the terms and conditions of this Agreement, for deliveries and receipts of energy under this Agreement at any Primary Delivery Point.

"Party A's Transmission System" means each and all of the transmission facilities that are owned, operated or controlled by Party A, and any and all transmission facilities that are sold, transferred or assigned by Party A to any person or entity acquiring, at any time during the term of this Agreement, all or substantially all of the transmission facilities owned, operated or controlled by Party A. Without limiting the foregoing, in the event that any facilities comprising part of Party A's Transmission System are at any time during the term of this Agreement reclassified as distribution or generation integration facilities, such facilities shall nonetheless be and remain part of Party A's Transmission System for purposes of this Agreement.

"Network Service Agreement" means each and every service agreement for network integration (or successor) transmission service entered into by Party A, in its capacity as default supplier, under Party A's Open Access Transmission Tariff (as hereinafter defined) or the Open Access Transmission Tariff of any other transmission provider.

"Party A's Open Access Transmission Tariff" means the FERC-approved Open Access Transmission Tariff of Party A or of any other person or entity owning or operating any portion of Party A's Transmission System, if such portion of Party A's Transmission System does or might affect the rights or obligations of either Party under this Agreement.

The Parties may change Primary Delivery Points from time to time by mutual agreement of the Parties in each instance; provided, however, that the Parties shall be entitled to change any Primary Delivery Point only to the extent that firm transmission capacity is available under the Network Service Agreement at such time at such Delivery Point in the amount of the Delivery Point Maximum Quantity sought by the Parties. Effective upon any such change in Primary Delivery Points, Party A shall designate the new Primary Delivery Point, in an amount equal to the applicable Delivery Point Maximum Quantity, as a firm network delivery point into Party A's Transmission System under the Network Service Agreement.

In no event shall Party B incur any charge or cost whatsoever for or in connection with any change of any Primary Delivery Points. In no event shall Party B bear any risk, charge or cost whatsoever for or in respect of any network redispatch under or in connection with the Network Service Agreement, and Party A shall bear the entire risk thereof and each and all of the costs caused by or resulting therefrom.

Alternate Delivery Points:

Upon any request by Party B, Party A shall, without any charge to Party B, arrange with the applicable transmission provider for receipt of all or a portion of the Contract Quantity at one or more of the non-firm alternate Delivery Points set forth below (any such alternate Delivery Point, an "Alternate Delivery Point") under the Network Service Agreement, at any on-system points of interconnection (including any generation integration points) or any points of interconnection of Party A's Transmission System with any other transmission system or control area, in each case as requested by Party B and subject in each case to the availability of sufficient transmission capacity to receive such quantities at such Alternate Delivery Points. Any such Alternate Delivery Points shall be subject to the terms and conditions of the applicable transmission provider's Open Access Transmission Tariff and all applicable FERC requirements, including as to priority of service (including cases of competing uses by Party A). If such Alternate Delivery Points are or become unavailable for any reason, Party B shall be required to deliver the applicable quantities to Party A at one or more Alternate Delivery Points or Primary Delivery Points.

Alternate Delivery Points:

Colstrip 3-4	the 500 kV bus in Party A's Colstrip switchyard
Broadview	Party A's Broadview Substation
Party A interties	any intertie between Party A and an adjacent control area
Other mutually agreed points.

In the event that Party A has reserved network service transmission capacity under the Network Service Agreement for designated network resources, and such transmission capacity is at any time available for deliveries and receipts of energy at any Alternate Delivery Points, Party A shall, upon any request by Party B, and without any charge to Party B, make such capacity available to Party B, for purposes of deliveries of energy under this Agreement, on a day-ahead basis (or further in advance, by mutual agreement of the Parties) prior to releasing any such transmission capacity for use by any other Person under the applicable transmission provider's Open Access Transmission Tariff.

Contract Price:

Energy Price: $31.15/MWh
Other Charges:	_______________________________________________________________

Delivery Period: HE 1:00 Montana time on July 1, 2002 through HE 24:00 Montana time on June 30, 2007

Special Condition #1: The following modification to the Master Agreement (as defined below):

Section 10.2 (vi) is amended by inserting at the end thereof the following: "except (A) Docket No. D97.7.90, MPSC Order No. 5986t, Order on Commission Authority and Montana Power Company Obligations Pursuant to the Electric Utility Industry and Customer Choice Act, (B) McGreevey, et al. v. The Montana Power Company, et al., Cause No. DV-01-141 (the "Shareholder Action"), (C) PPL Montana, LLC v. Feland, et al., United States District Court for the District of Montana, Helena Division (Civil No. CV-01-34-H-DWM), (D) The Montana Power Company v. Montana Department of Public Service Regulation, et al., Montana First Judicial District, Lewis and Clark County, Cause No. BDV-2001-0552, and (E) Single Moms, Inc., et al. v. The Montana Power Company, et al., United States District Court for the District of Montana, Butte Division (Civil No. CV-01-46-BU-DWM).

Special Condition #2:

Party B shall file this Agreement with the FERC as soon as reasonably practicable after the execution and delivery of this Agreement. In the event that on or before December 31, 2001, the FERC (a) issues an order failing to accept this Agreement for filing, failing to permit this Agreement, including the rates to be charged hereunder, to become effective, or requiring amendment or modification of this Agreement, which order is unacceptable to either Party in such Party's sole discretion (an "Unacceptable Order"), or (b) fails, on or before December 31, 2001, to issue a final order which is acceptable to each Party in such Party's sole discretion, and with respect to which no person or entity files any judicial appeal, accepting this Agreement for filing or otherwise permitting this Agreement, including the rates to be charged hereunder, to be or become effective, the Parties shall be required, for a period of 15 days following the earlier of issuance of the Unacceptable Order or December 31, 2001, to negotiate in good faith regarding amendment of this Agreement to satisfy the requirements of the FERC and of the Parties, in each Party's sole discretion; provided, however, that neither Party shall be required to agree to any amendment of this Agreement, or to enter into any other Agreement, as a result of such negotiations. In the event that the Parties are unable to reach agreement regarding such amendment of this Agreement during such 15-day period, either Party shall be entitled to terminate this Agreement, and each and all of the rights and obligations of both Parties hereunder, effective immediately upon notice to the other Party.

Special Condition #3:

Notwithstanding any other provision of this Agreement, including but not limited to any provision of Article 10, either Party shall be entitled to disclose to any person at any time, without any liability whatsoever, the Products, Product quantities and Delivery Period which are the subject of the Transaction under this Confirmation Letter, and the aggregate revenues and aggregate average purchase price payable to Party B by Party A with respect to the Transaction which is the subject of this Confirmation Letter and the Transaction which is the subject of Confirmation Letter No. 2 - 150 MW Unit Firm entered into by the Parties contemporaneously with this Confirmation Letter.

Special Condition #4:

Party B will provide operating reserves (spinning and supplemental) for this transaction in accordance with NERC and WSCC requirements.

Scheduling: WSCC standard operating procedures

Option Buyer:	_________________________________________________________________
Option Seller:	_________________________________________________________________
	Type of Option:	_________________________________________________
	Strike Price:	_________________________________________________
	Premium:	_________________________________________________
	Exercise Period:	_________________________________________________

This confirmation is being provided pursuant to and in accordance with the Master Power Purchase and Sale Agreement dated October 15, 2001 (the "Master Agreement") between Party A and Party B, and constitutes part of and is subject to the terms and provisions of such Master Agreement. Terms used but not defined herein shall have the meanings ascribed to them in the Master Agreement.

THE MONTANA POWER COMPANY		PPL MONTANA, LLC, by and through its duly authorized agent, PPL ENERGYPLUS, LLC
_____________________________________		_____________________________________
William A. Pascoe Vice President		Paul T. Champagne President
Phone No:	____________________________	Phone No:	____________________________
Fax:	____________________________	Fax:	____________________________

MASTER POWER PURCHASE AND SALE AGREEMENT
CONFIRMATION LETTER

(CONFIRMATION LETTER NO. 2 - 150 MW UNIT FIRM)

This confirmation letter shall confirm the Transaction agreed to on October 15, 2001 between THE MONTANA POWER COMPANY ("Party A") and PPL MONTANA, LLC, by and through its duly authorized agent, PPL ENERGYPLUS, LLC ("Party B") regarding the sale/purchase of the Product under the terms and conditions as follows:

Seller:	PPL MONTANA, LLC, by and through its duly authorized agent, PPL ENERGYPLUS, LLC
Buyer:	THE MONTANA POWER COMPANY
Product:
[]	Into _________________, Seller's Daily Choice
[]	Firm (LD)
[]	Firm (No Force Majeure)
[]	System Firm
	(Specify System:		__________________________________________)
[x]	Unit Firm
	(Specify Unit(s): REDACTED
[]	Other		__________________________________________
[]	Transmission Contingency (If not marked, no transmission contingency)
	[]	FT-Contract Path Contingency		[]	Seller	[]	Buyer
	[]	FT-Delivery Point Contingency		[]	Seller	[]	Buyer
	[]	Transmission Contingent		[]	Seller	[]	Buyer
	[]	Other transmission contingency
	(Specify:		__________________________________________)

Contract Quantity: 150 MW, 6x16, Heavy Load hours (HE 8:00 Montana time through HE 23:00 Montana time, Monday through Saturday, excluding NERC holidays, for the Delivery Period set forth below).

Delivery Points:

Primary Delivery Points:

ARTICLE ONE:   REDACTED

Alternate Delivery Points:

Upon any request by Party B, Party A shall, without any charge to Party B, arrange with the applicable transmission provider for receipt of all or a portion of the Contract Quantity at one or more of the non-firm alternate Delivery Points set forth below (any such alternate Delivery Point, an "Alternate Delivery Point") under the Network Service Agreement, at any on-system points of interconnection (including any generation integration points) or any points of interconnection of Party A's Transmission System with any other transmission system or control area, in each case as requested by Party B and subject in each case to the availability of sufficient transmission capacity to receive such quantities at such Alternate Delivery Points. Any such Alternate Delivery Points shall be subject to the terms and conditions of the applicable transmission provider's Open Access Transmission Tariff and all applicable FERC requirements, including as to priority of service (including cases of competing uses by Party A). If such Alternate Delivery Points are or become unavailable for any reason, Party B shall be required to deliver the applicable quantities to Party A at one or more Alternate Delivery Points or Primary Delivery Points.

Alternate Delivery Points:
	PPL Hydro Generation
	Thompson Falls:	the 100 kV bus in the original Thompson Falls Powerhouse
	Kerr:	the 100 kV bus in Party A's Kerr Switchyard
	Mystic:	the 50 kV bus at Party A's Line Creek Substation
	Madison:	the 100 kV bus in Party A's Bradley Creek Substation
	Hauser:	the 69 kV bus located in the Hauser Powerhouse
	Holter:	the 100 kV bus located in the Holter Powerhouse
	Black Eagle:	the 100 kV bus located at Party A's Riverview Substation
	Rainbow, Cochrane, Ryan:
		the 69 kV bus located at Party A's Rainbow Substation, or
		the 100 kV bus located at Party A's Rainbow Substation
	Morony:	the 100 kV bus at Party A's Great Fall's switchyard
	Colstrip 3-4
		the 500 kV bus in Party A's Colstrip switchyard
	Broadview
		Party A's Broadview Substation
	Party A interties: Any intertie between Party A and an adjacent control area
	Other mutually agreed points.

In the event that Party A has reserved network service transmission capacity under the Network Service Agreement for designated network resources, and such transmission capacity is at any time available for deliveries and receipts of energy at any Alternate Delivery Points, Party A shall, upon any request by Party B, and without any charge to Party B, make such capacity available to Party B, for purposes of deliveries of energy under this Agreement, on a day-ahead basis (or further in advance, by mutual agreement of the Parties) prior to releasing any such transmission capacity for use by any other Person under the applicable transmission provider's Open Access Transmission Tariff.

Contract Price:

Energy Price: $34.93/MWh

Other Charges: ____________________________________________________________

Delivery Period: HE 8:00 Montana time on July 1, 2002 through HE 23:00 Montana time on June 30, 2007

Special Condition #1: The following modification to the Master Agreement (as defined below):

Section 10.2 (vi) is amended by inserting at the end thereof the following: "except (A) Docket No. D97.7.90, MPSC Order No. 5986t, Order on Commission Authority and Montana Power Company Obligations Pursuant to the Electric Utility Industry and Customer Choice Act, (B) McGreevey, et al. v. The Montana Power Company, et al., Cause No. DV-01-141 (the "Shareholder Action"), (C) PPL Montana, LLC v. Feland, et al., United States District Court for the District of Montana, Helena Division (Civil No. CV-01-34-H-DWM), (D) The Montana Power Company v. Montana Department of Public Service Regulation, et al., Montana First Judicial District, Lewis and Clark County, Cause No. BDV-2001-0552, and (E) Single Moms, Inc., et al. v. The Montana Power Company, et al., United States District Court for the District of Montana, Butte Division (Civil No. CV-01-46-BU-DWM).

Special Condition #2:

Party B shall file this Agreement with the FERC as soon as reasonably practicable after the execution and delivery of this Agreement. In the event that on or before December 31, 2001, the FERC (a) issues an order failing to accept this Agreement for filing, failing to permit this Agreement, including the rates to be charged hereunder, to become effective, or requiring amendment or modification of this Agreement, which order is unacceptable to either Party in such Party's sole discretion (an "Unacceptable Order"), or (b) fails, on or before December 31, 2001, to issue a final order which is acceptable to each Party in such Party's sole discretion, and with respect to which no person or entity files any judicial appeal, accepting this Agreement for filing or otherwise permitting this Agreement, including the rates to be charged hereunder, to be or become effective, the Parties shall be required, for a period of 15 days following the earlier of issuance of the Unacceptable Order or December 31, 2001, to negotiate in good faith regarding amendment of this Agreement to satisfy the requirements of the FERC and of the Parties, in each Party's sole discretion; provided, however, that neither Party shall be required to agree to any amendment of this Agreement, or to enter into any other Agreement, as a result of such negotiations. In the event that the Parties are unable to reach agreement regarding such amendment of this Agreement during such 15-day period, either Party shall be entitled to terminate this Agreement, and each and all of the rights and obligations of both Parties hereunder, effective immediately upon notice to the other Party.

Special Condition #3:

Notwithstanding any other provision of this Agreement, including but not limited to any provision of Article 10, either Party shall be entitled to disclose to any person at any time, without any liability whatsoever, the Products, Product quantities and Delivery Period which are the subject of the Transaction under this Confirmation Letter, and the aggregate revenues and aggregate average purchase price payable to Party B by Party A with respect to the Transaction which is the subject of this Confirmation Letter and the Transaction which is the subject of Confirmation Letter No. 1 - 300 MW Firm (LD) entered into by the Parties contemporaneously with this Confirmation Letter.

Special Condition #4:

1.1  REDACTED

Special Condition #5:

Party B's obligations to deliver and Party A's obligations to receive the Products under this Transaction shall not be excused by scheduled maintenance or scheduled outage of any generating unit.

The performance of Party A under this Agreement shall be excused, and no damages shall be payable, including any amounts determined pursuant to Article Four (all as and to the extent provided in Section 3.3 of the Agreement), in the event that transmission for the Transaction is curtailed from the Delivery Point due to Force Majeure (as defined in Section 1.23 of the Agreement). The performance of Party B under this Agreement shall be excused, and no damages shall be payable, including any amounts determined pursuant to Article Four (all as and to the extent provided in Section 3.3 of the Agreement), in the event that transmission for the Transaction is curtailed to the Delivery Point due to Force Majeure (as defined in Section 1.23 of the Agreement).

Scheduling: WSCC standard operating procedures

Option Buyer:	_________________________________________________________________
Option Seller:	_________________________________________________________________
	Type of Option:	_________________________________________________
	Strike Price:	_________________________________________________
	Premium:	_________________________________________________
	Exercise Period:	_________________________________________________

This confirmation is being provided pursuant to and in accordance with the Master Power Purchase and Sale Agreement dated October 15, 2001 (the "Master Agreement") between Party A and Party B, and constitutes part of and is subject to the terms and provisions of such Master Agreement. Terms used but not defined herein shall have the meanings ascribed to them in the Master Agreement.

THE MONTANA POWER COMPANY		PPL MONTANA, LLC, by and through its duly authorized agent, PPL ENERGYPLUS, LLC
_____________________________________		_____________________________________
William A. Pascoe Vice President		Paul T. Champagne President
Phone No:	____________________________	Phone No:	____________________________
Fax:	____________________________	Fax:	____________________________

EX-10

Exhibit 10(h)

PPL CORPORATION
                   


AMENDED AND RESTATED PARENT GUARANTY

                   

Dated as of November 30, 2000

AMENDED AND RESTATED PARENT GUARANTY

AMENDED AND RESTATED PARENT GUARANTY, dated as of November 30, 2000 (this "Guaranty"), by PPL CORPORATION, a Pennsylvania corporation (the "Guarantor"), to LARGE SCALE DISTRIBUTED GENERATION STATUTORY TRUST, a Connecticut Statutory Trust (the "Lessor"). Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Amended and Restated Participation Agreement dated as of the date hereof among PPL Large Scale Distributed Generation, LLC (the "Lessee" or the "Company"), the Lessor, State Street Bank and Trust Company of Connecticut, National Association, as Trustee, the Persons named therein as Certificate Holders and Note Holders, and Citibank, N.A., as Agent (the "Agent") (as the same may be amended, supplemented or otherwise modified from time to time in accordance with the applicable provisions thereof, the "Participation Agreement").

Preliminary Statement

A.The Guarantor executed the Original Guaranty in favor of the Lessor, and the Guarantor and the Lessor desire to amend and restate the Original Guaranty on the terms set forth herein in connection with the transactions described in Part I of Appendix A to the Participation Agreement.

B.As contemplated by the Participation Agreement, the Lessor will acquire title to the Equipment from the applicable Supplier pursuant to the applicable Purchase Contract and lease the Equipment to the Lessee.

C.To finance the acquisition by the Lessor of its interest in the Equipment, the Lessor will issue the Notes and the Certificates.

D.The Guarantor intends this Guaranty to be an inducement for (i) the Lessor, the Holders and the Agent to enter into the transactions described in Part I of Appendix A of the Participation Agreement and as contemplated by the Operative Documents, (ii) the Note Holders to purchase the Notes, and (iii) the Certificate Holders to purchase the Certificates, all of which the Agent, the Lessor, the Note Holders and the Certificate Holders would be unwilling to do if the Guarantor did not execute and deliver this Guaranty.

E.This Guaranty has been consented to and approved by the Lessor, the Agent and the Holders pursuant to Section 9.27 of the Participation Agreement.

NOW, THEREFORE, in consideration of the premises and intending to be legally bound by this Guaranty, the Guarantor hereby agrees to be bound as follows:

1.  Guaranty. The Guarantor unconditionally guarantees and agrees with the Lessor that all Rent, the Residual Value Amount, the Permitted Lease Balance, the Termination Value, all indemnification payments required to be made pursuant to Section 9.14 of the Participation Agreement and all other sums stated in the Operative Documents to the extent payable by the Company thereunder, including the amount required to be deposited into the Cash Collateral Account by the Company pursuant to Section 1.07 of the Participation Agreement, will be promptly paid in full when due, whether at stated maturity, by acceleration or otherwise, in accordance with the provisions of the Operative Documents. For the avoidance of doubt, the Guarantor shall not guaranty the payments due to any Supplier under any Purchase Contract. Notwithstanding anything contained herein to the contrary the Guarantor's maximum aggregate obligation under this Guaranty shall not exceed the amount of $555,000,000, plus the following: (i) to the extent payable by the Company or included in calculating any amount which is payable by the Company, (a) all accrued and unpaid interest on the Notes and (b) all accrued and unpaid Distributions on the Certificates, (ii) all indemnification payments required to be made by the Company pursuant to Section 9.14 of the Participation Agreement, (iii) all amounts representing Closing Costs payable by the Company under the Operative Documents, (iv) all amounts representing Unreimbursed Losses payable by the Company under the Operative Documents, (v) all Additional Rent payable by the Company under the Operative Documents, (vi) all other amounts owed by the Company under the Operative Documents and (vii) all interest on any of the foregoing amounts (including overdue interest).

2.  Nature of the Guaranty. (a)  This Guaranty shall be irrevocable, and in all events shall be continuing, unconditional and absolute, and if for any reason any sums stated in the other Operative Documents to be payable by Lessee, or any part thereof, shall not be paid promptly when due, subject to the terms of the Operative Documents, then upon demand of payment made by the Lessor to the Guarantor, the Guarantor shall pay the same to or for the benefit of the Lessor pursuant to and in accordance with the provisions of the Operative Documents, regardless of any defenses or rights of set-off or counterclaim, regardless of whether the Lessor shall have taken any steps to enforce its rights against the Guarantor, the Lessee or any other Person, to collect such sums, or any part thereof, and regardless of any other condition or contingency. The Guarantor also agrees to pay on demand to the Lessor such further amounts as shall be sufficient to cover the reasonable costs and expenses of collecting such sums, or part thereof, or of otherwise enforcing this Guaranty, including, in any case, reasonable compensation to their respective attorneys for all services rendered in that connection.

(b)Any and all payments by the Guarantor hereunder shall be made on an After Tax Basis free and clear of and without deduction for any and all present or future Charges and all liabilities with respect thereto. If the Guarantor shall be required by Law to deduct any Charges from or in respect of any sum payable hereunder, (i)  the amounts payable by the Guarantor shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this paragraph 2(b)) the Lessor receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Guarantor shall make such deductions and (iii) the Guarantor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law.

3.  The Guarantor hereby unconditionally (a) waives any requirement that the Agent, the Lessor, the Note Holders and the Certificate Holders first make demand upon, or seek to enforce remedies against, any other Person or any of the collateral or property of such other Person before demanding payment from, or seeking to enforce this Guaranty against, the Guarantor; (b) covenants that this Guaranty will not be discharged except by complete satisfaction of all payment obligations of the Lessee contained in the Operative Documents; (c) agrees that this Guaranty shall remain in full effect without regard to, and shall not be affected or impaired by, any invalidity, illegality, irregularity or unenforceability in whole or in part of any other Operative Document (and the Guarantor hereby waives any defense relating to the enforceability of the Operative Documents or any provision contained therein) or except as expressly set forth herein or in the Operative Documents, or any limitation of the liability of the Company thereunder or any limitation on the method or terms of payment thereunder which may now or hereafter be caused or imposed in any manner whatsoever; (d)  waives diligence, presentment and protest with respect to, and, except as expressly provided herein or in the Operative Documents, any notice of default in, the payment of any amount at any time payable under or in connection with the Instruments or any of the Operative Documents; and (e) agrees that each and every right, power and remedy given under this Guaranty or any other Operative Document shall be cumulative and not exclusive, and be in addition to all other rights, powers and remedies now or hereafter granted or otherwise existing.

4.  Until all obligations of the Lessee under the Operative Documents have been indefeasibly paid in full, the Guarantor hereby irrevocably waives, to the extent permitted by applicable Law, any claim, remedy or right that it may now have or hereafter acquire against the Lessee that arise from the existence, payment, performance or enforcement of the obligations of the Lessee under any other Operative Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Agent, the Lessor, any Note Holder or any Certificate Holder against the Lessee whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Lessee directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right. If any amount shall be paid to the Guarantor in violation of the preceding sentence at any time prior to the indefeasible cash payment in full of all amounts payable under this Guaranty, such amount shall be held in trust for the benefit of the Lessor, and shall forthwith be paid to the Lessor and be credited and applied to the amounts payable under this Guaranty. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangement contemplated by the Operative Documents and that the waiver set forth in this subsection is knowingly made in contemplation of such benefits. Notwithstanding the foregoing, the obligation to hold amounts in trust shall not have effect to the extent that it would otherwise create or take effect as a charge or security interest over such amounts.

5.  To the extent permitted by applicable Law, the obligations, undertakings and conditions to be performed or observed by the Guarantor under this Guaranty shall not be affected or impaired by reason of the happening from time to time of any of the following with respect to the Operative Documents, all without notice to, or the further consent of, the Guarantor:

(a)the waiver by the Agent, the Lessor, any Note Holder or any Certificate Holder or any other Person of the observance or performance by the Lessee or the Guarantor of any of the obligations, undertakings or conditions contained in any of the Operative Documents, except to the extent of such waiver;

(b)the extension, in whole or in part, of the time for payment of any amount owing or payable under any of the Instruments, the Loan Agreement, or any other Operative Document or of any other sums or obligations under or arising out of or on account of the Instruments, the Loan Agreement or any other Operative Document except to the extent of such extension;

(c)the modification or amendment (whether material or otherwise) of any of the obligations of the Lessee, the Lessor, the Guarantor or any other guarantor under any Operative Document, except to the extent of such modification or amendment;

(d)the taking or the omission of any of the actions referred to in any other Operative Document (including, without limitation, the giving of any consent referred to therein);

(e)any failure, omission, delay or lack on the part of the Agent, the Lessor, any Note Holder, any Certificate Holder, or any other Person to enforce, assert or exercise any right, power or remedy conferred on the Agent, the Lessor, any Note Holder or any Certificate Holder or any other Person in any of the Operative Documents or any action on the part of the Agent, the Lessor, any Note Holder or any Certificate Holder, or any other Person granting indulgence or extension in any form;

(f)the release or discharge of the Agent, the Lessor, the Lessee or any other Person from the performance or observance of any obligation, undertaking or condition to be performed by the Agent, the Lessee or any other Person under any Instrument or any other Operative Document by operation of Law;

(g)the receipt and acceptance by the Agent, the Lessor, a Note Holder, a Certificate Holder, or any other Person of notes, checks or other instruments for the payment of money and extensions and renewals thereof;

(h)any action, inaction or election of remedies by the Agent, the Lessor, a Note Holder, a Certificate Holder or any other Person which results in any impairment or destruction of any subrogation rights of the Guarantor, or any rights of the Guarantor to proceed against any other Person for reimbursement;

(i)the surrender by the Agent, the Lessor, any Note Holder, any Certificate Holder or any other Person of any security at any time held for the performance or observance of any of the agreements, covenants, terms or conditions contained in the Instruments or any of the other Operative Documents;

(j)any event or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor, indemnitor or surety under the laws of the States of New York or any other applicable jurisdiction;

(k)any other circumstances whatsoever (with or without notice to or knowledge of the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Guarantor with respect to its obligations hereunder or under the other Operative Documents, in bankruptcy or in any other instance, except based on payment or performance;

(l)any change in circumstances, whether or not foreseen or foreseeable, whether or not imputable to the Guarantor, any Note Holder, any Certificate Holder, the Agent or the Lessor and whether or not such change in circumstances shall or might in any manner and to any extent vary the risk of the Guarantor hereunder;

(m)any sublease or other use of any of the Equipment, or any sale, transfer, disposition, grant of security interest, mortgaging or assignment by the Lessee of any of its interests, rights or obligations, in, to and under the Lease, or with respect to the Equipment or any part thereof, whether or not permitted by the terms of any of the Operative Documents;

(n)any assignment or grant of security interest by any Note Holder of all of any part of such Note Holder's right, title and interest in its Notes or in the Collateral;

(o)any assignment or grant of security interest by any Certificate Holder of all or part of such Certificate Holder's right, title and interest in its Certificates or in the Collateral;

(p)any sale by the Lessor, or its successors or assigns, of the Equipment or any part thereof pursuant to the terms of the Operative Documents;

(q)any consolidation or merger of the Lessee, whether permitted under the terms of the Participation Agreement or otherwise, or the sale, transfer or other disposition by the Lessee of all or substantially all of the assets and/or liabilities of the Lessee or any change in the ownership of the equity interests of the Lessee;

(r)the voluntary or involuntary liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, the arrangement, composition or readjustment of the Lessee, or any other similar proceeding affecting the status, existence, assets or obligations of the Lessee, or the limitation on damages for the breach of, or the disaffirmation of, any of the Operative Documents in any such proceeding;

(s)any invalidity or unenforceability, for any reason, of the Lease or any other Operative Document, or of any provision thereof, or of any of the obligations, or any defect in the Lessor's title to, or any security interest granted in, the Equipment or any part thereof; or

(t)any other cause, whether similar or dissimilar to the foregoing;

it being the intention of the Guarantor that this Guaranty be absolute and unconditional in any and all circumstances and that this Guaranty shall be discharged only by the indefeasible payment in full of all sums with respect to which this Guaranty relates.

6.The Guarantor shall be subrogated to all rights of the Lessor, the Lessee, the Agent, the Note Holders and the Certificate Holders in respect of any amounts paid by the Guarantor on account of obligations of the Lessee pursuant to the provisions of this Guaranty; provided, however, that the Guarantor shall not be entitled to enforce or receive any payments arising out of, or based upon, such right of subrogation until the obligations of the Lessee guaranteed hereunder shall have been indefeasibly paid in full.

7.The Guarantor represents and warrants to the Lessor, the Agent, the Note Holders and the Certificate Holders that the following shall be true and correct on and as of the Syndication Closing Date and true and correct in all material respects on and as of each Funding Date (except to the extent such representations and warranties relate expressly to an earlier date):

(a)The Guarantor is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has the corporate power to make and perform this Guaranty.

(b)The making and performance by the Guarantor of this Guaranty have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which the Guarantor is a party.

(c)This Guaranty constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies.

(d)The consolidated financial statements of the Guarantor and its consolidated subsidiaries for the year ended as at December 31, 1999, furnished to the Agent, the Lessor, the Note Holders and the Certificate Holders, fairly present its consolidated financial position at December 31, 1999 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of the Guarantor that would materially and adversely affect the Guarantor's ability to perform any of its obligations hereunder.

(e)Except as disclosed in or contemplated by the Guarantor's Form 10-K Report to the Commission for the year ended December 31, 1999, or in any subsequent Form 10-Q or 8-K Report or otherwise furnished to the Agent, the Lessor, the Note Holders and Certificate Holders, no litigation, arbitration or administrative proceeding against the Guarantor is pending or, to the Guarantor's knowledge, threatened, which, if determined adversely, would materially and adversely affect the ability of the Guarantor to perform any of its obligations under this Guaranty. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of the Guarantor, threatened which questions the validity of this Guaranty or, to the knowledge of the Guarantor, any other Operative Document.

(f)The Guarantor is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock."

(g)There have not been any "reportable events," as that term is defined in Section 4043 of ERISA, which would result in a material liability to the Guarantor.

(h)No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance by the Guarantor of this Guaranty, except such authorizations, consents and approvals as have been obtained and are in full force and effect.

(i)The Guarantor is not an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act.

(j)The Guarantor is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the Commission pursuant to Section 3(a)(1) thereof.

(k)The Guarantor has filed or caused to be filed all federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which the Guarantor shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP.

(l)The Guarantor is in compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) noncompliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder.

8.The Guarantor covenants and agrees as follows so long as this Guaranty shall remain in effect or any amounts owed by the Lessee under the Operative Documents shall remain unpaid:

(a)The Guarantor will furnish to the Agent, the Trustee and each Note Holder and Certificate Holder:

(i)within 120 days after the end of each fiscal year (A) an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for the Guarantor and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by PricewaterhouseCoopers LLP or other independent auditors of recognized standing selected by it and (B) the Guarantor's unconsolidated balance sheet as at the close of such fiscal year and statements of income, shareholders common equity and cash flows for such year;

(ii)within 60 days after the end of each of the first three quarters in each fiscal year, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for (i) the Guarantor and its consolidated Subsidiaries prepared in conformity with GAAP and (ii) the Guarantor's unconsolidated balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flow for such quarterly period;

(iii)so long as the Guarantor is subject to the periodic reporting requirements of the Securities and Exchange Act of 1934, as amended, within 120 days after the end of each fiscal year, a copy of the Guarantor's Form 10-K Report to the Commission and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of the Guarantor's Form 10-Q Report to the Commission;

(iv)from time to time, with reasonable promptness, such further information regarding the Guarantor's business, affairs and financial condition as the Agent, the Trustee or any Note Holder or Certificate Holder may reasonably request; and

(v)upon acquiring knowledge of the existence of a Default, Event of Default or Unwind Event a certificate of a financial officer of the Guarantor specifying: (A) the nature of such Default, Event of Default or Unwind Event, (B) the period of the existence thereof, and (C) the actions that the Guarantor proposes to take with respect thereto.

The financial statements required to be furnished pursuant to clause (i) above shall be accompanied by a certificate of a principal financial officer of the Guarantor to the effect that no Default or Event of Default with respect to the Guarantor has occurred and is continuing. The financial statements required to be furnished pursuant to clause (i) above shall also be accompanied by a certificate of a principal financial officer of the Guarantor demonstrating compliance with Section 8(d).

(b)(i) (1) The Guarantor will not merge or consolidate with any Person if the Guarantor is not the survivor unless (A) the survivor assumes the Guarantor's obligations hereunder, (B) substantially all of the consolidated assets and consolidated revenues of the survivor are anticipated to come from a utility or energy business or utility or energy businesses and (C) the senior unsecured debt ratings of the survivor by Moody's or S&P, as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Majority Holders), are at least equal to the ratings of the senior unsecured debt of Finance Co., or, if the Guarantor then issues and has rated senior unsecured debt, the Guarantor, immediately prior to such merger or consolidation; (2) the Guarantor will not dispose of any common stock of either PPL Electric Utilities Corporation or Finance Co. or any securities convertible into common stock of either PPL Electric Utilities Corporation or Finance Co., except in connection with any merger or consolidation permitted under this paragraph (b), and except that the Guarantor shall be allowed to sell, transfer or otherwise dispose of PPL Electric Utilities Corporation's common stock to PPL Electric Utilities Corporation or any Subsidiary of the Guarantor.

(ii)The Guarantor will not permit Finance Co. to merge into or consolidate with any other Person except (x) the Guarantor or a successor of the Guarantor permitted by this paragraph (b) or (y) any other Person which is a wholly owned subsidiary of the Guarantor or a successor of the Guarantor permitted by this paragraph (b).

(c)The Guarantor will use its best efforts to promptly notify the Agent, the Trustee and each Note Holder and Certificate Holder upon obtaining knowledge of any change in, or cessation of, ratings of the Guarantor by S&P or ratings of the senior unsecured debt of Finance Co., or, if the Guarantor then issues and has rated senior unsecured debt, the Guarantor, by Moody's or S&P.

(d)The ratio of Consolidated Indebtedness of the Guarantor to Consolidated Capitalization of the Guarantor shall not exceed 70% at any time.

(e)The Guarantor will not create, incur, or suffer to exist any Encumbrance in or on the common stock of PPL Electric Utilities Corporation or Finance Co. or on securities convertible into the common stock of PPL Electric Utilities Corporation or Finance Co. (in either case, now or hereafter acquired) other than Permitted Liens.

9.Notice of acceptance of this Guaranty and notice of the execution and delivery of any other instrument referred to in this Guaranty are hereby waived by the Guarantor.

10.This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the obligations to be paid is rescinded or must otherwise be restored or returned by any Person, upon the insolvency, bankruptcy or reorganization of the Guarantor, or otherwise, all as though such payment had not been made. The provisions of this paragraph shall survive the termination of this Guaranty.

11.This Guaranty shall remain in full force and effect until payment in full of all sums payable by the Lessee under the Operative Documents, the termination of all Commitments and the performance in full of all obligations of the Guarantor in accordance with the provisions of this Guaranty, subject to reinstatement as provided in Section 10. Subject as aforesaid, the Guarantor's payment obligations hereunder shall be deemed satisfied upon the actual and timely receipt by the Agent of all amounts payable hereunder in full in cash. This Guaranty is a guaranty of payment when due and not a guaranty of collection.

12.In case any provision of this Guaranty or any application thereof shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions and any other application thereof shall not in any way be affected or impaired thereby.

13.This Guaranty shall be binding upon the Guarantor and its successors and shall inure to the benefit of, and be enforceable by the Lessor and its respective successors and permitted assigns. This Guaranty may not be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the Guarantor, the Agent, the Lessor and the Majority Holders; provided that any such change, waiver, discharge or termination which would have the effect of reducing the maximum exposure liability of the Guarantor set forth in the last sentence of Section 1 shall require the approval and consent of the Guarantor, the Agent, the Lessor, the Note Holders and the Certificate Holders, unless in the case of a reduction in the dollar amount set forth in the last sentence of Section 1 such dollar amount is at least equal to the total amount of the Commitments after giving effect to such change, waiver, discharge or termination, in which case such change, waiver, discharge or termination shall only require the approval and consent of the Agent, provided no Event of Default has occurred and is continuing. This Guaranty may be enforced as to any one or more defaults either separately or cumulatively.

14.(a)  THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW (OR ANY SIMILAR SUCCESSOR PROVISION THERETO) BUT EXCLUDING ALL OTHER CONFLICT-OF-LAW RULES.

(b)The Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guaranty or any other Operative Document, or for recognition or enforcement of any judgment, and the Guarantor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. The Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guaranty shall affect any right that the Note Holders, the Certificate Holders, the Agent or the Lessor may otherwise have to bring any action or proceeding relating to this Guaranty in the courts of any jurisdiction.

(c)The Guarantor irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guaranty or any other Operative Document in any New York State or federal court. The Guarantor hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

15.All notices, demands, requests, consents, approvals and other instruments hereunder shall be given in the manner and at the appropriate address set forth in the Participation Agreement or at such other address as such party shall designate by notice to each of the other parties hereto.

16.The Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the amounts which the Guarantor is obligated to pay hereunder and notice of or proof of reliance by the Agent, the Lessor, the Note Holders or the Certificate Holders upon this Guaranty or acceptance of this Guaranty. The indebtedness evidenced by the Operative Documents shall conclusively be deemed to have been created, contracted, incurred, renewed, extended, amended or waived in reliance upon this Guaranty, and all dealings between the Guarantor, the Agent, the Lessor, the Note Holders and the Certificate Holders shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guaranty.

17.Except as otherwise permitted under Section 8(b), the Guarantor may not delegate its obligations under this Guaranty without the prior written consent of the Agent, the Note Holders, the Certificate Holders and the Lessor.

18.The rules of construction set forth in Appendix A to the Participation Agreement apply to this Guaranty.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed as of the day and year first above written.

PPL CORPORATION

By:                                                            
      Name:
      Title:

EX-10

Exhibit 10(j)

GUARANTY

GUARANTY, dated as of December 21, 2001 (this "Guaranty"), from PPL ENERGY SUPPLY, LLC, a Delaware limited liability company (the "Guarantor"), in favor of LMB FUNDING, LIMITED PARTNERSHIP, a Delaware limited partnership (the "Lessor"), and its successors and assigns.

WHEREAS, the Guarantor wishes to induce the Lessor to enter into a certain Agreement for Lease (as defined below) and Lease (as defined below) with an Affiliate (as defined below) of the Guarantor; and

WHEREAS, the Lessor is unwilling to enter into the Agreement for Lease or the Lease unless the Guarantor enters into this Guaranty;

NOW, THEREFORE, in order to induce the Lessor to enter into the Agreement for Lease and the Lease, the Guarantor hereby agrees as follows:

SECTION 1

DEFINED TERMS;
RULES OF CONSTRUCTION

1.1 Definitions. As used in this Guaranty, capitalized terms defined in the preamble and other Sections of this Guaranty shall have the meanings set forth therein, terms defined in Exhibit A shall have the meanings set forth therein, and capitalized terms used herein or in Exhibit A but not otherwise defined herein or in Exhibit A shall, except as otherwise provided in the Agreement for Lease or the Lease, have the meanings set forth in the Lease, for any period on or after the Effective Date (as defined in the Lease) or the Agreement for Lease, for any period prior thereto.

1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

1.3 Use of Certain Terms. Unless the context of this Guaranty requires otherwise, the plural includes the singular, the singular includes the plural, and "including" has the inclusive meaning of "including without limitation." The words "hereof," "herein," "hereby," "hereunder" and other similar terms of this Guaranty refer to this Guaranty as a whole and not exclusively to any particular provision of this Guaranty. All pronouns and any variations thereof shall be deemed to refer to masculine, feminine or neuter, singular or plural, as the identity of the Person or Persons may require.

1.4 Headings and References. Section and other headings are for reference only, and shall not affect the interpretation or meaning of any provision of this Guaranty. Unless otherwise provided, references to Articles, Sections, Schedules and Exhibits shall be deemed references to Articles, Sections, Schedules and Exhibits of this Guaranty. References to this Guaranty and any other Operative Document include this Guaranty and the other Operative Documents as the same may be modified, amended, restated or supplemented from time to time pursuant to the provisions hereof or thereof. A reference to any law shall mean that law as it may be amended, modified or supplemented from time to time, and any successor law. A reference to a Person includes the successors and assigns of such Person, but such reference shall not increase, decrease or otherwise modify in any way the provisions in this Guaranty governing the assignment of rights and obligations under or the binding effect of any provision of this Guaranty.

SECTION 2

GUARANTY

2.1 Guaranty. Subject to the terms and conditions in this Guaranty, the Guarantor absolutely, unconditionally and irrevocably guarantees to the Lessor and each Assignee that (a) all Payment Obligations will be promptly paid in full as and when due in accordance with the terms thereof whether at the stated due date, by acceleration or otherwise, and (b) the Lessee will duly and punctually perform, comply with and observe all Covenant Obligations as and when required in accordance with the terms thereof, in each case, without regard to whether such Obligation is direct or indirect, absolute or contingent, now or hereafter existing or owing, voluntary or involuntary, created or arising by contract, operation of law or otherwise or incurred or payable before or after commencement of any proceedings by or against the Lessee under any Bankruptcy law. In case of the failure of the Lessee punctually to perform any Obligation, the Guarantor hereby agrees to cause such Obligation to be performed as and when required.

Notwithstanding any modification, discharge or extension of any of the Obligations or any amendment, modification, stay or cure of the rights or remedies of the Lessor and each Assignee which may occur in any Bankruptcy or reorganization case or proceeding concerning the Lessee, the Guarantor agrees, solely for purposes of this Guaranty and its obligations hereunder, to pay and perform the Obligations and to discharge its other obligations under this Guaranty and under the Operative Documents in accordance with the terms of this Guaranty and the Operative Documents.

2.2 Guaranty Absolute. This Guaranty is an absolute, unlimited and continuing guaranty of performance and payment (and not of collection) of the Obligations. This Guaranty is in no way conditioned upon any attempt to collect from the Lessee or upon any other event or contingency, and shall be binding upon and enforceable against the Guarantor without regard to the validity or enforceability of any Operative Document, or of any term thereof.

The obligations of the Guarantor set forth herein constitute the full recourse obligations of the Guarantor enforceable against it to the full extent of all its assets and properties, notwithstanding any provision in the Operative Documents limiting the liability of any Person, or any agreement by any Assignee to look for payment with respect thereto, solely to certain property and other collateral as described in the Operative Documents. Without limiting the foregoing, it is agreed and understood that (a) repeated and successive demands may be made and recoveries may be had hereunder as and when, from time to time, the Lessee shall be in default with respect to the Obligations under the terms of any Operative Document, and (b) notwithstanding the recovery hereunder for or in respect of any given default with respect to the Obligations by the Lessee under the Operative Documents, this Guaranty shall remain in full force and effect and shall apply to each and every subsequent default with respect to the Obligations.

2.3 Reinstatement. In case any Operative Document shall be terminated as a result of the rejection thereof by any trustee, receiver or liquidating agent of the Lessee or any of its properties in any Bankruptcy or similar proceeding, the Guarantor's obligations hereunder shall continue to the same extent as if such agreement had not been so rejected. The Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment to the Lessor of the Obligations or any part thereof is rescinded or must otherwise be returned by the Lessor upon the Bankruptcy of the Lessee, or otherwise, as though such payment to the Lessor had not been made.

2.4 Enforcement. The Guarantor shall pay all costs, expenses and damages incurred (including reasonable attorneys' fees and disbursements) in connection with the enforcement of the Obligations to the extent that such costs, expenses and damages are owed and not paid by the Lessee and, to the extent such amounts are payable under the indemnification obligations pursuant to Section 11 of the Lease or Section 12 of the Agreement for Lease, in connection with the enforcement of the obligations of the Guarantor under this Guaranty.

2.5 Guaranty Not Subject to Setoff, etc. The obligations of the Guarantor hereunder shall not be subject to any counterclaim, setoff, deduction or defense (other than payment or performance) based upon any claim the Guarantor or the Lessee may have against the Lessor or any claim the Guarantor may have against the Lessee or any other Person and shall remain in full force and effect without regard to, and shall not be released, discharged, reduced or in any way affected by any circumstance or condition whatsoever (whether or not the Guarantor shall have any knowledge or notice thereof) which might constitute a legal or equitable discharge or defense including, but not limited to, (a) the amending, modifying, supplementing or terminating (by operation of law or otherwise), expressly or impliedly, of any Operative Document, or any other instrument applicable to the Lessee or to its Obligations, or any part thereof; (b) any failure on the part of the Lessee to perform or comply with any term of any Operative Document or any failure of any other Person to perform or comply with any term of any Operative Document; (c) any waiver, consent, change, extension, indulgence or other action or any action or inaction under or in respect of any Operative Document or this Guaranty, whether or not the Lessor, the Lessee or the Guarantor has notice or knowledge of any of the foregoing; (d) any Bankruptcy or similar proceeding with respect to the Lessor, the Guarantor or the Lessee, or their respective properties or their creditors, or any action taken by any trustee or receiver or by any court in any such proceeding; (e) any furnishing or acceptance of additional security or any release of any security (and the Guarantor authorizes the Lessor to furnish, accept or release said security); (f) any limitation on the liability or Obligations of the Lessee under any Operative Document (except as expressly set forth therein) or any termination (by operation of law or otherwise), cancellation (by operation of law or otherwise), frustration or unenforceability, in whole or in part, of any Operative Document, or any term thereof; (g) any lien, charge or encumbrance on or affecting the Guarantor's, the Lessor's or the Lessee's respective assets and properties; (h) any act, omission or breach on the part of the Lessor or any Assignee under any Operative Document, or any other agreement at any time existing between the Lessor and the Lessee or any other law, governmental regulation or other agreement applicable to the Lessor or any Obligation; (i) any claim as a result of any other dealings among the Lessor, any Assignee, the Guarantor or any of them; (j) the assignment or transfer of this Guaranty, any Operative Document (whether or not in accordance with and subject to the terms thereof) or any other agreement or instrument referred to in any Operative Document or applicable to the Lessee or the Obligations by the Guarantor or the Lessor to any other Person; (k) any change in the name of the Lessor, any Assignee, the Lessee or any other Person; (l) any subleasing or further subleasing of the Project or any part thereof, or any redelivery, repossession, sale, transfer or other disposition, surrender or destruction of the Project or any part thereof; (m) the transfer, assignment, mortgaging or purported transfer, assignment or mortgaging of all or any part of the interest of the Lessor, its successors or assigns, or the Lessee in the Project; (n) any failure of title with respect to the interest of the Lessor or the Lessee, or their respective successors and assigns, in the Project; (o) any defect in the compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, or any interruption or cessation in the use of or failure to complete, the Project or any portion thereof by the Lessee or any other Person for any reason whatsoever (including, without limitation, any governmental prohibition or restriction, condemnation, requisition, seizure or any other act on the part of any governmental or military authority, or any act of God or of the public enemy, or any Event of Loss), and regardless of the duration thereof (even though such duration would otherwise constitute a frustration of the Lease), whether or not without fault on the part of the Lessee or any other Person; (p) any merger or consolidation of the Lessee or the Guarantor into or with any other Person or any direct or indirect sale, lease or transfer of any other assets of the Lessee or the Guarantor to any other Person; (q) any change in the ownership of any shares of capital stock or other equity interests of the Guarantor or the Lessee (including any such change which results in the Guarantor no longer owning (directly or indirectly) membership interests in the Lessee); or (r) any other event or circumstance whatsoever (other than payment and performance in full of the Obligations).

2.6 Waiver. The Guarantor unconditionally waives, to the extent permitted by applicable law: (a) notice of any of the matters referred to in Section 2 hereof; (b) all notices which may be required by statute, rule of law or otherwise to preserve any rights against the Guarantor hereunder, including notice of the acceptance of this Guaranty by the Lessor or any Assignee, or the creation, renewal, extension, modification or accrual of the Obligations or notice of any other matters relating thereto, any presentment, demand, notice of dishonor, protest or nonpayment of any damages or other amounts payable under any Operative Document; (c) any requirement for the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of any Operative Document, including diligence in collection or protection of or realization upon the Obligations or any part thereof or any collateral therefor; (d) any requirement of diligence; (e) any requirement to mitigate the damages resulting from a default or other termination under any Operative Document, except that this shall not relieve the Lessor or such Assignee of any such obligation; (f) the occurrence of every other condition precedent to which the Guarantor or the Lessee may otherwise be entitled, except as provided in any Operative Document; and (g) the right to require the Lessor or such Assignee to proceed against the Lessee or any other Person liable on the Obligations, to proceed against or exhaust security held from the Lessee or any other Person, or to pursue any other remedy in the Lessor's power whatsoever, and the Guarantor waives the right to have the property of the Lessee first applied to the discharge of the Obligations.

The Lessor or any Assignee may, at its election, exercise any right or remedy it might have against the Lessee or any security held by the Lessor or such Assignee, including the right to foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of the Guarantor hereunder, except to the extent the Obligations have been indefeasibly paid or satisfied, and the Guarantor waives any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of the Guarantor against the Lessee or any such security, whether resulting from such election by the Lessor or such Assignee or otherwise. The Guarantor waives any defense arising by reason of any disability or other defense (other than payment or performance) of the Lessee, or by reason of the cessation from any cause whatsoever of the liability, either in whole or in part, of the Lessee to the Lessor or any Assignee for the Obligations.

The Guarantor understands that the Lessor's or any Assignee's exercise of certain rights and remedies contained in the Operative Documents may affect or eliminate the Guarantor's rights of subrogation against the Lessee and that the Guarantor may therefore incur partially or totally nonreimbursable liability hereunder; nevertheless, the Guarantor hereby authorizes and empowers the Lessor, its successors, endorsees and/or assignees (including each Assignee), to exercise in its or their sole discretion, any rights and remedies, or any combination thereof, which may then be available, it being the purpose and intent of the Guarantor that its obligations hereunder shall be absolute, irrevocable, independent and unconditional under any and all circumstances.

The Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Lessee and of all other circumstances bearing upon the risk of nonpayment of the Obligations and agrees that neither the Lessor nor any Assignee shall have any duty to advise the Guarantor of information regarding any condition or circumstance or any change in such condition or circumstance. The Guarantor acknowledges that neither the Lessor nor any Assignee has made any representation to the Guarantor concerning the financial condition of the Lessee.

SECTION 3

COVENANTS OF THE GUARANTOR

3.1 Affirmative Covenants. So long as any of the Obligations shall remain outstanding, the Guarantor covenants to the Lessor and each Qualifying Assignee as follows:

3.1.1 Existence as a Limited Liability Company. Subject to the rights of the Guarantor under Section 3.2.1 hereof, the Guarantor shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence.

3.1.2 Ownership of Lessee. The Guarantor shall own (directly or indirectly) beneficially and of record at least fifty percent (50%) of the voting membership interests of the Lessee.

3.1.3 Financial and Business Information. The Guarantor will deliver or otherwise make available to the Lessor, the Collateral Trustee and each Qualifying Assignee:

(a) Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Guarantor (other than the last quarterly fiscal period of each such fiscal year), commencing with the quarter ended March 31, 2002, copies of all quarterly financial information that would be required to be contained in a filing with the SEC on Form 10-Q, including a "Management's Discussion Analysis of Financial Condition and Results of Operations;

(b)Annual Statements -- within 120 days after the end of each fiscal year of the Guarantor, commencing with the fiscal year ended December 31, 2001, copies of all annual financial information that would be required to be contained in a filing with the SEC on Form 10-K, including a "Management's Discussion Analysis of Financial Condition and Results of Operations" and a report on the annual financial statements by the Guarantor's certified independent accountants;

(c) SEC and Other Reports -- promptly, and in any event within thirty (30) days upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Guarantor to public securities holders generally, (ii) all current reports that the Guarantor is required to file with the SEC on Form 8-K, and (iii) each regular, periodic or current report and each registration statement (without exhibits except as expressly requested by the Lessor or such Qualifying Assignee and other than registration statements on Form S-8 or any successor form), and each final prospectus and all amendments thereto filed by the Guarantor with the SEC; and

(d) Requested Information -- with reasonable promptness, and in any event within thirty (30) days after request and receipt of the confidentiality agreement described below, such other data and information relating to the business, operations, affairs, financial condition or assets of the Guarantor and its Material Subsidiaries, as from time to time may be reasonably requested by the Lessor or any Qualifying Assignee, other than, in each case, information that the Guarantor is prohibited from disclosing under applicable laws or regulations, and, subject in each case, to the requirement that each such Person requesting such data or information sign the Guarantor's customary confidentiality agreement with respect to any proprietary or confidential information sought to be examined or received.

3.1.4 Officer's Certificates. Each set of financial statements delivered to the Lessor, the Collateral Trustee and each Qualifying Assignee pursuant to Section 3.1.3(a) or Section 3.1.3(b) hereof shall be accompanied by (a) a certificate of the chief financial officer or chief accounting officer of the Guarantor stating whether a Termination Event (as defined in the Lease) shall have occurred on the date of such financial statements and setting forth in reasonable detail the calculations required to establish the existence or non-existence of such Termination Event; and (b) an Officer's Certificate to the effect that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the affairs of the Guarantor and its Material Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Potential Default or Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Guarantor or such Material Subsidiary shall have taken or proposes to take with respect thereto.

3.1.5 Inspection. The Guarantor shall permit the representatives of the Lessor and each Qualifying Assignee:

(a) No Event of Default -- whether or not any Event of Default under the Lease or the Agreement for Lease then exists, at the expense of such Person and upon reasonable prior notice to the Guarantor and during normal business hours, and subject to the requirement that each such representative sign the Guarantor's customary confidentiality agreement, to visit the principal executive office of the Guarantor, to discuss the affairs, finances and accounts of the Guarantor, its Material Subsidiaries and the Lessee with the Guarantor's officers, and (with the consent of the Guarantor, which consent will not be unreasonably withheld) its independent public accountants; provided, however, that the Lessor and each Qualifying Assignee shall only be entitled to make one such visit in any twelve (12) month period; and

(b) Event of Default -- if an Event of Default under the Lease or the Agreement for Lease then exists, at the expense of the Guarantor and upon reasonable prior notice to the Guarantor, to further visit and inspect any of the offices or properties of the Guarantor or the Lessee, and to examine their respective books of account, records and reports, in each case relating to the business, operations, affairs, financial condition or assets of the Guarantor and its Material Subsidiaries or the Lessee or relating to the ability of the Guarantor to perform its obligations under this Guaranty or the Consent and Agreement (as defined in the Note Purchase Agreement) of Guarantor or the ability of the Lessee to perform its obligations under the Lease, the Agreement for Lease or the Lessee Note (but other than information that the Guarantor is prohibited from disclosing under applicable laws), at such times and as often as may be reasonably requested, subject to the requirement that each such representative sign the Guarantor's customary confidentiality agreement with respect to any proprietary or confidential information sought to be examined or discussed;

Any visit, inspection or examination referred to in this Section 3.1.5 shall occur in the presence of a representative of the Guarantor and during normal business hours. Any such representative shall, throughout any such inspection or examination, comply with all applicable Guarantor and Project rules, regulations and procedures.

3.1.6 Compliance with Law. The Guarantor will comply, and will cause each of its Material Subsidiaries to comply, with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, all environmental laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance could not reasonably be expected to have a Material Adverse Effect.

3.1.7 Insurance. The Guarantor will maintain, or cause to be maintained, insurance with financially sound (determined in the reasonable judgment of the Guarantor) and responsible companies in such amounts (and with such risk retentions) and against such risks as is usually carried by owners of similar businesses and properties in the same general area in which the Guarantor and its Material Subsidiaries operate.

3.1.8 Maintenance of Properties. The Guarantor will keep, and will cause each Material Subsidiary to keep, all property useful and necessary in their respective businesses in good working order and condition, subject to ordinary wear and tear, unless the Guarantor determines in good faith that the continued maintenance of any of such properties is no longer economically desirable and so long as the failure to so maintain such properties would not reasonably be expected to have a Material Adverse Effect.

3.2 Negative Covenants. So long as any of the Obligations shall remain outstanding, without the consent of the Lessor and the Majority Holders, the Guarantor covenants to the Lessor and each Qualifying Assignee as follows:

3.2.1 Mergers and Consolidations.

(a) The Guarantor shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

(i) the Person formed by such consolidation or into which the Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Guarantor, substantially as an entirety shall be a corporation organized and existing under the laws of the United States, any State thereof or the District of Columbia, and shall expressly assume, by execution and delivery of instruments reasonably satisfactory to the Lessor and the Collateral Trustee, the obligations of the Guarantor under this Guaranty and the performance of every covenant of this Guaranty on the part of the Guarantor to be performed or observed;

(ii) immediately after giving effect to such transaction, no Event of Default and no Potential Default shall have occurred and be continuing; and

(iii) the Guarantor shall have delivered to the Lessor and the Collateral Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance or other transfer or lease and such assumption instrument delivered in connection therewith complies with this Section 3.2.1 and that all conditions precedent herein provided for and relating to such transactions have been complied with.

(b) Upon any consolidation by the Guarantor with or merger by the Guarantor into any other Person or any conveyance or other transfer or lease of the properties and assets of the Guarantor substantially as an entirety in accordance with Section 3.2.1(a) above, the successor Person formed by such consolidation or into which the Guarantor is merged or the Person to which such conveyance, or other transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Guarantor under this Guaranty with the same effect as if such successor Person had been named as the Guarantor herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of and released from all obligations and covenants under this Guaranty and the Obligations outstanding hereunder (unless the Guarantor shall have delivered to the Lessor and the Collateral Trustee an instrument waiving such relief and release), and the Lessor and the Collateral Trustee shall acknowledge in writing that the Guarantor has been so relieved and released.

(c) For purposes of clarification and not in limitation of the provisions of this Section 3.2.1, nothing in this Guaranty shall be deemed to prevent or restrict:

(i) any consolidation or merger after the consummation of which the Guarantor would be the surviving or resulting corporation, or

(ii) any conveyance or other transfer, or lease of any part of the properties of the Guarantor which does not constitute the entirety, or substantially the entirety, thereof, or

(iii) the approval by the Guarantor of, or the consent by the Guarantor to, any consolidation or merger of any direct or indirect subsidiary or affiliate of the Guarantor, or any conveyance, transfer or lease by any such subsidiary or affiliate of any of its assets.

3.2.2 Asset Sales. Except for the sale of the properties and assets of the Guarantor substantially as an entirety pursuant to Section 3.2.1 above, and other than assets required to be sold to conform with governmental requirements, the Guarantor shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Sale, if the aggregate net book value of all such Asset Sales consummated during the four calendar quarters immediately preceding any date of determination would exceed 15% of the consolidated assets of the Guarantor and its consolidated Subsidiaries as of the beginning of the Guarantor's most recently ended full fiscal quarter; provided, however, that any such Asset Sale will be disregarded for purposes of the 15% limitation specified above:

(a) if any such Asset Sale is in the ordinary course of business;

(b) to the extent that such assets are worn out or are no longer useful or necessary in connection with the operation of the business of the Guarantor or its Subsidiaries;

(c) to the extent such assets are being transferred to a Wholly-Owned Subsidiary of the Guarantor;

(d) to the extent any such assets subject to any such Asset Sale involve transfers of assets of or equity interests in connection with (i) the formation of any joint venture between the Guarantor or any of its Subsidiaries and any other entity, or (ii) any project development and acquisition activities; and

(e) if the proceeds thereof (i) are, within 12 months of such Asset Sale, invested or reinvested by the Guarantor or any Subsidiary in a Permitted Business, (ii) are used by the Guarantor or a Subsidiary to repay Debt of the Guarantor or such Subsidiary, or (iii) are retained by the Guarantor or its Subsidiaries.

In addition, if, prior to any Asset Sale that otherwise would cause the 15% limitation to be exceeded, Moody's and S&P confirm the then long-term current senior unsecured debt rating of the Guarantor, after giving effect to such sale, such Asset Sale shall also be disregarded for purposes of the foregoing limitations.

3.2.3 Liens.

(a) The Guarantor shall not create, incur or assume any Lien (other than Permitted Liens) upon any property of the Guarantor, whether now owned or hereafter acquired, in order to secure any Debt of the Guarantor. The foregoing agreement shall not restrict the ability of Subsidiaries or Affiliates of the Guarantor to create, incur or assume any Lien upon their properties or assets.

(b) The provisions of Section 3.2.3(a) above shall not prohibit the creation, issuance, incurrence or assumption of any Lien if either:

(i) the Guarantor shall make effective provision whereby all Obligations then outstanding shall be secured equally and ratably with all other Debt then outstanding under such Lien; or

(ii) the Guarantor shall deliver to the Collateral Trustee bonds, notes or other evidence of indebtedness secured by the Lien which secures such Debt (hereinafter called "Secured Obligations") (A) in an aggregate principal amount equal to the aggregate principal amount of the Obligations then outstanding, (B) maturing (or being subject to mandatory redemption) on such dates and in such principal amounts that, at each stated maturity of the Obligations then outstanding, there shall mature (or be redeemed) Secured Obligations equal in principal amount to such Obligations then to mature and (C) containing, in addition to any mandatory redemption provisions applicable to all Secured Obligations outstanding under such Lien and any mandatory redemption provisions contained therein pursuant to clause (B) above, mandatory redemption provisions correlative to the provisions, if any, for the mandatory redemption (pursuant to a sinking fund or otherwise) of the Obligations or for the redemption thereof at the option of the holder of such Obligation, as well as a provision for mandatory redemption upon an acceleration of the maturity of all Obligations then outstanding following an Event of Default (such mandatory redemption to be rescinded upon the rescission of such acceleration); it being expressly understood that such Secured Obligations (1) may, but need not, bear interest, (2) may, but need not, contain provisions for the redemption thereof at the option of the issuer, any such redemption to be made at a redemption price or prices not less than the principal amount thereof and (3) shall be held by the Collateral Trustee for the benefit of the holders of the Obligations from time to time outstanding subject to such terms and conditions relating to surrender to the Guarantor, transfer restrictions, application of payments of principal and interest and other matters as shall be set forth in an indenture, security agreement, assignment or other agreement hereto specifically providing for the delivery to the Collateral Trustee of such Secured Obligations.

(c) If the Guarantor shall elect the option described in Section 3.2.3(b) above, the Guarantor shall deliver to the Collateral Trustee (with copies to the Lessor):

(i) any appropriate security agreements, indentures and intercreditor arrangements, whereby all Obligations then outstanding shall be secured by the Lien referred to in Section 3.2.3(b) above equally and ratably with all other indebtedness secured by such Lien or providing for the delivery to the Collateral Trustee of Secured Obligations; and

(ii) an Officer's Certificate (A) stating that, to the knowledge of the signer, (1) no Event of Default has occurred and is continuing and (2) no event has occurred and is continuing which entitles the secured party under such Lien to accelerate the maturity of the indebtedness outstanding thereunder and (B) stating the aggregate principal amount of indebtedness issuable, and then proposed to be issued, under and secured by such Lien; and

(iii) an Opinion of Counsel (A) if the Obligations then outstanding are to be secured by such Lien, to the effect that all such Obligations then outstanding are entitled to the benefit of such Lien equally and ratably with all other indebtedness outstanding under such Lien or (B) if Secured Obligations are to be delivered to the Collateral Trustee, to the effect that such Secured Obligations have been duly issued under such Lien and constitute valid obligations, entitled to the benefit of such Lien equally and ratably with all other indebtedness then outstanding under such Lien.

SECTION 4

REPRESENTATIONS AND WARRANTIES

The Guarantor represents and warrants to the Lessor and each Noteholder that:

4.1 Status. The Guarantor is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has the limited liability company authority to make and perform this Guaranty.

4.2 Authority; No Conflict The execution and delivery by the Guarantor of this Guaranty has been duly authorized by all necessary limited liability company action and does not violate (a) any provision of law or regulation, or any decree, order, writ or judgment applicable to it, (b) any provision of its limited liability company agreement, or (c) result in the breach of or constitute a default under any indenture or other agreement or instrument to which the Guarantor is a party.

4.3 Governmental Approvals. No consent, approval or authorization of any Governmental Authority is required for the execution and delivery by the Guarantor of this Guaranty, except such consents, approvals or authorizations as have been obtained prior to the making of this Guaranty and are in full force and effect.

4.4 Legality. This Guaranty constitutes the legal, valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms except to the extent limited by (a) Bankruptcy, insolvency, fraudulent conveyance or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and general principles which may limit the right to obtain equitable remedies regarding whether enforcement is considered in a proceeding of law or equity or (b) any applicable public policy on enforceability of provisions relating to contribution and indemnification.

4.5 Disclosure. The information contained in the Private Placement Memorandum dated November 2001 (the "Memorandum") concerning the Guarantor under captions "Credit Support", "Strategic Importance of the Project to PPL Energy LLC", "Description of Participants", Appendix B, Appendix C, Appendix D and Appendix E and the information contained in the Addendum comprised of the Guarantor's Confidential Offering Circular dated October 16, 2001, its financial statements for the quarter ended September 30, 2001, together with the Management Discussion and Analysis of Financial Condition and Results of Operations for the same quarter and the Guarantor's Registration Statement on Form S-4 dated and filed as of December 7, 2001 (such portions of the Memorandum, the Addendum and such Registration Statement, the "Guarantor Information"), are true and correct in all material respects as of the date of the Memorandum (except to the extent such information expressly relates specifically to an earlier date, in which case such information is true and correct as of such earlier date), and the Guarantor Information, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading, in light of the circumstances under which they were made; provided, however, that no representation is given or made with regard to (a) any forecasts or projections of any kind included therein or omitted therefrom, (b) any information, assumptions or conclusions contained in any expert reports (including any reports from Stone & Webster Consultants, ICF Consulting and any rating agencies) or the summaries thereof, or (c) the descriptions of the tax consequences to the holders of the Notes. The Guarantor is not obligated to supplement any information or projection or other materials referred to in this Section 4.5 after the date hereof.

4.6 Material Subsidiaries. Set forth in Schedule 4.6 hereto is a correct list, as of the date hereof, of the Material Subsidiaries of the Guarantor, together with, for each such Material Subsidiary, the jurisdiction of organization of each such Subsidiary. As of the date of this Guaranty, (a) all of the Voting Stock of each such Material Subsidiary is owned directly by the Guarantor and (b) each such Material Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all corporate or other organizational powers to carry on its business as now conducted. The Guarantor is not obligated to supplement any information referred to in this Section 4.6 after the date hereof.

4.7 Financial Statements. The Guarantor has furnished to the Lessor and each Note Purchaser copies of:

(a) The consolidated balance sheet of the Guarantor's predecessors as of December 31, 2000 and the related consolidated statements of income and cash flows for the fiscal year then ended; and

(b) The unaudited consolidated balance sheet of the Guarantor and its predecessors or consolidated subsidiaries, as applicable, as of March 31, 2001, June 30, 2001 and September 30, 2001 and the related unaudited consolidated statements of income and cash flows for the three, six and nine months then ended.

The financial statements contained in such documents fairly present the financial position, results of operations and consolidated statements of cash flows of the Guarantor as of the dates and for the periods indicated therein and have been prepared in accordance with GAAP.

4.8 Changes. Since December 31, 2000, there has been no change in the business, assets, financial condition or operations of the Guarantor and its consolidated subsidiaries, considered as a whole, that would have a material adverse effect on the ability of the Guarantor to perform its obligations under this Guaranty. The Guarantor is not obligated to supplement any information referred to in this Section 4.8 after the date hereof.

4.9 Compliance with Laws. To the knowledge of the Guarantor, the Guarantor and each of its Material Subsidiaries is in compliance with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, environmental laws and the requirements of any permits issued under such environmental laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations under this Guaranty. The Guarantor is not obligated to supplement any information or other materials referred to in this Section 4.9 after the date hereof.

4.10 Ownership of Lessee. Not less than fifty percent (50%) of the voting membership interests of the Lessee is owned (directly or indirectly) beneficially and of record by the Guarantor.

4.11 Litigation. Except as disclosed in or contemplated by the reports referred to in Schedule 4.11 hereto, in the financial or other information referred to in Section 3.1.3 or 4.7 hereof or otherwise furnished in writing to the Lessor, no litigation, arbitration or administrative proceeding against the Guarantor is pending, or to the Guarantor's knowledge, threatened, which, if determined adversely, would materially and adversely affect the ability of Guarantor to perform any of its obligations under this Guaranty. To the knowledge of the Guarantor, there is no litigation, arbitration or administrative proceedings pending, or threatened, which questions the validity of this Guaranty.

4.12 Tax Returns and Payments. The Guarantor and each of its Material Subsidiaries have filed or caused to be filed all Federal, state, local and foreign income tax returns required to have been filed by them and have paid or caused to be paid all income taxes shown to be due on such returns except income taxes that are being contested in good faith by appropriate proceedings and for which there shall have been set aside on the books of the Guarantor or its Material Subsidiaries, as the case may be, appropriate reserves with respect thereto, in accordance with GAAP, or that would not reasonably be expected to have a Material Adverse Effect.

4.13 Rights to Properties. The Guarantor and its Material Subsidiaries have good and valid fee, leasehold, easement or other right, title or interest in or to all the properties necessary to the conduct of their business as conducted on the date hereof and as presently proposed to be conducted, except to the extent the failure to have such rights or interests would not have a Material Adverse Effect.

4.14 Offering of the Notes and this Guaranty, etc. Neither the Guarantor nor anyone authorized to act on its behalf has offered this Guaranty or the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Note Purchasers and not more than 125 other institutional investors (all such other investors being "accredited investors" as defined under Rule 501(a) of the Securities Act). Neither the Guarantor nor anyone authorized to act on its behalf has taken, or will take, any action that would subject the execution and delivery of this Guaranty or the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act.

SECTION 5

MISCELLANEOUS

5.1 Payments. Each payment by the Guarantor under this Guaranty shall be made in immediately available funds to or on the order of the Lessor or any applicable Assignee, as the case may be, in each case without setoff or counterclaim; provided that, no such payment shall be deemed a waiver of any rights the Guarantor may have against the Lessor or the Lessee.

5.2 Parties. This Guaranty shall inure to the benefit of the Lessor and each Assignee and its and their respective successors, assigns or transferees, and shall be binding upon the Guarantor and its successors and assigns. The Guarantor may not delegate any of its duties under this Guaranty without the prior written consent of the Lessor and each Assignee. Upon notice to the Guarantor, the Lessor and its successors, assigns and transferees may assign its or their rights and benefits under this Guaranty to (a) any financial institutions providing financing to the Lessor in connection with the Agreement for Lease and the Lease or any trustee for such financial institutions, and (b) any purchaser or transferee of all or a substantial portion of the rights and interests of the Lessor and its successors, assigns or transferees in and to the Project.

5.3 Notices. All notices, offers, acceptances, approvals, waivers, requests, demands and other communications hereunder shall be in writing, shall be addressed as provided below and shall be considered as properly given (a) if delivered in person, (b) if sent by express courier service (including Federal Express, DHL, Airborne Express, and other similar express delivery services), (c) in the event overnight delivery services are not readily available, if mailed through the United States Postal Service, postage prepaid, registered or certified with return receipt requested, or (d) if sent by telecopy and confirmed; provided, that in the case of a notice by telecopy, the sender shall in addition confirm such notice by writing sent in the manner specified in clauses (a), (b) or (c) of this Section 5.3. All notices shall be effective upon receipt by the addressee; provided, however, that if any notice is tendered to an addressee and the delivery thereof is refused by such addressee, such notice shall be effective upon such tender. For the purposes of notice, the addresses of the parties shall be as set forth below; provided, however, that any party shall have the right to change its address for notice hereunder to any other location by giving written notice to the other party in the manner set forth herein. The initial addresses of the parties hereto are as follows:

If to the Lessor:

LMB Funding, Limited Partnership

c/o ML Leasing Equipment Corp.

Controller's Office

95 Greene Street, 7th Floor

Jersey City, New Jersey 07302

Attention: Kira Toone Meertens

Telecopier: (201) 671-4511

Telephone: (201) 671-0334

With a copy to:

ML Leasing Equipment Corp.

c/o ML Leasing Equipment Corp.

Controller's Office

95 Greene Street, 7th Floor

Jersey City, New Jersey 07302

Attention: William Fuhs

If to the Guarantor:

PPL Energy Supply, LLC

Two North Ninth Street

Allentown, PA 18101

Attention: Treasurer

Telecopier: (610) 774-5987

Telephone: (610) 774-5235

With a copy to:

PPL Global, LLC

11350 Random Hills Road

Suite 400

Fairfax, VA 22030

Attention: Chief Counsel

Telecopier: (703) 293-9227

Telephone: (703) 293-2614

5.4 Remedies. The Guarantor stipulates that the remedies at law in respect of any default or threatened default by the Guarantor in the performance of or compliance with any of the terms of this Guaranty may not be adequate, and that any of such terms may be specifically enforced by a decree for specific performance or by an injunction against violation of any such terms or otherwise.

5.5 Right to Deal with the Lessee. At any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of the Guarantor hereunder, the Lessor or Assignee may deal with the Lessee in the same manner and as fully and as if this Guaranty did not exist and shall be entitled, among other things, to grant the Lessee, without notice or demand and without affecting the Guarantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of payment or any part thereof contained in or arising under any Operative Document, or to waive any Obligation of the Lessee to perform any act or acts as the Lessor or Assignee may deem advisable.

5.6 Subrogation. The Guarantor shall be subrogated to all rights of the Lessor and each Assignee in respect of any amounts paid by the Guarantor on account of such Obligations pursuant to the provisions of this Guaranty; provided, however, that the Guarantor will not exercise any rights which it may acquire by way of subrogation hereunder, by any payment made hereunder or otherwise, until all of the Obligations have been indefeasibly paid in full in cash and performed in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full in cash, such amount shall be held in trust for the benefit of the Lessor and Assignee and shall forthwith be paid as provided in Section 5.1 hereof to be credited and applied upon the Obligations, whether matured or unmatured, in accordance with the terms of the Operative Documents. If (a) the Guarantor shall make payment to the Lessor, Assignee or any successor, assignee or transferee of the Lessor or Assignee of all or any part of the Obligations and (b) all the Obligations shall be indefeasibly paid in full in cash, the Lessor or any such successor, assignee or transferee of the Lessor will, at the Guarantor's request and expense, execute and deliver to the Guarantor appropriate documents, without recourse as set forth in Section 30 of the Lease, and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Obligations resulting from such payment by the Guarantor.

5.7 Survival of Representations, Warranties, etc. All representations, warranties, covenants and agreements made herein and in statements or certificates delivered pursuant hereto shall survive any investigation or inspection made by or on behalf of the Lessor or Assignee and shall continue in full force and effect until all of the obligations of the Guarantor under this Guaranty shall be fully performed in accordance with the terms hereof including, without limitation, the payment and performance in full of all Obligations.

5.8 Governing Law and Consent to Jurisdiction; Waiver of Jury Trial. THIS GUARANTY HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF NEW YORK. THE GUARANTOR AND LESSOR AGREE THAT, TO THE MAXIMUM EXTENT PERMITTED BY THE LAWS OF THE STATE OF NEW YORK, THIS GUARANTY, AND THE RIGHTS AND DUTIES OF THE GUARANTOR AND LESSOR HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, IN RESPECT OF ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. THE GUARANTOR HEREBY IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTIES, TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE SUPREME COURT OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS GUARANTY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURT. THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE LESSOR OR ANY ASSIGNEE FROM OBTAINING JURISDICTION OVER THE GUARANTOR IN ANY COURT OTHERWISE HAVING JURISDICTION. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS GUARANTY OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. THE GUARANTOR AND LESSOR EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS GUARANTY. THE GUARANTOR AND LESSOR ACKNOWLEDGE THAT THE PROVISIONS OF THIS SECTION 5.8 HAVE BEEN BARGAINED FOR AND THAT THEY HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.

5.9 Severability. If any term of this Guaranty or any application thereof shall be invalid or unenforceable, the remainder of this Guaranty and any other application of such term shall not be affected thereby. Any term of this Guaranty may be amended, modified, waived, discharged or terminated only by an instrument in writing signed by the Guarantor and Lessor, and consented to by each Assignee.

5.10 Counterparts. This Guaranty may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

5.11 No Merger. There shall be no merger of this Guaranty and the Lease by reason of the fact that the same person, firm or entity is, directly or indirectly, the Guarantor and a lessee under the Lease or acquires or holds the leasehold estate created by the Lease or any part of such leasehold estate.

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be executed and delivered as of the day and year first above written.

PPL ENERGY SUPPLY, LLC,

as Guarantor

By:___________________________

Name: James E. Abel

Title: Treasurer

Acknowledged and Agreed:

LMB FUNDING, LIMITED PARTNERSHIP

By: LMB Capital, Inc.,

its General Partner

By: ____________________________

Name: William R. Fuhs

Title: Vice President and

Assistant Secretary

EXHIBIT A

DEFINED TERMS

"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct generally the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Agreement for Lease" means the Agreement for Lease, dated as of December 21, 2001, between the Lessor, as owner, and the Lessee, as agent, as the same may be amended or supplemented from time to time in accordance with its terms.

"Asset Sale" shall mean any sale of any assets of the Guarantor or its Subsidiaries including by way of the issue by the Guarantor or any of its Subsidiaries of equity interests in such Subsidiaries.

"Assignee" means the Collateral Trustee or any successor to the Collateral Trustee.

"Authorized Officer" means the President, any Vice President, the Treasurer, or any other Person duly authorized by the Guarantor to act in respect of matters relating to this Guaranty.

"Bankruptcy" means, with respect to any Person, a Voluntary Bankruptcy or an Involuntary Bankruptcy. A "Voluntary Bankruptcy" means, with respect to any Person, (a) the insolvency (however evidenced) of such Person, (b) an admission of insolvency or bankruptcy by such Person, (c) the commencement by such Person of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, (d) the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of such Person or of any substantial part of such Person's property, (e) the making by such Person of an assignment for the benefit of creditors, (f) the failure of such Person generally to pay its debts as such debts become due, or (g) the taking of corporate action by such Person in furtherance of any such actions set forth above. An "Involuntary Bankruptcy" means, with respect to any Person, without the consent or acquiescence of such Person, the entry of a decree or order for relief in respect of such Person by a court having jurisdiction in the premises or the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or of any substantial part of such Person's property, or ordering the winding up or liquidation of such Person's affairs, in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, and such decree or order remains unstayed and in effect for sixty (60) consecutive days; or the commencement against such Person of an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, and the continuance of any such case unstayed and in effect for a period of sixty (60) consecutive days.

"Collateral Trustee" means State Street Bank and Trust Company of Connecticut, National Association, in its capacity as collateral trustee under the Indenture of Trust, Security Agreement and Collateral Assignment of Contracts, dated as of December 21, 2001, entered into by the Lessor and the Collateral Trustee, pursuant to which the Lessor has granted a security interest in certain collateral to the Collateral Trustee, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms thereof.

"corporation" means a corporation, association, company, joint stock company or limited liability company or business trust, and references to "corporate" and other derivations of "corporation" herein shall be deemed to include appropriate derivations of such entities, except that with respect to Section 3.2.1(a) hereof, "corporation" shall be deemed to refer to a corporation or a limited liability company.

"Covenant Obligations" means all obligations (other than Payment Obligations), covenants and undertakings of the Lessee contained in the Operative Documents.

"Debt" with respect to any Person, means (i) indebtedness of such Person for borrowed money evidenced by a bond, debenture, note or other similar written instrument or agreement by which such Person is obligated to repay such borrowed money and (ii) any guaranty by such Person of any such indebtedness of another Person. "Debt" does not include, among other things, (a) indebtedness of such Person under any installment sale or conditional sale agreement or any other agreement relating to indebtedness for the deferred purchase price of property or services, (b) any trade obligations (including obligations under agreements relating to the purchase and sale of any commodity, including power purchase or sale agreements, and any commodity hedges or derivatives regardless or whether such transaction is a "financial" or physical transaction) or other obligations of such Person in the ordinary course of business, (c) obligations of such Person under any lease agreement (including any lease intended as security), whether or not such obligations are required to be capitalized on the balance sheet of such Person under generally accepted accounting principles, or (d) liabilities secured by any Lien on any property owned by such Person if and to the extent that such Person has not assumed or otherwise become liable for the payment thereof.

"Event of Default" means any of the following events shall occur and be continuing:

(a)The Guarantor shall fail to pay any amount due under this Guaranty (i) within five (5) days of when the same becomes due and payable in the case of payments owing on account of obligations by the Lessee to pay Basic Rent, Make-Whole Premium or Modified Call Premium; and (ii) within ten (10) days of when the same becomes due and payable with respect to other amounts due by the Lessee; or

(b)The Guarantor shall fail to perform or observe (i) any term, covenant or agreement contained in Section 3.2 hereof if the failure to perform or observe such term, covenant or agreement shall remain unremedied for ten (10) Business Days after written notice thereof shall have been given to the Guarantor by the Lessor or Assignee; or (ii) any other term, covenant or agreement contained in this Guaranty on its part to be performed or observed if the failure to perform or observe such other term, covenant or agreement shall remain unremedied for sixty (60) days after written notice thereof shall have been given to the Guarantor by the Lessor or Assignee or the Majority Holders, unless the Collateral Trustee, or the Collateral Trustee and the Majority Holders, as the case may be, shall agree in writing to an extension of such period prior to its expiration; provided, however, that the Collateral Trustee or the Collateral Trustee and the Majority Holders, as the case may be, shall be deemed to have agreed to an extension of such period (not to exceed one hundred eighty (180) days) if corrective action is initiated by the Guarantor within such period and is being diligently pursued; or

(c)The occurrence of a matured event of default, as defined in any instrument of the Guarantor under which there may be issued or evidenced any Debt of the Guarantor, that has resulted in the acceleration of such Debt in excess of $25,000,000, or any default in payment of Debt in excess of $25,000,000 at final maturity, after the expiration of any applicable grace or cure periods; provided, however, that the waiver or cure of any such default under any such instrument of Debt shall constitute a waiver and cure of the corresponding default under this clause (c) and the rescission and annulment of the consequences thereof shall constitute a rescission and annulment of the corresponding consequences under this clause (c); provided, further, that no Event of Default shall be deemed to have occurred under this clause (c) if the General Partner or its Affiliates, the Lessor's limited partners or their Affiliates or the lenders party to any Financing Arrangement or their respective Affiliates, either collectively or individually, has controlled (by vote, contract or otherwise) the acceleration of such Indebtedness prior to its stated maturity; or

(d)The Guarantor shall default in any payment of principal of or interest on any Debt of the Guarantor having a then outstanding principal balance in excess of $40,000,000 in the aggregate, beyond the period of grace, if any, under the provisions of any instrument or instruments or agreement or agreements pursuant to which such Debt was created; or

(e)The Guarantor shall fail, within sixty (60) days, to pay, bond or otherwise discharge any final judgment or order for the payment of money in excess of $25,000,000 entered against the Guarantor by a court of competent jurisdiction, that is not stayed on appeal or otherwise being appropriately contested in good faith; or

(f)The entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Guarantor in an involuntary case or proceeding under any applicable Federal or State Bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Guarantor a bankrupt or insolvent, or approving as properly filed a petition by one or more Persons other than the Guarantor seeking reorganization, arrangement, adjustment or composition of or in respect of the Guarantor under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official for the Guarantor or for any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order for relief or any such other decree or order shall have remained unstayed and in effect for a period of sixty (60) consecutive days; or

(g)The commencement by the Guarantor of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Guarantor to the entry of a decree or order for relief in respect of the Guarantor in a case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Guarantor, or the filing by the Guarantor of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by the Guarantor to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Guarantor or of any substantial part of its property, or the making by the Guarantor of an assignment for the benefit of creditors, or the admission by the Guarantor in writing of its inability to pay its debts generally as they become due, or the authorization of such action by the Board of Directors of the Guarantor; or

(h)This Guaranty ceases to be in full force and effect prior to the termination hereof in accordance with its terms or the Guarantor asserts that the Guaranty is not in full force and effect.

"GAAP" means generally accepted accounting principles in the United States applied on a basis consistent with the principles, methods, procedures and practices employed in the preparation of the Guarantor's audited financial statements, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession.

"Indemnification Obligations" means any amount or amounts due to any Indemnified Person from the Lessee pursuant to Section 11 of the Lease and Section 12 of the Agreement for Lease.

"Lease" means the Lease Agreement, dated as of December 21, 2001, between the Lessor and the Lessee, as the same may be amended or supplemented from time to time in accordance with its terms.

"Lessee" means Lower Mount Bethel Energy, LLC, a Delaware limited liability company.

"Lessee Note" means the Promissory Note, dated December 21, 2001, from the Lessee, as borrower, in favor of the Lessor, as lender, evidencing the advances made by the Lessor to the Lessee thereunder, and any promissory note or notes of the Lessee issued in substitution thereof.

"Lien" means any lien, mortgage, deed of trust, pledge or security interest, in each case, intended to secure the repayment of Debt, except for any Permitted Lien.

"Majority Holders" has the meaning specified in the Note Purchase Agreement.

Material" means material in relation to the business, operations, affairs, financial condition, assets or properties of the Guarantor and its Subsidiaries taken as a whole.

"Material Adverse Effect" means a material adverse effect on (i) the business, assets, financial condition or operations of the Guarantor and its Subsidiaries, taken as a whole, (ii) the Guarantor's ability to perform its obligations under this Guaranty or (iii) the validity or enforceability of this Guaranty.

"Material Subsidiary" means PPL Global, LLC, a Delaware limited liability company, PPL EnergyPlus, LLC, a Delaware limited liability company, or PPL Generation, LLC, a Delaware limited liability company.

"Moody's" means Moody's Investors Service, Inc. and its successors and assigns, or absent a successor, such other nationally recognized statistical rating organization as the Guarantor may designate.

"Notes" means the 8.05% Senior Secured Notes due 2013 and the 8.30% Senior Secured Notes due 2013, issued by the Lessor pursuant to the Note Purchase Agreement.

"Noteholder" means the Person in whose name a Note is registered from time to time.

"Note Purchaser" has the meaning specified in the Note Purchase Agreement.

"Note Purchase Agreement" means, collectively, the several Note Purchase Agreements, each dated as of December 21, 2001, between the Lessor and the purchasers named in Schedule I thereto, as the same may be amended, restated, modified or supplemented from time to time.

"Obligations" means Payment Obligations and Covenant Obligations, individually and collectively.

"Officer's Certificate" means a certificate signed by an Authorized Officer of the Guarantor.

"Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Guarantor and who shall be acceptable to the Lessor and Assignee.

"Operative Documents" means this Guaranty, the Lease, the Agreement for Lease, the Ground Lease (as defined in the Lease), the Pledge Agreement and the Management Agreement (each as defined in the Agreement for Lease), the Note Purchase Agreement, the Notes, the Collateral Indenture, the Merrill Leasing Shortfall Agreement and the Merrill Lynch Support Letter (each as defined in the Note Purchase Agreement).

"Payment Obligations" means all amounts stated in the Operative Documents to be payable by the Lessee in respect of (a)(i) an Event of Loss, Event of Default or Event of Project Termination (as each such term is defined in the Agreement for Lease), (ii) an Event of Loss or Event of Default (as each such term is defined in the Lease) and (iii) any other termination or expiration of the Agreement for Lease and the Lease, including, without limitation, a termination of the Agreement for Lease pursuant to the terms of subsections 11.2 and 11.4 and Section 14 of the Agreement for Lease, and a termination of the Lease or purchase of the Project, as the case may be, pursuant to the terms of Section 12, Section 13, Section 15, Section 16 and Section 19 of the Lease; (b) Basic Rent, Additional Rent, Acquisition Cost, Adjusted Acquisition Cost, Make-Whole Premium and Modified Call Premium; (c) all amounts due under the Lessee Note; and (d) all amounts of Indemnification Obligations, in each case, notwithstanding any rejection of the Agreement for Lease or Lease by the Lessee or a trustee in any Federal or state Bankruptcy or other similar proceeding and any limit imposed in any such proceeding or by statute or other applicable law on the amounts payable under the Agreement for Lease or Lease by the Lessee.

"Permitted Business" means a business that is the same or similar to the business of the Guarantor or any Subsidiary as of the date hereof, or any business reasonably related thereto.

"Permitted Liens" means:

(i)any Liens existing as of December 21, 2001;

(ii)any vendors' Liens, purchase money Liens and other Liens on property at the time of acquisition thereof by the Guarantor and Liens to secure or provide for the construction or improvement of property provided that no such Lien shall extend to or cover any other property of the Guarantor;

(iii)any Liens on cash or securities (other than limited liability company interests issued by any Material Subsidiary) on hand or in banks or other financial institutions, deposit accounts and interests in general or limited partnerships;

(iv)any Liens on the equity interest of any Subsidiary that is not a Material Subsidiary;

(v)any Liens on property or shares of capital stock, or arising out of any Debt of any corporation existing at the time the corporation becomes or is merged or consolidated into the Guarantor;

(vi)any Liens in connection with the issuance of tax-exempt industrial development or pollution control bonds or other similar bonds issued pursuant to Section 103(b) of the Internal Revenue Code of 1986, as amended (or any successor provision), to finance all or any part of the purchase price of or the cost of constructing, equipping or improving property, provided that such Liens are limited to the property acquired or constructed or improved and to substantially unimproved real property on which such construction or improvement is located; provided further, that the Guarantor may further secure all or any part of such purchase price or the cost of construction or improvement by an interest on additional property of the Guarantor only to the extent necessary for the construction, maintenance and operation of, and access to, such property so acquired or constructed or such improvement;

(vii)any Liens on contracts, leases, operating agreements and other agreements of whatsoever kind and nature; any Liens on contract rights, bills, notes and other instruments; any Liens on revenues, income and earnings, accounts, accounts receivable and unbilled revenues, claims, credits, demands and judgments; any Liens on governmental and other licenses, permits, franchises, consents and allowances; and any Liens on patents, patent licenses and other patent rights, patent applications, trade names, trademarks, copyrights, claims, credits, choses in action and other intangible property and general intangibles including, but not limited to, computer software;

(viii)any Liens securing Debt which matures less than one year from the date of issuance or incurrence thereof and is not extendible at the option of the issuer, and any refundings, refinancings and/or replacements of any such Debt by or with similar secured Debt;

(ix)any Liens on automobiles, buses, trucks and other similar vehicles and movable equipment; and vessels, boats, barges and other marine equipment; airplanes, helicopters, aircraft engines and other flight equipment; parts, accessories and supplies used in connection with any of the foregoing;

(x)any Liens on furniture and furnishings, computers and data processing, data storage, data transmission, telecommunications and other equipment and facilities, equipment and apparatus, which, in any case, are used primarily for administrative or clerical purposes;

(xi)any Liens on property which are the subject of a lease agreement designating the Guarantor as lessee and all right, title and interest of the Guarantor in and to such property and in, to and under such lease agreement, whether or not such lease agreement is intended as security;

(xii)other Liens securing Debt the principal amount of which does not exceed 10% of the total assets of the Guarantor and its consolidated Subsidiaries as shown on the Guarantor's most recent audited consolidated balance sheet; and

(xiii)any Liens granted in connection with extending, renewing, replacing or refinancing, in whole or in part, the Debt secured by liens described in the foregoing clauses (i) through (xii), to the extent of such Debt so extended, renewed, replaced or refinanced.

"Person" means an individual, corporation, partnership, limited liability partnership, joint venture, trust or unincorporated organization or other entity, or a government or any political subdivision, instrumentality or agency thereof.

"Potential Default" means any event that, with the giving of notice, lapse of time or both would constitute an Event of Default.

"Qualifying Assignee" means (i) each Noteholder or other Person originally providing credit support to the Lessor pursuant to a Financing Arrangement (together with the Affiliates of such Noteholder or other Person and any collateral trustee or agent for any thereof), or (ii) any transferee of such Noteholder or other Person which, in either case of (i) or (ii), holds at least $25 million aggregate principal amount of indebtedness under such Financing Arrangement.

"S&P" means Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. and its successors and assigns, or absent a successor, such other nationally recognized statistical rating organization as the Guarantor may designate.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Subsidiary" means any corporation a majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the Guarantor or by one or more other Subsidiaries of the Guarantor.

"Voting Stock" means stock (or other interests) of a corporation having voting power for the election of directors, managers or trustees thereof, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

"Wholly-Owned Subsidiary" means, with respect to any Person at any date, any Subsidiary of such Person in which all of the Voting Stock (except directors' qualifying shares) is at the time, directly or indirectly, owned by such Person.

Schedule 4.6

List of Material Subsidiaries

Material Subsidiary	Jurisdiction of Organization
PPL Generation, LLC	Delaware
PPL EnergyPlus, LLC	Pennsylvania
PPL Global, LLC	Delaware

Schedule 4.11

Litigation

Litigation described in the following reports of PPL Corporation:

Annual Report on Form 10-K for the year ended December 31, 2000.

Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001.

Current Reports on Form 8-K dated January 26, 2001, April 30, 2001, May 11, 2001, June 22, 2001, July 17, 2001, July 31, 2001, August 24, 2001, October 23, 2001 and October 24, 2001.

EX-10

Exhibit 10(l)

Amended and Restated

Operating Agreement

of

PJM Interconnection, L.L.C.

Includes FERC-Approved Revisions As Of February 25, 2002.

OPERATING AGREEMENT

Table of Contents

1. DEFINITIONS				15
	1.1 Act.			15
	1.2 Affiliate.			15
	1.3 Agreement.			15
	1.4 Annual Meeting of the Members.			15
	1.5 Board Member.			15
	1.6 Capacity Resource.			15
	1.7 Control Area.			16
	1.8 Electric Distributor.			16
	1.9 Effective Date.			16
	1.10 Emergency.			16
	1.11 End-Use Customer.			16
	1.12 FERC.			16
	1.13 Finance Committee.			17
	1.14 Generation Owner.			17
	1.15 Good Utility Practice.			17
	1.16 Interconnection.			17
	1.17 LLC.			17
	1.18 Load Serving Entity.			17
	1.19 Locational Marginal Price.			17
	1.20 MAAC.			17
	1.21 Market Buyer.			18
	1.22 Market Participant.			18
	1.23 Market Seller.			18
	1.24 Member.			18
	1.25 Members Committee.			18
	1.26 NERC.			18
	1.27 Office of the Interconnection.			18
	1.28 Operating Reserve.			18
	1.29 Original PJM Agreement.			18
	1.30 Other Supplier.			18
	1.31 PJM Board.			19
	1.32 PJM Control Area.			19
	1.33 PJM Dispute Resolution Procedures			19
	1.34 PJM Interchange Energy Market.			19
	1.35 PJM Manuals.			19
	1.36 PJM Tariff.			19
	1.37 Planning Period.			19
	1.38 President.			19
	1.39 Related Parties.			19
	1.40 Reliability Assurance Agreement			20
	1.41 Sector Votes.			20
	1.42 State.			20
	1.43 System.			20
	1.44 Transmission Facilities.			20
	1.45 Transmission Owner.			20
	1.46 Transmission Owners Agreement.			20
	1.47 User Group.			20
	1.48 Voting Member			20
	1.49 Weighted Interest.			21
2. FORMATION, NAME; PLACE OF BUSINESS				21
	2.1 Formation of LLC; Certificate of Formation.			21
	2.2 Name of LLC.			22
	2.3 Place of Business.			22
	2.4 Registered Office and Registered Agent.			22
3. PURPOSES AND POWERS OF LLC				22
	3.1 Purposes.			22
	3.2 Powers.			22
4. EFFECTIVE DATE AND TERMINATION				23
	4.1 Effective Date and Termination.			23
	4.2 Governing Law.			23
5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS				23
	5.1 Funding of Working Capital and Capital Contributions.			23
	5.2 Contributions to Association.			24
6. TAX STATUS AND DISTRIBUTIONS				24
	6.1 Tax Status.			24
	6.2 Return of Capital Contributions.			24
	6.3 Liquidating Distribution.			25
7. PJM BOARD				25
	7.1 Composition.			25
	7.2 Qualifications.			26
	7.3 Term of Office.			26
	7.4 Quorum.			26
	7.5 Operating and Capital Budgets.			27
		7.5.1 Finance Committee.		27
		7.5.2 Adoption of Budgets.		27
	7.6 By-laws.			27
	7.7 Duties and Responsibilities of the PJM Board.			27
8. MEMBERS COMMITTEE				29
	8.1 Sectors.			29
		8.1.1 Designation.		29
		8.1.2 Related Parties.		30
	8.2 Representatives.			30
		8.2.1 Appointment.		30
		8.2.2 Regulatory Authorities.		30
		8.2.3 Initial Representatives.		30
		8.2.4 Change of or Substitution for a Representative.		30
	8.3 Meetings.			31
		8.3.1 Regular and Special Meetings.		31
		8.3.2 Attendance.		31
		8.3.3 Quorum.		31
	8.4 Manner of Acting.			31
	8.5 Chair and Vice Chair of the Members Committee.			32
		8.5.1 Selection and Term.		32
		8.5.2 Duties.		32
	8.6 Other Committees.			32
	8.7 User Groups.			32
	8.8 Powers of the Members Committee.			33
9. OFFICERS				33
	9.1 Election and Term.			33
	9.2 President.			34
	9.3 Secretary.			34
	9.4 Treasurer.			34
	9.5 Renewal of Officers; Vacancies.			35
	9.6 Compensation.			35
10. OFFICE OF THE INTERCONNECTION.				35
	10.1 Establishment.			35
	10.2 Processes and Organization.			35
	10.3 Confidential Information.			35
	10.4 Duties and Responsibilities.			35
11. MEMBERS				37
	11.1 Management Rights.			37
	11.2 Other Activities.			37
	11.3 Member Responsibilities.			37
		11.3.1 General.		37
	11.3.2 Facilities Planning and Operation.			38
		11.3.3 Electric Distributors.		39
		11.3.4 Reports to the Office of the Interconnection.		40
	11.4 Regional Transmission Expansion Planning Protocol.			40
	11.5 Member Right to Petition.			41
	11.6 Membership Requirements.			41
12. TRANSFERS OF MEMBERSHIP INTEREST				42
13. INTERCHANGE				42
	13.1 Interchange Arrangements with Non-Members.			42
	13.2 Energy Market.			42
14. METERING				43
	14.1 Installation, Maintenance and Reading of Meters.			43
	14.2 Metering Procedures.			43
	14.3 Integrated Megawatt-Hours			43
	14.4 Meter Locations.			43
15. ENFORCEMENT OF OBLIGATIONS				43
	15.1 Failure to Meet Obligations.			43
		15.1.1 Termination of Market Buyer Rights.		43
		15.1.2 Termination of Market Seller Rights.		43
		15.1.3 Payment of Bills.		44
	15.2 Enforcement of Obligations.			45
	15.3 Obligations to a Member in Default.			45
	15.4 Obligations of a Member in Default.			45
	15.5 No Implied Waiver.			45
16. LIABILITY AND INDEMNITY				46
	16.1 Members.			46
	16.2 LLC Indemnified Parties.			47
	16.3 Worker's Compensation Claims.			48
	16.4 Limitation of Liability.			48
	16.5 Resolution of Disputes.			48
	16.6 Gross Negligence or Willful Misconduct.			48
	16.7 Insurance.			48
17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS				48
	17.1 Representations and Warranties.			48
		17.1.1 Organization and Existence.		49
		17.1.2 Power and Authority.		49
		17.1.3 Authorization and Enforceability.		49
		17.1.4 No Government Consents.		49
		17.1.5 No Conflict or Breach.		49
		17.1.6 No Proceedings.		49
	17.2 Municipal Electric Systems.			50
	17.3 Survival.			50
18. MISCELLANEOUS PROVISIONS				50
	18.1 [Reserved]			50
	18.2 Fiscal and Taxable Year.			50
	18.3 Reports.			50
	18.4 Bank Accounts; Checks, Notes and Drafts.			50
	18.5 Books and Records.			51
	18.6 Amendment.			51
	18.7 Interpretation.			52
	18.8 Severability.			52
	18.9 Force Majeure.			52
	18.10 Further Assurances.			52
	18.11 Seal.			52
	18.12 Counterparts.			53
	18.13 Costs of Meetings.			53
	18.14 Notice.			53
	18.15 Headings.			53
	18.16 No Third-Party Beneficiaries.			53
	18.17 Confidentiality.			54
		18.17.1 Party Access.		54
		18.17.2 Required Disclosure.		55
		18.17.3 Disclosure to FERC		55
	18.18 Termination and Withdrawal.			56
		18.18.1 Termination.		56
		18.18.2 Withdrawal.		56
		18.18.3 Winding Up.		56
SCHEDULE 1 - PJM INTERCHANGE ENERGY MARKET				57
1. MARKET OPERATIONS				57
	1.1 Introduction.			57
	1.2 Cost-based Offers.			57
	1.3 Definitions.			57
		1.3.1 Day-ahead Energy Market		57
		1.3.1A Day-ahead Prices		57
		1.3.1B Decrement Bid		57
		1.3.1C Dispatch Rate.		58
		1.3.2 Equivalent Load.		58
		1.3.3 External Market Buyer.		58
		1.3.4 External Resource.		58
		1.3.5 Fixed Transmission Right.		58
		1.3.6 Generating Market Buyer.		58
		1.3.7 Generator Forced Outage.		58
		1.3.8 Generator Maintenance Outage.		58
		1.3.9 Generator Planned Outage.		59
		1.3.9A Increment Bid		59
		1.3.10 Internal Market Buyer.		59
		1.3.11 Inadvertent Interchange.		59
		1.3.12 Market Operations Center.		59
		1.3.13 Maximum Generation Emergency.		59
		1.3.14 Minimum Generation Emergency.		59
		1.3.14A NERC Interchange Distribution Calculator		60
		1.3.15 Network Resource.		60
		1.3.16 Network Service User.		60
		1.3.17 Network Transmission Service.		60
		1.3.18 Normal Maximum Generation.		60
		1.3.19 Normal Minimum Generation.		60
		1.3.20 Offer Data.		60
		1.3.21 Office of the Interconnection Control Center.		60
		1.3.22 Operating Day.		60
		1.3.23 Operating Margin.		61
		1.3.24 Operating Margin Customer.		61
		1.3.25 PJM Interchange.		61
		1.3.26 PJM Interchange Export.		61
		1.3.27 PJM Interchange Import.		61
		1.3.28 PJM Open Access Same-time Information System.		61
		1.3.29 Point-to-Point Transmission Service.		62
		1.3.30 Ramping Capability.		62
		1.3.30A Real-time Prices		62
		1.3.30B Real-time Energy Market		62
		1.3.31 Regulation.		62
		1.3.32 Spot Market Backup		62
		1.3.33 Spot Market Energy.		62
		1.3.33A State Estimator		62
		1.3.34 Transmission Congestion Charge.		62
		1.3.35 Transmission Congestion Credit.		63
		1.3.36 Transmission Customer.		63
		1.3.37 Transmission Forced Outage.		63
		1.3.37A Transmission Loading Relief		63
		1.3.37B Transmission Loading Relief Customer		63
	1.3.38 Transmission Planned Outage.			63
	1.4 Market Buyers.			63
		1.4.1 Qualification.		63
		1.4.2 Submission of Information.		64
		1.4.3 Fees and Costs.		65
		1.4.4 Office of the Interconnection Determination.		65
		1.4.5 Existing Participants.		65
		1.4.6 Withdrawal.		65
		1.5 Market Sellers.		66
			1.5.1 Qualification.	66
		1.5.2 Withdrawal.		66
	1.6 Office of the Interconnection.			66
		1.6.1 Operation of the PJM Interchange Energy Market		66
		1.6.2 Scope of Services.		67
		1.6.3 Records and Reports.		68
		1.6.4 PJM Manuals.		68
	1.7 General.			68
		1.7.1 Market Sellers.		68
		1.7.2 Market Buyers.		68
		1.7.3 Agents.		68
		1.7.4 General Obligations of the Market Participants.		69
		1.7.5 Market Operations Center.		70
		1.7.6 Scheduling and Dispatching.		70
		1.7.7 Pricing.		71
		1.7.8 Generating Market Buyer Resources.		71
		1.7.9 Delivery to an External Market Buyer.		71
		1.7.10 Other Transactions.		71
		1.7.11 Emergencies.		72
		1.7.12 Fees and Charges.		72
		1.7.13 Relationship to PJM Control Area.		72
		1.7.14 PJM Manuals.		73
		1.7.15 Corrective Action.		73
		1.7.16 Recording.		73
		1.7.17 Operating Reserves.		73
		1.7.18 Regulation.		74
		1.7.19 Ramping.		74
		1.7.20 Communication and Operating Requirements.		75
	1.8 Selection, Scheduling and Dispatch Procedure Adjustment Process.			76
		1.8.1 PJM Dispute Resolution Agreement.		76
		1.8.2 Market or Control Area Hourly Operational Disputes.		76
	1.9 Prescheduling.			77
		1.9.1 Outage Scheduling.		77
		1.9.2 Planned Outages.		77
		1.9.3 Generator Maintenance Outages		78
		1.9.4 Forced Outages		78
		1.9.5 Market Participant Responsibilities.		78
		1.9.6 Internal Market Buyer Responsibilities.		79
		1.9.7 Market Seller Responsibilities		79
		1.9.8 Office of the Interconnection Responsibilities		79
	1.10 Scheduling.			80
	1.10.1 General			80
		1.10.1A Day-Ahead Energy Market Scheduling.		80
		1.10.2 Pool-Scheduled Resources.		83
		1.10.3 Self-scheduled Resources.		84
		1.10.4 Capacity Resources.		84
		1.10.5 External Resources.		85
		1.10.6 External Market Buyers.		85
		1.10.6A Transmission Loading Relief Customers		86
		1.10.7 Bilateral Transactions.		86
		1.10.8 Office of the Interconnection Responsibilities.		87
		1.10.9 Hourly Scheduling		88
	1.11 Dispatch.			89
		1.11.1 Resource Output.		89
		1.11.2 Operating Basis.		89
		1.11.3 Pool-dispatched Resources		89
		1.11.3A Maximum Generation Emergency		90
		1.11.4 Regulation		90
		1.11.5 PJM Open Access Same-time Information System.		90
	1.12 Dynamic Scheduling			91
2. CALCULATION OF LOCATIONAL MARGINAL PRICES				91
	2.1 Introduction.			91
	2.2 General.			91
	2.3 Determination of System Conditions Using the State Estimator.			92
	2.4 Determination of Energy Offers Used in Calculating Real-time Prices.			92
	2.5 Calculation of Real-time Prices.			93
	2.6 Calculation of Day-ahead Prices			94
	2.7 Performance Evaluation.			94
3. ACCOUNTING AND BILLING				94
	3.1 Introduction.			94
	3.2 Market Buyers.			94
		3.2.1 Spot Market Energy.		94
		3.2.2 Regulation.		97
		3.2.3 Operating Reserves.		98
		3.2.4 Transmission Congestion.		101
		3.2.5 Transmission Losses.		101
		3.2.6 Emergency Energy.		102
		3.2.7 Billing.		102
	3.3 Market Sellers.			103
		3.3.1 Spot Market Energy.		103
		3.3.2 Regulation.		103
		3.3.3 Operating Reserves.		104
		3.3.4 Emergency Energy.		104
		3.3.5 Billing.		104
	3.4 Transmission Customers.			104
		3.4.1 Transmission Congestion.		104
		3.4.2 Transmission Losses		104
		3.4.3 Billing.		105
	3.5 Other Control Areas.			105
		3.5.1 Energy Sales.		105
		3.5.2 Operating Margin Sales.		105
		3.5.3 Transmission Congestion.		105
		3.5.4 Billing.		105
	3.6 Metering Reconciliation.			106
		3.6.1 Meter Correction Billing.		106
		3.6.2 Meter Corrections Between Market Participants.		106
		3.6.3 500 kV Meter Errors.		106
		3.6.4 Meter Corrections Between Control Areas.		106
		3.6.5 Meter Correction Data.		106
		3.6.6 Correction Limits.		107
4. RATE TABLE				107
	4.1 Offered Price Rates.			107
	4.2 Transmission Losses.			107
	4.3 Emergency Energy Purchases.			107
5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS				107
	5.1 Transmission Congestion Charge Calculation			107
		5.1.1 Calculation by Office of the Interconnection.		107
		5.1.2 General.		107
		5.1.3 Network Service User Calculation.		107
		5.1.4 Transmission Customer Calculation.		108
		5.1.5 Operating Margin Customer Calculation.		108
		5.1.6 Transmission Loading Relief Customer Calculation		108
		5.1.7 Total Transmission Congestion Charges.		109
	5.2 Transmission Congestion Credit Calculation.			109
		5.2.1 Eligibility.		109
		5.2.2 Fixed Transmission Rights		109
		5.2.3 Target Allocation for Network Service Users.		110
		5.2.4 Target Allocation for other Holders.		111
		5.2.5 Calculation of Transmission Congestion Credits		111
		5.2.6 Distribution of Excess Congestion Charges		111
	5.3 Unscheduled Transmission Service (Loop Flow)			112
6. "MUST-RUN" FOR RELIABILITY GENERATION				112
	6.1 Introduction			112
	6.2 Identification of Facility Outages			112
	6.3 Dispatch for Local Reliability			114
		6.3.1 Request and Dispatch		112
		6.3.2 Designation of Facilities		113
	6.4 Price Caps			113
		6.4.1 Applicability		113
		6.4.2 Level		114
7. FIXED TRANSMISSION RIGHTS AUCTIONS				114
	7.1 Auctions of Fixed Transmission Rights			114
		7.1.1 Auction Period and Scope of Auctions		115
		7.1.2 Frequency and Time of Auctions		115
		7.1.3 Duration of Fixed Transmission Rights		115
	7.2 Fixed Transmission Rights Characteristics			115
		7.2.1 Reconfiguration of Fixed Transmission Rights		115
		7.2.2 Specified Buses		115
		7.2.3 Transmission Congestion Charges		115
	7.3 Auction Procedures			116
		7.3.1 Role of the Office of the Interconnection		116
		7.3.2 Notice of Offer		116
		7.3.3 Pending Applications for Firm Service		116
		7.3.4 On-Peak and Off-Peak Periods		117
		7.3.5 Offers and Bids		117
		7.3.6 Determination of Winning Bids and Clearing Price		118
		7.3.7 Announcements of Winners and Prices		118
		7.3.8 Auction Settlements		118
		7.3.9 Allocation of Auction Revenues		119
	7.4 Simultaneous Feasibility			119
SCHEDULE 2 - COMPONENTS OF COST				120
SCHEDULE 2 -- EXHIBIT A				121
SCHEDULE 3 - ALLOCATION OF THE COST AND EXPENSES OF THE OFFICE OF THE INTERCONNECTION				123
SCHEDULE 4 - STANDARD FORM OF AGREEMENT TO BECOME A MEMBER OF THE LLC				124
SCHEDULE 5 - PJM DISPUTE RESOLUTION PROCEDURES				126
1. DEFINITIONS				126
	1.1 Alternate Dispute Resolution Committee.			126
	1.2 MAAC Dispute Resolution Committee.			126
	1.3 Related PJM Agreements.			126
2. PURPOSES AND OBJECTIVES				126
	2.1 Common and Uniform Procedures.			126
	2.2 Interpretation.			126
3. NEGOTIATION AND MEDIATION				127
	3.1 When Required.			127
	3.2 Procedures.			127
		3.2.1 Initiation.		127
		3.2.2 Selection of Mediator.		127
		3.2.3 Advisory Mediator.		127
		3.2.4 Mediation Process.		128
		3.2.5 Mediator's Assessment.		128
	3.3 Costs.			129
4. ARBITRATION				129
	4.1 When Required.			129
	4.2 Binding Decision.			129
	4.3 Initiation.			129
	4.4 Selection of Arbitrator(s).			129
	4.5 Procedures.			130
	4.6 Summary Disposition and Interim Measures.			130
		4.6.1 Lack of Good Faith Basis.		130
		4.6.2 Discovery Limits.		130
		4.6.3 Interim Decision.		130
	4.7 Discovery of Facts.			131
		4.7.1 Discovery Procedures.		131
		4.7.2 Procedures Arbitrator.		131
	4.8 Evidentiary Hearing.			131
	4.9 Confidentiality.			132
		4.9.1 Designation.		132
		4.9.2 Compulsory Disclosure.		132
		4.9.3 Public Information.		132
	4.10 Timetable.			133
	4.11 Advisory Interpretations.			133
	4.12 Decisions.			133
	4.13 Costs.			133
	4.14 Enforcement.			134
5. ALTERNATE DISPUTE RESOLUTION COMMITTEE				134
5.1 Membership.				134
		5.1.1 Representatives.		134
		5.1.2 Term.		134
	5.2 Voting Requirements.			134
	5.3 Officers.			134
	5.4 Meetings.			135
	5.5 Responsibilities.			135
SCHEDULE 6 - REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL				136
1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL				136
	1.1 Purpose and Objectives			136
	1.2 Conformity with NERC and MAAC Criteria			136
	1.3 Establishment of Committees			136
	1.4 Contents of the Regional Transmission Expansion Plan			137
	1.5 Procedure for Development of the Regional Transmission Expansion Plan			137
		1.5.1 Commencement of the Process		137
		1.5.2 Development of Scope, Assumptions and Procedures		137
		1.5.3 Scope of Studies		138
		1.5.4 Supply of Data		138
		1.5.5 Coordination of the Regional Transmission Expansion Plan		138
		1.5.6 Development of the Recommended Regional Transmission Expansion Plan		139
	1.6 Approval of the Final Regional Transmission Expansion Plan			139
	1.7 Obligation to Build			140
	1.8 Relationship to the PJM Control Area Open Access Transmission PJM Tariff			141
SCHEDULE 7 - UNDERFREQUENCY RELAY OBLIGATIONS AND CHARGES				142
1. UNDERFREQUENCY RELAY OBLIGATION				142
	1.1 Application.			142
	1.2 Obligations.			142
2. UNDERFREQUENCY RELAY CHARGES				142
3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES				143
	3.1 Share of Charges.			143
	3.2 Allocation by the Office of the Interconnection.			143
SCHEDULE 8 -DELEGATION OF RELIABILITY RESPONSIBILITIES				144
1. DELEGATION				144
2. NEW PARTIES				144
3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT.				144
SCHEDULE 9 - EMERGENCY PROCEDURE CHARGES				146
1. EMERGENCY PROCEDURE CHARGE				146
2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES				146
	2.1 Complying Parties.			146
	2.2 All Parties.			146
SCHEDULE 10 - RESERVED				147
SCHEDULE 11 - PJM CAPACITY CREDIT MARKETS				148
1. PURPOSES AND OBJECTIVES				148
	1.1 PJM Capacity Credit Markets			148
	1.2 Voluntary Use of PJM Capacity Credit Market			148
	1.3 Use of Capacity Credits			148
2. DEFINITIONS				148
	2.1 [Reserved.]			148
	2.2 Buy Bid			148
	2.3 Capacity Credit			148
	2.4 Capacity Credit Market Implementation Date			149
	2.5 Capacity Resources			149
	2.6 Fixed Block			149
	2.7 Holiday			149
	2.8 PJM Capacity Credit Market			149
	2.9 PJM Daily Capacity Credit Market			149
	2.10 PJM Monthly Capacity Credit Market			149
	2.11 Sell Offer			149
	2.12 Unforced Capacity			149
	2.13 Up-To Block			149
3. PARTICIPATION IN THE PJM CAPACITY CREDIT MARKET				150
	3.1 Eligibility			150
	3.2 Effect of Withdrawal			150
4. RESPONSIBILITIES OF THE OFFICE OF THE INTERCONNECTION				150
	4.1 Operation of the PJM Capacity Credit Market			150
	4.2 Records and Reports			151
5. GENERAL PROVISIONS				151
	5.1 Market Sellers			151
	5.2 Market Buyers			151
	5.3 Agents			151
	5.4 General Obligations of Market Participants			151
	5.5 Relationship of Capacity Credits to Capacity Obligations Imposed under the Reliability Assurance Agreement			152
	5.6 Deficiency Charges			152
	5.7 Fixed Transmission Rights			152
	5.8 Confidentiality			152
6. OPERATION OF THE PJM CAPACITY CREDIT MARKETS				152
	6.1 Content of Sell Offers			152
		6.1.1 Specifications		152
		6.1.2 Market-based Offers		153
		6.1.3 Availability of Capacity Credits for Sale		153
	6.2 Content of Buy Bids			153
	6.3 Submission of Sell Offers and Buy Bids			154
	6.4 Conduct of PJM Capacity Credit Markets			155
		6.4.1 PJM Daily Capacity Credit Markets		155
		6.4.2 PJM Monthly Capacity Credit Markets		155
	6.5 Market Clearing Procedures			155
	6.6 Settlement Procedures			156
	6.7 Billing			156
	6.8 Time Standard			157
7. EFFECTIVE DATE AND TRANSITION				157
	7.1 Effective Date			157
	7.2 Transition Provisions			157
	7.3 Capacity Credit			157
	7.4 Mandatory Sell Offers and Buy Bids			157

Amended and Restated

Operating Agreement

of

PJM Interconnection, L.L.C.

   This Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., dated as of this 2^nd day of June, 1997, amends and restates as of the Effective Date the Operating Agreement of PJM Interconnection, L.L.C. filed with the FERC on April 2, 1997, as amended.

   WHEREAS, certain of the Members have previously entered into an agreement, originally dated September 26, 1956, as amended and supplemented up to and including December 31, 1996, stating "their respective rights and obligations with respect to the coordinated operation of their electric supply systems and the interchange of electric capacity and energy among their systems" (such agreement as amended and supplemented being referred to as the "Original PJM Agreement"), and which coordinated operations and interchange came to be known as the PJM Interconnection (the "Interconnection"); and

   WHEREAS, pursuant to a resolution of June 16, 1993, an unincorporated association comprised of the parties to the Original PJM Agreement was formed for the purpose of implementation of the Original PJM Agreement as it then existed and as it subsequently has been amended and supplemented, such association being known as the "PJM Interconnection Association"; and

   WHEREAS, because of changes in federal law and policy, the Original PJM Agreement, together with other documents and agreements, was amended, restated and submitted to FERC on December 31, 1996 to restructure fundamental aspects of the operation of the Interconnection; and

   WHEREAS, so that the provisions of the Original PJM Agreement could be placed into effect consistent with a February 28, 1997 order of FERC, including those provisions related to the governance of the Interconnection, the parties to the Original PJM Agreement, along with the other interested parties, approved the conversion of the PJM Interconnection Association into the LLC pursuant to the provisions of the Delaware Limited Liability Company Act, as amended (the "Delaware LLC Act"), pursuant to a Certificate of Formation (the "Certificate of Formation") and a Certificate of Conversion (the "Certificate of Conversion"), each filed with the Delaware Secretary of State (the "Recording Office") on March 31, 1997; and

   WHEREAS, the Members wish to amend and restate the Operating Agreement of PJM Interconnection, L.L.C. adopted in connection with the formation of the LLC and as in effect immediately prior to the Effective Date in the form set forth below; and

   WHEREAS, the Members intend to form an Independent System Operator in accordance with the regulations of the Federal Energy Regulatory Commission; and

   Now, therefore, in consideration of the foregoing, and of the covenants and agreements hereinafter set forth, the Members hereby agree as follows:

1.   DEFINITIONS

   Unless the context otherwise specifies or requires, capitalized terms used in this Agreement shall have the respective meanings assigned herein or in the Schedules hereto for all purposes of this Agreement (such definitions to be equally applicable to both the singular and the plural forms of the terms defined). Unless otherwise specified, all references herein to Sections, Schedules, Exhibits or Appendices are to Sections, Schedules, Exhibits or Appendices of this Agreement. As used in this Agreement:

   1.1   Act.

   "Act" shall mean the Delaware Limited Liability Company Act, Title 6, §§ 18-101 to 18-1109 of the Delaware Code.

   1.2   Affiliate.

   "Affiliate" shall mean any two or more entities, one of which controls the other or that are under common control. "Control" shall mean the possession, directly or indirectly, of the power to direct the management or policies of an entity. Ownership of publicly-traded equity securities of another entity shall not result in control or affiliation for purposes of this Agreement if the securities are held as an investment, the holder owns (in its name or via intermediaries) less than 10 percent of the outstanding securities of the entity, the holder does not have representation on the entity's board of directors (or equivalent managing entity) or vice versa, and the holder does not in fact exercise influence over day-to-day management decisions. Unless the contrary is demonstrated to the satisfaction of the Members Committee, control shall be presumed to arise from the ownership of or the power to vote, directly or indirectly, ten percent or more of the voting securities of such entity.

   1.3   Agreement.

   "Agreement" shall mean this Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., including all Schedules, Exhibits, Appendices, addenda or supplements hereto, as amended from time to time.

   1.4   Annual Meeting of the Members.

   "Annual Meeting of the Members" shall mean the meeting specified in Section 8.3.1 of this Agreement.

   1.5   Board Member.

   "Board Member" shall mean a member of the PJM Board.

   1.6   Capacity Resource.

   "Capacity Resource" shall mean the net capacity from owned or contracted for generating facilities all of which (i) are accredited to a Load Serving Entity pursuant to the procedures set forth in the Reliability Assurance Agreement and (ii) are committed to satisfy that Load Serving Entity's obligations under the Reliability Assurance Agreement and this Agreement.

   1.7   Control Area.

   "Control Area" shall mean an electric power system or combination of electric power systems bounded by interconnection metering and telemetry to which a common automatic generation control scheme is applied in order to:

   (a)   match the power output of the generators within the electric power system(s) and energy purchased from entities outside the electric power system(s), with the load within the electric power system(s);

   (b)   maintain scheduled interchange with other Control Areas, within the limits of Good Utility Practice;

   (c)   maintain the frequency of the electric power system(s) within reasonable limits in accordance with Good Utility Practice and the criteria of NERC and the applicable regional reliability council of NERC;

   (d)   maintain power flows on transmission facilities within appropriate limits to preserve reliability; and

   (e)   provide sufficient generating capacity to maintain operating reserves in accordance with Good Utility Practice.

   1.8   Electric Distributor.

   "Electric Distributor" shall mean a Member that owns or leases with rights equivalent to ownership electric distribution facilities that are used to provide electric distribution service to electric load within the PJM Control Area.

   1.9   Effective Date.

   "Effective Date" shall mean August 1, 1997, or such later date that FERC permits this Agreement to go into effect.

   1.10   Emergency.

   "Emergency" shall mean: (i) an abnormal system condition requiring manual or automatic action to maintain system frequency, or to prevent loss of firm load, equipment damage, or tripping of system elements that could adversely affect the reliability of an electric system or the safety of persons or property; or (ii) a fuel shortage requiring departure from normal operating procedures in order to minimize the use of such scarce fuel; or (iii) a condition that requires implementation of emergency procedures as defined in the PJM Manuals.

1.11   End-Use Customer.

   "End-Use Customer" shall mean a Member that is a retail end-user of electricity within the PJM Control Area.

   1.12   FERC.

   "FERC" shall mean the Federal Energy Regulatory Commission or any successor federal agency, commission or department exercising jurisdiction over this Agreement.

   1.13   Finance Committee.

   "Finance Committee" shall mean the body formed pursuant to Section 7.5.1 of this Agreement.

   1.14   Generation Owner.

   "Generation Owner" shall mean a Member that owns or leases with rights equivalent to ownership facilities for the generation of electric energy that are located within the PJM Control Area. Purchasing all or a portion of the output of a generation facility shall not be sufficient to qualify a Member as a Generation Owner.

   1.15   Good Utility Practice.

   "Good Utility Practice" shall mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather is intended to include acceptable practices, methods, or acts generally accepted in the region.

   1.16   Interconnection.

   "Interconnection" shall mean the coordinated operations and interchange resulting from the Original PJM Agreement as continued in this Agreement.

   1.17   LLC.

   "LLC" shall mean PJM Interconnection, L.L.C., a Delaware limited liability company.

   1.18   Load Serving Entity.

   "Load Serving Entity" shall mean an entity, including a load aggregator or power marketer, (1) serving end-users within the PJM Control Area, and (2) that has been granted the authority or has an obligation pursuant to state or local law, regulation or franchise to sell electric energy to end-users located within the PJM Control Area, or the duly designated agent of such an entity.

   1.19   Locational Marginal Price.

   "Locational Marginal Price" shall mean the hourly integrated market clearing marginal price for energy at the location the energy is delivered or received, calculated as specified in Section 2 of Schedule 1 of this Agreement.

   1.20   MAAC.

   "MAAC" shall mean the Mid-Atlantic Area Council, a reliability council under §  202 of the Federal Power Act established pursuant to the MAAC Agreement dated August 1, 1994, or any successor thereto.

   1.21   Market Buyer.

   "Market Buyer" shall mean a Member that has met reasonable creditworthiness standards established by the Office of the Interconnection and that is otherwise able to make purchases in the PJM Interchange Energy Market or PJM Capacity Credit Market.

   1.22   Market Participant.

   "Market Participant" shall mean a Market Buyer or a Market Seller, or both.

   1.23   Market Seller.

   "Market Seller" shall mean a Member that has met reasonable creditworthiness standards established by the Office of the Interconnection and that is otherwise able to make sales in the PJM Interchange Energy Market or PJM Capacity Credit Market.

   1.24   Member.

   "Member" shall mean an entity that satisfies the requirements of Section 11.6 of this Agreement and that (i) is a member of the LLC immediately prior to the Effective Date, or (ii) has executed an Additional Member Agreement in the form set forth in Schedule 4 hereof.

   1.25   Members Committee.

   "Members Committee" shall mean the committee specified in Section 8 of this Agreement composed of representatives of all the Members.

   1.26   NERC.

   "NERC" shall mean the North American Electric Reliability Council, or any successor thereto.

   1.27   Office of the Interconnection.

   "Office of the Interconnection" shall mean the employees and agents of the LLC engaged in implementation of this Agreement and administration of the PJM Tariff, subject to the supervision and oversight of the PJM Board acting pursuant to this Agreement.

   1.28   Operating Reserve.

   "Operating Reserve" shall mean the amount of generating capacity scheduled to be available for a specified period of an Operating Day to ensure the reliable operation of the PJM Control Area, as specified in the PJM Manuals.

   1.29   Original PJM Agreement.

   "Original PJM Agreement" shall mean that certain agreement between certain of the Members, originally dated September 26, 1956, and as amended and supplemented up to and including December 31, 1996, relating to the coordinated operation of their electric supply systems and the interchange of electric capacity and energy among their systems.

   1.30   Other Supplier.

   "Other Supplier" shall mean a Member that is (i) engaged in buying, selling or transmitting electric energy in or through the Interconnection or has a good faith intent to do so, and (ii) is not a Generation Owner, Electric Distributor, Transmission Owner or End-Use Customer.

   1.31   PJM Board.

   "PJM Board" shall mean the Board of Managers of the LLC, acting pursuant to this Agreement.

   1.32   PJM Control Area.

   "PJM Control Area" shall mean the Control Area recognized by NERC as the PJM Control Area.

   1.33   PJM Dispute Resolution Procedures.

   "PJM Dispute Resolution Procedures" shall mean the procedures for the resolution of disputes set forth in Schedule 5 of this Agreement.

   1.34   PJM Interchange Energy Market.

   "PJM Interchange Energy Market" shall mean the regional competitive market administered by the Office of the Interconnection for the purchase and sale of spot electric energy at wholesale in interstate commerce and related services established pursuant to Schedule 1 to this Agreement.

   1.35   PJM Manuals.

   "PJM Manuals" shall mean the instructions, rules, procedures and guidelines established by the Office of the Interconnection for the operation, planning, and accounting requirements of the PJM Control Area and the PJM Interchange Energy Market.

   1.36   PJM Tariff.

   "PJM Tariff" shall mean the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area, including any schedules, appendices, or exhibits attached thereto, as in effect from time to time.

   1.37   Planning Period.

   "Planning Period" shall initially mean the 12 months beginning June 1 and extending through May 31 of the following year, or such other period established by the Reliability Committee established under the Reliability Assurance Agreement.

   1.38   President.

   "President" shall have the meaning specified in Section 9.2.

   1.39   Related Parties.

   "Related Parties" shall mean, solely for purposes of the governance provisions of this Agreement: (i) any generation and transmission cooperative and one of its distribution cooperative members; and (ii) any joint municipal agency and one of its members. For purposes of this Agreement, representatives of state or federal government agencies shall not be deemed Related Parties with respect to each other, and a public body's regulatory authority, if any, over a Member shall not be deemed to make it a Related Party with respect to that Member.

   1.40   Reliability Assurance Agreement.

   "Reliability Assurance Agreement" shall mean that certain agreement, dated June 2, 1997 and as amended from time to time, establishing obligations, standards and procedures for maintaining the reliable operation of the PJM Control Area.

   1.41   Sector Votes.

   "Sector Votes" shall mean the affirmative and negative votes of each sector on the Members Committee, as specified in Section 8.4.

   1.42   State.

   "State" shall mean the District of Columbia and any State or Commonwealth of the United States.

   1.42A   State Consumer Advocate.

   "State Consumer Advocate" shall mean a legislatively created office from any State, all or any part of the territory of which is within the PJM Control Area, and the District of Columbia established, inter alia, for the purpose of representing the interests of energy consumers before the utility regulatory commissions of such states and the District of Columbia and the FERC.

   1.43   System.

   "System" shall mean the interconnected electric supply system of a Member and its interconnected subsidiaries exclusive of facilities which it may own or control outside of the PJM Control Area. Each Member may include in its system the electric supply systems of any party or parties other than Members which are within the PJM Control Area, provided its interconnection agreements with such other party or parties do not conflict with such inclusion.

   1.44   Transmission Facilities.

   "Transmission Facilities" shall mean facilities that: (i) are within the PJM Control Area; (ii) meet the definition of transmission facilities pursuant to FERC's Uniform System of Accounts or have been classified as transmission facilities in a ruling by FERC addressing such facilities; and (iii) have been demonstrated to the satisfaction of the Office of the Interconnection to be integrated with the PJM Control Area transmission system and integrated into the planning and operation of the PJM Control Area to serve all of the power and transmission customers within the PJM Control Area.

   1.45   Transmission Owner.

   "Transmission Owner" shall mean a Member that owns or leases with rights equivalent to ownership Transmission Facilities. Taking transmission service shall not be sufficient to qualify a Member as a Transmission Owner.

   1.46   Transmission Owners Agreement.

   "Transmission Owners Agreement" shall mean that certain agreement, dated June 2, 1997 and as amended from time to time, by and among Transmission Owners in the PJM Control Area providing for an open-access transmission tariff in the PJM Control Area, and for other purposes.

   1.47   User Group.

   "User Group" shall mean a group formed pursuant to Section 8.7 of this Agreement.

   1.48   Voting Member.

   "Voting Member" shall mean (i) a Member as to which no other Member is an Affiliate or Related Party, or (ii) a Member together with any other Members as to which it is an Affiliate or Related Party.

   1.49   Weighted Interest.

   "Weighted Interest" shall be equal to (0.1(1/N) + 0.5(B/C) + 0.2(D/E) + 0.2(F/G)), where:

      N =   the total number of Members excluding ex officio Members and State Consumer Advocates (which, for purposes of section 15.2 of this agreement, shall be calculated as of five o'clock p.m. Eastern Time on the date PJM declares a Member in default)

B =   the Member's internal peak demand used to calculate Accounted For Obligation as determined by the Office of the Interconnection pursuant to Schedule 7 of the Reliability Assurance Agreement averaged over the previous calendar year

      C =   the sum of factor B for all Members

      D =    the Member's generating capability from Capacity Resources located in the PJM Control Area as of January 1 of the current calendar year, determined by the Office of the Interconnection pursuant to Schedule 9 of the Reliability Assurance Agreement

      E =   the sum of factor D for all Members

      F =   the sum of the Member's circuit miles of transmission facilities multiplied by the respective operating voltage for facilities 100 kV and above as of January 1 of the current calendar year

      G =   the sum of factor F for all Members

2.   FORMATION, NAME; PLACE OF BUSINESS

   2.1   Formation of LLC; Certificate of Formation.

   The Members of the LLC hereby:

   (a)   acknowledge the conversion of the PJM Interconnection Association into the LLC, a limited liability company pursuant to the Act, by virtue of the filing of both the Certificate of Formation and the Certificate of Conversion with the Recording Office, effective as of March 31, 1997;

   (b)   confirm and agree to their status as Members of the LLC;

   (c)   enter into this Agreement for the purpose of amending and restating the rights, duties, and relationship of the Members; and

   (d)   agree that if the laws of any jurisdiction in which the LLC transacts business so require, the PJM Board also shall file, with the appropriate office in that jurisdiction, any documents necessary for the LLC to qualify to transact business under such laws; and (ii) agree and obligate themselves to execute, acknowledge, and cause to be filed for record, in the place or places and manner prescribed by law, any amendments to the Certificate of Formation as may be required, either by the Act, by the laws of any jurisdiction in which the LLC transacts business, or by this Agreement, to reflect changes in the information contained therein or otherwise to comply with the requirements of law for the continuation, preservation, and operation of the LLC as a limited liability company under the Act.

   2.2   Name of LLC.

   The name under which the LLC shall conduct its business is "PJM Interconnection, L.L.C."

   2.3   Place of Business.

   The location of the principal place of business of the LLC shall be 955 Jefferson Avenue, Valley Forge Corporate Center, Norristown, Pennsylvania 19403-2497. The LLC may also have offices at such other places both within and without the State of Delaware as the PJM Board may from time to time determine or the business of the LLC may require.

   2.4   Registered Office and Registered Agent.

   The street address of the initial registered office of the LLC shall be 1209 Orange Street, Wilmington, Delaware 19801, and the LLC's registered agent at such address shall be The Corporation Trust Company. The registered office and registered agent may be changed by resolution of the PJM Board.

3.   PURPOSES AND POWERS OF LLC

   3.1   Purposes.

   The purposes of the LLC shall be:

   (a)   to operate in accordance with FERC requirements as an Independent System Operator, comprised of the PJM Board, the Office of the Interconnection, and the Members Committee, with the authorities and responsibilities set forth in this Agreement;

   (b)   as necessary for the operation of the Interconnection as specified above: (i) to acquire and obtain licenses, permits and approvals, (ii) to own or lease property, equipment and facilities, and (iii) to contract with third parties to obtain goods and services, provided that, the L.L.C. may procure goods and services from a Member only after open and competitive bidding; and

   (c)   to engage in any lawful business permitted by the Act or the laws of any jurisdiction in which the LLC may do business and to enter into any lawful transaction and engage in any lawful activities in furtherance of the foregoing purposes and as may be necessary, incidental or convenient to carry out the business of the LLC as contemplated by this Agreement.

   3.2   Powers.

   The LLC shall have the power to do any and all acts and things necessary, appropriate, advisable, or convenient for the furtherance and accomplishment of the purposes of the LLC, including, without limitation, to engage in any kind of activity and to enter into and perform obligations of any kind necessary to or in connection with, or incidental to, the accomplishment of the purposes of the LLC, so long as said activities and obligations may be lawfully engaged in or performed by a limited liability company under the Act.

4.   EFFECTIVE DATE AND TERMINATION

   4.1   Effective Date and Termination.

   (a)   The existence of the LLC commenced on March 31, 1997, as provided in the Certificate of Formation and Certificate of Conversion which were filed with the Recording Office on March 31, 1997. This Agreement shall amend and restate the Operating Agreement of PJM Interconnection, L.L.C. as of the Effective Date.

   (b)   The LLC shall continue in existence until terminated in accordance with the terms of this Agreement. The withdrawal or termination of any Member is subject to the provisions of Section 18.18 of this Agreement.

   (c)   Any termination of this Agreement or withdrawal of any Member from the Agreement shall be filed with the FERC and shall become effective only upon the FERC's approval.

   4.2   Governing Law.

   This Agreement and all questions with respect to the rights and obligations of the Members, the construction, enforcement and interpretation hereof, and the formation, administration and termination of the LLC shall be governed by the provisions of the Act and other applicable laws of the State of Delaware, and the Federal Power Act.

5.   WORKING CAPITAL AND CAPITAL CONTRIBUTIONS

  5.1   Funding of Working Capital and Capital Contributions.

   (a)   The Office of the Interconnection shall attempt to obtain financing of up to twenty-five percent (25%) of the approved annual operating budget of the LLC adopted by the PJM Board pursuant to Section 7.5.2 of this Agreement to meet the working capital needs of the LLC, which shall be limited to such working capital needs that arise from timing in cash flows from interchange accounting, tariff administration and payment of the operating costs of the Office of the Interconnection. Such financing, which shall be non-recourse to the Members of the LLC and which shall be for a stated term without penalty for prepayment, may be obtained by borrowing the amount required at market-based interest rates, negotiated on an arm's length basis, (i) from a Member or Members or (ii) from a commercial lender, supported, if necessary, by credit enhancements provided by a Member or Members; provided, however, no Member shall be obligated to provide such financing or credit enhancements. The LLC shall make such filings and seek such approvals as necessary in order for the principal, interest and fees related to any such borrowing to be repaid through charges under the PJM Tariff as appropriate under Schedule 3 of this Agreement.

   (b)   In the event financing of the working capital needs of the Office of the Interconnection is unavailable on commercially reasonable terms, the PJM Board may require the Members to contribute capital in the aggregate up to five million two hundred thousand dollars ($5,200,000) for the working capital needs that could not be financed; provided that in such event each Member's obligation to contribute additional capital shall be in proportion to its Weighted Interest, multiplied by the amount so requested by the PJM Board. Each Member that contributes such capital shall be entitled to earn a return on the contribution to the extent such contribution has not been repaid, which return shall be at a fair market rate as determined by the PJM Board but in no event less than the current interest rate established pursuant to 18 C.F.R. §  35.19a(a)(2)(iii); provided further, that any Member not wanting to contribute the requested capital contribution may withdraw from the LLC upon 90 days written notice as provided in Section 18.18.2 of this Agreement.

   (c)   Authority to borrow capital for LLC Operations. Nothing in Section 5.1(a) and (b) shall be construed to restrict the authority of the PJM Board to authorize the LLC to borrow or raise capital in excess of twenty-five percent of the approved annual operating budget of the LLC, for working capital or otherwise, as the PJM Board deems appropriate to fund the operations of the LLC, in accordance with the general powers of the LLC under Section 3.2 to enter into obligations of any kind to accomplish the purposes of the LLC. Nor shall anything in Section 5.1(a) and (b) in any way restrict the authority of the PJM Board to authorize the LLC to grant to lenders such security interests or other rights in assets or revenues received under the PJM Tariff with respect to the costs of operating the LLC and the Office of the Interconnection and to take such other actions as it deems necessary and appropriate to obtain such financing in accordance with such general powers of the LLC under Section 3.2.

   5.2   Contributions to Association.

   All contributions prior to the Effective Date of the original Operating Agreement of PJM Interconnection, L.L.C. of cash or other assets to the PJM Interconnection Association by persons who are now or in the future may become Members of the LLC shall be deemed contributions by such Members to the LLC.

6.   TAX STATUS AND DISTRIBUTIONS

 6.1   Tax Status.

   The LLC shall make all necessary filings under the applicable Treasury Regulations to have the LLC taxed as a corporation.

   6.2   Return of Capital Contributions.

   (a)   In the event Members are required to contribute capital to the LLC in accordance with Section 5.1 herein, the LLC shall request the Transmission Owners to recover such working capital through charges under the PJM Tariff as provided in Schedule 3 of this Agreement. In the event all or a portion of the working capital is recovered pursuant to the PJM Tariff, such amount(s) shall be returned to the Members in accordance with their actual contributions.

   (b)   Except for return of capital contributions and liquidating distributions as provided in the foregoing section and Section 6.3 herein, respectively, the LLC does not intend to make any distributions of cash or other assets to its Members.

   6.3   Liquidating Distribution.

   Upon termination or liquidation of the LLC, the cash or other assets of the LLC shall be distributed as follows:

   (a)   first, in the event the LLC has any liabilities at the time of its termination or dissolution, the LLC shall liquidate such of its assets as is necessary to satisfy such liabilities;

   (b)   second, any capital contribution in cash or in kind by any Member of the PJM Interconnection Association prior to the Effective Date shall be distributed by the LLC back to such Member in the form received by the PJM Interconnection Association; and

   (c)   third, any remaining assets of the LLC shall be distributed to the Members in proportion to their Weighted Interests.

7.   PJM BOARD

   7.1   Composition.

   There shall be an LLC Board of Managers, referred to herein as the "PJM Board," composed of seven voting members, with the President as a non-voting member. The seven voting Board Members shall be elected by the Members Committee from a slate of candidates for the then-existing vacancies or expiring terms on the PJM Board. An independent consultant, retained by the Office of the Interconnection upon consideration of the advice and recommendations of the Members Committee, shall be directed to prepare a list of persons qualified and willing to serve on the PJM Board. Not later than 30 days prior to each Annual Meeting of the Members, the Office of the Interconnection shall distribute to the representatives on the Members Committee a slate from among the list proposed by the independent consultant, along with information on the background and experience of the persons on the slate appropriate to evaluating their fitness for service on the PJM Board. Elections for the PJM Board shall be held at each Annual Meeting of the Members, for the purpose of selecting the initial PJM Board in accordance with the provisions of Section 7.3(a), or selecting a person to fill the seat of a Board Member whose term is expiring. Should the Members Committee fail to elect a full PJM Board from the slate proposed by the independent consultant, the Office of the Interconnection shall direct the independent consultant, or a replacement consultant selected by the Office of the Interconnection, to propose a list for a slate of nominees for any vacancies on the PJM Board for consideration by the Members at the next regular meeting of the Members Committee.

   7.2   Qualifications.

   A Board Member shall not be, and shall not have been at any time within five years of election to the PJM Board, a director, officer or employee of a Member or of an Affiliate or Related Party of a Member. Except as provided in the LLC's Standards of Conduct filed with the FERC, at any time while serving on the PJM Board, a Board Member shall have no direct business relationship or other affiliation with any Member or its Affiliates or Related Parties. Of the seven Board Members, four shall have expertise and experience in the areas of corporate leadership at the senior management or board of directors level, or in the professional disciplines of finance or accounting, engineering, or utility laws and regulation. Of the other three Board Members, one shall have expertise and experience in the operation or concerns of transmission dependent utilities, one shall have expertise and experience in the operation or planning of transmission systems, and one shall have expertise and experience in the area of commercial markets and trading and associated risk management.

   7.3   Term of Office.

   (a)   The persons serving as the Board of Managers of the LLC immediately prior to the Effective Date shall continue in office until the first Annual Meeting of the Members. At the first Annual Meeting of the Members, the then current members of the PJM Board who desire to continue in office shall be elected by the Members to serve until the second Annual Meeting of the Members or until their successors are elected, along with such additional persons as necessary to meet the composition requirements of Section 7.1 and the qualification requirements of Section 7.2.

   (b)   A Board Member shall serve for a term of three years commencing with the Annual Meeting of the Members at which the Board Member was elected; provided, however, that two of the Board Members elected at the first Annual Meeting of the Members following the Effective Date shall be chosen by lot to serve a term of one year, three of such Board Members shall be chosen by lot to serve a term of two years and the final two such Board Members shall serve a term of three years.

   (c)   Vacancies on the PJM Board occurring between Annual Meetings of the Members shall be filled by vote of the then remaining Board Members; a Board Member so selected shall serve until the next Annual Meeting at which time a person shall be elected to serve the balance of the term of the vacant Board Seat. Removal of a Board Member shall require the approval of the Members Committee.

   7.4   Quorum.

   The presence in person or by telephone or other authorized electronic means of a majority of the voting Board Members shall constitute a quorum at all meetings of the PJM Board for the transaction of business except as otherwise provided by statute. If a quorum shall not be present, the Board Members then present shall have the power to adjourn the meeting from time to time, until a quorum shall be present. Provided a quorum is present at a meeting, the PJM Board shall act by majority vote of the Board Members present.

   7.5   Operating and Capital Budgets.

      7.5.1   Finance Committee.

      Not later than February 1 of each year, the entities specified below shall select the members of a Finance Committee. The Finance Committee shall be composed of one representative of the parties to the Reliability Assurance Agreement chosen by the parties to that agreement, one representative of the parties to the Transmission Owners Agreement chosen by the parties to that agreement, three representatives of the Members Committee chosen by the Members Committee and that are not representatives of an entity that is a party to the Transmission Owners Agreement or an Affiliate or Related Party of such an entity, one representative of the Office of the Interconnection selected by the President, and two Board Members selected by the PJM Board. The Members Committee shall endeavor to elect members of the Finance Committee that are broadly representative of the diversity of interests among the Members. The Office of the Interconnection shall prepare annual budgets in accordance with processes and procedures established by the PJM Board, and shall timely submit its budgets to the Finance Committee for review. The Finance Committee shall submit its analysis of and recommendations on the budgets to the PJM Board, with copies to the Members Committee. The Finance Committee shall also review and comment upon any additional or amended budgets prepared by the Office of the Interconnection at the request of the PJM Board or the Members Committee.

      7.5.2   Adoption of Budgets.

      The PJM Board shall adopt, upon consideration of the advice and recommendations of the Finance Committee, operating and capital budgets for the LLC, and shall distribute to the Members for their information final annual budgets for the following fiscal year not later than 60 days prior to the beginning of each fiscal year of the LLC.

   7.6   By-laws.

   To the extent not inconsistent with any provision of this Agreement, the PJM Board shall adopt such by-laws establishing procedures for the implementation of this Agreement as it may deem appropriate, including but not limited to by-laws governing the scheduling, noticing and conduct of meetings of the PJM Board, selection of a Chair and Vice Chair of the PJM Board, action by the PJM Board without a meeting, and the organization and responsibilities of standing and special committees of the PJM Board. Such by-laws shall not modify or be inconsistent with any of the rights or obligations established by this Agreement.

   7.7   Duties and Responsibilities of the PJM Board.

   In accordance with this Agreement, the PJM Board shall supervise and oversee all matters pertaining to the Interconnection and the LLC, and carry out such other duties as are herein specified, including but not limited to the following duties and responsibilities:

      i)   As its primary responsibility, ensure that the President, the other officers of the LLC, and Office of the Interconnection perform the duties and responsibilities set forth in this Agreement, including but not limited to those set forth in Sections 9.2 through 9.4 and Section 10.4 in a manner consistent with (A) the safe and reliable operation of the Interconnection, (B) the creation and operation of a robust, competitive, and non-discriminatory electric power market in the PJM Control Area, and (C) the principle that a Member or group of Members shall not have undue influence over the operation of the Interconnection;

      ii)   Select the Officers of the LLC;

      iii)   Adopt budgets for the LLC;

      iv)   Approve the Regional Transmission Expansion Plan in accordance with the provisions of the Regional Transmission Expansion Planning Protocol set forth in Schedule 6 of this Agreement;

      v)   On its own initiative or at the request of a User Group as specified herein, submit to the Members Committee such proposed amendments to this Agreement or any Schedule hereto, or a proposed new Schedule, as it may deem appropriate;

      vi)   Petition FERC to modify any provision of this Agreement or any Schedule or practice hereunder that the PJM Board believes to be unjust, unreasonable, or unduly discriminatory under Section 206 of the Federal Power Act, subject to the right of any Member or the Members to intervene in any resulting proceedings;

      vii)   Review for consistency with the creation and operation of a robust, competitive and non-discriminatory electric power market in the PJM Control Area any change to rate design or to non-rate terms and conditions proposed by Transmission Owners for filing under Section 205 of the Federal Power Act;

      viii)   If and to the extent it shall deem appropriate, intervene in any proceeding at FERC initiated by the Members in accordance with Section 11.5(b), and participate in other state and federal regulatory proceedings relating to the interests of the LLC;

      ix)   Review, in accordance with Section 15.1.3, determinations of the Office of the Interconnection with respect to events of default;

      x)   Assess against the other Members in proportion to their Weighted Interest an amount equal to any payment to the Office of the Interconnection, including interest thereon, as to which a Member is in default;

      xi)   Establish reasonable sanctions for failure of a Member to comply with its obligations under this Agreement;

      xii)   Direct the Office of the Interconnection on behalf of the LLC to take appropriate legal or regulatory action against a Member (A) to recover any unpaid amounts due from the Member to the Office of the Interconnection under this Agreement and to make whole any Members subject to an assessment as a result of such unpaid amount, or (B) as may otherwise be necessary to enforce the obligations of this Agreement;

      xiii)   Resolve claims by a Member that the Reliability Committee established by the Reliability Assurance Agreement has exercised its responsibilities in a manner inconsistent with the creation and operation of a robust, competitive and non-discriminatory electric power market in the PJM Control Area, upon due consideration of the views of the Member and of the Reliability Committee, and of the need to preserve the reliability of electric service in the PJM Control Area;

      xiv)   Solicit the views of Members on, and commission from time to time as it shall deem appropriate independent reviews of, (a) the performance of the PJM Interchange Energy Market, (b) compliance by Market Participants with the rules and requirements of the PJM Interchange Energy Market, and (c) the performance of the Office of the Interconnection under performance criteria proposed by the Members Committee and approved by the PJM Board; and

      xv)   Terminate a Member as may be appropriate under the terms of this Agreement.

8.   MEMBERS COMMITTEE

  8.1   Sectors.

      8.1.1   Designation.

      Voting on the Members Committee shall be by sectors. The Members Committee shall be composed of five sectors, one for Generation Owners, one for Other Suppliers, one for Transmission Owners, one for Electric Distributors, and one for End-Use Customers, provided that there are at least five Members in each Sector. Except as specified in Section 8.1.2, each Voting Member shall have one vote. Each Voting Member shall, within thirty (30) days after the Effective Date or, if later, thirty (30) days after becoming a Member, and thereafter not later than 10 days prior to the Annual Meeting of the Members for each annual period beginning with the Annual Meeting of the Members, submit to the President a sealed notice of the sector in which it is qualified to vote or, if qualified to participate in more than one sector, its rank order preference of the sectors in which it wishes to vote, and shall be assigned to its highest-ranked sector that has the minimum number of Members specified above. If a Member is assigned to a sector other than its highest-ranked sector in accordance with the preceding sentence, its higher sector preference or preferences shall be honored as soon as a higher-ranked sector has five or more Members. A Voting Member may designate as its voting sector any sector for which it or its Affiliate or Related Party Members is qualified. The sector designations of the Voting Members shall be announced by the President at the Annual Meeting.

      8.1.2   Related Parties.

      The Members in a group of Related Parties shall each be entitled to a vote, provided that all the Members in a group of Related Parties that chooses to exercise such rights shall be assigned to the Electric Distributor sector.

   8.2   Representatives.

      8.2.1   Appointment.

      Each Member may appoint a representative to serve on the Members Committee, with authority to act for that Member with respect to actions or decisions by the Members Committee. Each Member may appoint an alternate representative to act for that Member at meetings of the Members Committee in the absence of the representative. A Member participating in the PJM Interchange Energy Market through an agent may be represented on the Members Committee by that agent. A Member shall appoint its representative by giving written notice identifying its representative and alternate representative to the Office of the Interconnection. Members that are Affiliates or Related Parties may each appoint a representative and alternate representative to the Members Committee, but shall vote as specified in Section 8.1.

      8.2.2   Regulatory Authorities.

      FERC and any other federal agency with regulatory authority over a Member and each State electric utility regulatory commission with regulatory jurisdiction within the PJM Control Area may nominate one representative to serve as an ex officio non-voting member of the Members Committee.

      8.2.3   State Offices of Consumer Advocate.

      (a)   Each State Consumer Advocate may nominate one representative to serve as an ex officio member of the Members Committee. Upon a written request by a State Consumer Advocate to the Office of the Interconnection, and upon the payment of the fee prescribed by section (b) of Schedule 3 to this Agreement, a State Consumer Advocate may designate a representative to the Members Committee who, subject to subparagraph b, shall be entitled to cast one (1) non-divisible vote in the End-Use Customer Sector. As an ex officio member, a State Consumer Advocate shall have no liability under this Agreement, other than the annual fee required by Schedule 3. The State Consumer Advocates shall not be entitled to indemnification by the other Members under any provision of this Agreement. Additionally, the State Consumer Advocates shall not be eligible to participate in any markets managed by PJM under the terms contained in this Agreement.

      (b)   Each State Consumer Advocate shall be entitled to cast only one (1) vote in the Members Committee per State or the District of Columbia. If more than one representative from a given state has been nominated to be a voting member of the Members Committee, all State Offices of Consumer Advocate from such state that have nominated representatives to vote at the Members Committee shall designate to the Office of the Interconnection one (1) representative who shall be entitled to vote on all of their behalf's, prior to being permitted to vote at any Members Committee meetings.

      8.2.4   Initial Representatives.

      Initial representatives to the Members Committee shall be appointed no later than 30 days after the Effective Date; provided, however, that each representative to the Management Committee under the Operating Agreement of PJM Interconnection, L.L.C. as in effect immediately prior to the Effective Date shall automatically become a representative to the Members Committee on the Effective Date unless replaced as specified in Section 8.2.4. An entity becoming a Member shall appoint a representative to the Members Committee no later than 30 days after becoming a Member.

      8.2.5   Change of or Substitution for a Representative.

      Any Member may change its representative or alternate on the Members Committee at any time by providing written notice to the Office of the Interconnection identifying its replacement representative or alternate. Any representative to the Members Committee may, by written notice to the Chair, designate a substitute representative from that Member to act for him or her with respect to any matter specified in such notice.

   8.3   Meetings.

      8.3.1   Regular and Special Meetings.

      The Members Committee shall hold regular meetings, no less frequently than once each calendar quarter at such time and at such place as shall be fixed by the Chair. The Members Committee shall hold an Annual Meeting of the Members each calendar year at such time and place as shall be specified by the Chair. At the Annual Meeting of the Members, Board Members as necessary, officers of the Members Committee, and representatives to the Finance Committee shall be elected. The Members Committee may hold special meetings for one or more designated purposes within the scope of the authority of the Members Committee when called by the Chair on the Chair's own initiative, or at the request of five or more representatives on the Members Committee. The notice of a regular or special meeting shall be distributed to the representatives as specified in Section 18.14 of this Agreement not later than seven days prior to the meeting, shall state the time and place of the meeting, and shall include an agenda sufficient to notify the representatives of the substance of matters to be considered at the meeting; provided, however, that meetings may be called on shorter notice at the discretion of the Chair as the Chair shall deem necessary to deal with an emergency or to meet a deadline for action.

      8.3.2   Attendance.

      Regular and special meetings may be conducted in person or by telephone, or other electronic means as authorized by the Members Committee. The attendance in person or by telephone or other electronic means of a representative or a duly designated substitute shall be required in order to vote.

      8.3.3   Quorum.

      The attendance as specified in Section 8.3.2 of a majority of the Voting Members from each of at least three sectors that each have at least five Members shall constitute a quorum, however, a quorum shall only require one-third of the Voting Members, but not less than ten, from any sector that has more than 20 Voting Members. No action may be taken by the Members Committee at a meeting unless a quorum is present; provided, however, that if a quorum is not present, the Voting Members then present shall have the power to adjourn the meeting from time to time until a quorum shall be present.

   8.4   Manner of Acting.

   (a)   All matters brought up for a vote or approval by the Members Committee shall be stated in the form of a motion, which must be seconded. Only one motion may be pending at one time.

   (b)   Each Sector shall be entitled to cast one and zero one-hundredths (1.00) Sector Votes. Each Voting Member shall be entitled to cast one (1) non-divisible vote in its sector. In the case of a Voting Member comprised of Affiliates or Related Parties, any representative, alternate or substitute of any of the Affiliated or Related Parties may cast the vote of the Voting Member. The Sector Vote of each sector shall be split into an affirmative component based on votes for the pending motion, and a negative component based on votes against the pending motion, in direct proportion to the votes cast within the sector for and against the pending motion, rounded to two decimal places.

   (c)   The sum of affirmative Sector Votes necessary to pass the pending motion shall be greater than (but not merely equal to) the product of .667 multiplied by the number of sectors that have at least five Members and that participated in the vote.

   (d)   Voting Members not in attendance at the meeting as specified in Section 8.3.2 of this Agreement or abstaining shall not be counted as affirmative or negative votes.

   8.5   Chair and Vice Chair of the Members Committee.

      8.5.1   Selection and Term.

      The representatives or their alternates or substitutes on the Members Committee shall elect from among the representatives a Chair and a Vice Chair. The offices of Chair and Vice Chair shall be held for a term of one year and until succession to the office occurs as specified herein. Except as specified below, at each Annual Meeting of the Members the Vice Chair shall succeed to the office of Chair, and a new Vice Chair shall be elected. If the office of Chair becomes vacant, or the Chair leaves the employment of the Member for whom the Chair is the representative, or the Chair is no longer the representative of such Member, the Vice Chair shall succeed to the office of Chair, and a new Vice Chair shall be elected at the next regular or special meeting of the Members Committee, both such officers to serve until the second Annual Meeting of the Members following such succession or election to a vacant office. If the office of Vice Chair becomes vacant, or the Vice Chair leaves the employment of the Member for whom the Vice Chair is the representative, or the Vice Chair is no longer the representative of such Member, a new Vice Chair shall be elected at the next regular or special meeting of the Members Committee.

      8.5.2   Duties.

      The Chair shall call and preside at meetings of the Members Committee, and shall carry out such other responsibilities as the Members Committee shall assign. The Chair shall cause minutes of each meeting of the Members Committee to be taken and maintained, and shall cause notices of meetings of the Members Committee to be distributed. The Vice Chair shall preside at meetings of the Members Committee in the absence of the Chair, and shall otherwise act for the Chair at the Chair's request.

   8.6   Other Committees.

   (a)   The Members Committee may form, select the membership, and oversee the activities, of an Operating Committee, a Planning Committee, and an Energy Market Committee as standing committees, and such other committees, subcommittees, task forces, working groups or other bodies as it shall deem appropriate, to provide advice and recommendations to the Members Committee or to the Office of the Interconnection as directed by the Members Committee.

   (b)   The Members Committee shall elect representatives to the Alternate Dispute Resolution Committee as specified in the PJM Dispute Resolution Procedures.

   8.7   User Groups.

   (a)   Any five or more Members sharing a common interest may form a User Group, and may invite such other Members to join the User Group as the User Group shall deem appropriate. Notification of the formation of a User Group shall be provided to all members of the Members Committee.

   (b)   The Members Committee shall create a User Group composed of representatives of bona fide public interest and environmental organizations that are interested in the activities of the LLC and are willing and able to participate in such a User Group.

   Meetings of User Groups shall be open to all Members and the Office of the Interconnection. Notices and agendas of meetings of a User Group shall be provided to all Members that ask to receive them.

   (d)   Any recommendation or proposal for action adopted by affirmative vote of three-fourths or more of the members of a User Group shall be circulated by the Office of the Interconnection to the representatives on the Members Committee and shall be considered by the Members Committee at its next regular meeting occurring not earlier than 30 days after the circulation of such notice.

   (e)   If the Members Committee does not adopt a recommendation or proposal submitted to it by a User Group, upon vote of nine-tenths or more of the members of the User Group the recommendation or proposal may be submitted to the PJM Board for its consideration in accordance with Section 7.7(v).

   8.8   Powers of the Members Committee.

   The Members Committee, acting by adoption of a motion as specified in Section 8.4, shall have the power to take the actions specified in this Agreement, including:

      i)   Elect the members of the PJM Board;

      ii)   In accordance with the provisions of Section 18.6 of this Agreement, amend any portion of this Agreement, including the Schedules hereto, or create new Schedules, and file any such amendments or new Schedules with FERC or other regulatory body of competent jurisdiction;

      iii)   Terminate this Agreement; and

      iv)   Provide advice and recommendations to the PJM Board and the Office of the Interconnection.

9.   OFFICERS

   9.1   Election and Term.

   The officers of the LLC shall consist of a President, a Secretary and a Treasurer. The PJM Board may elect such other officers as it deems necessary to carry out the business of the LLC. All officers shall be elected by the PJM Board and shall hold office until the next annual meeting of the PJM Board and until their successors are elected. Any number of offices may be held by the same person, except that the offices of the President and Treasurer may not be held by the same person.

   9.2   President.

   The PJM Board shall appoint a President and Chief Executive Officer of the LLC (the "President"). The President shall direct and supervise the day-to-day operation of the LLC, and shall report to the PJM Board. The President shall be responsible for directing and supervising the Office of the Interconnection in the performance of the duties and responsibilities specified in Section 10.4. The President shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the LLC, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board to some other officer or agent of the LLC. In the absence of the President or in the event of his or her inability or refusal to act, and if a vice president has been appointed by the PJM Board, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the PJM Board in its Minutes) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice President shall perform such other duties and have such other powers as the PJM Board may from time to time prescribe.

   9.3   Secretary.

   The Secretary shall attend all meetings of the PJM Board and record all the proceedings of the meetings of the PJM Board in a minute book to be kept for that purpose and shall perform like duties for the standing committees or special committees when required. He or she shall give, or cause to be given, notice of all special meetings of the PJM Board, and shall perform such other duties as may be prescribed by the PJM Board or President, under whose supervision he or she shall be. He or she shall have custody of the corporate seal of the LLC, and he or she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The PJM Board may give general authority to any other officer to affix the seal of the LLC and to attest the affixing by his or her signature.

   9.4   Treasurer.

   The Treasurer shall have or arrange for the custody of the LLC's funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belongings to the LLC and shall deposit all moneys and other valuable effects in the name and to the credit of the LLC in such depositories as may be designated by the PJM Board. The Treasurer shall disburse the funds of the LLC as may be ordered by the PJM Board, taking proper vouchers for such disbursements, and shall render to the President and PJM Board at its regular meetings, or when the PJM Board so requires, an account of his or her transactions as Treasurer and of the financial condition of the LLC. If required by the Board, the Treasurer shall give the LLC a bond (which shall be renewed periodically) in such sum and with such surety or sureties as shall be satisfactory to the PJM Board for the faithful performance of the duties of his office and of the restoration to the LLC, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the LLC.

   9.5   Renewal of Officers; Vacancies.

   Any officer elected or appointed by the PJM Board may be removed at any time by the affirmative vote of a majority of the PJM Board eligible to vote. Any vacancy occurring in any office of the LLC shall be filled by the PJM Board.

   9.6   Compensation.

   The salaries of all officers and agents of the LLC, and the reasonable compensation of the PJM Board, shall be fixed by the PJM Board.

10.   OFFICE OF THE INTERCONNECTION.

   10.1   Establishment.

   The Office of the Interconnection shall implement this Agreement, administer the PJM Tariff, and undertake such other responsibilities as set forth herein. All personnel of the Office of the Interconnection shall be employees of the LLC or under contract thereto. The cost of the Office of the Interconnection and expenses associated therewith, including salaries and expenses of said personnel, space and any necessary facilities or other capital expenditures, shall be recovered in accordance with Schedule 3. The Office of the Interconnection shall adopt, publish and comply with standards of conduct that satisfy the regulations of FERC.

   10.2   Processes and Organization.

   In order to carry out the responsibilities of the Office of the Interconnection for the safe and reliable operation of the Interconnection, the President may establish processes and organization for operating personnel and facilities as the President shall deem appropriate, and shall request such Members as the President shall deem appropriate to participate in such processes and organization. All such processes and organization shall be carried out in accordance with all applicable code of conduct or other functional separation requirements of FERC.

   10.3   Confidential Information.

   The Office of the Interconnection shall comply with the requirements of Section 18.17 with respect to any proprietary or confidential information received from or about any Member.

   10.4   Duties and Responsibilities.

   The Office of the Interconnection, under the direction of the President as supervised and overseen by the PJM Board, shall carry out the following duties and responsibilities, in accordance with the provisions of this Agreement:

      i)   Administer and implement this Agreement;

      ii)   Perform such functions in furtherance of this Agreement as the PJM Board, acting within the scope of its duties and responsibilities under this Agreement, may direct;

      iii)   Prepare, maintain, update and disseminate the PJM Manuals;

      iv)   Comply with MAAC and NERC operation and planning standards, principles and guidelines;

      v)   Maintain an appropriately trained workforce, and such equipment and facilities, including computer hardware and software and backup power supplies, as necessary or appropriate to implement or administer this Agreement;

      vi)   Direct the operation and coordinate the maintenance of the facilities of the Interconnection used for both load and reactive supply, so as to maintain reliability of service and obtain the benefits of pooling and interchange consistent with this Agreement and the Reliability Assurance Agreement;

      vii)   Direct the operation and coordinate the maintenance of the bulk power supply facilities of the Interconnection with such facilities and systems of others not party to this Agreement in accordance with agreements between the LLC and such other systems to secure reliability and continuity of service and other advantages of pooling on a regional basis;

      viii)   Perform interchange accounting and maintain records pertaining to the operation of the PJM Interchange Energy Market and the Interconnection;

      ix)   Notify the Members of the receipt of any application to become a Member, and of the action of the Office of the Interconnection on such application, including but not limited to the completion of integration of a new Member's system into the PJM Control Area as specified in Section 11.6(f);

      x)   Calculate the Weighted Interest of each Member;

      xi)   Maintain accurate records of the sectors in which each Voting Member is entitled to vote, and calculate the results of any vote taken in the Members Committee;

      xii)   Furnish appropriate information and reports as are required to keep the Members regularly informed of the outlook for, the functioning of, and results achieved by the Interconnection;

      xiii)   File with FERC on behalf of the Members any amendments to this Agreement or the Schedules hereto, any new Schedules hereto, and make any other regulatory filings on behalf of the Members or the LLC necessary to implement this Agreement;

      xiv)   At the direction of the PJM Board, submit comments to regulatory authorities on matters pertinent to the Interconnection;

      xv)   Consult with the standing or other committees established pursuant to Section 8.6(a) on matters within the responsibility of the committee;

      xvi)   Perform operating studies of the bulk power supply facilities of the Interconnection and make such recommendations and initiate such actions as may be necessary to maintain reliable operation of the Interconnection;

      xvii)   Accept, on behalf of the Members, notices served under this Agreement;

      xviii)   Perform those functions and undertake those responsibilities transferred to it under the Transmission Owners Agreement, including (A) direct the operation of the transmission facilities of the parties to the Transmission Owners Agreement, (B) administer the PJM Tariff, and (C) administer the Regional Transmission Expansion Planning Protocol set forth as Schedule 6 to this Agreement;

      xix)   Perform those functions and undertake those responsibilities transferred to it under the Reliability Assurance Agreement, as specified in Schedule 8 of this Agreement;

      xx)   Monitor the operation of the PJM Control Area, ensure that appropriate Emergency plans are in place and appropriate Emergency drills are conducted, declare the existence of an Emergency, and direct the operations of the Members as necessary to manage, alleviate or end an Emergency;

      xxi)   Incorporate the grid reliability requirements applicable to nuclear generating units in the PJM Control Area planning and operating principles and practices; and

      xxii)   Initiate such legal or regulatory proceedings as directed by the PJM Board to enforce the obligations of this Agreement.

11.   MEMBERS

   11.1   Management Rights.

   The Members or any of them shall not take part in the management of the business of, and shall not transact any business for, the LLC in their capacity as Members, nor shall they have power to sign for or to bind the LLC.

   11.2   Other Activities.

   Except as otherwise expressly provided herein, any Member may engage in or possess any interest in another business or venture of any nature and description, independently or with others, even if such activities compete directly with the business of the LLC, and neither the LLC nor any Member hereof shall have any rights in or to any such independent ventures or the income or profits derived therefrom.

   11.3   Member Responsibilities.

      11.3.1   General.

      To facilitate and provide for the work of the Office of the Interconnection and of the several committees appointed by the Members Committee, each Member shall, to the extent applicable;

      (a)   Maintain adequate records and, subject to the provisions of this Agreement for the protection of the confidentiality of proprietary or commercially sensitive information, provide data required for (i) coordination of operations, (ii)  accounting for all interchange transactions, (iii) preparation of required reports, (iv) coordination of planning, including those data required for capacity accounting, (v) preparation of maintenance schedules, (vi) analysis of system disturbances, and (vii) such other purposes, including those set forth in Schedule 2, as will contribute to the reliable and economic operation of the Interconnection;

      (b)   Provide such recording, telemetering, communication and control facilities as are required for the coordination of its operations with the Office of the Interconnection and those of the other Members and to enable the Office of the Interconnection to operate the PJM Control Area and otherwise implement and administer this Agreement, including equipment required in normal and Emergency operations and for the recording and analysis of system disturbances;

      (c)   Provide adequate and properly trained personnel to (i) permit participation in the coordinated operation of the Interconnection, (ii) meet its obligation on a timely basis for supply of records and data, (iii) serve on committees and participate in their investigations, and (iv) share in the representation of the Interconnection in inter-regional and national reliability activities;

      (d)   Share in the costs of committee activities and investigations (including costs of consultants, computer time and other appropriate items), communication facilities used by all the Members (in addition to those provided in the Office of the Interconnection), and such other expenses as are approved for payment by the PJM Board, such costs to be recovered as provided in Schedule 3;

      (e)   Comply with the requirements of the PJM Manuals and all directives of the Office of the Interconnection to take any action for the purpose of managing, alleviating or ending an Emergency, and authorize the Office of the Interconnection to direct the transfer or interruption of the delivery of energy on their behalf to meet an Emergency and to implement agreements with other Control Areas interconnected with the PJM Control Area for the mutual provision of service to meet an Emergency, and be subject to the emergency procedure charges specified in Schedule 9 of this Agreement for any failure to follow the Emergency instructions of the Office of the Interconnection.

      11.3.2   Facilities Planning and Operation.

      Consistent with and subject to the requirements of this Agreement, the PJM Tariff, the MAAC Agreement, the Reliability Assurance Agreement, the Transmission Owners Agreement, and the PJM Manuals, each Member shall cooperate with the other Members in the coordinated planning and operation of the facilities of its System within the PJM Control Area so as to obtain the greatest practicable degree of reliability, compatible economy and other advantages from such coordinated planning and operation. In furtherance of such cooperation each Member shall, as applicable:

      (a)   Consult with the other Members and the Office of the Interconnection, and coordinate the installation of its electric generation and Transmission Facilities with those of such other Members so as to maintain reliable service in the PJM Control Area;

      (b)   Coordinate with the other Members, the Office of the Interconnection and with others in the planning and operation of the regional facilities to secure a high level of reliability and continuity of service and other advantages;

      (c)   Cooperate with the other Members and the Office of the Interconnection in the implementation of all policies and procedures established pursuant to this Agreement for dealing with Emergencies, including but not limited to policies and procedures for maintaining or arranging for a portion of a Member's Capacity Resources at least equal to the level established pursuant to the Reliability Assurance Agreement to have the ability to go from a shutdown condition to an operating condition and start delivering power without assistance from the power system;

      (d)   Cooperate with the members of MAAC to augment the reliability of the bulk power supply facilities of the region and comply with MAAC and NERC operating and planning standards, principles and guidelines and the PJM Manuals;

      (e)   Obtain or arrange for transmission service as appropriate to carry out this Agreement;

      (f)   Cooperate with the Office of the Interconnection's coordination of the operating and maintenance schedules of the Member's generating and Transmission Facilities with the facilities of other Members to maintain reliable service to its own customers and those of the other Members and to obtain economic efficiencies consistent therewith;

      (g)   Cooperate with the other Members and the Office of the Interconnection in the analysis, formulation and implementation of plans to prevent or eliminate conditions that impair the reliability of the Interconnection; and

      (h)   Adopt and apply standards adopted pursuant to this Agreement and conforming to MAAC and NERC standards, principles and guidelines and the PJM Manuals, for system design, equipment ratings, operating practices and maintenance practices.

      11.3.3   Electric Distributors.

      In addition to any of the foregoing responsibilities that may be applicable, each Member that is an Electric Distributor, whether or not that Member votes in the Members Committee in the Electric Distributor sector or meets the eligibility requirements for any other sector of the Members Committee, shall:

      (a)   Accept, comply with or be compatible with all standards applicable within the PJM Control Area with respect to system design, equipment ratings, operating practices and maintenance practices as set forth in the PJM Manuals, or be subject to an interconnected Member's requirements relating to the foregoing, so that sufficient electrical equipment, control capability, information and communication are available to the Office of the Interconnection for planning and operation of the PJM Control Area;

      (b)   Assure the continued compatibility of its local system energy management system monitoring and telecommunications systems to satisfy the technical requirements of interacting automatically or manually with the Office of the Interconnection as it directs the operation of the PJM Control Area;

      (c)   Maintain or arrange for a portion of its connected load to be subject to control by automatic underfrequency, under-voltage, or other load-shedding devices at least equal to the levels established pursuant to the Reliability Assurance Agreement, or be subject to another Member's control for these purposes;

      (d)   Provide or arrange for sufficient reactive capability and voltage control facilities to conform to Good Utility Practice and (i) to meet the reactive requirements of its system and customers and (ii) to maintain adequate voltage levels and the stability required by the bulk power supply facilities of the Interconnection;

      (e)   Shed connected load, share Capacity Resources, initiate active load management programs, and take such other coordination actions as may be necessary in accordance with the directions of the Office of the Interconnection in Emergencies;

      (f)   Maintain or arrange for a portion of its Capacity Resources at least equal to the level established pursuant to the Reliability Assurance Agreement to have the ability to go from a shutdown condition to an operating condition and start delivering power without assistance from the power system;

      (g)   Provide or arrange through another Member for the services of a 24-hour local control center to coordinate with the Office of the Interconnection, each such control center to be furnished with appropriate telemetry equipment as specified in the PJM Manuals, and to be staffed by system operators trained and delegated sufficient authority to take any action necessary to assure that the system for which the operator is responsible is operated in a stable and reliable manner;

      (h)   Provide to the Office of the Interconnection all System, accounting, customer tracking, load forecasting (including all load to be served from its System) and other data necessary or appropriate to implement or administer this Agreement or the Reliability Assurance Agreement; and

      (i)   Comply with the underfrequency relay obligations and charges specified in Schedule 7 of this Agreement.

      11.3.4   Reports to the Office of the Interconnection.

      Each Member shall report as promptly as possible to the Office of the Interconnection any changes in its operating practices and procedures relating to the reliability of the bulk power supply facilities of the Interconnection. The Office of the Interconnection shall review such reports, and if any change in an operating practice or procedure of the Member is not in accord with the established operating principles, practices and procedures for the Interconnection and such change adversely affects the Interconnection and regional reliability, it shall so inform such Member, and the other Members through their representative on the Operating Committee, and shall direct that such change be modified to conform to the established operating principles, practices and procedures.

   11.4   Regional Transmission Expansion Planning Protocol.

   The Members shall participate in regional transmission expansion planning in accordance with the Regional Transmission Expansion Planning Protocol set forth in Schedule 6 to this Agreement.

   11.5   Member Right to Petition.

   (a)   Nothing herein shall deprive any Member of the right to petition FERC to modify any provision of this Agreement or any Schedule or practice hereunder that the petitioning Member believes to be unjust, unreasonable, or unduly discriminatory under Section 206 of the Federal Power Act, subject to the right of any other Member (a) to oppose said proposal, or (b) to withdraw from the LLC pursuant to Section 4.1.

   (b)   Nothing herein shall be construed as affecting in any way the right of the Members, acting pursuant to a vote of the Members Committee as specified in Section 8.4, unilaterally to make an application to FERC for a change in any rate, charge, classification, tariff or service, or any rule or regulation related thereto, under section 205 of the Federal Power Act and pursuant to the rules and regulations promulgated by FERC thereunder, subject to the right of any Member that voted against such change in any rate, charge, classification, tariff or service, or any rule or regulation related thereto, in intervene in opposition to any such application.

   (c)   Nothing in this Agreement shall preclude those Members joining in the proposal to utilize Locational Marginal Prices to deal with transmission congestion from (i) filing amendments to the Agreement necessary to implement the use of Locational Marginal Prices in the PJM Control Area in accordance with such orders or other directives as may be issued by FERC relating thereto, or (ii) implementing the provisions of Sections 1.7.21 and 5.2.2(d) of Schedule 1 to this Agreement, without further authorization or approval by the Members Committee.

   11.6   Membership Requirements.

   (a)   To qualify as a Member, an entity shall:

      i)   Be a Transmission Owner a Generation Owner, an Other Supplier, an Electric Distributor, or an End-Use Customer; and

      ii)   Accept the obligations set forth in this Agreement.

   (b)   Certain Members that are Load Serving Entities are parties to the Reliability Assurance Agreement. Upon becoming a Member, any entity that is a Load Serving Entity and that wishes to become a Market Buyer shall also simultaneously execute the Reliability Assurance Agreement.

   (c)   An entity that wishes to become a party to this Agreement shall apply, in writing, to the President setting forth its request, its qualifications for membership, its agreement to supply data as specified in this Agreement, its agreement to pay all costs and expenses in accordance with Schedule 3, and providing all information specified pursuant to the Schedules to this Agreement for entities that wish to become Market Participants. Any such application that meets all applicable requirements shall be approved by the President within sixty (60) days.

   (d)   Nothing in this Section 11 is intended to remove, in any respect, the choice of participation by other utility companies or organizations in the operation of the Interconnection through inclusion in the System of a Member.

   (e)   An entity whose application is accepted by the President pursuant to Section 11.6(c) shall execute a supplement to this Agreement in substantially the form prescribed in Schedule 4, which supplement shall be countersigned by the President and tendered for filing with FERC by the President. The entity shall become a Member effective on the date specified by FERC when accepting the supplement for filing.

   (f)   Entities whose applications contemplate expansion or rearrangement of the PJM Control Area may become Members promptly as described in Sections 11.6(c) and 11.6(e) above, but the integration of the applicant's system into all of the operation and accounting provisions of this Agreement and the Reliability Assurance Agreement shall occur only after completion of all required installations and modifications of metering, communications, computer programming, and other necessary and appropriate facilities and procedures, as determined by the Office of the Interconnection. The Office of the Interconnection shall notify the other Members when such integration has occurred.

   (g)   In accordance with the MAAC Agreement, a Member shall be a member of MAAC.

12.   TRANSFERS OF MEMBERSHIP INTEREST

   The rights and obligations created by this Agreement shall inure to and bind the successors and assigns of such Member; provided, however, that the rights and obligations of any Member hereunder shall not be assigned without the approval of the Members Committee except as to a successor in operation of a Member's electric operating properties by reason of a merger, consolidation, reorganization, sale, spinoff, or foreclosure, as a result of which substantially all such electric operating properties are acquired by such a successor, and such successor becomes a Member.

13.   INTERCHANGE

   13.1   Interchange Arrangements with Non-Members.

   Any Member may enter into interchange arrangements with others who are not Members with respect to the delivery or receipt of capacity and energy to fulfill its obligations hereunder or for any other purpose, subject to the standards and requirements established in or pursuant to this Agreement.

   13.2   Energy Market.

   The Office of the Interconnection shall administer an efficient energy market within the Interconnection, to be known as the PJM Interchange Energy Market, in which Members may buy and sell energy. The Office of the Interconnection will schedule in advance and dispatch generation on the basis of least-cost, security-constrained dispatch and the prices and operating characteristics offered by sellers within and into the Interconnection, continuing until sufficient generation is dispatched to serve the energy purchase requirements of the Interconnection and buyers out of the Interconnection, as well as the requirements of the Interconnection for ancillary services provided by such generation. Scheduling and dispatch shall be conducted in accordance with applicable schedules to the PJM Tariff and the Schedules to this Agreement.

14.   METERING

   14.1   Installation, Maintenance and Reading of Meters.

   The quantities of electric energy involved in determination of the amounts of the billing rendered hereunder shall be ascertained by means of meters installed, maintained and read either at the expense of the party on whose premises the meters are located or as otherwise provided for by agreement between the parties concerned.

   14.2   Metering Procedures.

   Procedures with respect to maintenance, testing, calibrating, correction and registration records, and precision tolerance of all metering equipment shall be in accordance with Good Utility Practice. The expense of testing any meter shall be borne by the party owning such meter, except that when a meter tested upon request of another party is found to register within the established tolerance the party making the request shall bear the expense of such test.

   14.3   Integrated Megawatt-Hours.

   All metering of energy required herein shall be the integration of megawatt hours in the clock hour, and the quantities thus obtained shall constitute the megawatt load for such clock hour; provided, however, that adjustment shall be made for other contractual obligations of any Member as may be required to determine the quantity to be accounted for hereunder, and for transmission losses.

   14.4   Meter Locations.

   The meter locations to be used by the Members in determining their energy transactions on the Interconnection shall be as reasonably determined from time to time by the Member or the Office of the Interconnection.

15.   ENFORCEMENT OF OBLIGATIONS

   15.1   Failure to Meet Obligations.

      15.1.1   Termination of Market Buyer Rights.

      The Office of the Interconnection shall terminate a Market Buyer's right to make purchases from the PJM Interchange Energy Market, the PJM Capacity Credit Market, or any other market operated by PJM if it determines that the Market Buyer does not continue to meet the obligations set forth in this Agreement, including but not limited to the obligation to be in compliance with PJM's creditworthiness requirements and the obligation to make timely payment, provided that the Office of the Interconnection has notified the Market Buyer of any such deficiency and afforded the Market Buyer a reasonable opportunity to cure pursuant to section 15.1.3. The Office of the Interconnection shall reinstate a Market Buyer's right to make purchases from the PJM Interchange Energy Market and PJM Capacity Credit Market upon demonstration by the Market Buyer that it has come into compliance with the obligations set forth in this Agreement.

      15.1.2   Termination of Market Seller Rights.

      The Office of the Interconnection shall not accept offers from a Market Seller that has not complied with the prices, terms, or operating characteristics of any of its prior scheduled transactions in the PJM Interchange Energy Market, unless such Market Seller has taken appropriate measures to the satisfaction of the Office of the Interconnection to ensure future compliance.

      15.1.3   Payment of Bills.

      (a)   A Member shall make full and timely payment, in accordance with the terms specified by the Office of the Interconnection, of all bills rendered in connection with or arising under or from this Agreement, any service or rate schedule, any tariff, or any services performed by the Office of the Interconnection, notwithstanding any disputed amount, but any such payment shall not be deemed a waiver of any right with respect to such dispute. With respect to any payment that the LLC is required to make to a Member in connection with or arising under this Agreement, any service or rate schedule, or any tariff, the LLC shall have a right of setoff equal to any amount that the Member is required to pay the LLC in connection with or arising under or from this Agreement, any service or rate schedule, any tariff, or any services performed by the Office of the Interconnection. Any Member that fails to make full and timely payment to the LLC, or otherwise fails to meet its financial or other obligations to a Member, the Office of the Interconnection or the LLC under this Agreement, shall, in addition to any requirement set forth in sections 15.1.1 and 15.1.2 and upon expiration of the 3-day period specified below be in default. If the Office of the Interconnection concludes, upon its own initiative or the recommendation of or complaint by the Members Committee or any Member, that a Member is in breach of any obligation under this Agreement, including, but not limited to, the obligation to make timely payment and the obligation to meet PJM's creditworthiness standards and to otherwise comply with PJM's credit policies, the Office of the Interconnection shall so notify such Member and inform all other Members. The notified Member may remedy such asserted breach by: (i) paying all amounts assertedly due, along with interest on such amounts calculated in accordance with the methodology specified for interest on refunds in FERC's regulations at 18 C.F.R.  § 35.19a(a)(2)(iii); and (ii) demonstration to the satisfaction of the Office of the Interconnection that the Member has taken appropriate measures to meet any other obligation of which it was deemed to be in breach; provided, however, that any such payment or demonstration may be subject to a reservation of rights, if any, to subject such matter to the PJM Dispute Resolution Procedures; and provided, further, that any such determination by the Office of the Interconnection may be subject to review by the PJM Board upon request of the Member involved or the Office of the Interconnection. If a Member has not remedied a breach by the 3rd business day following receipt of the Office of the Interconnection's notice, or receipt of the PJM Board's decision on review, if applicable, then the Member shall be in default and, in addition to such other remedies as may be available to the LLC:

      i)   A defaulting Market Participant shall be precluded from buying or selling in the PJM Interchange Energy Market, the PJM Capacity Credit Market, or any other market operated by PJM until the default is remedied as set forth above;

      ii)   A defaulting Member shall not be entitled to participate in the activities of any committee or other body established by the Members Committee or the Office of the Interconnection; and

      iii)   A defaulting Member shall not be entitled to vote on the Members Committee or any other committee or other body established pursuant to this Agreement.

   15.2   Enforcement of Obligations.

   If the Office of the Interconnection sends a notice to the PJM Board that a Member has failed to perform an obligation under this Agreement, the PJM Board shall initiate such action against such Member to enforce such obligation as the PJM Board shall deem appropriate. Subject to the procedures specified in Section 15.1, a Member's failure to perform such obligation shall be deemed to be a default under this Agreement. In order to remedy a default, but without limiting any rights the LLC may have against the defaulting Member, the PJM Board may assess against, and collect from, the Members not in default, in proportion to their Weighted Interest, an amount equal to the amount that the defaulting Member has failed to pay to the Office of the Interconnection, along with appropriate interest. Such assessment shall in no way relieve the defaulting Member of its obligations. A Member that has paid such an assessment to the LLC shall have an independent right to seek and obtain payment and recovery from the defaulting Member of the amount of the assessment Member of the amount of the assessment the Member paid to the LLC. In addition to any amounts in default, the defaulting Member shall be liable to the LLC for all reasonable costs incurred in enforcing the defaulting Member's obligations.

      15.2.1   Collection by the Office of the Interconnection.

   By vote at any Members Committee meeting, a majority of the Members that have paid a Weighted Interest assessment may request and appoint the Office of the Interconnection to act as agent on behalf of the Members that have paid a Weighted Interest assessment, solely for the purpose of pursuing and collecting any amounts so assessed; provided, however, that any Member that does not desire for the Office of the Interconnection to act on their behalf with regard to such collection shall so inform the Office of the Interconnection. In the event that the Office of the Interconnection is appointed as agent for the Members, the Office of the Interconnection shall be authorized to pursue collection through such actions, legal or otherwise, as it reasonably deems appropriate, including but not limited to the prosecution of legal actions and assertion of claims on behalf of the affected Members in the state and federal courts as well as under the United States Bankruptcy Code; provided, however, that the Office of the Interconnection shall take no action on behalf of those Members that have requested that the Office of the Interconnection not act on their behalf. After deducting the costs of collection, any amounts recovered by the Office of the Interconnection on behalf of the affected Members shall be distributed to the Members who have paid their Weighted Interest assessment in proportion to the Weighted Interest assessment paid by each Member except those Members who informed the Office of the Interconnection that it should not act as their agent.

   15.3   Obligations to a Member in Default.

   The Members have no continuing obligation to provide the benefits of interconnected operations to a Member in default.

   15.4   Obligations of a Member in Default.

   A Member found to be in default shall take all possible measures to mitigate the continued impact of the default on the Members not in default, including, but not limited to, loading its own generation to supply its own load to the maximum extent possible.

   15.5   No Implied Waiver.

   A failure of a Member, the PJM Board, or the LLC to insist upon or enforce strict performance of any of the provisions of this Agreement shall not be construed as a waiver or relinquishment to any extent of such entity's right to assert or rely upon any such provisions, rights and remedies in that or any other instance; rather, the same shall be and remain in full force and effect.

16.   LIABILITY AND INDEMNITY

   16.1   Members.

   (a)   As between the Members, except as may be otherwise agreed upon between individual Members with respect to specified interconnections, each Member will indemnify and hold harmless each of the other Members, and its directors, officers, employees, agents, or representatives, of and from any and all damages, losses, claims, demands, suits, recoveries, costs and expenses (including all court costs and reasonable attorneys' fees), caused by reason of bodily injury, death or damage to property of any third party, resulting from or attributable to the fault, negligence or willful misconduct of such Member, its directors, officers, employees, agents, or representatives, or resulting from, arising out of, or in any way connected with the performance of its obligations under this Agreement, excepting only, and to the extent, such cost, expense, damage, liability or loss may be caused by the fault, negligence or willful misconduct of any other Member. The duty to indemnify under this Agreement will continue in full force and effect notwithstanding the expiration or termination of this Agreement or the withdrawal of a Member from this Agreement, with respect to any loss, liability, damage or other expense based on facts or conditions which occurred prior to such termination or withdrawal.

   (b)   The amount of any indemnity payment arising hereunder shall be reduced (including, without limitation, retroactively) by any insurance proceeds or other amounts actually recovered by the Member seeking indemnification in respect of the indemnified action, claim, demand, costs, damage or liability. If any Member shall have received an indemnity payment for an action, claim, demand, cost, damage or liability and shall subsequently actually receive insurance proceeds or other amounts for such action, claim, demand, cost, damage or liability, then such Member shall pay to the Member that made such indemnity payment the lesser of the amount of such insurance proceeds or other amounts actually received and retained or the net amount of the indemnity payments actually received previously.

   16.2   LLC Indemnified Parties.

   (a)   The LLC will indemnify and hold harmless the PJM Board, the LLC's officers, employees and agents, and any representatives of the Members serving on the Members Committee and any other committee created under Section 8 of this Agreement (all such Board Members, officers, employees, agents and representatives for purposes of this Section 16 being referred to as "LLC Indemnified Parties"), of and from any and all actions, claims, demands, costs (including consequential or indirect damages, economic losses and all court costs and reasonable attorneys' fees) and liabilities to any third parties, arising from, or in any way connected with, the performance of the LLC under this Agreement, or the fact that such LLC Indemnified Party was serving in such capacity, except to the extent that such action, claim, demand, cost or liability results from the willful misconduct of any LLC Indemnified Party with respect to participation in the misconduct. To the extent any dispute arises between any Member and the LLC arising from, or in any way connected with, the performance of the LLC under this Agreement, the Member and the LLC shall follow the PJM Dispute Resolution Procedures. To the extent that any such action, claim, demand, cost or liability arises from a Member's contractual or other obligation to provide electric service directly or indirectly to said third party, which obligation to provide service is limited by the terms of any tariff, service agreement, franchise, statute, regulatory requirement, court decision or other limiting provision, the Member designates the LLC and each LLC Indemnified Party a beneficiary of said limitation.

   (b)   An LLC Indemnified Party shall not be personally liable for monetary damages for any breach of fiduciary duty by such LLC Indemnified Party, except that an LLC Indemnified Party shall be liable to the extent provided by applicable law (i) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or (ii) for any transaction from which the LLC Indemnified Party derived an improper personal benefit. Notwithstanding (i) and (ii), indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the LLC if and to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. If applicable law is hereafter construed or amended to authorize the further elimination or limitation of the liability of LLC Indemnified Parties, then the liability of the LLC Indemnified Parties, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by law. No amendment to or repeal of this section shall apply to or have any effect on the liability or alleged liability of any LLC Indemnified Party or with respect to any acts or omissions occurring prior to such amendment or repeal. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the LLC, and with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

   (c)   The LLC may pay expenses incurred by an LLC Indemnified Party in defending a civil, criminal, administrative or investigative action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such LLC Indemnified Party to repay such amount if it shall ultimately be determined that such LLC Indemnified Party is not entitled to be indemnified by the LLC as authorized in this Section.

   (d)   In the event the LLC incurs liability under this Section 16.2 that is not adequately covered by insurance, such amounts shall be recovered pursuant to the PJM Tariff as provided in Schedule 3 of this Agreement.

   16.3   Worker's Compensation Claims.

   Each Member shall be solely responsible for all claims of its own employees, agents and servants growing out of any Worker's Compensation Law.

   16.4   Limitation of Liability.

   No Member or its directors, officers, employees, agents, or representatives shall be liable to any other Member or its directors, officers, employees, agents, or representatives, whether liability arises out of contract, tort (including negligence), strict liability, or any other cause of or form of action whatsoever, for any indirect, incidental, consequential, special or punitive cost, expense, damage or loss, including but not limited to loss of profits or revenues, cost of capital of financing, loss of goodwill or cost of replacement power, arising from such Member's performance or failure to perform any of its obligations under this Agreement or the ownership, maintenance or operation of its System; provided, however, that nothing herein shall be deemed to reduce or limit the obligations of any Member with respect to the claims of persons or entities that are not parties to this Agreement.

   16.5   Resolution of Disputes.

   To the extent any dispute arises between one or more Members regarding any issue covered by this Agreement, the Members shall follow the dispute resolution procedures set forth in the PJM Dispute Resolution Procedures.

   16.6   Gross Negligence or Willful Misconduct.

   Neither the LLC nor the LLC Indemnified Parties shall be liable to the Members or any of them for any claims, demands or costs arising from, or in any way connected with, the performance of the LLC under this Agreement other than actions, claims or demands based on gross negligence or willful misconduct; provided, however, that nothing herein shall limit or reduce the obligations of the LLC to the Members or any of them under the express terms of this Agreement or the PJM Tariff, including, but not limited to, those set forth in Sections 6.2 and 6.3 of this Agreement.

   16.7   Insurance.

   The PJM Board shall be authorized to procure insurance against the risks borne by the LLC and the LLC Indemnified Parties, the cost of which shall be treated as a cost and expense of the LLC.

17.   MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS

   17.1   Representations and Warranties.

   Each Member makes the following representations and warranties to the LLC and each other Member, as of the Effective Date or such later date as such Member shall become admitted as a Member of the LLC.

      17.1.1   Organization and Existence.

      Such Member is an entity duly organized, validly existing and in good standing under the laws of the state of its organization.

      17.1.2   Power and Authority.

       Such Member has the full power and authority to execute, deliver and perform this Agreement and to carry out the transactions contemplated hereby.

      17.1.3   Authorization and Enforceability.

      The execution and delivery of this Agreement by such Member and the performance of its obligations hereunder have been duly authorized by all requisite action on the part of the Member, and do not conflict with any applicable law or with any other agreement binding upon the Member. The Agreement has been duly executed and delivered by such Member and constitutes the legal, valid and binding obligation of such Member, enforceable against it in accordance with the terms thereof, except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and to general principles of equity whether such principles are considered in proceedings in law or in equity.

      17.1.4   No Government Consents.

       No authorization, consent, approval or order of, notice to or registration, qualification, declaration or filing with, any governmental authority is required for the execution, delivery and performance by such Member of this Agreement or the carrying out by such Member of the transactions contemplated hereby other than such authorization, consent, approval or order of, notice to or registration, qualification, declaration or filing that is pending before such governmental authority.

      17.1.5   No Conflict or Breach.

      None of the execution, delivery and performance by such Member of this Agreement, the compliance with the terms and provisions hereof and the carrying out of the transactions contemplated hereby, conflicts or will conflict with or will result in a breach or violation of any of the terms, conditions or provisions of any law, governmental rule or regulation or the charter documents or bylaws of such Member or any applicable order, writ, injunction, judgment or decree of any court or governmental authority against such Member or by which it or any of its properties, is bound, or any loan agreement, indenture, mortgage, bond, note, resolution, contract or other agreement or instrument to which such Member is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or will result in the imposition of any lien upon any of its properties.

      17.1.6   No Proceedings.

      There are no actions at law, suits in equity, proceedings or claims pending or, to the knowledge of the Member, threatened against the Member before any federal, state, foreign or local court, tribunal or government agency or authority that might materially delay, prevent or hinder the performance by the Member of its obligations hereunder.

   17.2   Municipal Electric Systems.

   Any provisions of Section 17.1 notwithstanding, if any Member that is a municipal electric system believes in good faith that the provisions of Sections 5.1(b) and 16.1 of this Agreement may not lawfully be applied to that Member under applicable state law governing municipal activities, the Member may request a waiver of the pertinent provisions of the Agreement. Any such request for waiver shall be supported by an opinion of counsel for the Member to the effect that the provision of the Agreement as to which waiver is sought may not lawfully be applied to the Member under applicable state law. The PJM Board shall have the right to have the opinion of the Member's counsel reviewed by counsel to the LLC. If the PJM Board concludes that either or both of Sections 5.1(b) and 16.1 of this Agreement may not lawfully be applied to a municipal electric system Member, it shall waive the application of the affected provision or provisions to such municipal Member. Any Member not permitted by law to indemnify the other Members shall not be indemnified by the other Members.

   17.3   Survival.

   All representations and warranties contained in this Section 17 shall survive the execution and delivery of this Agreement.

18.   MISCELLANEOUS PROVISIONS

   18.1   [Reserved.]

   18.2   Fiscal and Taxable Year.

   The fiscal year and taxable year of the LLC shall be the calendar year.

   18.3   Reports.

   Each year prior to the Annual Meeting of the Members, the PJM Board shall cause to be prepared and distributed to the Members a report of the LLC's activities since the prior report.

   18.4   Bank Accounts; Checks, Notes and Drafts.

   (a)   Funds of the LLC shall be deposited in an account or accounts of a type, in form and name and in a bank(s) or other financial institution(s) which are participants in federal insurance programs as selected by the PJM Board. The PJM Board shall arrange for the appropriate conduct of such accounts. Funds may be withdrawn from such accounts only for bona fide and legitimate LLC purposes and may from time to time be invested in such short-term securities, money market funds, certificates of deposit or other liquid assets as the PJM Board deems appropriate. All checks or demands for money and notes of the LLC shall be signed by any officer or by any other person designated by the PJM Board.

   (b)   The Members acknowledge that the PJM Board may maintain LLC funds in accounts, money market funds, certificates of deposit, other liquid assets in excess of the insurance provided by the Federal Deposit Insurance Corporation, or other depository insurance institutions and that the PJM Board shall not be accountable or liable for any loss of such funds resulting from failure or insolvency of the depository institution.

   (c)   Checks, notes, drafts and other orders for the payment of money shall be signed by such persons as the PJM Board from time to time may authorize. When the PJM Board so authorizes, the signature of any such person may be a facsimile.

   18.5   Books and Records.

   (a)   At all times during the term of the LLC, the PJM Board shall keep, or cause to be kept, full and accurate books of account, records and supporting documents, which shall reflect, completely, accurately and in reasonable detail, each transaction of the LLC. The books of account shall be maintained and tax returns prepared and filed on the method of accounting determined by the PJM Board. The books of account, records and all documents and other writings of the LLC shall be kept and maintained at the principal office of the Interconnection.

   (b)   The PJM Board shall cause the Office of the Interconnection to keep at its principal office the following:

      i)   A current list in alphabetical order of the full name and last known business address of each Member, the Weighted Interest of each Member, and the Members Committee sector of each Voting Member;

      ii)   A copy of the Certificate of Formation and the Certificate of Conversion, and all Certificates of Amendment thereto;

      iii)   Copies of the LLC's federal, state, and local income tax returns and reports, if any, for the three most recent years; and

      iv)   Copies of the Operating Agreement, as amended, and of any financial statements of the LLC for the three most recent years.

   18.6   Amendment.

   (a)   Except as provided by law or otherwise set forth herein, this Agreement, including any Schedule hereto, may be amended, or a new Schedule may be created, only upon: (i) submission of the proposed amendment to the PJM Board for its review and comments; (ii) approval of the amendment or new Schedule by the Members Committee, after consideration of the comments of the PJM Board, in accordance with Section 8.4, or written agreement to an amendment of all Members not in default at the time the amendment is agreed upon; and (iii) approval and/or acceptance for filing of the amendment by FERC and any other regulatory body with jurisdiction thereof as may be required by law. If and as necessary, the Members Committee may file with FERC or other regulatory body of competent jurisdiction any amendment to this Agreement or to its Schedules or a new Schedule not filed by the Office of the Interconnection.

   (b)   Notwithstanding the foregoing, an applicant eligible to become a Member in accordance with the procedures specified in this Agreement shall become a Member by executing a counterpart of this Agreement without the need for amendment of this Agreement or execution of such counterpart by any other Member.

   (c)   Each of the following fundamental changes to the LLC shall require or be deemed to require an amendment to this Agreement and shall require the prior approval of FERC:

      i)   Adoption of any plan of merger or consolidation;

      ii)   Adoption of any plan of sale, lease or exchange of assets relating to all, or substantially all, of the property and assets of the LLC;

      iii)   Adoption of any plan of division relating to the division of the LLC into two or more corporations or other legal entities;

      iv)   Adoption of any plan relating to the conversion of the LLC into a stock corporation;

      v)   Adoption of any proposal of voluntary dissolution; or

      vi)   Taking any action which has the purpose or effect of the adoption of any plan or proposal described in items (i), (ii), (iii), (iv) or (v) above.

   18.7   Interpretation.

   Wherever the context may require, any noun or pronoun used herein shall include the corresponding masculine, feminine or neuter forms. The singular form of nouns, pronouns and verbs shall include the plural and vice versa.

   18.8   Severability.

   Each provision of this Agreement shall be considered severable and if for any reason any provision is determined by a court or regulatory authority of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated, and such invalid, void or unenforceable provision shall be replaced with valid and enforceable provision or provisions which otherwise give effect to the original intent of the invalid, void or unenforceable provision.

   18.9   Force Majeure.

   No Member shall be liable to any other Member for damages or otherwise be in breach of this Agreement to the extent and during the period such Member's performance is prevented by any cause or causes beyond such Member's control and without such Member's fault or negligence, including but not limited to any act, omission, or circumstance occasioned by or in consequence of any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, or curtailment, order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities; provided, however, that any such foregoing event shall not excuse any payment obligation. Upon the occurrence of an event considered by a Member to constitute a force majeure event, such Member shall use due diligence to endeavor to continue to perform its obligations as far as reasonably practicable and to remedy the event, provided that no Member shall be required by this provision to settle any strike or labor dispute.

   18.10   Further Assurances.

   Each Member hereby agrees that it shall hereafter execute and deliver such further instruments, provide all information and take or forbear such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof.

   18.11   Seal.

   The seal of the LLC shall have inscribed thereon the name of the LLC, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

   18.12   Counterparts.

   This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together will constitute one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not have executed the same counterpart.

   18.13   Costs of Meetings.

   Each Member shall be responsible for all costs of its representative, alternate or substitute in attending any meeting. The Office of the Interconnection shall pay the other reasonable costs of meetings of the PJM Board and the Members Committee, and such other committees, subcommittees, task forces, working groups, User Groups or other bodies as determined to be appropriate by the Office of the Interconnection, which costs otherwise shall be paid by the Members attending. The Office of the Interconnection shall reimburse all Board Members for their reasonable costs of attending meetings.

   18.14   Notice.

   (a)   Except as otherwise expressly provided herein, notices required under this Agreement shall be in writing and shall be sent to a Member by overnight courier, hand delivery, telecopier or other reliable electronic means to the representative on the Members Committee of such Member at the address for such Member previously provided by such Member to the other Members or as otherwise directed by the Members Committee. Any such notice so sent shall be deemed to have been given (i) upon delivery if given by overnight couriers or hand delivery, or (ii) upon confirmation if given by telecopier or other reliable electronic means.

   (b)   Notices, as well as copies of the agenda and minutes of all meetings of committees, subcommittees, task forces, working groups, User Groups, or other bodies formed under this Agreement, shall be posted in a timely fashion on and made available for downloading from the PJM website.

   18.15   Headings.

   The section headings used in this Agreement are for convenience only and shall not affect the construction or interpretation of any of the provisions of this Agreement.

   18.16   No Third-Party Beneficiaries.

   This Agreement is intended to be solely for the benefit of the Members and their respective successors and permitted assigns and, unless expressly stated herein, is not intended to and shall not confer any rights or benefits on any third party (other than successors and permitted assigns) not a signatory hereto.

   18.17   Confidentiality.

      18.17.1   Party Access.

      (a)   No Member shall have a right hereunder to receive or review any documents, data or other information of another Member, including documents, data or other information provided to the Office of the Interconnection, to the extent such documents, data or information have been designated as confidential pursuant to the procedures adopted by the Office of the Interconnection or to the extent that they have been designated as confidential by such other Member; provided, however, a Member may receive and review any composite documents, data and other information that may be developed based on such confidential documents, data or information if the composite does not disclose any individual Member's confidential data or information.

      (b)   Except as may be provided in this Agreement or in the PJM Open Access Transmission Tariff, the Office of the Interconnection shall not disclose to its Members or to third parties, any documents, data, or other information of a Member or entity applying for Membership, to the extent such documents, data, or other information has been designated confidential pursuant to the procedures adopted by the Office of the Interconnection or by such Member or entity applying for membership; provided that nothing contained herein shall prohibit the Office of the Interconnection from providing any such confidential information to its agents, representatives, or contractors to the extent that such person or entity is bound by an obligation to maintain such confidentiality; provided further that nothing contained herein shall prohibit the Office of the Interconnection from providing Member confidential information to the North American Electric Reliability Council or any of its regional reliability councils to the extent that (i) the Office of the Interconnection determines in its reasonable discretion that the exchange of such information is required to enhance and/or maintain reliability within MAAC and its neighboring reliability councils, (ii) such entity is bound by a written agreement to maintain such confidentiality, and (iii) the Office of the Interconnection has notified the affected party of its intention to release such information no less than five business days prior to the release. The Office of the Interconnection shall collect and use confidential information only in connection with its authority under this Agreement and the Open Access Transmission Tariff and the retention of such information shall be in accordance with PJM's data retention policies.

      (c)   Nothing contained herein shall prevent the Office of the Interconnection from releasing a Member's confidential data or information to a third party provided that the Member has delivered to the Office of the Interconnection specific, written authorization for such release setting forth the data or information to be released, to whom such release is authorized, and the period of time for which such release shall be authorized. The Office of the Interconnection shall limit the release of a Member's confidential data or information to that specific authorization received from the Member. Nothing herein shall prohibit a Member from withdrawing such authorization upon written notice to the Office of the Interconnection who shall cease such release as soon as practicable after receipt of such withdrawal notice.

      18.17.2    Required Disclosure.

      (a)   Notwithstanding anything in the foregoing Section to the contrary, and subject to the provisions of Section 18.17.3, if a Member or the Office of the Interconnection is required by applicable law, or in the course of administrative or judicial proceedings other than FERC proceedings or investigations, to disclose to third parties other than the FERC or its staff, information that is otherwise required to be maintained in confidence pursuant to this Agreement, that Member or the Office of the Interconnection may make disclosure of such information; provided, however, that as soon as the Member or the Office of the Interconnection learns of the disclosure requirement and prior to making disclosure, that Member or the Office of the Interconnection shall notify the affected Member or Members of the requirement and the terms thereof and the affected Member or Members may direct, at their sole discretion and cost, any challenge to or defense against the disclosure requirement. The disclosing Member and the Office of the Interconnection shall cooperate with such affected Members to the maximum extent practicable to minimize the disclosure of the information consistent with applicable law. Each Member and the Office of the Interconnection shall cooperate with the affected Members to obtain proprietary or confidential treatment of such information by the person to whom such information is disclosed prior to any such disclosure.

      (b)   Nothing in this Section 18.17 shall prohibit or otherwise limit the Office of the Interconnection's use of information covered herein if such information was: (i) previously known to the Office of the Interconnection without an obligation of confidentiality; (ii) independently developed by or for the Office of the Interconnection using nonconfidential information; (iii) acquired by the Office of the Interconnection from a third party which is not, to the Office of the Interconnection's knowledge, under an obligation of confidence with respect to such information; (iv) which is or becomes publicly available other than through a manner inconsistent with this Section 18.17.

      (c)   The Office of the Interconnection shall impose on any contractors retained to provide technical support or otherwise to assist with the implementation or administration of this Agreement or of the Open Access Transmission Tariff a contractual duty of confidentiality consistent with this Agreement. A Member shall not be obligated to provide confidential or proprietary information to any contractor that does not assume such a duty of confidentiality, and the Office of the Interconnection shall not provide any such information to any such contractor without the express written permission of the Member providing the information.

      (d)   Section 18.17.2(a) does not apply to disclosure of information to the FERC or its staff.

      18.17.3   Disclosure to FERC.

      Notwithstanding anything in this Section to the contrary, if the FERC or its staff, during the course of an investigation or otherwise, requests information from the Office of the Interconnection that is otherwise required to be maintained in confidence pursuant to this Agreement, the Office of the Interconnection shall provide the requested information to the FERC or its staff, within the time provided for in the request for information. In providing the information to the FERC or its staff, the Office of the Interconnection may, consistent with 18 C.F.R.  § 388.112, request that the information be treated as confidential and non-public by the FERC and its staff and that the information be withheld from public disclosure. The Office of the Interconnection shall notify any affected Member(s) when it is notified by FERC or its staff, that a request for disclosure of, or decision to disclose, confidential information has been received, at which time the Office of Interconnection and the affected Member may respond before such information would be made public, pursuant to 18 C.F.R. §  388.112.

   18.18   Termination and Withdrawal.

      18.18.1   Termination.

      Upon termination of this Agreement, final settlement for obligations under this Agreement shall include the accounting for the period ending with the last day of the last month for which the Agreement was effective.

      18.18.2   Withdrawal.

      Subject to the requirements of Section 4.1(c) of this Agreement and Section 1.4.6 of the Schedule 1 to this Agreement, any Member may withdraw from this Agreement upon 90 days notice to the Office of the Interconnection.

      18.18.3   Winding Up.

      Any provision of this Agreement that expressly or by implication comes into or remains in force following the termination or expiration of this Agreement shall survive such termination or expiration. The surviving provisions shall include, but shall not be limited to: (i) those provisions necessary to permit the orderly conclusion, or continuation pursuant to another agreement, of transactions entered into prior to the decision to terminate this Agreement, (ii) those provisions necessary to conduct final billing, collection, and accounting with respect to all matters arising hereunder, and (iii) the indemnification provisions as applicable to periods prior to such termination or expiration.

IN WITNESS whereof, the Members have caused this Agreement to be executed by their duly authorized representatives.

RESOLUTION REGARDING

ELECTION OF DIRECTORS

1.   Subject to the approval of the Federal Energy Regulatory Commission, the provisions of section 7.1 of the Amended and Restated Operating Agreement of PJM Interconnection, L.L.C. (the "Operating Agreement"), to the extent that such section requires that the election of members to the PJM Board of Managers be held at the Annual Meeting of the Members, be, and they hereby are, waived, solely for election to those positions on the PJM Board of Managers that expire in the year 2001; and

2.   An election of members of the PJM Board of Managers from the slate approved by the independent consultant retained by the Office of the Interconnection, is, and hereby shall be, authorized by the PJM Members Committee to occur at its meeting held on August 30, 2001; and

3.   The Office of the Interconnection is, and hereby shall be, authorized to file such documents and make such pleadings before the Federal Energy Regulatory Commission as the Office of the Interconnection determines to be reasonably necessary seeking such waivers and authorizations as may be required to assure the validity of the aforementioned election of members to the PJM Board of Managers.

SCHEDULE 1

PJM INTERCHANGE ENERGY MARKET

1.   MARKET OPERATIONS

   1.1   Introduction.

   This Schedule sets forth the scheduling, other procedures, and certain general provisions applicable to the operation of the PJM Interchange Energy Market within the PJM Control Area. This Schedule addresses each of the three time-frames pertinent to the daily operation of the PJM Interchange Energy Market: Prescheduling, Scheduling, and Dispatch.

   1.2   Cost-based Offers.

   Unless and until the FERC shall authorize the use of market-based prices in the PJM Interchange Energy Market, all offers for energy or other services to be sold on the PJM Interchange Energy Market from generating resources located within the PJM Control Area shall not exceed the variable cost of producing such energy or other service, as determined in accordance with Schedule 2 to this Agreement and applicable regulatory standards, requirements and determinations; provided that, a Market Seller may offer to the PJM Interchange Energy Market the right to call on energy from a resource the output of which has been sold on a bilateral basis, with the rate for such energy if called equal to the curtailment rate specified in the bilateral contract.

   1.3   Definitions.

      1.3.1   Day-ahead Energy Market.

      "Day-ahead Energy Market" shall mean the schedule of commitments for the purchase or sale of energy and payment of Transmission Congestion Charges developed by the Office of the Interconnection as a result of the offers and specifications submitted in accordance with Section 1.10 of this Schedule.

      1.3.1A Day-ahead Prices.

      "Day-ahead Prices" shall mean the Locational Marginal Prices resulting from the Day-ahead Energy Market.

      1.3.1B Decrement Bid.

      "Decrement Bid" shall mean a bid to purchase energy at a specified location in the Day-ahead Energy Market. An accepted Decrement Bid results in scheduled load at the specified location in the Day-ahead Energy Market.

      1.3.1C Dispatch Rate.

      "Dispatch Rate" shall mean the control signal, expressed in dollars per megawatt-hour, calculated and transmitted continuously and dynamically to direct the output level of all generation resources dispatched by the Office of the Interconnection in accordance with the Offer Data.

      1.3.2   Equivalent Load.

      "Equivalent Load" shall mean the sum of a Market Participant's net system requirements to serve its customer load in the PJM Control Area, if any, plus its net bilateral transactions.

      1.3.3   External Market Buyer.

      "External Market Buyer" shall mean a Market Buyer making purchases of energy from the PJM Interchange Energy Market for consumption by end-users outside the PJM Control Area, or for load in the Control Area that is not served by Network Transmission Service.   

      1.3.4   External Resource.

      "External Resource" shall mean a generation resource located outside the metered boundaries of the PJM Control Area.

      1.3.5   Fixed Transmission Right.

      "Fixed Transmission Right" shall mean a right to receive Transmission Congestion Credits as specified in Section 5.2.2 of this Schedule.

      1.3.6   Generating Market Buyer.

      "Generating Market Buyer" shall mean an Internal Market Buyer that is a Load Serving Entity that owns or has contractual rights to the output of generation resources capable of serving the Market Buyer's load in the PJM Control Area, or of selling energy or related services in the PJM Interchange Energy Market or elsewhere.

      1.3.7   Generator Forced Outage.

      "Generator Forced Outage" shall mean an immediate reduction in output or capacity or removal from service, in whole or in part, of a generating unit by reason of an Emergency or threatened Emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the facility, as specified in the relevant portions of the PJM Manuals. A reduction in output or removal from service of a generating unit in response to changes in market conditions shall not constitute a Generator Forced Outage.

      1.3.8   Generator Maintenance Outage.

      "Generator Maintenance Outage" shall mean the scheduled removal from service, in whole or in part, of a generating unit in order to perform necessary repairs on specific components of the facility, if removal of the facility meets the guidelines specified in the PJM Manuals.

      1.3.9   Generator Planned Outage.

      "Generator Planned Outage" shall mean the scheduled removal from service, in whole or in part, of a generating unit for inspection, maintenance or repair with the approval of the Office of the Interconnection in accordance with the PJM Manuals.

      1.3.9A Increment Bid.

      "Increment Bid" shall mean an offer to sell energy at a specified location in the Day-ahead Energy Market. An accepted Increment Bid results in scheduled generation at the specified location in the Day-ahead Energy Market.

      1.3.10   Internal Market Buyer.

      "Internal Market Buyer" shall mean a Market Buyer making purchases of energy from the PJM Interchange Energy Market for ultimate consumption by end-users inside the PJM Control Area that are served by Network Transmission Service.

      1.3.11   Inadvertent Interchange.

      "Inadvertent Interchange" shall mean the difference between net actual energy flow and net scheduled energy flow into or out of the PJM Control Area, as determined and allocated each hour by the Office of the Interconnection in accordance with the procedures set forth in the PJM Manuals to each Electric Distributor that reports to the Office of the Interconnection its hourly net energy flows from metered tie lines.

      1.3.12   Market Operations Center.

      "Market Operations Center" shall mean the equipment, facilities and personnel used by or on behalf of a Market Participant to communicate and coordinate with the Office of the Interconnection in connection with transactions in the PJM Interchange Energy Market or the operation of the PJM Control Area.

      1.3.13   Maximum Generation Emergency.

      "Maximum Generation Emergency" shall mean an Emergency declared by the Office of the Interconnection in which the Office of the Interconnection anticipates requesting one or more Capacity Resources to operate at its maximum net or gross electrical power output, subject to the equipment stress limits for such Capacity Resource, in order to manage, alleviate, or end the Emergency.

      1.3.14   Minimum Generation Emergency.

      "Minimum Generation Emergency" shall mean an Emergency declared by the Office of the Interconnection in which the Office of the Interconnection anticipates requesting one or more generating resources to operate at or below Normal Minimum Generation, in order to manage, alleviate, or end the Emergency.

      1.3.14A NERC Interchange Distribution Calculator.

      "NERC Interchange Distribution Calculator" shall mean the NERC mechanism that is in effect and being used to calculate the distribution of energy, over specific transmission interfaces, from energy transactions.

      1.3.15   Network Resource.

      "Network Resource" shall have the meaning specified in the PJM Tariff.

      1.3.16   Network Service User.

      "Network Service User" shall mean an entity using Network Transmission Service.

      1.3.17   Network Transmission Service.

      "Network Transmission Service" shall mean transmission service provided pursuant to the rates, terms and conditions set forth in Part III of the PJM Tariff, or transmission service comparable to such service that is provided to a Load Serving Entity that is also a Regional Transmission Owner as that term is defined in the PJM Tariff.

      1.3.18   Normal Maximum Generation.

      "Normal Maximum Generation" shall mean the highest output level of a generating resource under normal operating conditions.

      1.3.19   Normal Minimum Generation.

      "Normal Minimum Generation" shall mean the lowest output level of a generating resource under normal operating conditions.

      1.3.20   Offer Data.

      "Offer Data" shall mean the scheduling, operations planning, dispatch, new resource, and other data and information necessary to schedule and dispatch generation resources for the provision of energy and other services and the maintenance of the reliability and security of the transmission system in the PJM Control Area, and specified for submission to the PJM Interchange Energy Market for such purposes by the Office of the Interconnection.

      1.3.21   Office of the Interconnection Control Center.

      "Office of the Interconnection Control Center" shall mean the equipment, facilities and personnel used by the Office of the Interconnection to coordinate and direct the operation of the PJM Control Area and to administer the PJM Interchange Energy Market, including facilities and equipment used to communicate and coordinate with the Market Participants in connection with transactions in the PJM Interchange Energy Market or the operation of the PJM Control Area.

      1.3.22   Operating Day.

      "Operating Day" shall mean the daily 24 hour period beginning at midnight for which transactions on the PJM Interchange Energy Market are scheduled.

      1.3.23   Operating Margin.

      "Operating Margin" shall mean the incremental adjustments, measured in megawatts, required in PJM Control Area operations in order to accommodate, on a first contingency basis, an operating contingency in the PJM Control Area resulting from operations in an interconnected Control Area. Such adjustments may result in constraints causing Transmission Congestion Charges, or may result in Ancillary Services charges pursuant to the PJM Tariff.

      1.3.24   Operating Margin Customer.

      "Operating Margin Customer" shall mean a Control Area purchasing Operating Margin pursuant to an agreement between such other Control Area and the LLC.

      1.3.25   PJM Interchange.

      "PJM Interchange" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) for a Market Participant that is a Network Service User, the amount by which its hourly Equivalent Load exceeds, or is exceeded by, the sum of the hourly outputs of its operating generating resources; or (b) for a Market Participant that is not a Network Service User, the amount of its Spot Market Backup; or (c) the hourly scheduled deliveries of Spot Market Energy by a Market Seller from an External Resource; or (d) the hourly net metered output of any other Market Seller; or (e) the hourly scheduled deliveries of Spot Market Energy to an External Market Buyer; or (f) the hourly scheduled deliveries to an Internal Market Buyer that is not a Network Service User.

      1.3.26   PJM Interchange Export.

      "PJM Interchange Export" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) for a Market Participant that is a Network Service User, the amount by which its hourly Equivalent Load is exceeded by the sum of the hourly outputs of its operating generating resources; or (b) for a Market Participant that is not a Network Service User, the amount of its Spot Market Backup sales; or (c) the hourly scheduled deliveries of Spot Market Energy by a Market Seller from an External Resource; or (d) the hourly net metered output of any other Market Seller.

      1.3.27   PJM Interchange Import.

      "PJM Interchange Import" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) for a Market Participant that is a Network Service User, the amount by which its hourly Equivalent Load exceeds the sum of the hourly outputs of its operating generating resources; or (b) for a Market Participant that is not a Network Service User, the amount of its Spot Market Backup purchases; or (c) the hourly scheduled deliveries of Spot Market Energy to an External Market Buyer; or (d) the hourly scheduled deliveries to an Internal Market Buyer that is not a Network Service User.

      1.3.28   PJM Open Access Same-time Information System.

      "PJM Open Access Same-time Information System" shall mean the electronic communication system for the collection and dissemination of information about transmission services in the PJM Control Area, established and operated by the Office of the Interconnection in accordance with FERC standards and requirements.

      1.3.29   Point-to-Point Transmission Service.

      "Point-to-Point Transmission Service" shall mean transmission service provided pursuant to the rates, terms and conditions set forth in Part II of the PJM Tariff.

      1.3.30   Ramping Capability.

      "Ramping Capability" shall mean the sustained rate of change of generator output, in megawatts per minute.

      1.3.30A Real-time Prices.

      "Real-time Prices" shall mean the Locational Marginal Prices resulting from the Office of the Interconnection's dispatch of the PJM Interchange Energy Market in the Operating Day.

      1.3.30B Real-time Energy Market.

      "Real-time Energy Market" shall mean the purchase or sale of energy and payment of Transmission Congestion Charges for quantity deviations from the Day-ahead Energy Market in the Operating Day.

      1.3.31   Regulation.

      "Regulation" shall mean the capability of a specific generating unit with appropriate telecommunications, control and response capability to increase or decrease its output in response to a regulating control signal, in accordance with the specifications in the PJM Manuals.

      1.3.32   Spot Market Backup.

      "Spot Market Backup" shall mean the purchase of energy from, or the delivery of energy to, the PJM Interchange Energy Market in quantities sufficient to complete the delivery or receipt obligations of a bilateral contract that has been curtailed or interrupted for any reason.

      1.3.33   Spot Market Energy.

      "Spot Market Energy" shall mean energy bought or sold by Market Participants through the PJM Interchange Energy Market at Locational Marginal Prices determined as specified in Section 2 of this Schedule.

      1.3.33A State Estimator.

      "State Estimator" shall mean the computer model of power flows specified in Section 2.3 of this Schedule.

      1.3.33B Station Power.

      "Station Power" shall mean energy used for operating the electric equipment on the site of a generation facility located in the PJM Control Area or for the heating, lighting, air-conditioning and office equipment needs of buildings on the site of such a generation facility that are used in the operation, maintenance, or repair of the facility. Station Power does not include any energy used to power synchronous condensers, used for pumping at a pumped storage facility, or used in association with restoration or black start service.

1.3.34   Transmission Congestion Charge.      

      "Transmission Congestion Charge" shall mean a charge attributable to the increased cost of energy delivered at a given load bus when the transmission system serving that load bus is operating under constrained conditions, which shall be calculated and allocated as specified in Section 5.1 of this Schedule.

      1.3.35   Transmission Congestion Credit.

      "Transmission Congestion Credit" shall mean the allocated share of total Transmission Congestion Charges credited to each holder of Fixed Transmission Rights, calculated and allocated as specified in Section 5.2 of this Schedule.

      1.3.36   Transmission Customer.

      "Transmission Customer" shall mean an entity using Point-to-Point Transmission Service.

      1.3.37   Transmission Forced Outage.

      "Transmission Forced Outage" shall mean an immediate removal from service of a transmission facility by reason of an Emergency or threatened Emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the transmission facility, as specified in the relevant portions of the PJM Manuals. A removal from service of a transmission facility at the request of the Office of the Interconnection to improve transmission capability shall not constitute a Forced Transmission Outage.

      1.3.37A Transmission Loading Relief.

      "Transmission Loading Relief" shall mean NERC's procedures for preventing operating security limit violations, as implemented by PJM as the security coordinator responsible for maintaining transmission security for the PJM Control Area.

      1.3.37B Transmission Loading Relief Customer.

      "Transmission Loading Relief Customer" shall mean an entity that, in accordance with Section 1.10.6A, has elected to pay Transmission Congestion Charges during Transmission Loading Relief in order to continue energy schedules over contract paths outside the PJM Control Area that are increasing the cost of energy in the PJM Control Area.

      1.3.38   Transmission Planned Outage.

      "Transmission Planned Outage" shall mean any transmission outage scheduled in advance for a pre-determined duration and which meets the notification requirements for such outages specified in the PJM Manuals.

   1.4   Market Buyers.

      1.4.1   Qualification.

      (a)   To become a Market Buyer, an entity shall submit an application to the Office of the Interconnection, in such form as shall be established by the Office of the Interconnection.

      (b)   An applicant that is a Load Serving Entity or that will purchase on behalf of or for ultimate delivery to a Load Serving Entity shall establish to the satisfaction of the Office of the Interconnection that the end-users that will be served through energy and related services purchased in the PJM Interchange Energy Market, are located electrically within the PJM Control Area, or will be brought within the PJM Control Area prior to any purchases from the PJM Interchange Energy Market. Such applicant shall further demonstrate that:

      i)   The Load Serving Entity for the end users is obligated to meet the requirements of the Reliability Assurance Agreement; and

      ii)   The Load Serving Entity for the end users has arrangements in place for Network Transmission Service or Point-To-Point Transmission Service for all PJM Interchange Energy Market purchases.

      (c)   An applicant that is not a Load Serving Entity or purchasing on behalf of or for ultimate delivery to a Load Serving Entity shall demonstrate that:

      i)   The applicant has obtained or will obtain Network Transmission Service or Point-to-Point Transmission Service for all PJM Interchange Energy Market purchases; and

      ii)   The applicant's PJM Interchange Energy Market purchases will ultimately be delivered to a load in another Control Area that is recognized by NERC and that complies with NERC's standards for operating and planning reliable bulk electric systems.

      (d)   An applicant shall not be required to obtain transmission service for purchases from the PJM Interchange Energy Market to cover quantity deviations from its sales in the Day-ahead Energy Market.

      (e)   All applicants shall demonstrate that:

      i)   The applicant is capable of complying with all applicable metering, data storage and transmission, and other reliability, operation, planning and accounting standards and requirements for the operation of the PJM Control Area and the PJM Interchange Energy Market;

      ii)   The applicant meets the creditworthiness standards established by the Office of the Interconnection, or has provided a letter of credit or other form of security acceptable to the Office of the Interconnection; and

      iii)   The applicant has paid all applicable fees and reimbursed the Office of the Interconnection for all unusual or extraordinary costs of processing and evaluating its application to become a Market Buyer, and has agreed in its application to subject any disputes arising from its application to the PJM Dispute Resolution Procedures.

      (f)   The applicant shall become a Market Buyer upon a final favorable determination on its application by the Office of the Interconnection as specified below, and execution by the applicant of counterparts of this Agreement.

      1.4.2   Submission of Information.

      The applicant shall furnish all information reasonably requested by the Office of the Interconnection in order to determine the applicant's qualification to be a Market Buyer. The Office of the Interconnection may waive the submission of information relating to any of the foregoing criteria, to the extent the information in the Office of the Interconnection's possession is sufficient to evaluate the application against such criteria.

      1.4.3   Fees and Costs.

      The Office of the Interconnection shall require all applicants to become a Market Buyer to pay a uniform application fee, initially in the amount of $1,500, to defray the ordinary costs of processing such applications. The application fee shall be revised from time to time as the Office of the Interconnection shall determine to be necessary to recover its ordinary costs of processing applications. Any unusual or extraordinary costs incurred by the Office of the Interconnection in processing an application shall be reimbursed by the applicant.

      1.4.4   Office of the Interconnection Determination.

      Upon submission of the information specified above, and such other information as shall reasonably be requested by the Office of the Interconnection, the Office of the Interconnection shall undertake an evaluation and investigation to determine whether the applicant meets the criteria specified above. As soon as practicable, but in any event not later than 60 days after submission of the foregoing information, or such later date as may be necessary to satisfy the requirements of the Reliability Assurance Agreement, the Office of the Interconnection shall notify the applicant and the members of the Members Committee of its determination, along with a written summary of the basis for the determination. The Office of the Interconnection shall respond promptly to any reasonable and timely request by a Member for additional information regarding the basis for the Office of the Interconnection's determination, and shall take such action as it shall deem appropriate in response to any request for reconsideration or other action submitted to the Office of the Interconnection not later than 30 days from the initial notification to the Members Committee.

      1.4.5   Existing Participants.

      Any entity that was qualified to participate as a Market Buyer in the PJM Interchange Energy Market under the Operating Agreement of PJM Interconnection L.L.C. in effect immediately prior to the Effective Date shall continue to be qualified to participate as a Market Buyer in the PJM Interchange Energy Market under this Agreement.

      1.4.6   Withdrawal.

      (a)   An Internal Market Buyer that is a Load Serving Entity may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal not earlier than the effective date of (i) its withdrawal from the Reliability Assurance Agreement, or (ii) the assumption of its obligations under the Reliability Assurance Agreement by an agent that is a Market Buyer.

      (b)   An External Market Buyer or an Internal Market Buyer that is not a Load Serving Entity may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal at least one day after the date of the notice.

      (c)   Withdrawal from this Agreement shall not relieve a Market Buyer of any obligation to pay for electric energy or related services purchased from the PJM Interchange Energy Market prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions or events occurring prior to such withdrawal; and provided, further, that withdrawal from this Agreement shall not relieve any Market Buyer of any obligations it may have under, or constitute withdrawal from, any other Related PJM Agreement.

      (d)   A Market Buyer that has withdrawn from this Agreement may reapply to become a Market Buyer in accordance with the provisions of this Section 1.4, provided it is not in default of any obligation incurred under this Agreement.

   1.5   Market Sellers.

      1.5.1   Qualification.

      A Member that demonstrates to the Office of the Interconnection that the Member meets the standards for the issuance of an order mandating the provision of transmission service under section 211 of the Federal Power Act, as amended by the Energy Policy Act of 1992, may become a Market Seller upon execution of this Agreement and submission to the Office of the Interconnection of the applicable Offer Data in accordance with the provisions of this Schedule. All Members that are Market Buyers shall become Market Sellers upon submission to the Office of the Interconnection of the applicable Offer Data in accordance with the provisions of this Schedule.

      1.5.2   Withdrawal.

      (a)   A Market Seller may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal at least one day after the date of the notice; provided, however, that withdrawal shall not relieve a Market Seller of any obligation to deliver electric energy or related services to the PJM Interchange Energy Market pursuant to an offer made prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions, or events occurring prior to such withdrawal; and provided, further, that withdrawal shall not relieve any entity that is a Market Seller and is also a Market Buyer of any obligations it may have as a Market Buyer under, or constitute withdrawal as a Market Buyer from, this Agreement or any other Related PJM Agreement.

      (b)   A Market Seller that has withdrawn from this Agreement may reapply to become a Market Seller at any time, provided it is not in default with respect to any obligation incurred under this Agreement.

   1.6   Office of the Interconnection.

      1.6.1   Operation of the PJM Interchange Energy Market.

      The Office of the Interconnection shall operate the PJM Interchange Energy Market in accordance with this Agreement.

      1.6.2   Scope of Services.

      The Office of the Interconnection shall, on behalf of the Market Participants, perform the services pertaining to the PJM Interchange Energy Market specified in this Agreement, including but not limited to the following:

      i)   Administer the PJM Interchange Energy Market as part of the PJM Control Area, including scheduling and dispatching of generation resources, accounting for transactions, rendering bills to the Market Participants, receiving payments from and disbursing payments to the Market Participants, maintaining appropriate records, and monitoring the compliance of Market Participants with the provisions of this Agreement, all in accordance with applicable provisions of the Office of the Interconnection Agreement, and the Schedules to this Agreement;

      ii)   Review and evaluate the qualification of entities to be Market Buyers or Market Sellers under applicable provisions of this Agreement;

      iii)   Coordinate, in accordance with applicable provisions of this Agreement, the Reliability Assurance Agreement, and the Transmission Owners Agreement, maintenance schedules for generation and transmission resources operated as part of the PJM Control Area;

      iv)   Provide or coordinate the provision of ancillary services necessary for the operation of PJM Control Area or the PJM Interchange Energy Market;

      v)   Determine and declare that an Emergency is expected to exist, exists, or has ceased to exist, in all or any part of the PJM Control Area, or in another Control Area interconnected directly or indirectly with the PJM Control Area, and serve as a primary point of contact for interested state or federal agencies;

      vi)   Enter into (a) agreements for the transfer of energy in conditions constituting an Emergency in the PJM Control Area or in a Control Area interconnected with it, and the mutual provision of other support in such Emergency conditions with other Control Areas interconnected with the PJM Control Area, and (b) purchases of Emergency energy offered by Members from resources that are not Capacity Resources in conditions constituting an Emergency in the PJM Control Area;

      vii)   Coordinate the curtailment or shedding of load, or other measures appropriate to alleviate an Emergency, in order to preserve reliability in accordance with NERC and MAAC principles, guidelines and standards, and to ensure the operation of the PJM Control Area in accordance with Good Utility Practice and the this Agreement;

      viii)   Protect confidential information as specified in this Agreement; and

      ix)   Send a representative to meetings of the Members Committee or other Committees, subcommittees, or working groups specified in this Agreement or formed by the Members Committee when requested to do so by the chair or other head of such committee or other group.

      1.6.3   Records and Reports.

      The Office of the Interconnection shall prepare and maintain such records and prepare such reports, including, but not limited to quarterly budget reports, as are required to document the performance of its obligations to the Market Participants hereunder in a form adopted by the Office of the Interconnection upon consideration of the advice and recommendations of the Members Committee. The Office of the Interconnection shall also produce special reports reasonably requested by the Members Committee and consistent with FERC's standards of conduct; provided, however, the Market Participants shall reimburse the Office of the Interconnection for the costs of producing any such report. Notwithstanding the foregoing, the Office of the Interconnection shall not be required to disclose confidential or commercially sensitive information in any such report.

      1.6.4   PJM Manuals.

      The Office of the Interconnection shall prepare, maintain and update the PJM Manuals consistent with this Agreement. The PJM Manuals shall be available for inspection by the Market Participants, regulatory authorities with jurisdiction over the LLC or any Member, and the public.

   1.7   General.

      1.7.1   Market Sellers.

      Only Market Sellers shall be eligible to submit offers to the Office of the Interconnection for the sale of electric energy or related services in the PJM Interchange Energy Market. Market Sellers shall comply with the prices, terms, and operating characteristics of all Offer Data submitted to and accepted by the PJM Interchange Energy Market.

      1.7.2   Market Buyers.

      Only Market Buyers shall be eligible to purchase energy or related services in the PJM Interchange Energy Market. Market Buyers shall comply with all requirements for making purchases from the PJM Interchange Energy Market.

      1.7.3   Agents.

      A Market Participant may participate in the PJM Interchange Energy Market through an agent, provided that the Market Participant informs the Office of the Interconnection in advance in writing of the appointment of such agent. A Market Participant participating in the PJM Interchange Energy Market through an agent shall be bound by all of the acts or representations of such agent with respect to transactions in the PJM Interchange Energy Market, and shall ensure that any such agent complies with the requirements of this Agreement.

      1.7.4   General Obligations of the Market Participants.

      (a)   In performing its obligations to the Office of the Interconnection hereunder, each Market Participant shall at all times (i) follow Good Utility Practice, (ii) comply with all applicable laws and regulations, (iii) comply with the applicable principles, guidelines, standards and requirements of FERC, NERC and MAAC, (iv) comply with the procedures established for operation of the PJM Interchange Energy Market and PJM Control Area and (v) cooperate with the Office of the Interconnection as necessary for the operation of the PJM Control Area in a safe, reliable manner consistent with Good Utility Practice.

      (b)   Market Participants shall undertake all operations in or affecting the PJM Interchange Energy Market and the PJM Control Area, including but not limited to compliance with all Emergency procedures, in accordance with the power and authority of the Office of the Interconnection with respect to the operation of the PJM Interchange Energy Market and the PJM Control Area as established in this Agreement, and as specified in the Schedules to this Agreement and the PJM Manuals. Failure to comply with the foregoing operational requirements shall subject a Market Participant to such reasonable charges or other remedies or sanctions for non-compliance as may be established by the PJM Board, including legal or regulatory proceedings as authorized by the PJM Board to enforce the obligations of this Agreement.

      (c)   The Office of the Interconnection may establish such committees with a representative of each Market Participant, and the Market Participants agree to provide appropriately qualified personnel for such committees, as may be necessary for the Office of the Interconnection to perform its obligations hereunder.

      (d)   All Market Participants shall provide to the Office of the Interconnection the scheduling and other information specified in the Schedules to this Agreement, and such other information as the Office of the Interconnection may reasonably require for the reliable and efficient operation of the PJM Control Area and the PJM Interchange Energy Market, and for compliance with applicable regulatory requirements for posting market and related information. Such information shall be provided as much in advance as possible, but in no event later than the deadlines established by the Schedules to this Agreement, or by the Office of the Interconnection in conformance with such Schedules. Such information shall include, but not be limited to, maintenance and other anticipated outages of generation or transmission facilities, scheduling and related information on bilateral transactions and self-scheduled resources, and implementation of active load management, interruption of load, and other load reduction measures. The Office of the Interconnection shall abide by appropriate requirements for the non-disclosure and protection of any confidential or proprietary information given to the Office of the Interconnection by a Market Participant. Each Market Participant shall maintain or cause to be maintained compatible information and communications systems, as specified by the Office of the Interconnection, required to transmit scheduling, dispatch, or other time-sensitive information to the Office of the Interconnection in a timely manner.

      (e)   Each Market Participant shall install and operate, or shall otherwise arrange for, metering and related equipment capable of recording and transmitting all voice and data communications reasonably necessary for the Office of the Interconnection to perform the services specified in this Agreement. A Market Participant that elects to be separately billed for its PJM Interchange shall, to the extent necessary, be individually metered in accordance with Section 14 of this Agreement, or shall agree upon an allocation of PJM Interchange between it and the Market Participant through whose meters the unmetered Market Participant's PJM Interchange is delivered. The Office of the Interconnection shall be notified of the allocation by the foregoing Market Participants.

      (f)   Each Market Participant shall operate, or shall cause to be operated, any generating resources owned or controlled by such Market Participant that are within the PJM Control Area or otherwise supplying energy to or through the PJM Control Area in a manner that is consistent with the standards, requirements or directions of the Office of the Interconnection and that will permit the Office of the Interconnection to perform its obligations under this Agreement; provided, however, no Market Participant shall be required to take any action that is inconsistent with Good Utility Practice or applicable law.

      (g)   Each Market Participant shall follow the directions of the Office of the Interconnection to take actions to prevent, manage, alleviate or end an Emergency in a manner consistent with this Agreement and the procedures of the PJM Control Area as specified in the PJM Manuals.

      (h)   Each Market Participant shall obtain and maintain all permits, licenses or approvals required for the Market Participant to participate in the PJM Interchange Energy Market in the manner contemplated by this Agreement.

      1.7.5   Market Operations Center.

      Each Market Participant shall maintain a Market Operations Center, or shall make appropriate arrangements for the performance of such services on its behalf. A Market Operations Center shall meet the performance, equipment, communications, staffing and training standards and requirements specified in this Agreement for the scheduling and completion of transactions in the PJM Interchange Energy Market and the maintenance of the reliable operation of the PJM Control Area, and shall be sufficient to enable (i) a Market Seller to perform all terms and conditions of its offers to the PJM Interchange Energy Market, and (ii) a Market Buyer to conform to the requirements for purchasing from the PJM Interchange Energy Market.

      1.7.6   Scheduling and Dispatching.

      (a)   The Office of the Interconnection shall schedule and dispatch in real-time generation economically on the basis of least-cost, security-constrained dispatch and the prices and operating characteristics offered by Market Sellers, continuing until sufficient generation is dispatched to serve the PJM Interchange Energy Market energy purchase requirements under normal system conditions of the Market Buyers, as well as the requirements of the PJM Control Area for ancillary services provided by such generation, in accordance with this Agreement. Scheduling and dispatch shall be conducted in accordance with this Agreement.

      (b)   The Office of the Interconnection shall undertake to identify any conflict or incompatibility between the scheduling or other deadlines or specifications applicable to the PJM Interchange Energy Market, and any relevant procedures of another Control Area, or any tariff (including the PJM Tariff). Upon determining that any such conflict or incompatibility exists, the Office of the Interconnection shall propose tariff or procedural changes, and undertake such other efforts as may be appropriate, to resolve any such conflict or incompatibility.

      1.7.7   Pricing.

      The price paid for energy bought and sold in the PJM Interchange Energy Market will reflect the hourly Locational Marginal Price at each load and generation bus, determined by the Office of the Interconnection in accordance with this Agreement. Transmission Congestion Charges, which shall be determined by differences in Locational Marginal Prices in an hour caused by transmission constraints, shall be calculated and collected, and the revenues therefrom shall be disbursed, by the Office of the Interconnection in accordance with this Schedule.

      1.7.8   Generating Market Buyer Resources.

      A Generating Market Buyer may elect to self-schedule its generation resources up to that Generating Market Buyer's Equivalent Load, in accordance with and subject to the procedures specified in this Schedule, and the accounting and billing requirements specified in Section 3 to this Schedule.

      1.7.9   Delivery to an External Market Buyer.

      A purchase of Spot Market Energy by an External Market Buyer shall be delivered to a bus or busses at the border of the PJM Control Area specified by the Office of the Interconnection, or to load in the Control Area that is not served by Network Transmission Service, using Point-to-Point Transmission Service paid for by the External Market Buyer. Further delivery of such energy shall be the responsibility of the External Market Buyer.

      1.7.10   Other Transactions.

      (a)   Market Participants may enter into bilateral contracts for the purchase or sale of electric energy to or from each other or any other entity, subject to the obligations of Market Participants to make Capacity Resources available for dispatch by the Office of the Interconnection. Bilateral arrangements that contemplate the physical transfer of energy to or from a Market Participant shall be reported to and coordinated with the Office of the Interconnection in accordance with this Schedule.

      (b)   Market Participants shall have Spot Market Backup with respect to all bilateral transactions that are not dynamically scheduled pursuant to Section 1.12 and that are curtailed or interrupted for any reason (except for curtailments or interruptions through active load management for load located within the PJM Control Area).

      (c)   To the extent the Office of the Interconnection dispatches a Generating Market Buyer's generation resources, such Generating Market Buyer may elect to net the output of such resources against its hourly Equivalent Load. Such a Generating Market Buyer shall be deemed a buyer from the PJM Interchange Energy Market to the extent of its PJM Interchange Imports, and shall be deemed a seller to the PJM Interchange Energy Market to the extent of its PJM Interchange Exports.

      (d)   A Market Seller may self-supply Station Power for its generation facility in accordance with the following provisions:

(i)   A Market Seller may self-supply Station Power for its generation facility during any month (1) when the net output of such facility is positive, or (2) when the net output of such facility is negative and the Market Seller during the same month has available at other of its generation facilities positive net output in an amount at least sufficient to offset fully such negative net output. For purposes of this subsection (d), "net output" of a generation facility during any month means the facility's gross energy output, less the Station Power requirements of such facility, during that month. The determination of a generation facility's or a Market Seller's monthly net output under this subsection (d) will apply only to determine whether the Market Seller self-supplied Station Power during the month and will not affect the price of energy sold or consumed by the Market Seller at any bus during any hour during the month. For each hour when a Market Seller has positive net output and delivers energy into the Transmission System, it will be paid the locational marginal price ("LMP") at its bus for that hour for all of the energy delivered. Conversely, for each hour when a Market Seller has negative net output and has received Station Power from the Transmission System, it will pay the LMP at its bus for that hour for all of the energy consumed.

(ii)   Transmission Provider will determine the extent to which each affected Market Seller during the month self-supplied its Station Power requirements or obtained Station Power from third-party providers (including affiliates) and will incorporate that determination in its accounting and billing for the month. In the event that a Market Seller self-supplies Station Power during any month in the manner described in clause (1) of paragraph (d)(i) above, Market Seller will not use, and will not incur any charges for, transmission service. In the event, and to the extent, that a Market Seller self-supplies Station Power during any month in the manner described in clause (2) of paragraph (d)(i) above (hereafter referred to as "remote self-supply of Station Power"), Market Seller shall use and pay for transmission service for the transmission of energy in an

amount equal to the facility's negative net output from Market Seller's generation facility(ies) having positive net output. Unless the Market Seller makes other arrangements with Transmission Provider in advance, such transmission service shall be provided under Part II of the PJM Tariff and shall be charged the hourly rate under Schedule 8 of the PJM Tariff for non-firm point-to-point transmission service with an election to pay congestion charges, provided, however, that no reservation shall be necessary for such transmission service and the terms and charges under Schedules 1, 1A, 2 through 6, 9 and 10 of the PJM Tariff shall not apply to such service. The amount of energy that a Market Seller transmits in conjunction with remote self-supply of Station Power will not be affected by any other sales, purchases, or transmission of capacity or energy by or for such Market Seller under any other provisions of the PJM Tariff.

(iii)   A Market Seller may self-supply Station Power from its generation facilities located outside the PJM Control Area during any month only if such generation facilities in fact run during such month and Market Seller separately has reserved transmission service and scheduled delivery of the energy from such resource in advance into the PJM Control Area.

      1.7.11   Emergencies.

      The Office of the Interconnection, with the assistance of the Members' dispatchers as it may request, shall be responsible for monitoring the operation of the PJM Control Area, for declaring the existence of an Emergency, and for directing the operations of Market Participants as necessary to manage, alleviate or end an Emergency. The standards, policies and procedures of the Office of the Interconnection for declaring the existence of an Emergency, including but not limited to a Minimum Generation Emergency, and for managing, alleviating or ending an Emergency, shall apply to all Members on a non-discriminatory basis. Actions by the Office of the Interconnection and the Market Participants shall be carried out in accordance with this Agreement, the NERC Operating Policies, MAAC reliability principles and standards, Good Utility Practice, and the PJM Manuals. A declaration that an Emergency exists or is likely to exist by the Office of the Interconnection shall be binding on all Market Participants until the Office of the Interconnection announces that the actual or threatened Emergency no longer exists. Consistent with existing contracts, all Market Participants shall comply with all directions from the Office of the Interconnection for the purpose of managing, alleviating or ending an Emergency. The Market Participants shall authorize the Office of the Interconnection to purchase or sell energy on their behalf to meet an Emergency, and otherwise to implement agreements with other Control Areas interconnected with the PJM Control Area for the mutual provision of service to meet an Emergency, in accordance with this Agreement.

      1.7.12   Fees and Charges.

      Each Market Participant shall pay all fees and charges of the Office of the Interconnection for operation of the PJM Interchange Energy Market as determined by and allocated to the Market Participant by the Office of the Interconnection in accordance with Schedule 3.

      1.7.13   Relationship to PJM Control Area.

      The PJM Interchange Energy Market operates within and subject to the requirements for the operation of the PJM Control Area.

      1.7.14   PJM Manuals.

      The Office of the Interconnection shall be responsible for maintaining, updating, and promulgating the PJM Manuals as they relate to the operation of the PJM Interchange Energy Market. The PJM Manuals, as they relate to the operation of the PJM Interchange Energy Market, shall conform and comply with this Agreement, NERC operating policies, and MAAC reliability principles, guidelines and standards, and shall be designed to facilitate administration of an efficient energy market within industry reliability standards and the physical capabilities of the PJM Control Area.

      1.7.15   Corrective Action.

      Consistent with Good Utility Practice, the Office of the Interconnection shall be authorized to direct or coordinate corrective action, whether or not specified in the PJM Manuals, as necessary to alleviate unusual conditions that threaten the integrity or reliability of the PJM Control Area or the regional power system.

      1.7.16   Recording.

      Subject to the requirements of applicable State or federal law, all voice communications with the Office of the Interconnection Control Center may be recorded by the Office of the Interconnection and any Market Participant communicating with the Office of the Interconnection Control Center, and each Market Participant hereby consents to such recording.

      1.7.17   Operating Reserves.

      (a)   The following procedures shall apply to any generation unit subject to the dispatch of the Office of the Interconnection for which construction commenced before July 9, 1996.

      (b)   The Office of the Interconnection shall schedule to the Operating Reserve and load-following objectives of the PJM Control Area and the PJM Interchange Energy Market in scheduling resources pursuant to this Schedule. A table of Operating Reserve objectives is calculated seasonally for various peak load levels and eight weekly periods and is published in the PJM Manuals. Reserve levels are probabilistically determined based on the season's historical load forecasting error and expected generation mix (including typical Planned and Forced/Unplanned Outages). Generating Units with quick start capability, as specified in the PJM Manuals, that are dispatched to maintain reliability by providing or maintaining spinning reserves or providing load following capability shall receive energy payments at the levels specified below. The energy payments specified below shall be considered the offered price for Spot Market Energy for purposes of Section 3.2.3(b) of this Schedule. The price offered or paid for the energy of units so dispatched shall not be considered in determining Locational Marginal Prices.

      (c)   Payments for energy produced by a quick start generating unit dispatched as specified above shall be at the higher of the applicable Locational Marginal Price or one of the amounts specified below, as specified in advance by the Market Seller for the affected unit:

(i)   The weighted average Locational Marginal Price at the generation bus at which energy from the capped resource was delivered during a specified number of hours during which the resource was dispatched for energy in economic merit order, the specified number of hours to be determined by the Office of the Interconnection and to be a number of hours sufficient to result in a price cap that reflects reasonably contemporaneous competitive market conditions for that unit;

(ii)   The incremental operating cost of the generation resource as determined in accordance with Schedule 2 of this Agreement and the PJM Manuals, plus 10% of such costs; or

(iii)   An amount determined by agreement between the Office of the Interconnection and the Market Seller.

      1.7.18   Regulation.

      (a)   Regulation shall be supplied from generators located within the metered electrical boundaries of the PJM Control Area. Generating Market Buyers, and Market Sellers offering Regulation, shall comply with applicable standards and requirements for Regulation capability and dispatch specified in the PJM Manuals.

      (b)   The Office of the Interconnection shall obtain and maintain an amount of Regulation equal to the PJM Control Area Regulation objective as specified in the PJM Manuals.

      (c)   The Regulation range of a unit shall be at least twice the amount of Regulation assigned.

      (d)   A unit capable of automatic energy dispatch that is also providing Regulation shall have its energy dispatch range reduced by twice the amount of the Regulation provided. The amount of Regulation provided by a unit shall serve to redefine the Normal Minimum Generation and Normal Maximum Generation energy limits of that unit, in that the amount of Regulation shall be added to the unit's Normal Minimum Generation energy limit, and subtracted from its Normal Maximum Generation energy limit.

      (e)   Qualified Regulation must satisfy the verification tests described in the PJM Manuals.

      1.7.19   Ramping.

      A generator dispatched by the Office of the Interconnection pursuant to a control signal appropriate to increase or decrease the generator's megawatt output level shall be able to change output at the ramping rate specified in the Offer Data submitted to the Office of the Interconnection for that generator.

      1.7.20   Communication and Operating Requirements.

      (a)   Market Participants. Each Market Participant shall have, or shall arrange to have, its transactions in the PJM Interchange Energy Market subject to control by a Market Operations Center, with staffing and communications systems capable of real-time communication with the Office of the Interconnection during normal and Emergency conditions and of control of the Market Participant's relevant load or facilities sufficient to meet the requirements of the Market Participant's transactions with the PJM Interchange Energy Market, including but not limited to the following requirements as applicable.

      (b)   Market Sellers selling from resources within the PJM Control Area shall: report to the Office of the Interconnection sources of energy available for operation; supply to the Office of the Interconnection all applicable Offer Data; report to the Office of the Interconnection units that are self-scheduled; report to the Office of the Interconnection bilateral sales transactions to buyers not within the PJM Control Area; confirm to the Office of the Interconnection bilateral sales to Market Buyers within the PJM Control Area; respond to the Office of the Interconnection's directives to start, shutdown or change output levels of generation units, or change scheduled voltages or reactive output levels; continuously maintain all Offer Data concurrent with on-line operating information; and ensure that, where so equipped, generating equipment is operated with control equipment functioning as specified in the PJM Manuals.

      (c)   Market Sellers selling from resources outside the PJM Control Area shall: provide to the Office of the Interconnection all applicable Offer Data, including offers specifying amounts of energy available, hours of availability and prices of energy and other services; respond to Office of the Interconnection directives to schedule delivery or change delivery schedules; and communicate delivery schedules to the Market Seller's Control Area.

      (d)   Market Participants that are Load Serving Entities or purchasing on behalf of Load Serving Entities shall: respond to Office of the Interconnection directives for load management steps; report to the Office of the Interconnection Capacity Resources to satisfy capacity obligations that are available for pool operation; report to the Office of the Interconnection all bilateral purchase transactions; respond to other Office of the Interconnection directives such as those required during Emergency operation.

      (e)   Market Participants that are not Load Serving Entities or purchasing on behalf of Load Serving Entities shall: provide to the Office of the Interconnection requests to purchase specified amounts of energy for each hour of the Operating Day during which it intends to purchase from the PJM Interchange Energy Market, along with Dispatch Rate levels above which it does not desire to purchase; respond to other Office of the Interconnection directives such as those required during Emergency operation.

   1.8   Selection, Scheduling and Dispatch Procedure Adjustment Process.

      1.8.1   PJM Dispute Resolution Agreement.

      Subject to the condition specified below, any Member adversely affected by a decision of the Office of the Interconnection with respect to the operation of the PJM Interchange Energy Market, including the qualification of an entity to participate in that market as a buyer or seller, may seek such relief as may be appropriate under the PJM Dispute Resolution Procedures on the grounds that such decision does not have an adequate basis in fact or does not conform to the requirements of this Agreement.

      1.8.2   Market or Control Area Hourly Operational Disputes.

      (a)   Market Participants shall comply with all determinations of the Office of the Interconnection on the selection, scheduling or dispatch of resources in the PJM Interchange Energy Market, or to meet the operational requirements of the PJM Control Area. Complaints arising from or relating to such determinations shall be brought to the attention of the Office of the Interconnection not later than the end of the fifth business day after the end of the Operating Day to which the selection or scheduling relates, or in which the scheduling or dispatch took place, and shall include, if practicable, a proposed resolution of the complaint. Upon receiving notification of the dispute, the Office of the Interconnection and the Market Participant raising the dispute shall exert their best efforts to obtain and retain all data and other information relating to the matter in dispute, and to notify other Market Participants that are likely to be affected by the proposed resolution. Subject to confidentiality or other non-disclosure requirements, representatives of the Office of the Interconnection, the Market Participant raising the dispute, and other interested Market Participants, shall meet within three business days of the foregoing notification, or at such other or further times as the Office of the Interconnection and the Market Participants may agree, to review the relevant facts, and to seek agreement on a resolution of the dispute.

      (b)   If the Office of the Interconnection determines that the matter in dispute discloses a defect in operating policies, practices or procedures subject to the discretion of the Office of the Interconnection, the Office of the Interconnection shall implement such changes as it deems appropriate and shall so notify the Members Committee. Alternatively, the Office of the Interconnection may notify the Members Committee of a proposed change and solicit the comments or other input of the Members.

      (c)   If either the Office of the Interconnection, the Market Participant raising the dispute, or another affected Market Participant believes that the matter in dispute has not been adequately resolved, or discloses a need for changes in standards or policies established in or pursuant to the Operating Agreement, any of the foregoing parties may make a written request for review of the matter by the Members Committee, and shall include with the request the forwarding party's recommendation and such data or information (subject to confidentiality or other non-disclosure requirements) as would enable the Members Committee to assess the matter and the recommendation. The Members Committee shall take such action on the recommendation as it shall deem appropriate.

      (d)   Subject to the right of a Market Participant to obtain correction of accounting or billing errors, the LLC or a Market Participant shall not be entitled to actual, compensatory, consequential or punitive damages, opportunity costs, or other form of reimbursement from the LLC or any other Market Participant for any loss, liability or claim, including any claim for lost profits, incurred as a result of a mistake, error or other fault by the Office of the Interconnection in the selection, scheduling or dispatch of resources.

   1.9   Prescheduling.

   The following procedures and principles shall govern the prescheduling activities necessary to plan for the reliable operation of the PJM Control Area and for the efficient operation of the PJM Interchange Energy Market.

      1.9.1   Outage Scheduling.

      The Office of the Interconnection shall be responsible for coordinating and approving requests for outages of generation and transmission facilities as necessary for the reliable operation of the PJM Control Area, in accordance with the PJM Manuals. The Office of the Interconnection shall maintain records of outages and outage requests of these facilities.

      1.9.2    Planned Outages.

      (a)   A Generator Planned Outage shall be included in Generator Planned Outage schedules established prior to the scheduled start date for the outage, in accordance with standards and procedures specified in the PJM Manuals.

      (b)   The Office of the Interconnection shall conduct Generator Planned Outage scheduling for Capacity Resources in accordance with the Reliability Assurance Agreement and the PJM Manuals and in consultation with the Members owning or controlling the output of Capacity Resources. A Market Participant shall not be expected to submit offers for the sale of energy or other services, or to satisfy delivery obligations, from all or part of a generation resource undergoing an approved Generator Planned Outage. If the Office of the Interconnection determines that approval of a Generator Planned Outage would significantly affect the reliable operation of the PJM Control Area, the Office of the Interconnection may withhold approval or withdraw a prior approval. Approval for a Generator Planned Outage of a Capacity Resource shall be withheld or withdrawn only as necessary to ensure the adequacy of reserves or the reliability of the PJM Control Area in connection with anticipated implementation or avoidance of Emergency procedures. If the Office of the Interconnection withholds or withdraws approval, it shall coordinate with the Market Participant owning or controlling the resource to reschedule the Generator Planned Outage of the Capacity Resource at the earliest practical time. The Office of the Interconnection shall if possible propose alternative schedules with the intent of minimizing the economic impact on the Market Participant of a Generator Planned Outage.

      (c)   The Office of the Interconnection shall conduct Planned Transmission Outage scheduling in accordance with procedures specified in the Transmission Owners Agreement and the PJM Manuals. If the Office of the Interconnection determines that transmission maintenance schedules proposed by one or more Members would significantly affect the efficient and reliable operation of the PJM Control Area, the Office of the Interconnection may propose alternative schedules, but such alternative shall minimize the economic impact on the Member or Members whose maintenance schedules the Office of the Interconnection proposes to modify.

      The Office of the Interconnection shall coordinate resolution of outage or other planning conflicts that may give rise to unreliable system conditions. The Members shall comply with all maintenance schedules established by the Office of the Interconnection.

      1.9.3   Generator Maintenance Outages.

      A Market Participant may request approval for a Generator Maintenance Outage of any Capacity Resource from the Office of the Interconnection in accordance with the timetable and other procedures specified in the PJM Manuals. The Office of the Interconnection shall approve requests for Generator Maintenance Outages for a Capacity Resource unless the outage would threaten the adequacy of reserves in, or the reliability of, the PJM Control Area. A Market Participant shall not be expected to submit offers for the sale of energy or other services, or to satisfy delivery obligations, from a generation resource undergoing an approved full or partial Generator Maintenance Outage.

      1.9.4   Forced Outages.

      (a)   Each Market Seller that owns or controls a pool-scheduled resource, or Capacity Resource whether or not pool-scheduled, shall: (i) advise the Office of the Interconnection of a Generator Forced Outage suffered or anticipated to be suffered by any such resource as promptly as possible; (ii) provide the Office of the Interconnection with the expected date and time that the resource will be made available; and (iii) make a record of the events and circumstances giving rise to the Generator Forced Outage. A Market Seller shall not be expected to submit offers for the sale of energy or other services, or satisfy delivery obligations, from a generation resource undergoing a Generator Forced Outage. A Capacity Resource that does not deliver all or part of its scheduled energy shall be deemed to have experienced a Generator Forced Outage with respect to such undelivered energy, in accordance with standards and procedures for full and partial Generator Forced Outages specified in the Reliability Assurance Agreement and the PJM Manuals.

      (b)   The Office of the Interconnection shall receive notification of Forced Transmission Outages, and information on the return to service, of Transmission Facilities in the PJM Control Area in accordance with standards and procedures specified in the Transmission Owners Agreement and the PJM Manuals.

      1.9.5   Market Participant Responsibilities.

      Each Market Participant making a bilateral sale covering a period greater than the following Operating Day from a generating resource located within the PJM Control Area for delivery outside the PJM Control Area shall furnish to the Office of the Interconnection, in the form and manner specified in the PJM Manuals, information regarding the source of the energy, the load sink, the energy schedule, and the amount of energy being delivered.

      1.9.6   Internal Market Buyer Responsibilities.

      Each Internal Market Buyer making a bilateral purchase covering a period greater than the following Operating Day shall furnish to the Office of the Interconnection, in the form an manner specified in the PJM Manuals, information regarding the source of the energy, the load sink, the energy schedule, and the amount of energy being delivered. Each Internal Market Buyer shall provide the Office of the Interconnection with details of any load management agreements with customers that allow the Office of the Interconnection to reduce load under specified circumstances.

      1.9.7   Market Seller Responsibilities.

      (a)   Not less than 30 days before a Market Seller's initial offer to sell energy from a given generation resource on the PJM Interchange Energy Market, the Market Seller shall furnish to the Office of the Interconnection the information specified in the Offer Data for new generation resources.

      (b)   Market Sellers authorized and to request market-based start-up fees may choose to submit either market-based or cost-based start-up fees.

(i)   If a Market Seller chooses to submit market-based start-up and no-load fees, such Market Seller, in its Offer Data, shall submit a specification of such fees to the Office of the Interconnection for each generating unit as to which the Market Seller intends to request such fees. Any such specification shall be submitted on or before March 31 for the period April 1 through September 30, and on or before September 30 for the period October 1 through March 31, and shall remain in effect without change throughout each such period for which a specification was submitted. The Office of the Interconnection shall reject any request for start-up and no-load fees in a Market Seller's Offer Data that does not conform to the Market Seller's specification on file with the Office of the Interconnection.

(ii)   If a Market Seller chooses to submit cost-based start-up fees, the start-up fee may be changed daily.

      1.9.8   Office of the Interconnection Responsibilities.

      (a)   The Office of the Interconnection shall perform seasonal operating studies to assess the forecasted adequacy of generating reserves and of the transmission system, in accordance with the procedures specified in the PJM Manuals.

      (b)   The Office of the Interconnection shall maintain and update tables setting forth Operating Reserve and other reserve objectives as specified in the PJM Manuals.

      (c)   The Office of the Interconnection shall receive and process requests for firm and non-firm transmission service in accordance with procedures specified in the PJM Tariff.

      (d)   The Office of the Interconnection shall maintain such data and information relating to generation and transmission facilities in the PJM Control Area as may be necessary or appropriate to conduct the scheduling and dispatch of the PJM Interchange Energy Market and PJM Control Area.

      (e)   The Office of the Interconnection shall coordinate with other interconnected Control Area as necessary to manage, alleviate or end an Emergency.

   1.10   Scheduling.

      1.10.1   General.

      (a)   The Office of the Interconnection shall administer scheduling processes to implement a Day-ahead Energy Market and a Real-time Energy market.

      (b)   The Day-ahead Energy Market shall enable Market Participants to purchase and sell energy through the PJM Interchange Energy Market at Day-ahead Prices and enable transmission customers to reserve transmission service with Transmission Congestion Charges based on locational differences in Day-ahead Prices. Market Participants whose purchases and sales, and transmission customers whose transmission uses are scheduled in the Day-ahead Energy Market, shall be obligated to purchase or sell energy, or pay Transmission Congestion Charges, at the applicable Day-ahead Prices for the amounts scheduled.

      (c)   In the Real-time Energy Market, Market Participants that deviate from the amounts of energy purchases or sales, or transmission customers that deviate from the transmission uses, scheduled in the Day-ahead Energy Market shall be obligated to purchase or sell energy, or pay Transmission Congestion Charges, for the amount of the deviations at the applicable Real-time Prices or price differences, unless otherwise specified by this Schedule.

      (d)   The following scheduling procedures and principles shall govern the commitment of resources to the Day-ahead Energy Market and the Real-time Energy Market over a period extending from one week to one hour prior to the real-time dispatch. Scheduling encompasses the day-ahead and hourly scheduling process, through which the Office of the Interconnection determines the Day-ahead Energy Market and determines, based on changing forecasts of conditions and actions by Market Participants and system constraints, a plan to serve the hourly energy and reserve requirements of the Internal Market Buyers and the purchase requests of the External Market Buyers in the least costly manner, subject to maintaining the reliability of the PJM Control Area. Scheduling shall be conducted as specified below, subject to the following condition. If the Office of the Interconnection's forecast for the next seven days projects a likelihood of Emergency conditions, the Office of the Interconnection may commit, for all or part of such seven day period, to the use of generation resources with notification or start-up times greater than one day as necessary in order to alleviate or mitigate such Emergency, in accordance with the Market Sellers' offers for such units for such periods and the specifications in the PJM Manuals.

      1.10.1A Day-Ahead Energy Market Scheduling.

      The following actions shall occur not later than 12:00 noon on the day before the Operating Day for which transactions are being scheduled, or such other deadline as may be specified by the Office of the Interconnection in order to comply with the practical requirements and the economic and efficiency objectives of the scheduling process specified in this Schedule.

      (a)   Each Market Participant may submit to the Office of the Interconnection specifications of the amount and location of its customer loads and/or energy purchases to be included in the Day-ahead Energy Market for each hour of the next Operating Day, such specifications to comply with the requirements set forth in the PJM Manuals. Each Market Buyer shall inform the Office of the Interconnection of the prices, if any, at which it desires not to include its load in the Day-ahead Energy Market rather than pay the Day-ahead Price.

      (b)   Each Generating Market Buyer shall submit to the Office of the Interconnection: (i) hourly schedules for resource increments, including hydropower units, self-scheduled by the Market Buyer to meet its Equivalent Load; and (ii) the Dispatch Rate at which each such self-scheduled resource will disconnect or reduce output, or confirmation of the Market Buyer's intent not to reduce output.

      (c)   All Market Participants shall submit to the Office of the Interconnection schedules for any bilateral transactions involving use of generation or Transmission Facilities as specified below, and shall inform the Office of the Interconnection whether the transaction is to be included in the Day-ahead Energy market. Any Market Participant that elects to include a bilateral transaction in the Day-ahead Energy Market may specify the price (such price not to exceed the maximum price that may be specified in the PJM Manuals), if any, at which it will be wholly or partially curtailed rather than pay Transmission Congestion Charges. The foregoing price specification shall apply to the price difference between the specified bilateral transaction source and sink points in the day-ahead scheduling process only. Any Market Participant that elects not to include its bilateral transaction in the Day-ahead Energy Market shall inform the Office of the Interconnection if the parties to the transaction are not willing to incur Transmission Congestion Charges in the Real-time Energy Market in order to complete any such scheduled bilateral transaction. Scheduling of bilateral transactions shall be conducted in accordance with the specifications in the PJM Manuals and the following requirements:

      i)   Internal Market Buyers shall submit schedules for all bilateral purchases for delivery within the PJM Control Area, whether from generation resources inside or outside the PJM Control Area;

      ii)   Market Sellers shall submit schedules for bilateral sales to entities outside the PJM Control Area from generation within the PJM Control Area that is not dynamically scheduled to such entities pursuant to Section 1.12; and

      iii)   In addition to the foregoing schedules for bilateral transactions, Market Participants shall submit confirmations of each scheduled bilateral transaction from each other party to the transaction in addition to the party submitting the schedule, or the adjacent Control Area.

      (d)   Market Sellers wishing to sell into the Day-ahead Energy Market shall submit offers for the supply of energy (including energy from hydropower units), Regulation, Operating Reserves or other services for the following Operating Day. Offers shall be submitted to the Office of the Interconnection in the form specified by the Office of the Interconnection and shall contain the information specified in the Office of the Interconnection's Offer Data specification, as applicable. Market Sellers owning or controlling the output of a Capacity Resource that has not been rendered unavailable by a Generation Planned Outage, a Generator Maintenance Outage, or a Generation Forced Outage shall submit offers for the available capacity of such Capacity Resource,

including any portion that is self-scheduled by the Generating Market Buyer claiming the resource as a Capacity Resource. The submission of offers for resource increments that are not Capacity Resources shall be optional, but any such offers must contain the information specified in the Office of the Interconnection's Offer Data specification, as applicable. Energy offered from generation resources that are not Capacity Resources shall not be supplied from resources that are included in or otherwise committed to supply the Operating Reserves of another Control Area. The foregoing offers:

      i)   Shall specify the generation resource and energy for each hour in the offer period;

      ii)   Shall specify the amounts and prices for the entire Operating Day for each resource component offered by the Market Seller to the Office of the Interconnection;

      iii)   If based on energy from a specific generating unit, may specify start-up and no-load fees equal to the specification of such fees for such unit on file with the Office of the Interconnection;

      iv)   Shall set forth any special conditions upon which the Market Seller proposes to supply a resource increment, including any curtailment rate specified in a bilateral contract for the output of the resource, or any cancellation fees;

      v)   May include a schedule of offers for prices and operating data contingent on acceptance by the deadline specified in this Schedule, with a second schedule applicable if accepted after the foregoing deadline;

      vi)   Shall constitute an offer to submit the resource increment to the Office of the Interconnection for scheduling and dispatch in accordance with the terms of the offer, which offer shall remain open through the Operating Day for which the offer is submitted;

      vii)   Shall be final as to the price or prices at which the Market Seller proposes to supply energy or other services to the PJM Interchange Energy Market, such price or prices being guaranteed by the Market Seller for the period extending through the end of the following Operating Day; and

      viii)   Shall not exceed an energy offer price of $1,000/megawatt-hour.

      (e)   A Market Seller that wishes to make a resource available to sell Regulation service shall submit an offer for Regulation that shall specify the MW of Regulation being offered, the price of the offer in dollars per MWh, and such other information specified by the Office of the Interconnection as may be necessary to evaluate the offer and the resource's opportunity costs. The price of the offer shall not exceed $100 per MWh. Qualified Regulation capability must satisfy the verification tests specified in the PJM Manuals.

      (f)   Each Market Seller owning or controlling the output of a Capacity Resource shall submit a forecast of the availability of each such Capacity Resource for the next seven days. A Market Seller (i) may submit a non-binding forecast of the price at which it expects to offer a generation resource increment to the Office of the Interconnection over the next seven days, and (ii) shall submit a binding offer for energy, along with start-up and no-load fees, if any, for the next seven days or part thereof, for any generation resource with minimum notification or start-up requirement greater than 24 hours.

      (g)   Each offer by a Market Seller of a Capacity Resource shall remain in effect for subsequent Operating Days until superseded or canceled.

      (h)   The Office of the Interconnection shall post on the PJM Open Access Same-time Information System the total hourly loads scheduled in the Day-ahead Energy Market, as well as, its estimate of the combined hourly load of the Market Buyers for the next four days, and peak load forecasts for an additional three days.

      (i)   All Market Participants may submit Increment Bids and/or Decrement Bids that apply to the Day-ahead Energy Market only. Such bids must comply with the requirements set forth in the PJM Manuals and must specify amount, location and price, if any, at which the Market Participant desires to purchase or sell energy in the Day-ahead Energy Market.

      1.10.2   Pool-Scheduled Resources.

      Pool-scheduled resources are those resources for which Market Participants submitted offers to sell energy in the Day-ahead Energy Market and which the Office of the Interconnection scheduled in the Day-ahead Energy Market as well as generators committed by the Office of the Interconnection subsequent to the Day-ahead Energy Market. Such resources shall be committed to provide energy in the real-time dispatch unless the schedules for such units are revised pursuant to Sections 1.10.9 or 1.11. Pool-scheduled resources shall be governed by the following principles and procedures.

      (a)   Pool-scheduled resources shall be selected by the Office of the Interconnection on the basis of the prices offered for energy and related services, start-up, no-load and cancellation fees, and the specified operating characteristics, offered by Market Sellers to the Office of the Interconnection by the offer deadline specified in Section 1.10.1A.

      (b)   A resource that is scheduled by a Market Participant to support a bilateral sale, or that is self-scheduled by a Generating Market Buyer, shall not be selected by the Office of the Interconnection as a pool-scheduled resource except in an Emergency.

      (c)   Market Sellers offering energy from hydropower or other facilities with fuel or environmental limitations may submit data to the Office of the Interconnection that is sufficient to enable the Office of the Interconnection to determine the available operating hours of such facilities.

      (d)   The Market Seller of a resource selected as a pool-scheduled resource shall receive payments or credits for energy or related services, or for start-up and no-load fees, from the Office of the Interconnection on behalf of the Market Buyers in accordance with Section 3 of this Schedule 1. Alternatively, the Market Seller shall receive, in lieu of start-up and no-load fees, its actual costs incurred, if any, up to a cap of the resource's start-up cost, if the Office of the Interconnection cancels its selection of the resource as a pool-scheduled resource and so notifies the Market Seller before the resource is synchronized.

      (e)   Market Participants shall make available their pool-scheduled resources to the Office of the Interconnection for coordinated operation to supply the needs of the PJM Control Area for Operating Reserves.

      1.10.3   Self-scheduled Resources.

      Self-scheduled resources shall be governed by the following principles and procedures.

      (a)   Each Generating Market Buyer shall use all reasonable efforts, consistent with Good Utility Practice, not to self-schedule resources in excess of its Equivalent Load.

      (b)   The offered prices of resources that are self-scheduled, or otherwise not following the dispatch orders of the Office of the Interconnection, shall not be considered by the Office of the Interconnection in determining Locational Marginal Prices.

      (c)   Market Participants shall make available their self-scheduled resources to the Office of the Interconnection for coordinated operation to supply the needs of the PJM Control Area for Operating Reserves.

      (d)   A Market Participant self-scheduling a resource in the Day-ahead Energy Market that does not deliver the energy in the Real-time Energy Market, shall replace the energy not delivered with energy from the Real-time Energy Market and shall pay for such energy at the applicable Real-time Price.

      1.10.4   Capacity Resources.

      (a)   A Capacity Resource selected as a pool-scheduled resource shall be made available for scheduling and dispatch at the direction of the Office of the Interconnection. A Capacity Resource that does not deliver energy as scheduled shall be deemed to have experienced a Generator Forced Outage to the extent of such energy not delivered. A Market Participant offering such Capacity Resource in the Day-ahead Energy Market shall replace the energy not delivered with energy from the Real-time Energy Market and shall pay for such energy at the applicable Real-time Price.

      (b)   Energy from a Capacity Resource that has not been scheduled in the Day-ahead Energy Market may be sold on a bilateral basis by the Market Seller, may be self-scheduled, or may be offered for dispatch during the Operating Day in accordance with the procedures specified in this Schedule. A Capacity Resource that has not been scheduled in the Day-ahead Energy Market and that has been sold on a bilateral basis must be made available upon request to the Office of the Interconnection for scheduling and dispatch during the Operating Day if the Office of the Interconnection declares a Maximum Generation Emergency. Any such resource so scheduled and dispatched shall receive the applicable Real-time Price for energy delivered.

      (c)   A Capacity Resource that has been self-scheduled shall not receive payments or credits for start-up or no-load fees.

      1.10.5   External Resources.

      (a)   External Resources may submit offers to the PJM Interchange Energy Market, in accordance with the day-ahead and real-time scheduling processes specified above. An External Resource selected as a pool-scheduled resource shall be made available for scheduling and dispatch at the direction of the Office of the Interconnection, and except as specified below shall be compensated on the same basis as other pool-scheduled resources. External Resources that are not capable of dynamic dispatch shall, if selected by the Office of the Interconnection on the basis of the Market Seller's Offer Data, be block loaded on an hourly scheduled basis. Market Sellers shall offer External Resources to the PJM Interchange Energy Market on either a resource-specific or an aggregated resource basis. A Market Participant whose pool-scheduled resource does not deliver the energy scheduled in the Day-ahead Energy Market shall replace such energy not delivered as scheduled in the Day-ahead Energy Market shall replace such energy not delivered as scheduled in the Day-ahead Energy Market with energy from the PJM Real-time Energy Market and shall pay for such energy at the applicable Real-time Price.

      (b)   Offers for External Resources from an aggregation of two or more generating units shall so indicate, and shall specify, in accordance with the Offer Data requirements specified by the Office of the Interconnection: (i) energy prices; (ii) hours of energy availability; (iii) a minimum dispatch level; (iv) a maximum dispatch level; and (v) unless such information has previously been made available to the Office of the Interconnection, sufficient information, as specified in the PJM Manuals, to enable the Office of the Interconnection to model the flow into the PJM Control Area of any energy from the External Resources scheduled in accordance with the Offer Data. If a Market Seller submits more than one offer on an aggregated resource basis, the withdrawal of any such offer shall be deemed a withdrawal of all higher priced offers for the same period.

      (c)   Offers for External Resources on a resource-specific basis shall specify the resource being offered, along with the information specified in the Offer Data as applicable.

      1.10.6   External Market Buyers.

      (a)   Deliveries to an External Market Buyer not subject to dynamic dispatch by the Office of the Interconnection shall be delivered on a block loaded basis to the load bus or busses at the border of the PJM Control Area, or in the PJM Control Area with respect to an External Market Buyer's load within the PJM Control Area not served by Network Service, at which the energy is delivered to or for the External Market Buyer. External Market Buyers shall be charged or credited at either the Day-ahead Prices or Real-time Prices, whichever is applicable, for energy at the foregoing load bus or busses.

      (b)   An External Market Buyer's hourly schedules for energy purchased from the PJM Interchange Energy Market shall conform to the ramping and other applicable requirements of the interconnection agreement between the PJM Control Area and the Control Area to which, whether as an intermediate or final point of delivery, the purchased energy will initially be delivered.

      (c)   The Office of the Interconnection shall curtail deliveries to an External Market Buyer if necessary to maintain appropriate reserve levels for the PJM Control Area as defined in the PJM Manuals, or to avoid shedding load in the PJM Control Area.

         1.10.6A Transmission Loading Relief Customers.

      (a)   An entity that desires to elect to pay Transmission Congestion Charges in order to continue its energy schedules during an Operating Day over contract paths outside the PJM Control Area in the event that PJM initiates Transmission Loading Relief that otherwise would cause PJM to request security coordinators to curtail such Member's energy schedules shall:

(i)   enter its election on OASIS by 12:00 p.m. of the day before the Operating Day, in accordance with procedures established by PJM, which election shall be applicable for the entire Operating Day; and

(ii)   if PJM initiates Transmission Loading Relief, provide to PJM, at such time and in accordance with procedures established by PJM, the hourly integrated energy schedules that impacted the PJM Control Area (as indicated from the NERC Interchange Distribution Calculator) during the Transmission Loading Relief.

      (b)   If an entity has made the election specified in Section (a), then PJM shall not request security coordinators to curtail such entity's energy transactions, except as may be necessary to respond to Emergencies.

      (c)   In order to make elections under this Section 1.10.6A, an entity must (i) have met the creditworthiness standards established by the Office of the Interconnection or provided a letter of credit or other form of security acceptable to the Office of the Interconnection, and (ii) have executed either the Agreement, a Service Agreement under the PJM Tariff, or other agreement committing to pay all Transmission Congestion Charges incurred under this Section.

      1.10.7   Bilateral Transactions.

      Bilateral transactions as to which the parties have notified the Office of the Interconnection by the deadline specified in Section 1.10.1A that they elect not to be included in the Day-ahead Energy Market and that they are not willing to incur Transmission Congestion Charges in the Real-time Energy Market shall be curtailed by the Office of the Interconnection as necessary to reduce or alleviate transmission congestion. Bilateral transactions that were not included in the Day-ahead Energy Market and that are willing to incur congestion charges and bilateral transactions that were accepted in the Day-ahead Energy Market shall continue to be implemented during periods of congestion, except as may be necessary to respond to Emergencies.

      1.10.8   Office of the Interconnection Responsibilities.

      (a)   The Office of the Interconnection shall use its best efforts to determine (i) the least-cost means of satisfying the projected hourly requirements for energy, Operating Reserves, and other ancillary services of the Market Buyers, including the reliability requirements of the PJM Control Area, of the Day-ahead Energy Market, and (ii) the least-cost means of satisfying the Operating Reserve and other ancillary service requirements for any portion of the load forecast of the Office of the Interconnection for the Operating Day in excess of that scheduled in the Day-ahead Energy Market. In making these determinations, the Office of the Interconnection shall take into account: (i) the Office of the Interconnection's forecasts of PJM Interchange Energy Market and PJM Control Area energy requirements, giving due consideration to the energy requirement forecasts and purchase requests submitted by Market Buyers; (ii) the offers submitted by Market Sellers; (iii) the availability of limited energy resources; (iv) the capacity, location, and other relevant characteristics of self-scheduled resources; (v) the objectives of the PJM Control Area for Operating Reserves, as specified in the PJM Manuals; (vi) the requirements of the PJM Control Area for Regulation and other ancillary services, as specified in the PJM Manuals; (vii) the benefits of avoiding or minimizing transmission constraint control operations, as specified in the PJM Manuals; and (viii) such other factors as the Office of the Interconnection reasonably concludes are relevant to the foregoing determination. The Office of the Interconnection shall develop a Day-ahead Energy Market based on the foregoing determination, and shall determine the Day-ahead Prices resulting from such schedule. The Office of the Interconnection shall report the planned schedule for a hydropower resource to the operator of that resource as necessary for plant safety and security, and legal limitations on pond elevations.

      (b)   Not later than 4:00 p.m. of the day before each Operating Day, or such earlier deadline as may be specified by the Office of the Interconnection in the PJM Manuals, the Office of the Interconnection shall: (i) post the aggregate Day-ahead Energy Market; (ii) post the Day-ahead Prices; and (iii) inform the Market Sellers and Market Buyers of their scheduled injections and withdrawals respectively.

      (c)   Following posting of the information specified in Section 1.10.8(b), the Office of the Interconnection shall revise its schedule of generation resources to reflect updated projections of load, conditions affecting electric system operations in the PJM Control Area, the availability of and constraints on limited energy and other resources, transmission constraints, and other relevant factors. The Office of the Interconnection shall post on the PJM Open Access Same-time Information System at times specified in the PJM Manuals a revised forecast of the location and duration of any expected transmission congestion, and of the range of differences in Locational Marginal Prices between major subareas of the PJM Control Area expected to result from such transmission congestion.

      (d)   Market Buyers shall pay and Market Sellers shall be paid for the quantities of energy scheduled in the Day-ahead Energy Market at the Day-ahead Prices.

      1.10.9   Hourly Scheduling.

      (a)   Following the initial posting by the Office of the Interconnection of the Locational Marginal Prices resulting from the Day-ahead Energy Market, and subject to the right of the Office of the Interconnection to schedule and dispatch pool-scheduled resources and to direct that schedules be changed in an Emergency, a generation rebidding period shall exist from 4:00 p.m. to 6:00 p.m. on the day before each Operating Day. During the rebidding period, Market Participants may submit revisions to generation offer data for any generation resource that was not selected as a pool-scheduled resource in the Day-ahead Energy Market. Adjustments to Day-ahead Energy Markets shall be settled at the applicable Real-time Prices, and shall not affect the obligation to pay or receive payment for the quantities of energy scheduled in the Day-ahead Energy market at the applicable Day-ahead Prices.

      (b)   A Market Participant may adjust the schedule of a resource under its dispatch control on an hour-to-hour basis beginning at 10:00 p.m. of the day before each Operating Day, provided that the Office of the Interconnection is notified not later than 60 minutes prior to the hour in which the adjustment is to take effect, as follows:

      i)   A Generating Market Buyer may self-schedule any of its resource increments, including hydropower resources, not previously designated as self-scheduled and not selected as a pool-scheduled resource in the Day-ahead Energy Market;

      ii)   A Market Participant may request the scheduling of a non-firm bilateral transaction; or

      iii)   A Market Participant may request the scheduling of deliveries or receipts of Spot Market Energy; or

      iv)   A Generating Market Buyer may remove from service a resource increment, including a hydropower resource, that it had previously designated as self-scheduled, provided that the Office of the Interconnection shall have the option to schedule energy from any such resource increment that is a Capacity Resource at the price offered in the scheduling process, with no obligation to pay any start-up fee.

      (c)   With respect to a pool-scheduled resource that is included in the Day-ahead Energy Market, a Market Seller may not change or otherwise modify its offer to sell energy.

      (d)   An External Market Buyer may refuse delivery of some or all of the energy it requested to purchase in the Day-ahead Energy Market by notifying the Office of the Interconnection of the adjustment in deliveries not later than 60 minutes prior to the hour in which the adjustment is to take effect, but any such adjustment shall not affect the obligation of the External Market Buyer to pay for energy scheduled on its behalf in the Day-ahead Energy Market at the applicable Day-ahead Prices.

      (e)   For each hour in the Operating Day, as soon as practicable after the deadlines specified in the foregoing subsection of this Section 1.10, the Office of the Interconnection shall provide External Market Buyers and External Market Sellers and parties to bilateral transactions with any revisions to their schedules for the hour.

   1.11   Dispatch.

   The following procedures and principles shall govern the dispatch of the resources available to the Office of the Interconnection.

      1.11.1   Resource Output.

      The Office of the Interconnection shall have the authority to direct any Market Seller to adjust the output of any pool-scheduled resource increment within the operating characteristics specified in the Market Seller's offer. The Office of the Interconnection may cancel its selection of, or otherwise release, pool-scheduled resources, subject to an obligation to pay any applicable start-up, no-load or cancellation fees. The Office of the Interconnection shall adjust the output of pool-scheduled resource increments as necessary: (a) to maintain reliability, and subject to that constraint, to minimize the cost of supplying the energy, reserves, and other services required by the Market Buyers and the operation of the PJM Control Area; (b) to balance load and generation, maintain scheduled tie flows, and provide frequency support within the PJM Control Area; and (c) to minimize unscheduled interchange not frequency related between the PJM Control Area and other Control Areas.

      1.11.2   Operating Basis.

      In carrying out the foregoing objectives, the Office of the Interconnection shall conduct the operation of the PJM Control Area in accordance with the PJM Manuals, and shall: (i) utilize available generating reserves and obtain required replacements; and (ii) monitor the availability of adequate reserves.

      1.11.3   Pool-dispatched Resources.

      (a)   The Office of the Interconnection shall implement the dispatch of energy from pool-scheduled resources with limited energy by direct request. In implementing mandatory or economic use of limited energy resources, the Office of the Interconnection shall use its best efforts to select the most economic hours of operation for limited energy resources, in order to make optimal use of such resources consistent with the dynamic load-following requirements of the PJM Control Area and the availability of other resources to the Office of the Interconnection.

      (b)   The Office of the Interconnection shall implement the dispatch of energy from other pool-dispatched resource increments, including generation increments from Capacity Resources the remaining increments of which are self-scheduled, by sending appropriate signals and instructions to the entity controlling such resources, in accordance with the PJM Manuals. Each Market Seller shall ensure that the entity controlling a pool-dispatched resource offered or made available by that Market Seller complies with the energy dispatch signals and instructions transmitted by the Office of the Interconnection.

         1.11.3A Maximum Generation Emergency.

      If the Office of the Interconnection declares a Maximum Generation Emergency, all deliveries to load that is served by Point-to-Point Transmission Service outside the PJM Control Area from Capacity Resources may be interrupted in order to serve load in the PJM Control Area.

      1.11.4   Regulation

      (a)   A Market Buyer may satisfy its Regulation obligation from its own resources capable of performing Regulation service, by contractual arrangements with other Market Participants able to provide Regulation service, or by purchases from the PJM Interchange Energy Market at the rates set forth in Section 3.2.2.

      (b)   The Office of the Interconnection shall obtain Regulation service from the least-cost alternatives available from either pool-scheduled or self-scheduled resources as needed to meet PJM Control Area requirements not otherwise satisfied by the Market Buyers. Resources offering to sell Regulation shall be selected to provide Regulation on the basis of each resource's regulation offer and the estimated opportunity cost of the resource providing regulation and in accordance with the Office of the Interconnection's obligation to minimize the total cost of energy, Operating Reserves, Regulation, and other ancillary services. Estimated opportunity costs shall be determined by the Office of the Interconnection on the basis of the expected value of the energy sales that would be foregone or uneconomic energy that would be produced by the resource in order to provide Regulation, in accordance with procedures specified in the PJM Manuals. If the Office of the Interconnection is not able to distinguish resources offering Regulation on the basis of their regulation offers and estimated opportunity costs, resources shall be selected on the basis of the quality of Regulation provided by the resource as determined by tests administered by the Office of the Interconnection.

      (c)   The Office of the Interconnection shall dispatch resources for Regulation by sending Regulation signals and instructions to resources from which Regulation service has been offered by Market Sellers, in accordance with the PJM Manuals. Market Sellers shall comply with Regulation dispatch signals and instructions transmitted by the Office of the Interconnection and, in the event of conflict, Regulation dispatch signals and instructions shall take precedence over energy dispatch signals and instructions. Market Sellers shall exert all reasonable efforts to operate, or ensure the operation of, their resources supplying load in the PJM Control Area as close to desired output levels as practical, consistent with Good Utility Practice.

      1.11.5   PJM Open Access Same-time Information System.

      The Office of the Interconnection shall update the information posted on the PJM Open Access Same-time Information System to reflect its dispatch of generation resources.

   1.12   Dynamic Scheduling.

   (a)   An entity that owns or controls a generating resource in the PJM Control Area may electrically remove all or part of the generating resource's output from the PJM Control Area through dynamic scheduling of the output to load outside the PJM Control Area. Such output shall not be available for economic dispatch by the Office of the Interconnection.

   (b)   An entity requesting dynamic scheduling shall be responsible for arranging for the provision of signal processing and communications from the generator to the Office of the Interconnection and the other participating control area and complying with any other procedures established by the Office of the Interconnection regarding dynamic scheduling as set forth in the PJM Manuals.

   (c)   An entity requesting dynamic scheduling shall be responsible for reserving amounts of firm transmission service necessary to deliver the range of the dynamic transfer and any required ancillary services.

2.   CALCULATION OF LOCATIONAL MARGINAL PRICES

 2.1   Introduction.

   The Office of the Interconnection shall calculate the price of energy at the load busses and generation busses in the PJM Control Area and at the interface busses between the PJM Control Area and adjacent Control Areas on the basis of Locational Marginal Prices. Locational Marginal Prices determined in accordance with this Section shall be calculated on a day-ahead basis for each hour of the Day-ahead Energy Market, and every five minutes during the Operating Day for the Real-time Energy Market.

   2.2   General.

   The Office of the Interconnection shall determine the least cost security-constrained dispatch, which is the least costly means of serving load at different locations in the PJM Control Area based on actual operating conditions existing on the power grid and on the prices at which Market Sellers have offered to supply energy in the PJM Interchange Energy Market. Locational Marginal Prices for the generation and load busses in the PJM Control Area, including interconnections with other Control Areas, will be calculated based on the actual economic dispatch and the prices of energy offers. The process for the determination of Locational Marginal Prices shall be as follows:

   (a)   To determine actual operating conditions on the power grid in the PJM Control Area, the Office of the Interconnection shall use a computer model of the interconnected grid that uses available metered inputs regarding generator output, loads, and power flows to model remaining flows and conditions, producing a consistent representation of power flows on the network. The computer model employed for this purpose, referred to as the State Estimator program, is a standard industry tool and is described in Section 2.3 below. It will be used to obtain information regarding the output of generation supplying energy to the PJM Control Area, loads at buses in the PJM Control Area, transmission losses, and power flows on binding transmission constraints for use in the calculation of Locational Marginal Prices. Additional information used in the calculation, including Dispatch Rates and real time schedules for external transactions between PJM and other Control Areas, will be obtained from the Office of the Interconnection's dispatchers.

   (b)   Using the prices at which energy is offered by Market Sellers to the PJM Interchange Energy Market, the Office of the Interconnection shall determine the offers of energy that will be considered in the calculation of Locational Marginal Prices. As described in Section 2.4 below, every offer of energy by a Market Seller from a resource that is following economic dispatch instructions of the Office of the Interconnection will be utilized in the calculation of Locational Marginal Prices.

   (c)   Based on the system conditions on the PJM power grid, determined as described in (a), and the eligible energy offers, determined as described in (b), the Office of the Interconnection shall determine the least costly means of obtaining energy to serve the next increment of load at each bus in the PJM Control Area, in the manner described in Section 2.5 below. The result of that calculation shall be a set of Locational Marginal Prices based on the system conditions at the time.

   2.3   Determination of System Conditions Using the State Estimator.

   Power system operations, including, but not limited to, the determination of the least costly means of serving load, depend upon the availability of a complete and consistent representation of generator outputs, loads, and power flows on the network. In calculating Locational Marginal Prices, the Office of the Interconnection shall obtain a complete and consistent description of conditions on the electric network in the PJM Control Area by using the most recent power flow solution produced by the State Estimator, which is also used by the Office of the Interconnection for other functions within power system operations. The State Estimator is a standard industry tool that produces a power flow model based on available real-time metering information, information regarding the current status of lines, generators, transformers, and other equipment, bus load distribution factors, and a representation of the electric network, to provide a complete description of system conditions, including conditions at busses for which real-time information is unavailable. The current version of the State Estimator includes over 1600 busses in the PJM Control Area, as well as interface busses with adjacent Control Areas. The Office of the Interconnection shall obtain a State Estimator solution every five minutes, which shall provide the megawatt output of generators and the loads at busses in the PJM Control Area, transmission line losses, and actual flows or loadings on constrained transmission facilities. External transactions between PJM and other Control Areas shall be included in the Locational Marginal Price calculation on the basis of the real time transaction schedules implemented by the Office of the Interconnection's dispatcher.

   2.4   Determination of Energy Offers Used in Calculating Real-time Prices.

   (a)   During the Operating Day, real-time Locational Marginal Prices derived in accordance with this Section shall be determined every five minutes and integrated hourly values of such determinations shall be the basis of sales and purchases of energy in the Real-time Energy Market and of Transmission Congestion Charges under the PJM Tariff not covered by the Day-ahead Energy Market.

   (b)   To determine the energy offers submitted to the PJM Interchange Energy Market that shall be used during the Operating Day to calculate the Real-time Prices, the Office of the Interconnection shall determine which resources are following its economic dispatch instructions. A resource will be considered to be following economic dispatch instructions and shall be included in the calculation of Real-time Prices if:

      i)   the applicable price bid by a Market Seller for energy from the resource is less than or equal to the Dispatch Rate for the area of the PJM Control Area in which the resource is located; or

      ii)   the resource is specifically requested to operate by the Office of the Interconnection's dispatcher.

   (c)   In determining whether a resource satisfies the condition described in (b), the Office of the Interconnection will determine the bid price associated with an energy offer by comparing the actual megawatt output of the resource with the Market Seller's offer price curve. Because of practical generator response limitations, a resource whose megawatt output is not ten percent more than the megawatt level specified on the offer price curve for the applicable Dispatch Rate shall be deemed to be following economic dispatch instructions, but the energy price offer used in the calculation of Real-time Prices shall not exceed the applicable Dispatch Rate. Units that must be run for local area protection shall not be considered in the calculation of Real-time Prices.

   2.5   Calculation of Real-time Prices.

   (a)   The Office of the Interconnection shall determine the least costly means of obtaining energy to serve the next increment of load at each bus in the PJM Control Area represented in the State Estimator and each interface bus between the PJM Control Area and an adjacent Control Area, based on the system conditions described by the most recent power flow solution produced by the State Estimator program and the energy offers that are the basis for the Day-ahead Energy Market, or that are determined to be eligible for consideration under Section 2.4 in connection with the real-time dispatch, as applicable. This calculation shall be made by applying an incremental linear optimization method to minimize energy costs, given actual system conditions, a set of energy offers, and any binding transmission constraints that may exist. In performing this calculation, the Office of the Interconnection shall calculate the cost of serving an increment of load at each bus from each resource associated with an eligible energy offer as the sum of: (1) the price at which the Market Seller has offered to supply an additional increment of energy from the resource, and (2) the effect on transmission congestion costs (whether positive or negative) associated with increasing the output of the resource, based on the effect of increased generation from that resource on transmission line loadings. The energy offer or offers that can serve an increment of load at a bus at the lowest cost, calculated in this manner, shall determine the Real-time Price at that bus.

   (b)   During the Operating Day, the calculation set forth in (a) shall be performed every five minutes, using the Office of the Interconnection's Locational Marginal Price program, producing a set of Real-time Prices based on system conditions during the preceding interval. The prices produced at five-minute intervals during an hour will be integrated to determine the Real-time Prices for that hour.

   2.6   Calculation of Day-ahead Prices.

   For the Day-ahead Energy Market, day-ahead Locational Marginal Prices shall be determined on the basis of the least-cost, security-constrained dispatch, model flows and system conditions resulting from the load specifications, offers for generation, dispatchable load, Increment Bids, Decrement Bids, and bilateral transactions submitted to the Office of the Interconnection and scheduled in the Day-ahead Energy Market. Such prices shall be determined in accordance with the provisions of this Section applicable to the Day-ahead Energy Market and shall be the basis for purchases and sales of energy and Transmission Congestion Charges resulting from the Day-ahead Energy Market. This calculation shall be made for each hour in the Day-ahead Energy Market by applying a linear optimization method to minimize energy costs, given scheduled system conditions, scheduled transmission outages, and any transmission limitations that may exist. In performing this calculation, the Office of the Interconnection shall calculate the cost of serving an increment of load at each bus from each resource associated with an eligible energy offer as the sum of: (1) the price at which the Market Seller has offered to supply an additional increment of energy from the resource, and (2) the effect on transmission congestion costs (whether positive or negative) associated with increasing the output of the resource, based on the effect of increased generation from that resource on transmission line loadings. The energy offer or offers that can serve an increment of load at a bus at the lowest cost, calculated in this manner, shall determine the Day-ahead Price at that bus.

   2.7   Performance Evaluation.

   The Office of the Interconnection shall undertake an evaluation of the foregoing procedures for the determination of Locational Marginal Prices, as well as the procedures for determining and allocating Fixed Transmission Rights and associated Transmission Congestion Charges and Credits, not less often than every two years, in accordance with the PJM Manuals. To the extent practical, the Office of the Interconnection shall retain all data needed to perform comparisons and other analyses of locational marginal pricing. The Office of the Interconnection shall report the results of its evaluation to the Market Participants, along with its recommendations, if any, for changes in the procedures.

3.   ACCOUNTING AND BILLING

   3.1   Introduction.

   This schedule sets forth the accounting and billing principles and procedures for the purchase and sale of services on the PJM Interchange Energy Market and for the operation of the PJM Control Area.

   3.2   Market Buyers.

      3.2.1   Spot Market Energy.

      (a)   Market Buyers shall be charged for all load scheduled to be served from the PJM Interchange Energy Market in the Day-ahead Energy Market at the Day-ahead Prices applicable to each relevant load bus.

      (b)   Generating Market Buyers shall be paid for all energy scheduled to be delivered at the PJM Interchange Energy Market in the Day-ahead Energy Market at the Day-ahead Prices applicable to each relevant generation bus.

      (c)   At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the load payment at each Market Buyer's load bus to be charged at Real-time Prices determined by the product of the hourly Real-time Price at the relevant bus times the Market Buyer's megawatts of load at the bus in the hour in excess of the load scheduled to be served at that bus in the hour in the Day-ahead Energy Market. To the extent that the load actually served at a load bus is less than the load scheduled to be served at that bus in the Day-ahead Energy Market, the Market Buyer shall be credited for the difference at the Real-time Price for the load bus at the time of the shortfall. The megawatts of load at each load bus shall be the sum of the megawatts of load for that bus of that Market Buyer as determined by the State Estimator, plus an allocated share of transmission losses, plus any megawatts of that Market Buyer's bilateral sales to purchasers outside the PJM Control Area attributable to that bus. The total load charge for each Market Buyer shall be the sum, for each of a Market Buyer's load buses, of the charges at Day-ahead Prices determined in accordance with the Day-ahead Energy Market as specified in Section 1.10.1a plus the charges at Real-time Prices determined as specified herein, net of any credits specified herein for each of the Market Buyer's load buses.

      (d)   At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the generation revenue at each Generating Market Buyer's generation bus to be paid at Real-time Prices, determined by the product of the hourly Real-time Price at the relevant bus times the Generating Market Buyer's megawatts of generation at such generation bus in the hour, as determined by the State Estimator, in excess of the energy scheduled to be injected at that bus in that hour in the Day-ahead Energy Market. To the extent that the energy actually injected at the generation bus is less than the energy scheduled to be injected at that bus in the Day-ahead Energy Market, the Generating Market Buyer shall be debited for the difference at the Real-time Price for the generation bus at the time of the shortfall. The megawatts of generation at each generation bus shall be the sum of the megawatts of generation for that bus of that Generating Market Buyer as determined by the State Estimator, plus any megawatts of bilateral purchases of that Generating Market Buyer from sellers outside the PJM Control Area attributable to that bus. The total generation revenue for each Generating Market Buyer shall be the sum, for each of the Generating Market Buyer's generation busses, of the revenues at Day-ahead Prices determined in accordance with the Day-ahead Energy Market as specified in Section 1.10.1A plus the revenues at Real-time Prices determined as specified herein, net of any debits specified herein for each of the Market Buyer's generation buses.

      (e)   At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate a net bill for each Market Buyer, determined as the difference between its total load charges and its total generation revenue. The portions of the net bill attributable to net hourly PJM Interchange and to Transmission Congestion Charges in the Day-ahead Energy Market and the Real-time Energy Market shall be determined as set forth in this Section and in Section 5.1.3.

      (f)   At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the total amount of net hourly PJM Interchange for each Market Buyer, including Generating Market Buyers, in accordance with the PJM Manuals. For Internal Market Buyers that are Load Serving Entities or purchasing on behalf of Load Serving Entities, this calculation shall include determination of the net energy flows from: (i) tie lines; (ii) any generation resource the output of which is controlled by the Market Buyer but delivered to it over another entity's Transmission Facilities; (iii) any generation resource the output of which is controlled by another entity but which is directly interconnected with the Market Buyer's transmission system; (iv) deliveries pursuant to bilateral energy sales; (v) receipts pursuant to bilateral energy purchases; (vi) the Market Buyer's allocated share of energy purchased from another Control Area in connection with a Minimum Generation Emergency in such other Control Area as specified in Section 3.2.6(c); and (vii) an adjustment to account for the day-ahead PJM Interchange, calculated as the difference between scheduled withdrawals and injections by that Market Buyer in the Day-ahead Energy Market. For Electric Distributors that report hourly net energy flows from metered tie lines, this calculation also shall include 500 kV transmission losses and Inadvertent Interchange allocated to the Electric Distributor and shall exclude the energy delivered to load of other Network Customers and Transmission Customers. For External Market Buyers and Internal Market Buyers that are not Load Serving Entities or purchasing on behalf of Load Serving Entities, this calculation shall determine the energy scheduled hourly for delivery to the Market Buyer net of the amounts scheduled by the External Market Buyer in the Day-ahead Energy Market.

      (g)   The Office of the Interconnection shall calculate Locational Marginal Prices in the form of Day-ahead Prices and Real-time Prices for each load and generation bus in the PJM Control Area, in accordance with Section 2 of this Schedule.

      (h)   An Internal Market Buyer shall be charged for Spot Market Energy purchases to the extent of its hourly net purchases from the PJM Interchange Energy Market, determined as specified in Section 3.2.1(f) above. An External Market Buyer shall be charged for its Spot Market Energy purchases based on the energy delivered to it, determined as specified in Section 3.2.1(f) above. The Office of the Interconnection shall calculate an hourly weighted average Real-time Price for each such Market Buyer, based on the hourly average of the Market Buyer's Real-time Prices at each bus weighted by the Market Buyer's load deviations at the bus. The total charge shall be determined by the product of the hourly net amount of PJM Interchange Purchases times the hourly weighted-average Real-time Price for that Market Buyer.

      (i)   A Generating Market Buyer shall be credited as a Market Seller for sales of Spot Market Energy to the extent of its hourly net sales into the PJM Interchange Energy Market, determined as specified in Section 3.2.1(f) above. The Office of the Interconnection shall calculate an hourly weighted average Real-time Price for each such Market Seller, based on the hourly average of the Market Sellers Real-time Prices at each bus weighted by the Market Buyer's generation deviations at each bus. The total credit shall be determined by the product of the hourly net amount of PJM Interchange Sales times the hourly weighted average Real-time Price for that Market Seller.

      3.2.2   Regulation.

      (a)   Each Internal Market Buyer that is a Load Serving Entity shall have an hourly Regulation objective equal to its pro rata share of the PJM Control Area Regulation requirements for the hour, based on the Market Buyer's total load in the PJM Control Area for the hour. An Internal Market Buyer that does not meet its hourly Regulation obligation shall be charged for Regulation dispatched by the Office of the Interconnection to meet such obligation at the Regulation market-clearing price determined in accordance with paragraph (c) of this section, plus the amounts, if any, described in paragraph (f) of this section.

      (b)   A Generating Market Buyer supplying Regulation at the direction of the Office of the Interconnection in excess of its hourly Regulation obligation shall be credited for each increment of such Regulation at the higher of (i) the Regulation market-clearing price or (ii) the sum of the regulation offer and the unit-specific opportunity cost of the resource supplying the increment of Regulation, as determined by the Office of the Interconnection in accordance with procedures specified in the PJM Manuals.

      (c)   The Regulation market-clearing price shall be determined at a time to be determined by the Office of the Interconnection which shall be no earlier than the day before the Operating Day and the market-clearing price each hour shall be equal to the highest sum of a resource's Regulation offer plus its estimated unit-specific opportunity costs from among the resources selected to provide Regulation.

      (d)   In determining the Regulation market-clearing price, the estimated unit-specific opportunity costs of a resource offering to sell Regulation each hour shall be equal to the product of (i) the deviation of the set point of the resource that is expected to be required in order to provide Regulation from the resource's expected output level if it had been dispatched in economic merit order times (ii) the absolute value of the difference between the expected Locational Marginal Price at the generation bus for the resource and the offer price for energy from the resource (at the megawatt level of the Regulation set point for the resource) in the PJM Interchange Energy Market.

(e)   In determining the credit under subsection (b) to a Generating Market Buyer selected to provide Regulation and that actively follows the Office of the Interconnection's Regulation signals and instructions, the unit-specific opportunity cost of a resource shall be determined for each hour that the Office of the Interconnection requires a resource to provide Regulation and shall be equal to the product of (i) the deviation of the resource's output necessary to follow the Office of the Interconnection's Regulation signals from the resource's expected output level if it had been dispatched in economic merit order times (ii) the absolute value of the difference between the Locational Marginal Price at the generation bus for the resource and the offer price for energy from the resource (at the megawatt level of the Regulation set point for the resource) in the PJM Interchange Energy Market.

      (f)   Any amounts credited for Regulation in an hour in excess of the Regulation market-clearing price in that hour shall be allocated and charged to each Internal Market Buyer that does not meet its hourly Regulation obligation in proportion to its purchases of Regulation in megawatt-hours during that hour.

      3.2.3   Operating Reserves.

      (a)   A Market Seller's pool-scheduled resources capable of providing operating reserves shall be credited as specified below based on the prices offered for the operation of such resource, provided that the resource was available for the entire time specified in the Offer Data for such resource.

      (b)   The following determination shall be made for each pool-scheduled resource that is scheduled in the Day-ahead Energy Market: the total offered price for start-up and no-load fees and Spot Market Energy, determined on the basis of the resource's scheduled output, shall be compared to the total value of that resource's Spot Market Energy as determined by the Day-ahead Energy Market and the Day-ahead Prices applicable to the relevant generation bus in the Day-ahead Energy Market. Except as provided in Section 3.2.3(n), if the total offered price summed over all hours exceeds the total value summed over all hours, the difference shall be credited to the Market Seller.

      (c)   The sum of the foregoing credits calculated in accordance with Section 3.2.3(b) plus any unallocated charges from Section 3.2.3(h) and 5.1.7, shall be the cost of Operating Reserves in the Day-ahead Energy Market.

      (d)   The cost of Operating Reserves in the Day-ahead Energy Market shall be allocated and charged to each Market Participant in proportion to the sum of its (i) scheduled load and accepted Decrement Bids in the Day-ahead Energy Market in megawatt-hours for that Operating Day; and (ii) scheduled energy sales in the Day-ahead Energy Market from within the PJM Control Area to load outside the PJM Control Area in megawatt-hours for that Operating Day, but not including its bilateral transactions that are dynamically scheduled to load outside the PJM Control Area pursuant to Section 1.12.

      (e)   At the end of each Operating Day, the following determination shall be made for each synchronized pool-scheduled resource of each Market Seller that operates as requested by the Office of the Interconnection and that is not committed solely for the purpose of providing spinning reserves: the total offered price for start-up and no-load fees and Spot Market Energy, determined on the basis of the lesser of the resource's (i) hourly output as determined by the State Estimator, or (ii) requested output as determined by the PJM dispatch. The total offered price shall be compared to the total value of that resource's energy in the Day-ahead Energy Market plus any credit or charge for quantity deviations, at PJM dispatch direction, from the Day-ahead Energy Market during the Operating Day. Except as provided in Section 3.2.3(m), if the total offered price exceeds the total value, the difference less any credit as determined pursuant to Section 3.2.3(b) and less any amounts credited for Regulation in excess of the Regulation offer plus the resources opportunity cost, shall be credited to the Market Seller.

      (f)   A Market Seller's pool scheduled resource the output of which is reduced or suspended at the request of the Office of the Interconnection for the purpose of maintaining reliability within the PJM Control Area, shall be credited in an amount equal to (PAG - AG) x LT x (ULMP - UB) where:

PAG equals the actual generation of the unit for the five minute period preceding the request;

AG equals the actual generation of the unit until PJM cancels the request to reduce output;

LT equals the length of time that the request to reduce output was effective;

ULMP equals the LMP at the unit's bus;

UB equals the unit bid for that unit whose output is reduced or suspended; and

where ULMP - UB shall not be negative.

      (g)   The sum of the foregoing credits, plus any cancellation fees paid in accordance with Section 1.10.2(d), such cancellation fees to be applied to the Operating Day for which the unit was scheduled, less any payments received from another Control Area for Operating Reserves, shall be the cost of Operating Reserves for the Real-time Energy Market in each Operating Day.

      (h)   The cost of Operating Reserves for the Real-time Energy Market for each Operating Day shall be allocated and charged to each Market Participant in proportion to the sum of the absolute values of its (i) load deviations from the Day-ahead Energy Market in megawatt-hours during that Operating Day; (ii) generation deviations from the Day-ahead Energy Market for non-dispatchable generation resources, including External Resources, in megawatt-hours during the Operating Day; (iii) deviations from the Day-ahead Energy Market for bilateral transactions from outside the PJM Control Area for delivery within the PJM Control Area in megawatt-hours during the Operating Day; and (iv) deviations of energy sales from the Day-ahead Energy Market from within the PJM Control Area to load outside the PJM Control Area in megawatt-hours during that Operating Day, but not including its bilateral transactions that are dynamically scheduled to load outside the PJM Control Area pursuant to Section 1.12.

      (i)   At the end of each Operating Day, Market Sellers shall be credited on the basis of their offered prices for synchronized condensing for any hydropower or combustion turbine units operated as synchronous condensers but producing no energy, as well as the credits calculated as specified in Section 3.2.3(b) for those generators committed solely for the purpose of providing spinning reserves, at the request of the Office of the Interconnection.

      (j)   The sum of the foregoing credits as specified in Section 3.2.3(b) shall be the cost of Operating Reserves for synchronized condensing for the Operating Day in the PJM Control Area.

      (k)   The cost of Operating Reserves for synchronized condensing for each Operating Day shall be allocated and charged to each Market Participant in proportion to the sum of its (i) deliveries of energy to load in the PJM Control Area, served under Network Transmission Service, in megawatt-hours during that Operating Day; and (ii) deliveries of energy sales from within the PJM Control Area to load outside the PJM Control Area in megawatt-hours during that Operating Day, but not including its bilateral transactions that are dynamically scheduled to load outside the PJM Control Area pursuant to Section 1.12.

      (l)   For any Operating Day in either, as applicable, the Day-ahead Energy Market or the Real-time Energy Market for which, for all or any part of such Operating Day, the Office of the Interconnection: (i) declares a Maximum Generation Emergency; (ii) issues an alert that a Maximum Generation Emergency may be declared ("Maximum Generation Emergency Alert"); or (iii) schedules units based on the anticipation of a Maximum Generation Emergency or a Maximum Generation Emergency Alert, the Operating Reserves credit otherwise provided by Section 3.2.3.(b) or Section 3.2.3(e) in connection with marked-based offers shall be limited as provided in paragraphs (n) or (m), respectively. The Office of the Interconnection shall provide timely notice on its internet site of the commencement and termination of any of the actions described in clause (i), (ii), or (iii) of this paragraph (l) (collectively referred to as "MaxGen Conditions"). Following the posting of notice of the commencement of a MaxGen Condition, a Market Seller may elect to submit a cost-based offer in accordance with Schedule 2 of the Operating Agreement, in which case paragraphs (m) and (n) shall not apply to such offer; provided, however, that such offer must be submitted in accordance with the deadlines in Section 1.10 for the submission of offers in the Day-ahead Energy Market or Real-time Energy Market, as applicable. Submission of a cost-based offer under such conditions shall not be precluded by Section 1.9.7(b); provided, however, that the Market Seller must return to compliance with Section 1.9.7(b) when it submits its bid for the first Operating Day after termination of the MaxGen Condition.

      (m)   For the Real-time Energy Market, if the Effective Offer Price (as defined below) for a market-based offer is greater than $1,000/MWh, the Market Seller shall not receive any credit for Operating Reserves. If the Effective Offer Price is less than or equal to $1,000/MWh, the Market Seller shall receive credit for Operating Reserves determined in accordance with Section 3.2.3(e), subject to the limit on total compensation stated below. For purposes of this paragraph (m), the Effective Offer Price shall be the amount that, absent paragraphs (l) and (m), would have been credited for Operating Reserves for such Operating Day pursuant to Section 3.2.3(e) divided by the megawatthours of energy offered during the hours that the offer is economic, plus the offer for Spot Market Energy for the hours that the offer is economic. The hours that the offer is economic shall be the hours that the offer price for Spot Market Energy is less than or equal to the Real-time Price for the relevant generation bus. Notwithstanding any other provision in this paragraph, the total compensation to a Market Seller on any Operating Day that includes a MaxGen Condition shall not exceed $1,000/MWh during the hours that the unit is economic, where such total compensation in each such hour is defined as the amount that, absent paragraphs (l) or (m), would have been credited for Operating Reserves for such Operating Day pursuant to Section 3.2.3(e) divided by the number of hours that the offer is economic, plus the Real-time Price for such hour, and no Operating Reserves payments shall be made for any other hour of such Operating Day.

      (n)   For the Day-ahead Energy Market, if notice of a MaxGen Condition is provided prior to 12:00 noon on the day before the Operating Day for which transactions are being scheduled and the Effective Offer Price is greater than $1,000/MWh, the Market Seller shall not receive any credit for Operating Reserves. If notice of a MaxGen Condition is provided after 12:00 noon on the day before the Operating Day for which transactions are being scheduled and the Effective Offer Price is greater than $1,000/MWh, the Market Seller shall receive credit for Operating Reserves determined in accordance with Section 3.2.3(b), subject to the limit on total compensation stated below. If the Effective Offer Price is less than or equal to $1,000/MWh, regardless of when notice of a MaxGen Condition is provided, the Market Seller shall receive credit for Operating Reserves determined in accordance with Section 3.2.3(b), subject to the limit on total compensation stated below. For purposes of this paragraph (n), the Effective Offer Price shall be the amount that, absent paragraphs (l) and (n), would have been credited for Operating Reserves for such Operating Day divided by the megawatt hours of energy offered during the Specified Hours, plus the offer for Spot Market Energy during such hours. The Specified Hours shall be the lesser of: (1) the minimum run hours stated by the Market Seller in its Offer Data; and (2) either (i) for steam-electric generating units and for combined-cycle units when such units are operating in combined-cycle mode, the six consecutive hours of highest Day-ahead Price during such Operating Day when such units are running or (ii) for combustion turbine units and for combined-cycle units when such units are operating in combustion turbine mode, the two consecutive hours of highest Day-ahead Price during such Operating Day when such units are running. Notwithstanding any other provision in this paragraph, the total compensation to a Market Seller on any Operating Day that includes a MaxGen Condition shall not exceed $1,000/MWh during the Specified Hours, where such total compensation in each such hour is defined as the amount that, absent paragraphs (l) and (n), would have been credited for Operating Reserves for such Operating Day pursuant to Section 3.2.3(b) divided by the Specified Hours, plus the Day-ahead Price for such hour, and no Operating Reserves payments shall be made for any other hour of such Operating Day.

      3.2.4   Transmission Congestion.

      Each Market Buyer shall be charged or credited for Transmission Congestion Charges as specified in Section 5 of this Schedule.

      3.2.5   Transmission Losses.

      (a)   Whenever the Office of the Interconnection has in place appropriate computer hardware, software, and other necessary resources to account for marginal losses in the dispatch of energy and the calculation of Locational Marginal Prices, loss accounting shall be determined on that basis, and the provisions of this Section shall be revised accordingly. Until such time, the following accounting provisions for losses shall apply.

      (b)   Each Internal Market Buyer that is a Load Serving Entity or purchasing on behalf of a Load Serving Entity shall be credited in an amount equal to its pro rata share of the hourly total amounts collected from Transmission Customers either as charges for transmission losses in the PJM Control Area as specified in Section 3.4.2 or for transmission losses supplied in kind in accordance with Section 3.4.2(c) based on the Locational Marginal Price at the interface where such losses were delivered. This credit shall be determined by the ratio of the Internal Market Buyer's total hourly load, divided by the total hourly load in the PJM Control Area.

      (c)   PJM Control Area 500 kV losses shall be allocated to each Electric Distributor that reports hourly net energy flows from metered tie lines in proportion to its hourly load in the PJM Control Area.

      3.2.6   Emergency Energy.

      (a)   Internal Market Buyers shall be allocated a proportionate share of the net cost of Emergency energy purchased by the Office of the Interconnection. Such allocated share shall be determined in proportion to the amount of net PJM Interchange Imports by each Internal Market Buyer during the hour of each such energy purchase.

      (b)   Net revenues in excess of Real-time Prices attributable to sales of energy in connection with Emergencies to other Control Areas shall be credited to Internal Market Buyers in proportion to the amount of net PJM Interchange Imports by each Internal Market Buyer during each hour of such energy sales.

      (c)   The costs, revenues, and energy associated with hourly energy purchased from another Control Area in connection with a Minimum Generation Emergency in such other Control Area, shall be allocated to each Internal Market Buyer in proportion to its load in the PJM Control Area during the hour of such purchases.

      3.2.7   Billing.

      (a)   The Office of the Interconnection shall prepare a billing statement each billing cycle for each Market Buyer in accordance with the charges and credits specified in Sections 3.2.1 through 3.2.6 of this Schedule, and showing the net amount to be paid or received by the Market Buyer. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Buyer's internal accounting.

      (b)   If deliveries to a Market Buyer that has PJM Interchange meters in accordance with Section 14 of the Operating Agreement include amounts delivered for a Market Participant that does not have PJM Interchange meters separate from those of the metered Market Buyer, the Office of the Interconnection shall prepare a separate billing statement for the unmetered Market Participant based on the allocation of deliveries agreed upon between the Market Buyer and the unmetered Market Participant specified by them to the Office of the Interconnection.

   3.3   Market Sellers.

   Except as provided in the following sentence, the accounting and billing principles and procedures applicable to Generating Market Buyers functioning as Market Sellers shall be as set forth in Section 3.2. This Section sets forth the accounting and billing principles and procedures applicable to all other Market Sellers, and to Generating Market Buyers functioning as Market Sellers with respect to any matters not specified in Section 3.2.

      3.3.1   Spot Market Energy.

      (a)   Market Sellers shall be paid for all energy scheduled to be delivered in the Day-ahead Energy Market at the Day-ahead Prices applicable to each relevant generation bus.

      (b)   At the end of each hour during an Operating Day, the Office of the Interconnection shall determine the total net amount of energy delivered in the hour to the PJM Control Area by each of the Market Seller's resources, in accordance with the PJM Manuals and the calculation described in Section 3.2.1(f).

      (c)   The Office of the Interconnection shall calculate Day-ahead and Real-time Prices for each generation and load bus in the PJM Control Area, including the bus at each point of interconnection between the PJM Control Area and each adjacent Control Area, in accordance with Section 2 of this Schedule.

      (d)   A Market Seller shall be credited for Real-time sales of Spot Market Energy to the extent of its hourly net deliveries to the PJM Control Area of energy in excess of amounts scheduled in the Day-ahead Energy Market from the Market Seller's resources. For pool External Resources, the Office of the Interconnection shall model, based on an appropriate flow analysis, the hourly amounts delivered from each such resource to the corresponding interface point between the PJM Control Area and adjacent Control Areas. The total real-time generation revenues for each Market Seller shall be the sum of its credits determined by the product of (i) the hourly net amount of energy delivered to the PJM Control Area at the applicable generation or interface bus in excess of the amount scheduled to be delivered in that hour at that bus in the Day-ahead Energy Market from each of the Market Seller's resources, times (ii) the hourly Real-time Price at that bus. To the extent that the energy actually injected at a generation or interface bus in any hour is less than the energy scheduled to be injected at that bus in the Day-ahead Energy Market, the Market Seller shall be debited for the difference at the Real-time Price for the applicable bus at the time of the shortfall times the amount of the shortfall. The total generation revenue for each Market Seller shall be the sum, for each of the Market Seller's generation or interface buses, of the revenues at Day-ahead Prices determined in accordance with the Day-ahead Energy Market as specified in Section 3.3.1(a) plus the revenues at Real-time Prices determined as specified herein, net of any debits specified herein for each of the Market Seller's generation or interface buses.

      3.3.2   Regulation.

      Each Market Seller that is also an Internal Market Buyer shall have an hourly Regulation objective and shall be credited or charged in connection therewith as specified in Section 3.2.2. All other Market Sellers supplying Regulation at the direction of the Office of the Interconnection shall be credited for each increment of such Regulation at the price specified in Section 3.2.2(b), as determined by the Office of the Interconnection in accordance with procedures specified in the PJM Manuals.

      3.3.3   Operating Reserves.

      A Market Seller shall be credited for its pool-scheduled resources based on the prices offered for the operation of such resource, provided that the resource was available for the entire time specified in the Offer Data for such resource, in accordance with the procedures set forth in Section 3.2.3.

      3.3.4   Emergency Energy.

      The costs and net revenues associated with hourly energy sales to other Control Areas in connection with a Minimum Generation Emergency in the PJM Control Area shall be allocated to Market Sellers in proportion to their sales to the PJM Interchange Energy Market from generation resources within the metered boundaries of the PJM Control Area in each hour in which such energy was sold to other Control Areas.

      3.3.5   Billing.

      The Office of the Interconnection shall prepare a billing statement each billing cycle for each Market Seller in accordance with the charges and credits specified in Sections 3.3.1 through 3.3.4 of this Schedule, and showing the net amount to be paid or received by the Market Seller. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Seller's internal accounting.

   3.4   Transmission Customers.

      3.4.1   Transmission Congestion.

      Each Transmission Customer shall be charged and credited for Transmission Congestion Charges as specified in Section 5 of this Schedule.

      3.4.2   Transmission Losses.

      (a)   Whenever the Office of the Interconnection has in place appropriate computer hardware, software, and other necessary resources to account for marginal losses in the dispatch of energy and the calculation of Locational Marginal Prices, loss accounting shall be determined on that basis, and the provisions of this Section shall be revised accordingly. Until such time, the following accounting provisions for losses shall apply.

      (b)   Transmission Customers shall be charged for transmission losses in an amount equal to the product of (i) the Transmission Customer's megawatt-hours of deliveries using Point-to-Point Transmission Service, times (ii) the appropriate loss factor for deliveries using Point-to-Point Transmission Service, times (iii) the weighted average Day-ahead or Real-time Price, as applicable, for all load busses in the PJM Control Area. The foregoing average hourly loss factor shall be: (i) determined by the Office of the Interconnection from time to time as conditions affecting losses shall warrant; and (ii) calculated separately for on-peak and off-peak hours on the basis of the average ratio of losses to load served in each such period.

      (c)   A Transmission Customer may elect to pay for losses in kind, rounded off to the nearest whole megawatt, rather than as specified above if its total deliveries in an hour using Point-to-Point Transmission Service are greater than 200 megawatts. If it so elects, the Transmission Customer's specified source for the energy to be delivered using Point-to-Point Transmission Service may be scheduled to supply to the PJM Control Area boundary an amount of energy equal to the delivery schedule plus the amount of losses determined by applying the appropriate hourly loss factor as specified above to the delivered amount.

      3.4.3   Billing.

      The Office of the Interconnection shall prepare a billing statement each billing cycle for each Transmission Customer in accordance with the charges and credits specified in Sections 3.4.1 through 3.4.2 of this Schedule, and showing the net amount to be paid or received by the Transmission Customer. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Transmission Customer's internal accounting.

   3.5   Other Control Areas.

      3.5.1   Energy Sales.

      To the extent appropriate in accordance with Good Utility Practice, the Office of the Interconnection may sell energy to an interconnected Control Area as necessary to alleviate or end an Emergency in that Control Area. Such sales shall be made (i) only to Control Areas that have undertaken a commitment pursuant to a written agreement with the LLC to sell energy on a comparable basis to the PJM Control Area, and (ii) only to the extent consistent with the maintenance of reliability in the PJM Control Area. The Office of the Interconnection may decline to make such sales to a Control Area that the Office of the Interconnection determines does not have in place and implement Emergency procedures that are comparable to those followed in the PJM Control Area. If the Office of the Interconnection sells energy to an interconnected Control Area as necessary to alleviate or end an Emergency in that Control Area, such energy shall be sold at 150% of the Real-time Price at the bus or busses at the border of the PJM Control Area at which such energy is delivered.

      3.5.2   Operating Margin Sales.

      The extent appropriate in accordance with Good Utility Practice, the Office of the Interconnection may sell Operating Margin to an interconnected Control Area as requested to alleviate an operating contingency resulting from the affect of the purchasing Control Area's operations on the dispatch of resources in the PJM Control Area. Such sales shall be made only to Control Areas that have undertaken a commitment pursuant to a written agreement with the Office of the Interconnection (i) to purchase Operating Margin whenever the purchasing Control Area's operations will affect the dispatch of resources in the PJM Control Area, and (ii) to sell Operating Margin on a comparable basis to the LLC.

      3.5.3   Transmission Congestion.

      Each Control Area purchasing Operating Margin shall be assessed Transmission Congestion Charges as specified in Section 5.1.5 of this Schedule.

      3.5.4   Billing.

      The Office of the Interconnection shall prepare a billing statement each billing cycle for each Control Area to which Emergency energy or Operating Margin was sold, and showing the net amount to be paid by such Control Area. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts.

   3.6   Metering Reconciliation.

      3.6.1   Meter Correction Billing.

      Metering errors and corrections will be reconciled at the end of each month by a meter correction charge or credit. The monthly meter correction charge or credit shall be determined by the product of the positive or negative deviation in energy amounts, times the weighted average Locational Marginal Price for all load busses in the PJM Control Area.

      3.6.2   Meter Corrections Between Market Participants.

      If a Market Participant or the Office of the Interconnection discovers a meter error affecting an interchange of energy with another Market Participant and makes the error known to such other Market Participant prior to the completion by the Office of the Interconnection of the accounting for the interchange, and if both Market Participants are willing to adjust hourly load records to compensate for the error and such adjustment does not affect other parties, an adjustment in load records may be made by the Market Participants in order to correct for the meter error, provided corrected information is furnished to the Office of the Interconnection in accordance with the Office of the Interconnection's accounting deadlines. No such adjustment may be made if the accounting for the Operating Day in which the interchange occurred has been completed by the Office of the Interconnection.

      3.6.3   500 kV Meter Errors.

      Billing cycle accounting for 500 kV transmission losses shall be adjusted to account for errors in meters on 500 kV Transmission Facilities.

      3.6.4   Meter Corrections Between Control Areas.

      An error between accounted for and metered interchange between a Party in the PJM Control Area and an entity in another Control Area shall be corrected by adjusting the hourly meter readings. If this is not practical, the error shall be accounted for by a correction at the end of the billing cycle. The Market Participant with ties to such other Control Area experiencing the error shall account for the full amount of the discrepancy and an appropriate debit or credit shall be applied equally among all Market Buyers. The Office of the Interconnection will adjust the actual interchange between the PJM Control Area and the other Control Area to maintain a proper record of inadvertent energy flow. Meter corrections on the 500 kV system between the PJM Control Area and other Control Areas shall be accounted for through the internal 500 kV system meter error allocation at the end of the billing cycle.

      3.6.5   Meter Correction Data.

      Meter error data shall be submitted to the Office of the Interconnection not later than noon on the second working day of the Office of the Interconnection after the end of the billing cycle applicable to the meter correction.

      3.6.6   Correction Limits.

      A Market Participant may not assert a claim for an adjustment in billing as a result of a meter error for any error discovered more than two years after the date on which the metering occurred. Any claim for an adjustment in billing as a result of a meter error shall be limited to bills for transactions occurring in the most recent annual accounting period of the billing Market Participant in which the meter error occurred, and the prior annual accounting period.

4.   RATE TABLE

   4.1   Offered Price Rates.

   Spot Market Energy, Regulation, Operating Reserve, and Transmission Congestion are based on offers to the Office of the Interconnection specified in this Agreement.

   4.2   Transmission Losses.

   Average loss factors shall be as specified in the PJM Tariff.

   4.3   Emergency Energy Purchases.

   The pricing for Emergency energy purchases will be determined by the Office of the Interconnection and: (a) an adjacent Control Area, in accordance with an agreement between the Office of the Interconnection and such adjacent Control Area, or (b) a Member, in accordance with arrangements made by the Office of Interconnection to purchase energy offered by such Member from resources that are not Capacity Resources.

5.   CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS

   5.1   Transmission Congestion Charge Calculation.

     5.1.1   Calculation by Office of the Interconnection.

      When the transmission system is operating under constrained conditions, the Office of the Interconnection shall calculate Transmission Congestion Charges for each Network Service User, the PJM Interchange Energy Market, and each Transmission Customer.

      5.1.2   General.

      The basis for the Transmission Congestion Charges shall be the differences in the Locational Marginal Prices between points of delivery and points of receipt, as determined in accordance with Section 2 of this Schedule.

      5.1.3   Network Service User Calculation.

      Each Network Service User shall be charged for the increased cost of energy incurred by it during each constrained hour to deliver the output of its firm Capacity Resources or other owned or contracted for resources, its firm bilateral purchases, and its non-firm bilateral purchases as to which it has elected to pay Transmission Congestion Charges. The Transmission Congestion Charge for deliveries from each such source shall be the Network Service User's hourly net bill less its hourly net PJM Interchange payments or sales as determined in accordance with Section 3.2.1 or Sections 3.3 and 3.3.1 of this Schedule.

      5.1.4   Transmission Customer Calculation.

      Each Transmission Customer using Firm Point-to-Point Transmission Service (as defined in the PJM Tariff), and each Transmission Customer using Non-Firm Point-to-Point Transmission Service (as defined in the PJM Tariff) that has elected to pay Transmission Congestion Charges, shall be charged for the increased cost of energy during constrained hours for the delivery of energy using Point-to-Point Transmission Service. Except as specified in this subsection, a Transmission Congestion Charge shall be assessed for transmission use scheduled in the Day-ahead Energy Market, calculated as the amount to be delivered multiplied by the difference between the Day-ahead Price at the delivery point or PJM Control Area boundary delivery interface and the Day-ahead Price at the source point or PJM Control Area boundary source interface. Transmission Congestion Charges shall be assessed for real-time transmission use in excess of the amounts scheduled for each hour in the Day-ahead Energy Market, calculated as the excess amount multiplied by the difference between the Real-time Price at the delivery point or PJM Control Area boundary delivery interface, and the Real-time Price at the source point or PJM Control Area boundary source interface. A Transmission Customer shall be credited for Transmission Congestion Charges for real-time transmission use falling below the amounts scheduled for each hour in the Day-ahead Energy Market, calculated as the shortfall amount multiplied by the difference between the Real-time Price at the delivery point or PJM Control Area boundary delivery interface, and the Real-time Price at the source point or PJM Control Area boundary source interface. Real-time deviations from the Point-to-Point Transmission Service scheduled in the Day-ahead Energy Market shall be determined by the lesser of the real-time injection or withdrawal associated with such transmission service. The Transmission Congestion Charge for Market Sellers using point-to-point transmission service for deliveries out of the PJM Control Area from generating resources within the PJM Control Area shall be the amount of its net bill less the Market Seller's net hourly PJM Interchange payments or sales as determined in accordance with Section 3.3 of this Schedule.

      5.1.5   Operating Margin Customer Calculation.

      Each Control Area purchasing Operating Margin shall be assessed Transmission Congestion Charges for any the increase in the cost of energy resulting from the provision of Operating Margin. The Transmission Congestion Charge shall be the amount of Operating Margin purchased in an hour multiplied by the difference in the Real-time Price at what would be the delivery interface and the Real-time Price at what would be the source interface, if the operating contingency that was the basis for the purchase of Operating Margin had occurred in that hour. Operating Margin may be allocated among multiple source and delivery interfaces in accordance with an applicable load flow study.

      5.1.6   Transmission Loading Relief Customer Calculation.

   (a)   Each Transmission Loading Relief Customer shall be assessed Transmission Congestion Charges for any increase in the cost of energy in the PJM Control Area resulting from its energy schedules over contract paths outside the PJM Control Area during Transmission Loading Relief.

   (b)   The Transmission Congestion Charge shall be the total amount of energy specified in such energy schedules multiplied by the difference between a Locational Marginal Price calculated by the Office of the Interconnection for the energy schedule source location specified in the NERC Interchange Distribution Calculator and a Locational Marginal Price calculated by the Office of the Interconnection for the energy schedule sink location specified in the NERC Interchange Distribution Calculator. Transmission Congestion Charges that are less than zero shall be set equal to zero for Transmission Loading Relief Customers.

   (c)   The Office of the Interconnection will determine the Locational Marginal Prices at the energy schedule source and sink locations external to PJM with reference to and based solely on the prices of energy in the PJM Control Area and at the interface buses between the PJM Control Area and adjacent Control Areas and the system conditions and actual power flow distributions as described by the PJM State Estimator program. The Office of the Interconnection will determine the Locational Marginal Prices at the external energy schedule source and sink locations and the resulting Congestion Charge based on the portion of the energy schedule that flows through the PJM Control Area as reflected by the flow distributions from the PJM State Estimator program.

      5.1.7   Total Transmission Congestion Charges.

      The total Transmission Congestion Charges collected by the Office of the Interconnection each hour will be the aggregate net amounts determined as specified in this Schedule. The Office of the Interconnection shall collect Transmission Congestion Charges for each hour the transmission system operates under constrained conditions.

   5.2   Transmission Congestion Credit Calculation.

      5.2.1   Eligibility.

      (a)   Except as provided in Section 5.2.1(b), each holder of a Fixed Transmission Right shall receive as a Transmission Congestion Credit a proportional share of the total Transmission Congestion Charges collected for each constrained hour.

      (b)   If a holder of a Fixed Transmission Right between specified delivery and receipt buses acquired the Fixed Transmission Right in a Fixed Transmission Rights Auction (the procedures for which are set forth in Part 7 of this Schedule 1) and (i) had an Increment Bid and/or Decrement Bid that was accepted by the Office of the Interconnection for an applicable hour in the Day-ahead Energy Market for delivery or receipt at or near delivery or receipt buses of the Fixed Transmission Right; and (ii) the result of the acceptance of such Increment Bid or Decrement Bid is that the difference in locational marginal prices in the Day-ahead Energy Market between such delivery and receipt buses is greater than the difference in locational marginal prices between such delivery and receipt buses in the Real-time Energy Market, then the Market Participant shall not receive any Transmission Congestion Credit, associated with such Fixed Transmission Right in such hour, in excess of one divided by the number of hours in the applicable month multiplied by the amount that the Market Participant paid for the Fixed Transmission Right in the Fixed Transmission Rights Auction.

      (c)   For purposes of Section 5.2.1(b) a bus shall be considered at or near the Fixed Transmission Right delivery or receipt bus if seventy-five percent or more of the energy injected or withdrawn at that bus and which is withdrawn or injected at any other bus is reflected in the constrained path between the subject Fixed Transmission Right delivery and receipt buses that were acquired in the Fixed Transmission Rights Auction.

      5.2.2   Fixed Transmission Rights.

      (a)   Transmission Congestion Credits will be calculated based upon the Fixed Transmission Rights held at the time of the constrained hour. Allocations of Fixed Transmission Rights shall be made to each Network Service User and Transmission Customer as specified below.

      (b)   Subject to the provisions of Section B of Attachment K of the PJM Tariff, on an annual basis by such deadline established by the Office of the Interconnection, each Network Service User shall designate a subset of its Network Resources for which Fixed Transmission Rights will be assigned. Fixed Transmission Rights shall be assigned for each Network Resource in a number of megawatts equal to or less than the installed capacity summer megawatt rating of each designated Network Resource, determined at the PJM Control Area transmission bus at which the designated Network Resource is connected. Each Fixed Transmission Right shall be to the aggregate load busses of the Network Service User in a Zone or, with respect to Non-Zone Network Load, to the border of the PJM Control Area. The sum of each Network Service User's assigned Fixed Transmission Rights for a Zone must be equal to or less than the Network Service User's peak load for that Zone as determined under Section 34.1 of the Tariff. The sum of each Network Service User's Fixed Transmission Rights for Non-Zone Network Load must be equal to or less than the Network Service User's transmission responsibility for Non-Zone Network Load as determined under Section 34.1 of the Tariff.

      (c)   Each Transmission Customer receiving firm Point-to-Point Transmission Service shall be assigned Fixed Transmission Rights; provided, however, that a Transmission Customer may notify the Office of Interconnection that it does not wish to receive any FTRs or wishes to receive FTRs only for certain Point or Points of Receipt and Point or Points of Delivery, in which event no FTRs or such reduced amount of FTRs shall be issued to the Transmission Customer. The Fixed Transmission Right for each instance of Point-to-Point Transmission Service shall be a number of megawatts equal to the megawatts of firm service being provided between the receipt and delivery points as to which the Transmission Customer has firm Point-to-Point Transmission Service.

      (d)   A Fixed Transmission Right, or the right to Transmission Congestion Credits attributable to a Fixed Transmission Right, may be sold or otherwise transferred by agreement, subject to compliance with such procedures as may be established by the Office of the Interconnection for verification of the rights of the purchaser or transferee.

      5.2.3   Target Allocation for Network Service Users.

      A target allocation of Transmission Congestion Credits for each Network Service User shall be determined for each of its Fixed Transmission Rights. Each Fixed Transmission Right shall be multiplied by the percent of the Network Service User's annual peak load assigned to each load bus multiplied by the difference calculated as the Network Service User's load bus Day-ahead Price minus the generation bus Day-ahead Price of the Network Resource associated with the Fixed Transmission Right. The total target allocation for each Fixed Transmission Right is the sum of the target allocations for each load bus. The total target allocation for each Network Service User for each hour is the sum of the total target allocations for each of the Network Service User's Fixed Transmission Rights.

      5.2.4   Target Allocation for other Holders.

      A target allocation of Transmission Congestion Credits for each Transmission Customer or entity holding an FTR acquired by other means shall be determined for each Fixed Transmission Right. Each Fixed Transmission Right shall be multiplied by the Day-ahead Price differences for the receipt and delivery points associated with the Fixed Transmission Right, calculated as the Day-ahead Price at the delivery point(s) minus the Locational Marginal Price at the receipt point(s). The total target allocation for the Transmission Customer for each hour shall be the sum of the target allocations associated with all of the Transmission Customer's Fixed Transmission Rights.

      5.2.5   Calculation of Transmission Congestion Credits.

      (a)   The total of all the target allocations determined as specified above shall be compared to the total Transmission Congestion Charges in each hour resulting from both the Day-ahead Energy Market and the Real-time Energy Market. If the total of the target allocations is less than the total of the Transmission Congestion Charges, the Transmission Congestion Credit for each Network Service User and Transmission Customer shall be equal to its target allocation. All remaining Transmission Congestion Charges shall be distributed as described below in Section 5.2.6 "Distribution of Excess Congestion Charges."

      (b)   If the total of the target allocations is greater than the total Transmission Congestion Charges for the hour resulting from both the Day-ahead Energy Market and the Real-time Energy Market, each holder of Fixed Transmission Rights shall be assigned a share of the total Transmission Congestion Charges in proportion to its target allocations.

      5.2.6   Distribution of Excess Congestion Charges.

      (a)   Excess Transmission Congestion Charges accumulated in a month shall be distributed to each holder of Fixed Transmission Rights in proportion to, but not more than, any deficiency in the share of Transmission Congestion Charges received by the holder during that month as compared to its total target allocations for the month.

      (b)   After the excess Transmission Congestion Charge distribution described in Section 5.2.6(a) is performed, any excess Transmission Congestion Charges remaining at the end of a month shall be distributed to each holder of Fixed Transmission Rights in proportion to, but not more than, any deficiency in the share of Transmission Congestion Charges received by the holder during the current calendar year, including previously distributed excess Transmission Congestion Charges, as compared to its total target allocation for the calendar year.

      (c)   Any excess Transmission Congestion Charges remaining at the end of a calendar year shall be distributed to Network Service Users and Transmission Customers purchasing Firm Point-to-Point Transmission Service in proportion to their Demand Charges for Network Service and their charges for Reserved Capacity for Firm Point-to-Point Transmission Service.

   5.3   Unscheduled Transmission Service (Loop Flow).

      (a)   When there are agreements between the Members (or the Office of the Interconnection on behalf of the Members) and others for compensation to be paid or received for unscheduled transmission service (loop flow) into or out of the PJM Control Area, the net compensation received shall be included in the total Transmission Congestion Charges that are distributed in accordance with Section 5.2.

      (b)   With respect to payments by the Office of the Interconnection to the New York Power Pool for the installation and operation of phase angle regulating facilities at Ramapo to control or limit unscheduled transmission service (loop flow), each Transmission Owner with revenue requirements under the PJM Tariff shall pay a share of the charges on a transmission revenue requirements ratio share basis.   

6.   "MUST-RUN" FOR RELIABILITY GENERATION

6.1   Introduction.

   The following procedures shall apply to any generation resource subject to the dispatch of the Office of the Interconnection that (a) is a generation resource for which construction commenced before July 9, 1996, and (b) as a result of transmission constraints, the Office of the Interconnection determines, in the exercise of Good Utility Practice, must be run in order to maintain the reliability of service in the PJM Control Area. The provisions of this Schedule shall otherwise apply to the scheduling, dispatch, operation and accounting treatment of such resources, to the extent not inconsistent with the provisions of this Section 6.

6.2   Identification of Facility Outages.

   Not later than one hour prior to the deadline specified in Section 1.10.1 of this Schedule, the Office of the Interconnection shall identify on the PJM Open Access Same-Time Information System any facility outage or other system condition which it has determined may give rise to a transmission constraint that may require, in order to maintain system reliability, the dispatch of one or more generation resources that otherwise would not be dispatched based on the merits of their offers to the PJM Interchange Energy Market.

6.3   Dispatch for Local Reliability.

      6.3.1   Request and Dispatch.

   In addition to the dispatch of generation by the Office of the Interconnection to maintain reliability on transmission facilities directly monitored by it, a Member that owns or leases with rights equivalent to ownership Transmission Facilities as defined in this Agreement or the Transmission Owners Agreement and that operates a local control center in accordance with Section 11.3.3 of this Agreement or a Market Operations Center in accordance with Section 1.7.5 of this Schedule, may request the Office of the Interconnection to dispatch generation in order to maintain reliability on any such Transmission Facilities that are not then directly

monitored by the Office of the Interconnection, subject to the rules and procedures in Section 6.3.2. The Office of the Interconnection shall dispatch generation to maintain reliability on such Transmission Facilities by incorporating the facilities in the State Estimator program described in Section 2.3 as set forth below, unless the Office of the Interconnection determines that such dispatch would adversely affect reliability in the PJM Control Area or would otherwise not be in accordance with Good Utility Practice.

      6.3.2   Designation of Facilities.

       The following rules and procedures shall apply to a Member request that the Office of the Interconnection dispatch generation on one or more Transmission Facilities that are not then directly monitored by the Office of the Interconnection.

a)   The Transmission Facilities that are the subject of the request must be among the facilities that comprise the Transmission System under the PJM Tariff;

b)   The Member shall provide modeling information for such Transmission Facilities and provide sufficient telemetry to the Office of the Interconnection such that power flows are observable by the State Estimator program described in Section 2.3; provided, however, that if an unreliable constrained condition exists and time does not permit such modeling and telemetry, the Member and the Office of the Interconnection may agree to use a representative surrogate for such Transmission Facilities in order to allocate the costs of the dispatch of generation using Locational Marginal Prices to maintain reliability on such Transmission Facilities, provided further that the Member shall expeditiously provide the modeling data and install the necessary facilities to incorporate the Transmission Facilities into the State Estimator program;

c)   The request shall constitute a request that such Transmission Facilities become and remain monitored by the Office of the Interconnection and subject to its dispatch control for a period of not less than ninety (90) days;

d)   The Member shall comply with all other operating procedures established by the Office of the Interconnection regarding dispatch for local reliability as set forth in the PJM Manuals.

6.4   Price Caps.

6.4.1   Applicability.

      (a)   Except as specified below, if, at any time, it is determined by the Office of the Interconnection in accordance with Sections 1.10.8 or 6.1 of this Schedule that any generation resource may be dispatched out of economic merit order to maintain system reliability as a result of limits on transmission capability, the prices for energy offered by such resource shall be capped at the levels specified below. If the Office of the Interconnection is able to do so, such prices shall be capped only during each hour when the transmission limit affects the schedule of the affected resource, and otherwise shall be capped for the entire Operating Day. The energy prices as capped shall be used to determine any Locational Marginal Price affected by the price of such resource.

      (b)   The energy bid price offered by any generation resource requested to be dispatched in accordance with Section 6.3 of this Schedule shall be capped at the levels specified below. If the Office of the Interconnection is able to do so, such prices shall be capped only during each hour when the affected resource is so scheduled, and otherwise shall be capped for the entire Operating Day. The energy prices as capped shall be used to determine any Locational Marginal Price affected by the price of such resource.

      (c)   Generation resources subject to a price cap shall be paid for energy at the applicable Locational Marginal Price.

      (d)   Price caps shall not be applicable to generation resources used to relieve the Western, Central and Eastern reactive limits in the PJM Control Area. In addition, price caps shall not be applicable to generation resources used to relieve any other transmission limit as to which the FERC has authorized the use of market based rates.

6.4.2   Level.

      The price cap shall be one of the amounts specified below, as specified in advance by the market Seller for the affected unit:

(i)   The weighted average Locational Marginal Price at the generation bus at which energy from the capped resource was delivered during a specified number of hours during which the resource was dispatched for energy in economic merit order, the specified number of hours to be determined by the Office of the Interconnection and to be a number of hours sufficient to result in a price cap that reflects reasonably contemporaneous competitive market conditions for that unit;

(ii)   The incremental operating cost of the generation resource as determined in accordance with Schedule 2 of this Agreement and the PJM Manuals, plus 10% of such costs; or

(iii)   An amount determined by agreement between the Office of the Interconnection and the Market Seller.

7.   FIXED TRANSMISSION RIGHTS AUCTIONS

   7.1   Auctions of Fixed Transmission Rights.

   Periodic auctions to allow Market Participants to acquire or sell Fixed Transmission Rights shall be conducted by the Office of the Interconnection in accordance with the provisions of this Section.

      7.1.1   Auction Period and Scope of Auctions.

      The period covered by an auction shall be the one-month period next following the date that the auction is conducted. The Office of the Interconnection shall offer for sale in the auction any remaining Fixed Transmission Rights capability for the month after taking into account all of the Fixed Transmission Rights already outstanding at the time of the auction. In addition, any holder of a Fixed Transmission Right for the period covered by an auction may offer such Fixed Transmission Right for sale in such auction. Each monthly auction will consist of a separate auction for on-peak Fixed Transmission Rights and a separate auction for off-peak Fixed Transmission Rights. Market Participants may bid for and acquire any number of Fixed Transmission Rights, provided that all Fixed Transmission Rights awarded are simultaneously feasible with each other and with all Fixed Transmission Rights outstanding at the time of the auction and not sold into the auction.

      7.1.2   Frequency and Time of Auctions.

      Fixed Transmission Rights auctions shall be held monthly. The bid and offer period shall open at 12:00 midnight (Eastern Prevailing Time) on the fifteenth (15th) business day preceding the month for which Fixed Transmission Rights are being auctioned and shall close at 12:00 midnight (Eastern Prevailing Time) on the tenth (10th) business day preceding the month for which Fixed Transmission Rights are being auctioned.

      7.1.3   Duration of Fixed Transmission Rights.

      Each Fixed Transmission Right acquired in a Fixed Transmission Rights auction shall entitle the holder to credits of Transmission Congestion Charges for the one-month period for which the Fixed Transmission Rights were auctioned.

   7.2   Fixed Transmission Rights Characteristics.

      7.2.1   Reconfiguration of Fixed Transmission Rights.

      Through an appropriate linear programming model, the Office of the Interconnection shall reconfigure the Fixed Transmission Rights offered or otherwise available for sale in any auction to maximize the value to the bidders of the Fixed Transmission Rights sold, provided that any Fixed Transmission Rights acquired at auction shall be simultaneously feasible in combination with those Fixed Transmission Rights outstanding at the time of the auction and not sold in the auction. The linear programming model shall, while respecting transmission constraints and the maximum MW quantities of the bids and offers, select the set of simultaneously feasible Fixed Transmission Rights with the highest net total auction value as determined by the bids of buyers and taking into account the reservation prices of the sellers.

      7.2.2   Specified Buses.

      Auction bids for Fixed Transmission Rights may specify any combination of receipt and delivery buses represented in the State Estimator model for which the Office of the Interconnection calculates and posts Locational Marginal Prices. Auction bids may specify receipt and delivery points from locations outside of the PJM Control Area to locations inside the PJM Control Area, from locations within the PJM Control Area to locations outside of the PJM Control Area, or to and from locations within the PJM Control Area.

      7.2.3   Transmission Congestion Charges.

      Fixed Transmission Rights, whether acquired at auction or otherwise, shall entitle holders thereof to credits only for Transmission Congestion Charges, and shall not confer a right to credits for payments arising from or relating to transmission congestion made to any entity other than the Office of the Interconnection.

   7.3   Auction Procedures.

      7.3.1   Role of the Office of the Interconnection.

      Fixed Transmission Rights auctions shall be conducted by the Office of the Interconnection in accordance with standards and procedures set forth in the PJM Manuals, such standards and procedures to be consistent with the requirements of this Schedule.

      7.3.2   Notice of Offer.

      A holder of a Fixed Transmission Right wishing to offer the Fixed Transmission Right for sale shall notify the Office of the Interconnection of any Fixed Transmission Rights to be offered. Each Fixed Transmission Right sold in an auction shall, at the end of the period for which the Fixed Transmission Rights were auctioned, revert to the offering holder or the entity to which the offering holder has transferred such Fixed Transmission Right, subject to the term of the Fixed Transmission Right itself and to the right of such holder or transferee to offer the Fixed Transmission Right in the next or any subsequent auction during the term of the Fixed Transmission Right.

      7.3.3   Pending Applications for Firm Service.

      (a)   Prior to the start of each auction bidding period, the Office of the Interconnection shall exert reasonable effort to complete its review of pending applications for Network Transmission Service and Firm Point-to-Point Transmission Service and to ascertain the corresponding Fixed Transmission Rights to be assigned to the entities receiving such service, subject to compliance with all applicable deadlines and other procedures by the applicant. Fixed Transmission Rights so assigned shall be included in the simultaneous feasibility test performed by the Office of the Interconnection for the auction.

      (b)   Fixed Transmission Rights may be assigned to entities requesting Network Transmission Service or Firm Point-to-Point Transmission Service only if such Fixed Transmission Rights are simultaneously feasible with all outstanding Fixed Transmission Rights, including Fixed Transmission Rights effective for the then-current auction period. If an assignment of Fixed Transmission Rights pursuant to a pending application for Network Transmission Service or Firm Point-to-Point Transmission Service cannot be completed prior to an auction, Fixed Transmission Rights attributable to such transmission service shall not be assigned for the then-current auction period. If a Fixed Transmission Right cannot be assigned for this reason, the applicant may withdraw its application, or request that the Fixed Transmission Right be assigned effective with the start of the next auction period.

      7.3.4   On-Peak and Off-Peak Periods.

      The Office of the Interconnection will conduct separate auctions simultaneously for on-peak and off-peak periods. On-Peak Fixed Transmission Rights shall cover the periods from 7:00 a.m. up to the hour ending at 11:00 p.m. on Mondays through Fridays, except holidays as defined in the PJM Manuals. Off-Peak Fixed Transmission Rights shall cover the periods from 11:00 p.m. up to the hour ending 7:00 a.m. on Mondays through Fridays and all hours on Saturdays, Sundays, and holidays as defined in the PJM Manuals. Each bid shall specify whether it is for an on-peak or off-peak period.

      7.3.5   Offers and Bids.

      (a)   Offers to sell and bids to purchase Fixed Transmission Rights shall be submitted during the period set forth in Section 7.1.2, and shall be in the form specified by the Office of the Interconnection in accordance with the requirements set forth below.

      (b)   Offers to sell shall identify the specific Fixed Transmission Right, by megawatt quantity and receipt and delivery points, offered for sale. An offer to sell a specified megawatt quantity of Fixed Transmission Rights shall constitute an offer to sell a quantity of Fixed Transmission Rights equal to or less than the specified quantity. An offer to sell may not specify a minimum quantity being offered. Each offer may specify a reservation price, below which the offeror does not wish to sell the Fixed Transmission Right. Offers submitted by entities holding rights to Fixed Transmission Rights acquired other than by assignment in connection with reservations of Network Transmission Service or Firm Point-to-Point Transmission Service shall be subject to such reasonable standards for the verification of the rights of the offeror as may be established by the Office of the Interconnection. Offers shall be subject to such reasonable standards for the creditworthiness of the offeror or for the posting of security for performance as the Office of the Interconnection shall establish.

      (c)   Bids to purchase shall specify the megawatt quantity, price per megawatt, and receipt and delivery points of the Fixed Transmission Right that the bidder wishes to purchase. A bid to purchase a specified megawatt quantity of Fixed Transmission Rights shall constitute a bid to purchase a quantity of Fixed Transmission Rights equal to or less than the specified quantity. A bid to purchase may not specify a minimum quantity that the bidder wishes to purchase. A bid may specify as receipt or delivery points any bus for which the Office of the Interconnection calculates and posts Locational Marginal Prices in accordance with Section 2 of this Schedule and may include Fixed Transmission Rights for which the associated Transmission Congestion Credits may have negative values. Bids shall be subject to such reasonable standards for the creditworthiness of the bidder or for the posting of security for performance as the Office of the Interconnection shall establish.

      (d)   Bids and offers shall be specified to the nearest tenth of a megawatt and shall be greater than zero.

      7.3.6   Determination of Winning Bids and Clearing Price.

      (a)   At the close of the bidding period each month, the Office of the Interconnection will create a base Fixed Transmission Rights power flow model that includes all outstanding Fixed Transmission Rights that have been approved and confirmed for any portion of the month for which the auction was conducted and that were not offered for sale in the auction. The base Fixed Transmission Rights model also will include estimated uncompensated parallel flows into each interface point of the PJM Control Area and estimated scheduled transmission outages.

      (b)   In accordance with the requirements of Section 7.4 of this Schedule and subject to all applicable transmission constraints and reliability requirements, the Office of the Interconnection shall determine the simultaneous feasibility of all outstanding Fixed Transmission Rights not offered for sale in the auction and of all Fixed Transmission Rights that could be awarded in the auction for which bids were submitted. The winning bids shall be determined from an appropriate linear programming model that, while respecting transmission constraints and the maximum MW quantities of the bids and offers, selects the set of simultaneously feasible Fixed Transmission Rights with the highest net total auction value as determined by the bids of buyers and taking into account the reservation prices of the sellers. In the event that there are two or more identical bids for the selected Fixed Transmission Rights and there are insufficient Fixed Transmission Rights to accommodate all of the identical bids, then each such bidder will receive a pro rata share of the Fixed Transmission Rights that can be awarded.

      (c)   Fixed Transmission Rights shall be sold at the market-clearing price for Fixed Transmission Rights between specified pairs of receipt and delivery points, as determined by the bid value of the marginal Fixed Transmission Right that could not be awarded because it would not be simultaneously feasible. The linear programming model shall determine the clearing prices of all Fixed Transmission Rights paths based on the bid value of the marginal Fixed Transmission Rights, which are those Fixed Transmission Rights with the highest bid values that could not be awarded fully because they were not simultaneously feasible, and based on the flow sensitivities of each Fixed Transmission Rights path relative to the marginal Fixed Transmission Rights paths flow sensitivities on the binding transmission constraints.

      7.3.7   Announcement of Winners and Prices.

      Within two (2) business days after the close of an auction, the Office of the Interconnection shall post the winning bidders, the megawatt quantity, and the receipt and delivery points for each Fixed Transmission Right awarded in the auction and the price at which each Fixed Transmission Right was awarded. Results of the on-peak auction and off-peak auction will be posted separately. The Office of the Interconnection shall not disclose the price specified in any bid to purchase or the reservation price specified in any offer to sell.

      7.3.8   Auction Settlements.

      All buyers and sellers of Fixed Transmission Rights between the same points of receipt and delivery shall pay or be paid the market-clearing price, as determined in the auction, for such Fixed Transmission Rights.

      7.3.9   Allocation of Auction Revenues.

      All auction revenues, net of payments to entities selling Fixed Transmission Rights into the auction, shall be allocated among the Regional Transmission Owners in proportion to their respective transmission revenue requirements.

   7.4   Simultaneous Feasibility.

   The Office of the Interconnection shall make the simultaneous feasibility determinations specified herein using appropriate powerflow models of contingency-constrained dispatch. Such determinations shall take into account outages of both individual generation units and transmission facilities and shall be based on reasonable assumptions about the configuration and availability of transmission capability during the period covered by the auction that are not inconsistent with the determination of the deliverability of Capacity Resources under the Reliability Assurance Agreement. The goal of the simultaneous feasibility determination shall be to ensure that there are sufficient revenues from Transmission Congestion Charges to satisfy all Fixed Transmission Rights obligations for the auction period under expected conditions.

8.   INTERREGIONAL TRANSMISSION CONGESTION MANAGEMENT

PILOT PROGRAM

8.1   Introduction.

   The following procedures shall govern the redispatch of generation to alleviate transmission congestion on selected pathways on the transmission systems operated by the Office of the Interconnection and the New York ISO ("NYISO"). The procedures shall be used solely when, in the exercise of Good Utility Practice, the Office of the Interconnection or NYISO determines that the redispatch of generation units on the other's transmission system would reduce or eliminate the need to resort to Transmission Loading Relief or other transmission-related emergency procedures.

8.2   Identification of Transmission Constraints.

   (a)   On a periodic basis determined by the Office of the Interconnection and NYISO, the Office of the Interconnection and NYISO shall identify potential transmission operating constraints that could result in the need to use Transmission Loading Relief or other emergency procedures in order to alleviate the transmission constraints, the need for which could be reduced or eliminated by the redispatch of generation on the other's system.

   (b)   In addition to the identification of such potential transmission operating constraints, the Office of the Interconnection and NYISO shall identify generation units on the other's system, the redispatch of which would alleviate the identified transmission constraints.

   (c)   From the identified transmission constraints, the Office of the Interconnection and NYISO shall agree in writing on the transmission operating constraints and redispatch options that shall be subject to Section 8 of this Schedule until otherwise agreed. In reaching such agreement, the Office of the Interconnection shall endeavor reasonably to limit the number of transmission constraints that are subject to Section 8 of this Schedule so as to minimize potential cost shifting among market participants in the PJM Control Area and the control area of NYISO resulting from the redispatch of generation under Section 8 of this Schedule. The Office of the Interconnection shall post the transmission operating constraints that are subject to Section 8 of this Schedule on PJM's internet site.

8.3   Redispatch Procedures.

   If (i) a transmission constraint subject to Section 8 of this Schedule occurs and continues or reasonably can be expected to continue after the exhaustion of all economic alternatives that are reasonably available to the transmission system on which the constraint occurs and (ii) the Office of the Interconnection or NYISO, as applicable, has determined that it must either use Transmission Loading Relief or other emergency procedures, then (iii) the affected entity may request the other to redispatch one or more of the previously identified generation units to alleviate the transmission constraint. Upon such request, the Office of the Interconnection or NYISO, as applicable, shall redispatch such generation if it is then subject to its dispatch control and such redispatch is consistent with Good Utility Practice.

8.4   Locational Marginal Price.

   (a)   In the event that the Office of the Interconnection requests that NYISO redispatch generation under this Section 8, the Office of the Interconnection shall include the generator's offer price (in the NYISO energy market) in a reference price at the appropriate NYISO generator bus in the PJM State Estimator and in the calculation of Real-time Prices and shall include the cost of any applicable start-up and no-load fees in the cost of Operating Reserves for the Real-time Energy Market; provided, however, that if the energy offer price plus any applicable start-up or no-load fees exceeds $1000/megawatt-hour, then the entire cost of the redispatch will be included in the cost of Operating Reserves for the Real-time Energy Market and will not be included in the Real-time Prices calculation.

   (b)   The redispatch of a generator by the Office of the Interconnection in response to a request from NYISO under Section 8 of this Schedule shall not be included in the determination of Locational Marginal Prices under Section 2 of this Schedule.

8.5   Generator Compensation.

   Generators that have increased or decreased generation output above or below the level that would otherwise represent the economic dispatch level and as a result of a request made pursuant to this Section 8 (the "MWh Adjustment") shall be compensated based on the following:

   (a)   For a positive MWh Adjustment:

Payment to Generator = MWh Adjustment * (unit offer price - marginal price at the generator bus) + any applicable start-up or no-load costs not recovered by the marginal price

   (b)   For a negative MWh Adjustment:

Payment to Generator = |MWh Adjustment| * (marginal price at the generator bus - unit offer price) + any applicable start-up or no-load costs not recovered by the marginal price

8.6   Settlements.

   (a)   If NYISO redispatches generation under this Section 8, then the Office of the Interconnection shall include in its monthly accounting and billing a payment to NYISO for the costs of such redispatch as determined in accordance with Section 8.5.

   (b)   If the Office of the Interconnection redispatches generation under this Section 8, then it shall include in its monthly accounting and billing a credit to each redispatched generator calculated in accordance with Section 8.5. The Office of the Interconnection shall invoice NYISO and NYISO shall collect from its market participants and pay to the Office of the Interconnection on behalf of such market participants an amount equal to all such credits to generators.

   (c)   Unless there is a separate emergency energy transaction accompanying any generation adjustment under this Schedule 8, there shall be no adjustment in interchange between PJM and NYISO as a result of redispatch under this Schedule 8. In the event that an emergency energy transaction accompanies any generation adjustment, compensation for such transaction shall be at the rates for emergency purchases and sales which have been approved by the FERC, as they may be amended from time-to-time.

8.7   Effective Date.

   Section 8 of this Schedule shall become effective only upon (a) approval or acceptance by the Federal Energy Regulatory Commission and (b) approval or acceptance by the Federal Energy Regulatory Commission of any comparable amendments to rate schedules of NYISO, if required.

PJM 2001-2002 Load Response Pilot Program

Table of Contents

	Option 1: Emergency Load Response Program	119D
	Participant Qualifications	119D
	Metering Requirements	119F
	Registration	119G
	Implementation	119G
	Verification	119H
	Market Settlements	119I
	Reporting	119I
	Option 2: Economic Load Response Program	119J
	Participant Qualifications	119J
	Metering Requirements	119K
	Registration	119L
	Implementation/Operations	119M
	Verification	119M
	Market Settlements	119N
	Reporting	119O
Special Application for PJM Membership (For Emergency Load Response Pilot Program ONLY)		119P
Load Response Pilot Program Registration		119Q
Meter Data File Format		119S
Load Response Examples		119T
	Example 1	119T
	Example 2	119U

PJM Load Response Pilot Program

The PJM wholesale energy market has enjoyed unparalleled growth and activity since its inception in April of 1997. As a result of its overall liquidity and the flexibility provided to its participants, the PJM market is widely regarded as one of the more successful in existence. However, like other wholesale electric energy markets, when supply is short the wholesale price of energy in PJM can rise to extreme levels. Greater efficiency would exist in the PJM marketplace, and indeed the existing $1,000/MWh cap on generator bids might not even be necessary, if the load in PJM could respond to high prices and reduce demand during times of short supply.

The main obstacle to garnering price-responsive load in the PJM system is the fact that most end-use customers are not exposed to real time prices. Traditionally, Load-Serving Entities (LSEs) within the PJM control area have been required to provide retail electric service to their customers at rates approved by the applicable states' regulatory bodies. Limitation to these regulated retail rates continued even under wholesale deregulation and retail customer choice due to stranded cost agreements between existing, vertically integrated Investor-Owned Utilities (IOUs) and these same regulatory agencies. As a result of these retail price caps, LSEs may pay more for energy in the wholesale market than they collect from their retail customers during times when the wholesale energy price in the PJM market rises above the applicable retail rate. Savings could be realized by LSEs in the amount of the difference between the wholesale energy price and the capped retail rate in these instances if end-use customers would reduce their load. These savings could then be shared with the end-use customer resulting in an effective payment for the load reduction.

In the past, the only entity in a position to request a customer to reduce load and share any such savings was the LSE that actually served that customer's load. However, that LSE may not desire or be able to provide the necessary infrastructure (metering, communications, accounting, etc.) to accomplish and monitor the load reduction at a cost that makes the reduction economically attractive for both parties. Other parties may be able to provide such services though, if they were able to benefit from the associated price differentials.

The PJM Load Response Pilot Program is divided into two options. On any given day, a customer may choose to participate in only one of the two options. The first option is designed to provide a method by which end-use customers may be compensated for reducing load in an emergency. The second option will provide a mechanism by which any qualified market participant may offer end-use customers the opportunity to reduce the load they draw from the PJM system during times of high prices and share the relative savings. Neither option is intended to be a replacement for Active Load Management (ALM), but rather an alternate method by which distributed resources and customers capable of reducing load can participate in PJM operations and markets. This document provides a summary of and detailed procedures for the program.

The pilot program will be effective June 1, 2001 and expire on May 31, 2002.

Option 1: Emergency Load Response Program

Participant Qualifications

Two primary types of distributed resources are candidates to participate in the PJM Emergency Load Response Pilot Program:

• A participant that has the ability to supply required load via local generators

  • These generators must be non-synchronized to the grid or synchronized to the grid with no net export to the grid, while serving local load. Participation in this program does not negate any local requirements for generators, whether synchronized or not.

• A participant that has the ability to reduce a measurable and verifiable portion of its load

• PJM membership is required to participate in the Emergency Load Response Pilot Program. Special membership provisions have been established for pilot program participants, as outlined in the Attachment. Any existing PJM Member may act as a third party for non-members, in which case the third party will be referred to as the Curtailment Service Provider (CSP). All payments are made to the PJM Member. Participants must become signatories to the PJM Operating Agreement, as described in the PJM Manual for Administrative Services for the Operating Agreement of the PJM Interconnection, L.L.C. However, the $5,000 annual membership fee and the $1,500 application fee are waived, along with the following other modifications:

  • Limited to be PJM Market sellers
  • Waived voting privileges; waived sector designation
  • Provisional membership ends on 8/30/02
  • Thirty day notice for waiting period is waived
  • No requirement for 24/7 control center coverage
  • No PJM-supported user group capability is permitted
  • A participant, solely by virtue of its participation in the emergency pilot program, (i) shall have no liability under the PJM Operating Agreement (and shall not be included in the calculation of Weighted Interest); (ii) shall not be entitled to indemnification by the other Members under any provision of the Operating Agreement; and (iii) shall not be eligible to participate in any other manner in any markets managed by PJM.

To participate in the emergency pilot program, the distributed resource must:

• Be capable of reducing at least 100 kW of load

• Have the ability to participate for a total of at least 10 hours over the pilot operating period ending May 31, 2002.

• Be available any hours between 0900 and 2200 any or all days of the week

• Be capable of achieving full reduction within one hour of PJM's request to reduce

• Be capable of receiving PJM notification

PJM Technologies, Inc. shall not participate in the Emergency Load Response Pilot Program unless PJM makes a filing with the Federal Energy Regulatory Commission demonstrating that PJM Technologies, Inc. would not receive preferential treatment and should be allowed to participate.

Metering Requirements

The Load Response Pilot Program participants must have metering equipment that provides integrated hourly kWh values, for market settlement purposes, that either meets the EDC requirements for accuracy or has a maximum error of two percent end-to-end (including PTs and CTs). The metering requirements can be met using either of the following two methods:

• Metering that is capable of recording integrated hourly values for the actual net generation, not gross output (net of that used by the generator).

• Metering that provides actual load change by measuring actual load before and after the reduction request, such that there is a valid integrated hourly value for the hour prior to the event and each hour during the event. This value cannot be estimated nor can it be averaged over some historical period.

Metered load reductions will be adjusted up to consider transmission and distribution losses as determined by PJM.

The installed meter must be one of the following:

• EDC-owned hourly meter,

• Customer-owned meter including one provided by an independent metering service provider or acquired from the CSP, approved by the EDC, that is read electronically by PJM,

• Customer-owned meter including one provided by an independent metering service provider or acquired from the CSP, approved by the EDC, that is read by the customer (or the CSP), the readings from which are forwarded to PJM.

Nothing here changes the existence of one recognized meter by the state commissions as the official billing meter for recording consumption.

Registration

Participants must complete the PJM Emergency Load Response Pilot Program Registration Form that is posted on the PJM web site (www.pjm.com) and included as an attachment to this document. The following general steps will be followed:

1. The participant completes the PJM Emergency Load Response Pilot Program registration form located on the PJM web site.

   PJM reviews the application and ensures that the qualifications are met, including verifying that the appropriate metering exists. PJM also confirms with the appropriate LSE and EDC whether the load reduction is under other contractual obligations (e.g., LSE's ALM program). Other such obligations may not preclude participation in the program, but may require special consideration by PJM such that appropriate settlements are made within the confines of the existing contract. Specific procedures will exist for ALM customers as described in the Settlements section below. The EDC and LSE have two (2) business days to respond or PJM assumes acceptance.

2. PJM informs the requesting participant of the acceptance into the pilot program and notifies the appropriate LSE and EDC of the participant's acceptance into the program.

3. Any end-use customer intending to run distributed generating units in support of local load for the purpose of participating in this program must submit to PJM the applicable environmental permits for running those generators. In the event no environmental permitting has been obtained, written justification for the lack of permits must be provided to PJM.

Implementation

PJM will initiate the request for load reduction following the declaration of Maximum Emergency Generation and prior to the implementation of ALM Steps 1 and 2. (Implementation of the Emergency Load Response Pilot Program can be used for regional emergencies.) The purpose of Maximum Emergency Generation is to increase the PJM Control Area generation above the maximum economic level. It is implemented whenever generation is needed that is greater than the highest incremental cost. PJM will revise the emergency procedures to reflect the following steps:

1. The PJM Dispatcher issues Maximum Emergency Generation.

2. The PJM Dispatcher notifies PJM OI Management, PJM OI public information personnel, and Local Control Center dispatchers.

3. The PJM Dispatcher requests the need for emergency energy and contacts its neighboring control areas.

4. The PJM Dispatcher recalls off-system sales that are recallable (network resources).

5. The PJM Dispatcher begins to load Maximum Emergency Generation, requests load reductions from the Emergency Load Response Pilot Program participants, and begins to purchase emergency energy from PJM Members and from neighboring control areas based on economics and availability.

6. The PJM Dispatcher continues with the remaining emergency procedure steps (including ALM) as stated in the PJM Manual for Emergency Operations, and cancels them in reverse order when appropriate.

7. The PJM OI dispatcher cancels the load reduction request and then cancels Maximum Emergency Generation, when appropriate. The minimum duration of a load reduction request is two hours although the reduction request may be extended if necessary.

Due to the variety of conditions and the potential for the conditions to change rapidly, some emergency activities may not occur in this order. PJM posts the request for load reduction on the PJM web site, on the Emergency Conditions page, and on eData, and issues a burst email to the Emergency Load Response majordomo. A separate All-Call message is also issued.

Verification

PJM requires that the load reduction metering data be submitted to PJM within 45 days of the event. If the data are not received within 45 days, no payment for participation is provided. Meter readings must be provided for the hour prior to the event, as well as every hour during the event.

These data files are to be communicated to PJM either via the Load Response Pilot Program web site or email. Files that are emailed must be in the PJM-approved file format (see attachment). PJM will forward directly metered data to the appropriate Distribution Company immediately following an event for optional review. Meter data submitted after-the-fact will be forwarded to the EDC and LSE upon receipt, and these parties will then have five (5) business days to provide feedback to PJM. All load reduction data are subject to PJM Market Monitoring Unit audit.

Market Settlements

Reimbursement for reducing load is based on the actual kWh relief provided plus the adjustment for losses. The magnitude of relief provided can be less than, equal to, or greater than the kW amount declared on the Emergency Load Response Pilot Program Registration form.

PJM pays the higher of the appropriate zonal Locational Marginal Price (LMP) or $500/MWh to the PJM Member that nominates the load. The PJM Member is also assessed a $10 transaction fee per account for each event.

During emergency conditions, costs for emergency purchases in excess of the LMP are allocated among PJM members in proportion to their net purchases from the PJM energy market during the hour. Consistent with this pricing methodology, all charges under this pilot program are allocated to purchasers of energy, in proportion to their net purchases from the PJM energy market during the hour. If the Load Response participant is also an ALM customer and ALM is called for concurrent with this program, then payments will be made to the customer according to this program only for the time during which ALM obligations were not in effect. Any response in excess of the contracted ALM amount will be compensated under this program for the entire duration of response.

Pilot program charges and credits will appear on the PJM Members monthly bill, as described in the PJM Manual for Operating Agreement Accounting and the PJM Manual for Billing.

Reporting

Actual load reductions will be added back for the purpose of peak load calculations.

PJM will submit any required reports to FERC on behalf of the Load Response Pilot Program participants. PJM will also post this document, as well as any other program-related documentation on the PJM web site.

PJM will also report the names of those end-use customers who indicated that distributed generation would be run in support of the load reduction program to the EPA, together with the permitting information that was supplied upon registration.

At the conclusion of both the summer period and the pilot program, PJM will prepare a report that summarizes the pilot program and will submit it to the PJM Board of Managers, the Members Committee, the Reliability Committee, the Energy Market Committee, and the Operating Committee for review.

On or before December 28, 2001, PJM shall file with the Federal Energy Regulatory Commission and post on the PJM website an informational report that evaluates the effectiveness of the pilot program. To the extent possible, the informational report, among other things, shall contain the following:

•    A comparison of the amount of demand-side reduction obtained by the PJM members' demand side management programs during the year prior to the initiation of the pilot program and since the initiation of the pilot program.

•    A comparison of the amount of total demand-side reduction in PJM in the year prior to the initiation of the pilot program and since the initiation of the pilot program.

•    Relevant statistical information on pilot program participants.

•    An analysis of the impact of demand-side responsiveness implemented for purely economic purposes.

Option 2: Economic Load Response Program

Participant Qualifications

The same two types of distributed resources are also candidates to participate in the PJM Economic Load Response Pilot Program:

• A customer that has the ability to supply required load via local generators

• These generators must be either non-synchronized to the grid or synchronized to the grid with no net export to the grid while serving local load. Participation in this program does not negate any local requirements for generators, whether synchronized or not.

• A customer that has the ability to reduce a measurable and verifiable portion of its load

The Economic Option of the Load Response Pilot Program is intended to encourage broad participation in economic load reductions by any LSE's curtailable loads. LSEs arranging load reduction agreements with customers for whom they are the energy supplier are not required to register to participate in this program. These LSEs may wish to register for the program such that the load reduction calculations appear on their monthly bill as described in the Settlements section of these procedures. (In either case, data regarding expected load reductions is required from these LSEs, as described in the "Implementation/Operations" section of this document.) Only those PJM members arranging for load reductions with customers for whom another PJM member is the LSE are required to register for the program. PJM membership is required to participate, although any existing PJM Member may act as an agent for non-members in which case the agent will be referred to as the Curtailment Service Provider (CSP). All payments are made to the PJM Member. Participants must become signatories to the PJM Operating Agreement, as described in the PJM Manual for Administrative Services for the Operating Agreement of the PJM Interconnection, L.L.C.

To participate in the pilot program, the applicant must also meet the metering requirements as described in the next section.

PJM Technologies, Inc. shall not participate in the Economic Option of the Load Response Pilot Program unless PJM makes a filing with the Federal Energy Regulatory Commission demonstrating that PJM Technologies, Inc. would not receive preferential treatment and should be allowed to partiicpate.

Metering Requirements

The Economic Load Response Pilot Program participants must have metering equipment that provides integrated hourly kWh values, for market settlement purposes, that either meets the EDC requirements for accuracy or has a maximum error of two percent end-to-end (including PTs and CTs). The installed meter must be one of the following:

• EDC-owned hourly meter,

• Customer-owned meter including one provided by an independent metering service provider or acquired from the CSP, approved by the EDC, that is read electronically by PJM.

Nothing here changes the existence of one recognized meter by the state commissions as the official billing meter for recording consumption.

Note that various Internet applications now exist for transmission of real time metered data. Use of these applications is acceptable provided that PJM receives metered load reductions in a timely, reliable manner.

The metering requirements can be met using either of the following two methods:

• Metering that is capable of recording integrated hourly values for generation running to serve local load, (net of that used by the generators).

• Metering that continuously records the load drawn from a specific process or application and is capable of demonstrating that the process or application was halted for the purposes of a load reduction and not due to normal operations.

PJM may consider a metering basis other than those mentioned above if the method accurately represents a customer's normal load profile during the event. Suggestions for alternative methods by which load reductions may be measured may be approved by PJM for use in this program if negotiated in good faith and agreed to by all appropriate parties. PJM will consider such suggestions on a case-by-case basis and intends to study alternative measurement methods during the life of the pilot and report the results.

Metered load reductions will be adjusted up to consider transmission and distribution losses. (Exact methodology and rates to be determined.)

Registration

Participants must complete the PJM Economic Load Response Pilot Program Registration Form that is posted on the PJM web site (www.pjm.com) and included in an attachment to this document. The following general steps will be followed:

1. The participant completes the PJM Economic Load Response Pilot Program registration form located on the PJM web site. A separate registration form must be submitted for each customer.

2. PJM reviews the application and ensures that the qualifications are met, including verifying that the appropriate metering exists. PJM also confirms with the appropriate EDC and LSE whether the load reduction is under other contractual obligations (e.g., LSE's ALM program). Other such obligations may not preclude participation in the program, but may require special consideration by PJM such that appropriate settlements are made within the confines of the existing contract. Specific procedures will exist for ALM customers as described in the Settlements section below. The EDC and LSE have two (2) business days to respond or PJM assumes acceptance.

3. PJM informs the applicant of acceptance into the pilot program and notifies the appropriate LSE and EDC of the participant's acceptance into the program.

4. Any end-use customer intending to run distributed generating units in support of local load for the purpose of participating in this program must submit to PJM the applicable environmental permits for running those generators. In the event no environmental permitting has been obtained, written justification for the lack of permits must be provided to PJM.

Implementation/Operations

The Economic Load Response Pilot Program is not based on the declaration of emergency conditions in PJM, but rather on the economic decisions of the PJM market participants. That is, the participants in the Pilot Program are responsible for determining the conditions under which load reductions will actually take place and implementing the reductions should those conditions arise. The prime indicator of such conditions is assumed to be the Locational Marginal Price (LMP) of energy on the PJM system.

In order to maintain adequate system control, PJM operators will be required to know the amount of load expected to be reduced at varying price levels. These amounts may change on a daily basis. Each PJM market participant is therefore responsible for maintaining the load reduction information associated with each customer signed up for the program, including the amount and the price at which it will be reduced. The Load Response Pilot Program Registration/Update web site shall be used for this purpose. PJM will utilize the data that has been submitted via this site to compile daily aggregate load reductions on a zonal basis for use in operations.

Participants in the economic option may choose to reduce load whenever their zonal LMP dictates that it is economically beneficial for them to do so. Participants shall send an email to PJM (address to be supplied upon registration) concurrent with or immediately prior to accomplishing the reduction. Load reductions due to this program will not be eligible to set price on the PJM system.

Verification

For load reduction that is not metered directly by PJM (i.e. - is collected by the EDC), data is to be submitted to PJM within 45 days of the event. If the data is not received within 45 days, no payment for participation is provided. Meter readings must be provided for each hour during which load reduction was accomplished.

These data files are to be communicated to PJM either via the Load Response Pilot Program web site or email. Files that are emailed must be in the PJM-approved file format (see attachment). PJM will forward directly metered data to the appropriate EDC and LSE immediately following an event for optional review. Data files submitted after-the-fact will be forwarded to the EDC and LSE upon receipt. The LSE and/or EDC have five (5) business days after receiving the data to provide feedback to PJM. All load reduction data is subject to audit by PJM.

Market Settlements

In the event that the party contracting for a load reduction is the LSE that actually serves that customer's load and chooses not to register for the program, PJM will make no adjustments to the settlement process. If such an LSE chooses to register for the program, PJM will indicate the value of the load reduction on the LSE's bill as described below. If the load reduction is arranged by a CSP, PJM will bill the LSE serving the energy needs of the customer the appropriate LMP for the reduction. (NOTE: full requirements arrangements will be honored, provided the LSE informs PJM as to the identity of the default supplier.) PJM will then refund the retail generation and transmission charge (indicated on the registration form) that the LSE would have received from the customer had the load not been reduced. The difference between the zonal LMP billed to the LSE serving the energy needs of the customer (or alternate supplier) for the reduced load and the retail rate refunded to the LSE for the reduced load will be paid to the third party that actually contracted for the reduction. The magnitude of relief provided can be less than, equal to, or greater than the kW amount declared upon registration. If the Load Response participant is also an ALM customer and ALM is called for concurrent with this program, then payments will be made to the customer according to this program only for the time during which ALM obligations were not in effect. Any response in excess of the contracted ALM amount will be compensated under this program for the entire duration of response.

Pilot program credits will appear on the PJM Member's monthly bill, as described in the PJM Manual for Operating Agreement Accounting and the PJM Manual for Billing.

Reporting

Actual load reductions will be added back for the purpose of peak load calculations.

PJM will submit any required reports to FERC on behalf of the Load Response Pilot Program participants. PJM will also post this document, as well as any other program-related documentation on the PJM web site.

PJM will also report the names of those end-use customers who indicated that distributed generation would be run in support of the load reduction program to the EPA, together with the permitting information that was supplied upon registration.

At the conclusion of both the summer period and the pilot program, PJM will prepare a report that summarizes the pilot program and will submit it to the PJM Board of Managers, the Members Committee, the Reliability Committee, the Energy Market Committee, and the Operating Committee for review.

On or before December 28, 2001, PJM shall file with the Federal Energy Regulatory Commission and post on the PJM website an informational report that evaluates the effectiveness of the pilot program. To the extent possible, the informational report, among other things, shall contain the following:

•    A comparison of the amount of demand-side reduction obtained by the PJM members' demand-side management programs during the year prior to the initiation of the pilot program and since the initiation of the pilot program.

•    A comparison of the amount of total demand-side reduction in PJM in the year prior to the initiation of the pilot program and since the initiation of the pilot program.

•    Relevant statistical information on pilot program participants.

•    An analysis of the impact of demand-side responsiveness implemented for purely economic purposes.

Special Application for PJM Membership (For Emergency Load Response Pilot Program ONLY)

Emergency Load Response Pilot Program participants who apply for special PJM membership will become non-voting PJM Members. Fees for application and membership are waived and participants do not need to complete the Credit Application. Special members are not eligible to take transmission service or purchase energy or capacity from the markets operated by PJM.

The following Membership Application forms must be completed:

• Membership Application Form

• Eligible Customer Qualification Form (Tariff Section 1.11)

• Standard Form of Agreement (provided in triplicate)

• Billing Contact Form

• Wire Contact Form

• Load Response Designation Form

Load Response Pilot Program Registration

All those wishing to participate in either option of the Load Response Pilot Program must follow the following steps in order to register.

1. Obtain a UserID and password for the Registration/Update web site by submitting the Account Request Form. This form may be accessed via the Distributed Generation User Group web page at

2. Log into the Registration/Update web site (also accessed via the DGUG web site) and choose the Load Response Pilot Program screen.

3. Complete all required information (depending on the option in which you wish to enroll) and click on the "submit" button. Please direct all questions concerning the information required on the form to PJM Customer Relations and Training at (610) 666-8980 or .

A screen shot of the Registration/Update page appears below.

Screen shot of web-based registration form will appear in this space.

Meter Data File Format

Load Response Pilot Program participants may communicate meter readings to PJM via file transfer to the Load Response FTP site. Each FTPed file will begin with a header section containing the following information:

Line 1: Customer Name

Line 2: PJM Member Name (may be the same as Customer Name)

The remainder of the file will be in CSV file format and include the following columns:

• Date and clock hour (ending)

• Hourly integrated load reduction (kWh)

The following is an example of how one such file might look appear:

ABC Corp.

DEF Energy, L.L.C.

7/1/2001 1300,20

7/1/2001 1400,45

7/1/2001 1500,44

7/1/2001 1600,46

7/1/2001 1700,22

Load Response Examples

The scenarios described below are intended to illustrate how PJM would calculate the payments made to participants upon implementation of PJM's Load Response Pilot Program. All examples assume the customers have acquired the appropriate form of PJM membership, completed the appropriate PJM Load Response Pilot Program Registration Form, and been approved for participation by PJM. The first example demonstrates calculation of the payments due to implementation of the emergency program, while the second highlights the economic program.

Example 1

The following is a typical timeline by which a load could respond to PJM emergency procedures:

One day Prior to Operating Day:

2230 - PJM calls Max Emergency generation into the capacity for the next day. This information is posted on the PJM OASIS, web site, eDATA, etc.

Operating Day:

1300 - PJM Issues Max Emergency Generation. This information is posted on the PJM OASIS, PJM's web site, eDATA, etc.

1330 - PJM begins to recall off-system sales.

1400 - PJM loads Max Emergency generation, begins to purchase emergency energy, and implements the Emergency Load Response Pilot Program.

1800 - PJM cancels and begins unloading Max Emergency generation, curtails emergency purchases, and cancels the Emergency Load Response Pilot Program.

Customer ABC has a typical load of 500kW. Of this load, approximately 150kW may be shut down within one hour during emergency conditions. At 1400, Customer ABC receives notification that PJM has implemented the Emergency Load Response Pilot Program. Customer ABC immediately begins the process of disconnecting the applicable load. All such load is disconnected by 1445. Customer ABC receives notification at 1800 that PJM has canceled implementation of the Emergency Load Response Pilot Program and the load is reconnected to the system at 1830.

In this example, the metered load for those hours following implementation of the program is compared to the hour preceding implementation to determine the actual reduction. The following table illustrates how the customer metering and associated payments might appear:

Hour Ending	Integrated Load (kWh)	Delta (kWh)	Integrated Zonal LMP ($/MWh)	Payment ($)
1400	495	0	1000	0
1500	467.5	27.5	1000	27.50
1600	345	150	1000	150.00
1700	348	147	850	124.95
1800	346	149	400	74.50
1900	420	75	300	0

Example 2

This example is intended to illustrate potential implementation of the Economic Load Response Pilot Program. The following is a typical timeline by which PJM prices might vary on a day when supplies are relatively tight:

1300 - Appropriate zonal LMP reaches $500.

1330 - Appropriate zonal LMP reaches $600.

1400 - Appropriate zonal LMP reaches $700.

1430 - Appropriate zonal LMP reaches $800.

1630 - Appropriate zonal LMP falls to $400.

1700 - Appropriate zonal LMP falls to $250.

1800 - Appropriate zonal LMP falls to $80.

Customer DEF has a typical load of 500kW. Of this load, approximately 150kW may be shut down within one hour, provided the PJM price reaches $600/MWh. At 1330, PJM LMP reaches this point. At 1400, customer DEF begins the process of disconnecting the applicable load. All such load is disconnected by 1445. At 1630, PJM LMP falls to a level at which Customer ABC wishes to reconnect the reduced load. All 150kW is restarted by 1715.

In this example, the metered load during the reduction is compared to a statistically determined profile. For simplicity's sake, this profile is assumed to be a flat 500kW for all hours. The following table illustrates how the customer metering and associated payments might appear:

Hour Ending	Integrated Load (kWh)	Delta (kWh)	Integrated Zonal LMP ($/MWh)	Retail Charges (C/kWh)	Payment ($)
1400	500	0	600	15	0
1500	467.5	32.5	775	15	20.31
1600	345	155	800	15	100.75
1700	348	152	400	15	38.00
1800	475	25	250	15	2.50

   SCHEDULE 2

   COMPONENTS OF COST

   (a)   Each Market Participant obligated to sell operating capacity on the PJM Interchange Energy Market at cost-based rates shall include the following components or their equivalent in the determination of costs for operating capacity supplied to or from the Interconnection:

   (1)   Boilers

      Firing-up cost;

      No-load cost during period of operation;

      Peak-prepared-for maintenance cost;

      Incremental labor cost; and

      Other incremental operating costs.

   (2)   Machines

      Starting cost from cold to synchronized operation;

      No-load cost during period of operation;

      Incremental labor cost; and

      Other incremental operating costs.

   (b)   Each Member obligated to sell energy on the PJM Interchange Energy Market at cost-based rates shall include the following components or their equivalent in the determination of costs for energy supplied to the Interconnection:

      Incremental fuel cost;

      Incremental maintenance cost;

      Incremental labor cost; and

      Other incremental operating costs.

   (c)   All fuel costs shall employ the marginal fuel price experienced by the Member.

   (d)   The PJM Board, upon consideration of the advice and recommendations of the Members Committee, shall from time to time define in detail the method of determining the costs entering into the said components, and the Members shall adhere to such definitions in the preparation of incremental costs used on the Interconnection.

SCHEDULE 2 -- EXHIBIT A

   EXPLANATION OF THE TREATMENT OF THE COSTS OF

   EMISSION ALLOWANCES

   The cost of emission allowances is included in "Other Incremental Operating Costs" pursuant to Schedule 2. The replacement cost of emission allowances will be used to recover the cost of emission allowances consumed as a result of producing energy for the Interconnection.

Index

   Consistent with definitions promulgated by the PJM Board upon consideration of the advice and recommendations of the Members Committee under Schedule 2, each Member subject to Schedule 2 will determine and provide to the Interconnection its replacement cost of emission allowances, such cost to be an amount not exceeding the market price index published by Cantor-Fitzgerald Environmental Brokerage Services ("EBS"), or a PJM Board approved index in the event that EBS should cease publication of such index. As with all other components of cost required for accounting under this Agreement, each Member subject to Schedule 2 will use the same replacement cost of emissions allowances, so determined, as it uses for coordinating operation of its generating facilities hereunder.

   For each Member subject to Schedule 2, the cost of emissions allowances is included in the cost of energy supplied to or received from the Interconnection.

Payment

   The Members subject to Schedule 2 waive the right of payment-in-kind for emission allowances for transactions wholly between the parties. Cash payments for emission allowances consumed in providing energy for the Interconnection shall be incorporated into and conducted pursuant to the billing procedures for energy prescribed by this Agreement.

Calculation of Emission Allowance Amount and Cost

   Pursuant to the letter from the PJM Interconnection to FERC dated June 26, 1995, the calculation of an annual average for the cost of emission allowances, described below, is required due to the profile of the PJM physical system and PJM Energy Management software system. Approximately five hundred and forty generating units comprise the PJM system, of which 9 units are Phase I units. Current real-time operational software and hardware tools used in the transaction of energy do not identify individual units, and therefore do not identify Phase I units. (The pool has contracted with a vendor to supply a new Energy Management System to be installed over the next several years.) It is currently not possible for system operators to provide actual individual unit emission allowance costs in real time transaction quotations.

   An average emission allowance cost based on a standard production cost study case will be used to calculate the average cost of emission allowances for each pool megawatt produced. This cost for the current year is less than 0.2 dollars per megawatt-hour.

   In summary, for the above-mentioned reasons, it is not practical nor cost effective to provide actual individual emission allowance costs in real-time transaction quotations. Therefore, the annual average method is proposed.

   The Emission Allowances (Tons of SO₂)associated with a transaction will be calculated by multiplying the magnitude of a transaction (MWhr) by an Emissions per MWHr Factor (Tons of SO₂ per MWhr):

Emission      Transaction      Emissions

Allowances   =   Magnitude   x   per MWhr

Used                  Factor

(Tons of S0₂)      (MWhr)      (Tons of S0₂ per MWhr)

   The Emissions per MWHr Factor will be calculated by dividing the forecast annual emissions from all Phase I units (Tons of S0₂) by the Forecast Annual Total PJM Energy Production (MWhr):

      Emissions

      per MWhr   =   Forecast Annual Phase I Unit Emissions (Tons of S0₂)

      Factor      Forecast Annual Total PJM Energy Production (MWhr)

      (Tons of S0₂

      per MWhr)

   Likewise, the cost (Dollars) of the Emission Allowances for a transaction will be calculated by multiplying the transaction magnitude (MWhr) by a Charge per MWhr Factor (Dollars per MWHr).

   Cost of Emission      Transaction      Charge

   Allowances Used   =   Magnitude   x   per MWhr Factor

   (Dollars)         (MWhr)         (Dollars per MWhr)

   The Charge per MWhr Factor will be calculated by multiplying, for each Member subject to Schedule 2, its Forecast Annual Emissions (Tons of S0₂)by its respective Emissions Allowance Replacement Cost (Dollars per Ton of S0₂) to yield each the forecasted annual cost of emissions (Dollars). Then, the total of forecasted annual cost of emissions for each Member subject to Schedule 2 is divided by the Forecast Annual Total PJM Energy Production (MWhr) to determine the Charge per MWHr Factor (Dollars per MWHr).

      Charge per

      MWhr Factor   =    sum of (A x B)   , where:

         C

      A = Member's Forecasted Annual Emissions, (Tons of S0₂)

      B = Emission Allowance Replacement Cost, (Dollars per Ton of SO₂, per company)

      C = Forecast Annual PJM Energy Production, (MWhr)

SCHEDULE 3

   ALLOCATION OF THE COST AND EXPENSES

   OF THE OFFICE OF THE INTERCONNECTION

   (a)   Each group of Affiliates, each group of Related Parties, and each Member that is not in such a group shall pay an annual membership fee, the proceeds of which shall be used to defray the costs and expenses of the LLC, including the Office of the Interconnection. The amount of the annual fee as of the Effective Date shall be $5,000.

   (b)   Each group of State Offices of Consumer Advocates from the same state or the District of Columbia and each State Consumer Advocate that nominates its representative to vote on the Members Committee but is not in such a group shall pay an annual fee, the proceeds of which shall be used to defray the costs and expenses of the LLC, including the Office of the Interconnection. The amount of the annual fee shall be $500.

   (c)   The amount of the annual fees provided for herein shall be adjusted from time to time by the PJM Board to keep pace with inflation.

   (d)   All remaining costs of the operation of the LLC and the Office of the Interconnection and the expenses, including, without limitation, the costs of any insurance and any claims not covered by insurance, associated therewith as provided in this Agreement shall be costs of PJM Interconnection, L.L.C. Administrative Services and shall be recovered as set forth in Schedule 9 to the PJM Tariff. Such costs may include costs associated with debt service, including the costs of funding reserve accounts or meeting coverage or similar requirements that financing covenants may necessitate.

   (e)   An entity accepted for membership in the LLC shall pay all costs and expenses associated with additions and modifications to its own metering, communication, computer, and other appropriate facilities and procedures needed to effect the inclusion of the entity in the operation of the Interconnection.

SCHEDULE 4

   STANDARD FORM OF AGREEMENT TO BECOME A MEMBER OF THE LLC

   Any entity which wishes to become a Member of the LLC shall, pursuant to Section 11.6 of this Agreement, tender to the President an application, upon the acceptance of which it shall execute a supplement to this Agreement in the following form:

Additional Member Agreement

1.   This Additional Member Agreement (the "Supplemental Agreement"), dated as of __________________, is entered into among _____________ and the President of the LLC acting on behalf of its Members.

2.   _____________ has demonstrated that it meets all of the qualifications required of a Member to the Operating Agreement. If expansion of the PJM Control Area is required to integrate ____________________'s facilities, a copy of Attachment J from the PJM Tariff marked to show changes in Control Area boundaries is attached hereto. ____________________ agrees to pay for all required metering, telemetering and hardware and software appropriate for it to become a member.

3.   ______________________ agrees to be bound by and accepts all the terms of the Operating Agreement as of the above date.

4.   _________________________ hereby gives notice that the name and address of its initial representative to the Members Committee under the Operating Agreement shall be:

   __________________________________________________________________

5.   The President of the LLC is authorized under the Operating Agreement to execute this Supplemental Agreement on behalf of the Members and to file it with regulatory authorities having jurisdiction.

6.   The Operating Agreement is hereby amended to include ___________ as a Member of the LLC thereto, effective as of ___________________, _____.

   IN WITNESS WHEREOF, _______________________ and the Members of the LLC have caused this Supplemental Agreement to be executed by their duly authorized representatives.

            Members of the LLC

            By:   

            Name:   

            Title:   President

            By:   

            Name:   

            Title:   

SCHEDULE 5

   PJM DISPUTE RESOLUTION PROCEDURES

1.   DEFINITIONS

   1.1   Alternate Dispute Resolution Committee.

   "Alternate Dispute Resolution Committee" shall mean the Committee established pursuant to Section 5 of this Schedule.

   1.2   MAAC Dispute Resolution Committee.

   "MAAC Dispute Resolution Committee" shall mean the committee established by the Mid-Atlantic Area Council to administer its industry-specific mechanism for resolving certain types of wholesale electricity disputes.

   1.3   Related PJM Agreements.

   "Related PJM Agreements" shall mean this Agreement, the Transmission Owners Agreement, and the Reliability Assurance Agreement.

2.   PURPOSES AND OBJECTIVES

   2.1   Common and Uniform Procedures.

   The PJM Dispute Resolution Procedures are intended to establish common and uniform procedures for resolving disputes arising under the Related PJM Agreements. To the extent any of the foregoing agreements or the PJM Tariff contain dispute resolution provisions expressly applicable to disputes arising thereunder, however, this Agreement shall not supplant such provisions, which shall apply according to their terms.

   2.2   Interpretation.

   To the extent permitted by applicable law, the PJM Dispute Resolution Procedures are to be interpreted to effectuate the objectives set forth in Section 2.1. To the extent permitted by these PJM Dispute Resolution Procedures, the Alternate Dispute Resolution Committee shall coordinate with the MAAC Dispute Resolution Committee, where appropriate, in order to conserve administrative resources and to avoid duplication of dispute resolution staffing.

3.   NEGOTIATION AND MEDIATION

   3.1   When Required.

   The parties to a dispute shall undertake good-faith negotiations to resolve any dispute as to a matter governed by one of the Related PJM Agreements. Each party to a dispute shall designate an executive with authority to resolve the matter in dispute to participate in such negotiations. Any dispute as to a matter governed by one of the Related PJM Agreements that has not been resolved through good-faith negotiation shall be subject to non-binding mediation prior to the initiation of arbitral, regulatory, judicial, or other dispute resolution proceedings as may be appropriate as provided by these PJM Dispute Resolution Procedures.

   3.2   Procedures.

      3.2.1   Initiation.

      If a dispute that is subject to the mediation procedures specified herein has not been resolved through good-faith negotiation, a party to the dispute shall notify the Alternate Dispute Resolution Committee in writing of the existence and nature of the dispute prior to commencing any other form of proceeding for resolution of the dispute. The Alternate Dispute Resolution Committee shall have ten calendar days from the date it first receives notification of the existence of a dispute from any of the parties to the dispute in which to distribute to the parties a list of mediators.

      3.2.2   Selection of Mediator.

      The Chair of the Alternate Dispute Resolution Committee shall distribute to the parties by facsimile or other electronic means a list containing the names of seven mediators with mediation experience, or with technical or business experience in the electric power industry, or both, as it shall deem appropriate to the dispute. The Chair of the Alternate Dispute Resolution Committee may draw from the lists of mediators maintained by the MAAC Dispute Resolution Committee, as the Chair shall deem appropriate. The persons on the proposed list of mediators shall have no official, financial, or personal conflict of interest with respect to the issues in controversy, unless the interest is fully disclosed in writing to all participants in the mediation process and all such participants waive in writing any objection to the interest. The parties shall alternate in striking names from the list with the last name on the list becoming the mediator. The determination of which party shall have the first strike off the list shall be determined by lot. The parties shall have ten calendar days to complete the mediator selection process, unless the time is extended by mutual agreement.

      3.2.3   Advisory Mediator.

      If the Alternate Dispute Resolution Committee deems it appropriate, it shall distribute two lists, one containing the names of seven mediators with mediation experience, and one containing the names of seven mediators with technical or business experience in the electric power industry. In connection with circulating the foregoing lists, the Alternate Dispute Resolution Committee shall specify one of the lists as containing the proposed mediators, and the other as a list of proposed advisors to assist the mediator in resolving the dispute. The parties shall then utilize the alternative strike procedure set forth above until one name remains on each list, with the last named persons serving as the mediator and advisor.

      3.2.4   Mediation Process.

      The disputing parties shall attempt in good faith to resolve their dispute in accordance with procedures and a timetable established by the mediator. In furtherance of the mediation efforts, the mediator may:

      (a)   Require the parties to meet for face-to-face discussions, with or without the mediator;

      (b)   Act as an intermediary between the disputing parties;

      (c)   Require the disputing parties to submit written statements of issues and positions;

      (d)   If requested by the disputing parties at any time in the mediation process, provide a written recommendation on resolution of the dispute including, if requested, the assessment by the mediator of the merits of the principal positions being advanced by each of the disputing parties; and

      (e)   Adopt, when appropriate, the Center for Public Resources Model ADR Procedures for the Meditation of Business Disputes (as revised from time to time) to the extent such Procedures are not inconsistent with any rule, standard, or procedure adopted by the Alternate Dispute Resolution Committee or with any provision of this Agreement.

      3.2.5   Mediator's Assessment.

      (a)   If a resolution of the dispute is not reached by the thirtieth day after the appointment of the mediator or such later date as may be agreed to by the parties, if not previously requested to do so the mediator shall promptly provide the disputing parties with a written, confidential, non-binding recommendation on resolution of the dispute, including the assessment by the mediator of the merits of the principal positions being advanced by each of the disputing parties. The recommendation may incorporate or append, if and as the mediator may deem appropriate, any recommendations or any assessment of the positions of the parties by the advisor, if any. Upon request, the mediator shall provide any additional recommendations or assessments the mediator shall deem appropriate.

      (b)   At a time and place specified by the mediator after delivery of the foregoing recommendation, the disputing parties shall meet in a good faith attempt to resolve the dispute in light of the recommendation of the mediator. Each disputing party shall be represented at the meeting by a person with authority to settle the dispute, along with such other persons as each disputing party shall deem appropriate. If the disputing parties are unable to resolve the dispute at or in connection with this meeting, then: (i) any disputing party may commence such arbitral, judicial, regulatory or other proceedings as may be appropriate as provided in the PJM Dispute Resolution Procedures; and (ii) the recommendation of the mediator, and any statements made by any party in the mediation process, shall have no further force or effect, and shall not be admissible for any purpose, in any subsequent arbitral, administrative, judicial, or other proceeding.

   3.3   Costs.

   Except as specified in Section 4.13, the costs of the time, expenses, and other charges of the mediator and any advisor, and of the mediation process, shall be borne by the parties to the dispute, with each side in a mediated matter bearing one-half of such costs, and each party bearing its own costs and attorney's fees incurred in connection with the mediation.

4.   ARBITRATION

   4.1   When Required.

   Any dispute as to a matter: (i) governed by one of the Related PJM Agreements that has not been resolved through the mediation procedures specified herein, (ii) involving a claim that one or more of the parties owes or is owed a sum of money, and (iii) the amount in controversy is less than $1,000,000.00, shall be subject to binding arbitration in accordance with the procedures specified herein. If the parties so agree, any other disputes as to a matter governed by a Related PJM Agreement may be submitted to binding arbitration in accordance with the procedures specified herein.

   4.2   Binding Decision.

   Except as specified in Section 4.1, the resolution by arbitration of any dispute under this Agreement shall not be binding.

   4.3   Initiation.

   A party or parties to a dispute which is subject to the arbitration procedures specified herein shall send a written demand for arbitration to the Chair of the Alternate Dispute Resolution Committee with a copy to the other party or parties to the dispute. The demand for arbitration shall state each claim for which arbitration is being demanded, the relief being sought, a brief summary of the grounds for such relief and the basis for the claim, and shall identify all other parties to the dispute.

   4.4   Selection of Arbitrator(s).

   The parties to a dispute for which arbitration has been demanded may agree on any person to serve as a single arbitrator, or shall endeavor in good faith to agree on a single arbitrator from a list of arbitrators prepared for the dispute by the Alternate Dispute Resolution Committee and delivered to the parties by facsimile or other electronic means promptly after receipt by the Alternate Dispute Resolution Committee of a demand for arbitration. The Alternate Dispute Resolution Committee may draw from the lists of arbitrators maintained by the MAAC Dispute Resolution Committee, as the Alternate Dispute Resolution Committee deems appropriate. If the parties are unable to agree on a single arbitrator by the fourteenth day following delivery of the foregoing list of arbitrators or such other date as agreed to by the parties, then not later than the end of the seventh business day thereafter the party or parties demanding arbitration on the one hand, and the party or parties responding to the demand for arbitration on the other, shall each designate an arbitrator from a list for the dispute prepared by the Alternate Dispute Resolution Committee. The arbitrators so chosen shall then choose a third arbitrator.

   4.5   Procedures.

   The Alternate Dispute Resolution Committee shall compile and make available to the arbitrator(s) and the parties standard procedures for the arbitration of disputes, which procedures (i) shall include provision, upon good cause shown, for intervention or other participation in the proceeding by any party whose interests may be affected by its outcome, (ii) shall conform to the requirements specified in these PJM Dispute Resolution Procedures, and (iii) may be modified or adopted for use in a particular proceeding as the arbitrator(s) deem appropriate. To the extent deemed appropriate by the Alternate Dispute Resolution Committee, the procedures adopted by the Alternate Dispute Resolution Committee shall be based on the American Arbitration Association Rules, to the extent such Rules are not inconsistent with any rule, standard or procedure adopted by the Alternate Dispute Resolution Committee, or with any provision of these PJM Dispute Resolution Procedures. Upon selection of the arbitrator(s), arbitration shall go forward in accordance with applicable procedures.

   4.6   Summary Disposition and Interim Measures.

      4.6.1   Lack of Good Faith Basis.

      The procedures for arbitration of a dispute shall provide a means for summary disposition of a demand for arbitration, or a response to a demand for arbitration, that in the reasoned opinion of the arbitrator(s) does not have a good faith basis in either law or fact. If the arbitrator(s) determine(s) that a demand for arbitration or response to a demand for arbitration does not have a good faith basis in either law or fact, the arbitrator(s) shall have discretion to award the costs of the time, expenses, and other charges of the arbitrator(s) to the prevailing party.

      4.6.2   Discovery Limits.

      The procedures for the arbitration of a dispute shall provide a means for summary disposition without discovery of facts if there is no dispute as to any material fact, or with such limited discovery as the arbitrator(s) shall determine is reasonably likely to lead to the prompt resolution of any disputed issue of material fact.

      4.6.3   Interim Decision.

      The procedures for the arbitration of a dispute shall permit any party to a dispute to request the arbitrator(s) to render a written interim decision requiring that any action or decision that is the subject of a dispute not be put into effect, or imposing such other interim measures as the arbitrator(s) deem necessary or appropriate, to preserve the rights and obligations secured by any of the Related PJM Agreements during the pendency of the arbitration proceeding. The parties shall be bound by such written decision pending the outcome of the arbitration proceeding.

   4.7   Discovery of Facts.

      4.7.1   Discovery Procedures.

      The procedures for the arbitration of a dispute shall include adequate provision for the discovery of relevant facts, including the taking of testimony under oath, production of documents and other things, and inspection of land and tangible items. The nature and extent of such discovery shall be determined as provided herein and shall take into account (i) the complexity of the dispute, (ii) the extent to which facts are disputed, and (iii) the amount in controversy. The forms and methods for taking such discovery shall be as described in the Federal Rules of Civil Procedure, except as modified by the procedures established by the Alternate Dispute Resolution Committee, the arbitrator(s) or agreement of the parties.

      4.7.2   Procedures Arbitrator.

      The sole arbitrator, or the arbitrator selected by the arbitrators chosen by the parties, as the case may be (such arbitrator being hereafter referred to as the "Procedures Arbitrator"), shall be responsible for establishing the timing, amount, and means of discovery, and for resolving discovery and other pre-hearing disagreement. If a dispute involves contested issues of fact, promptly after the selection of the arbitrator(s) the Procedures Arbitrator shall convene a meeting of the parties for the purpose of establishing a schedule and plan of discovery and other pre-hearing actions.

   4.8   Evidentiary Hearing.

   The procedures for the arbitration of a dispute shall provide for an evidentiary hearing, with provision for the cross-examination of witnesses, unless all parties consent to the resolution of the matter on the basis of a written record. The forms and methods for taking evidence shall be as described in the Federal Rules of Evidence, except as modified by the procedures established by the Alternate Dispute Resolution Committee, the arbitrator(s) or agreement of the parties. The arbitrator(s) may require such written or other submissions from the parties as shall be deemed appropriate, including submission of the direct testimony of witnesses in written form. The arbitrator(s) may exclude any evidence that is irrelevant, immaterial, unduly repetitious or prejudicial, or privileged. Any party or parties may arrange for the preparation of a record of the hearing, and shall pay the costs thereof. Such party or parties shall have no obligation to provide or agree to the provision of a copy of the record of the hearing to any party that does not pay an equal share of the cost of the record. At the request of any party, the arbitrator(s) shall determine a fair and equitable allocation of the costs of the preparation of a record between or among the parties to the proceeding willing to share such costs.

   4.9   Confidentiality.

      4.9.1   Designation.

      Any document or other information obtained in the course of an arbitral proceeding and not otherwise available to the receiving party, including any such information contained in documents or other means of recording information created during the course of the proceeding, may be designated "Confidential" by the producing party. The party producing documents or other information marked "Confidential" shall have twenty days from the production of such material to submit a request to the Procedures Arbitrator to establish such requirements for the protection of such documents or other information designated as "Confidential" as may be reasonable and necessary to protect the confidentiality and commercial value of such information and the rights of the parties, which requirements shall be binding on all parties to the dispute. Prior to the decision of the Procedures Arbitrator on a request for confidential treatment, documents or other information designated as "Confidential" shall not be used by the receiving party or parties, or the arbitrator(s), or anyone working for or on behalf of any of the foregoing, for any purpose other than the arbitration proceeding, and shall not be disclosed in any form to any person not involved in the arbitration proceeding without the prior written consent of the party producing the information or as permitted by the Procedures Arbitrator.

      4.9.2   Compulsory Disclosure.

      Any party receiving a request or demand for disclosure, whether by compulsory process, discovery request, or otherwise, of documents or information obtained in the course of an arbitration proceeding that have been designated "Confidential" and that are subject to a non-disclosure requirement under these PJM Dispute Resolution Procedures or a decision of the Procedures Arbitrator, shall immediately inform the party from which the information was obtained, and shall take all reasonable steps, short of incurring sanctions or other penalties, to afford the person or entity from which the information was obtained an opportunity to protect the information from disclosure. Any party disclosing information in violation of these PJM Dispute Resolution Procedures or requirements established by the Procedures Arbitrator shall thereby waive any right to introduce or otherwise use such information in any judicial, regulatory, or other legal or dispute resolution proceeding, including the proceeding in which the information was obtained.

      4.9.3   Public Information.

      Nothing in the Related PJM Agreements shall preclude the use of documents or information properly obtained outside of an arbitral proceeding, or otherwise public, for any legitimate purpose, notwithstanding that the information was also obtained in the course of the arbitral proceeding.

   4.10   Timetable.

   Promptly after the selection of the arbitrator(s), the arbitrator(s) shall set a date for the issuance of the arbitral decision, which shall be not later than eight months (or such earlier date as may be agreed to by the parties to the dispute) from the date of the selection of the arbitrator(s), with other dates, including the dates for an evidentiary hearing or other final submissions of evidence, set in light of this date. The date for the evidentiary hearing or other final submission of evidence shall not be changed absent extraordinary circumstances. The arbitrator(s) shall have the power to impose sanctions, including dismissal of the proceeding for dilatory tactics or undue delay in completing the arbitral proceedings.

   4.11   Advisory Interpretations.

   Except as to matters subject to decision in the arbitration proceeding, the arbitrator(s) may request as may be appropriate from any committee or subcommittee established under a Related PJM Agreement or by the Office of the Interconnection, an interpretation of any Related PJM Agreements, or of any standard, requirement, procedure, tariff, Schedule, principle, plan or other criterion or policy established by any committee or subcommittee. Except to the extent that the Office of the Interconnection is itself a party to a dispute, the arbitrator(s) may request the advice of the Office of the Interconnection with respect to any matter relating to a responsibility of the Office of the Interconnection under the Agreement or with respect to any of the Related PJM Agreements, or to the PJM Manuals. Any such interpretation or advice shall not relieve the arbitrator(s) of responsibility for resolving the dispute or deciding the arbitration proceeding in accordance with the standards specified herein.

   4.12   Decisions.

   The arbitrator(s) shall issue a written decision, including findings of fact and the legal basis for the decision. The arbitral decision shall be based on (i) the evidence in the record, (ii) the terms of the Related PJM Agreements, as applicable, (iii) applicable United States federal and state law, including the Federal Power Act and any applicable FERC regulations and decisions, and international treaties or agreements as applicable, and (iv) relevant decisions in previous arbitration proceedings. The arbitrator(s) shall have no authority to revise or alter any provision of the Related PJM Agreements. Any arbitral decision issued pursuant to these PJM Dispute Resolution Procedures that affects matters subject to the jurisdiction of FERC under Section 205 of the Federal Power Act shall be filed with FERC.

   4.13   Costs.

   Unless the arbitrator(s) shall decide otherwise, the costs of the time, expenses, and other charges of the arbitrator(s) shall be borne by the parties to the dispute, with each side on an arbitrated issue bearing its pro-rata share of such costs, and each party to an arbitral proceeding shall bear its own costs and fees. The arbitrator(s) may award all or a portion of the costs of the time, expenses, and other charges of the arbitrator(s), the costs of arbitration, attorney's fees, and the costs of mediation, if any, to any party that substantially prevails on an issue determined by the arbitrator(s) to have been raised without a substantial basis.

   4.14   Enforcement.

   If the decision of the arbitrator(s) is binding, the judgment may be entered on such arbitral award by any court having jurisdiction thereof; provided, however, that within one year of the issuance of the arbitral decision any party affected thereby may request FERC or any other federal, state, regulatory or judicial authority having jurisdiction to vacate, modify, or take such other action as may be appropriate with respect to any arbitral decision that is based upon an error of law, or is contrary to the statutes, rules, or regulations administered or applied by such authority. Any party making or responding to, or intervening in proceedings resulting from, any such request, shall request the authority to adopt the resolution, if not clearly erroneous, of any issue of fact expressly or necessarily decided in the arbitral proceeding, whether or not the party participated in the arbitral proceeding.

5.   ALTERNATE DISPUTE RESOLUTION COMMITTEE

   5.1   Membership.

      5.1.1   Representatives.

      The Alternate Dispute Resolution Committee shall be composed of two representatives selected by each of the following: (i) the Office of the Interconnection; (ii) the Members Committee; (iii) the parties to the Reliability Assurance Agreement; and (iv) the parties to the Transmission Owners Agreement.

      5.1.2   Term.

      Representatives on the Alternate Dispute Resolution Committee shall serve for terms of three years and may serve additional terms.

   5.2   Voting Requirements.

   Approval or adoption of measures by the Alternate Dispute Resolution Committee shall require two-thirds of the votes of the representatives present and voting. Two-thirds of the representatives on the Alternate Dispute Resolution Committee shall constitute a quorum for the conduct of business.

   5.3   Officers.

   At the first meeting of the Alternate Dispute Resolution Committee, the representatives to the Alternate Dispute Resolution Committee shall choose a Chair and Vice Chair from among the representatives on the Committee. The Chair of the Alternate Dispute Resolution Committee shall preside at meetings of the Committee, and shall have the power to call meetings of the Committee and to exercise such other powers as are specified in this Agreement or are authorized by the Alternate Dispute Resolution Committee. The Vice Chair shall preside at meetings of the Alternate Dispute Resolution Committee in the absence of the Chair, and shall exercise such other powers as are delegated by the Chair.

   5.4   Meetings.

   The Alternate Dispute Resolution Committee shall meet at such times and places as determined by the Committee, or at the call of the Chair. The Chair shall call a meeting of the Alternate Dispute Resolution Committee upon the request of two or more representatives on the Alternate Dispute Resolution Committee.

   5.5   Responsibilities.

   The duties of the Alternate Dispute Resolution Committee include but are not limited to the following:

      i)   Maintain a list of persons qualified by temperament and experience, and with technical or legal expertise in matters likely to be the subject of disputes, to serve as mediators or arbitrators under these PJM Dispute Resolution Procedures;

      ii)   Determine the rates and other costs and charges that shall be paid to mediators, advisors and arbitrators for or in connection with their services;

      iii)   Determine whether mediation is not warranted in a particular dispute;

      iv)   Provide to disputing parties lists of mediators, advisors or arbitrators to resolve particular disputes;

      v)   Compile and make available to parties to disputes, arbitrators, and other interested persons suggested procedures for the arbitration of disputes in accordance with Section 4.5;

      vi)   Maintain and make available to parties to disputes, mediators, advisors, arbitrators, and other interested persons the written decisions required by Section 4.12;

      vii)   Establish such procedures and schedules, in addition to those specified herein, as it shall deem appropriate to further the prompt, efficient, fair and equitable resolution of disputes; and

      viii)   Provide such oversight and supervision of the dispute resolution processes and procedures instituted pursuant to the Related PJM Agreements as may be appropriate to facilitate the prompt, efficient, fair and equitable resolution of disputes.

SCHEDULE 6

   REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL

1.   REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL

   1.1   Purpose and Objectives.

      This Regional Transmission Expansion Planning Protocol shall govern the process by which the Members shall rely upon the Office of the Interconnection to prepare a plan for the enhancement and expansion of the Transmission Facilities in order to meet the demands for firm transmission service in the PJM Control Area. The Regional Transmission Expansion Plan to be developed shall enable the transmission needs in the PJM Control Area to be met on a reliable, economic and environmentally acceptable basis.

   1.2   Conformity with NERC and MAAC Criteria.

   (a)   NERC establishes Planning Principles and Guides to promote the reliability and adequacy of the North American bulk power supply as related to the operation and planning of electric systems.

   (b)   MAAC is responsible for ensuring the adequacy, reliability and security of the bulk electric supply systems in the MAAC region through coordinated operations and planning of generation and transmission facilities. Toward that end, it has adopted the NERC Planning Principles and Guides and has established detailed Reliability Principles and Standards for Planning the Bulk Electric Supply System of the MAAC Group.

   (c)   The Regional Transmission Expansion Plan shall conform with the applicable reliability principles, guidelines and standards of NERC and MAAC in accordance with the procedures detailed in the PJM Manuals.

   1.3   Establishment of Committees.

   (a)   The Regional Transmission Owners shall supply representatives to the Planning Committee to provide the data, information, and analysis support necessary to perform studies as required. As used herein, "Regional Transmission Owner" shall be defined as it is in the PJM Open Access Transmission Tariff ("PJM Tariff").

   (b)   The Transmission Expansion Advisory Committee established by the Office of the Interconnection will provide input to the development of the Regional Transmission Expansion Plan. The Transmission Expansion Advisory Committee will invite participation by: (i) all Transmission Customers, as that term is defined in the PJM Tariff, and applicants for transmission service; (ii) any other entity proposing to provide Transmission Facilities to be integrated into the PJM Control Area; (iii) all Members; (iv) the agencies and offices of consumer advocates of the States in the PJM Control Area exercising regulatory authority over the rates, terms or conditions of electric service or the planning, siting, construction or operation of electric facilities and (v) any other interested entities or persons.

   1.4   Contents of the Regional Transmission Expansion Plan.

   (a)   The Office of the Interconnection shall prepare the Regional Transmission Expansion Plan, which shall consolidate the transmission needs of the region into a single plan which is assessed on the basis of maintaining the PJM Control Area's reliability in an economic and environmentally acceptable manner.

   (b)   The Regional Transmission Expansion Plan shall reflect transmission enhancements and expansions, load and capacity forecasts and generation additions and retirements for the ensuing ten years.

   (c)   The Regional Transmission Expansion Plan shall, as a minimum, include a designation of the Regional Transmission Owner or Owners or other entity that will own a transmission facility and how all reasonably incurred costs are to be recovered.

   (d)   The Regional Transmission Expansion Plan shall (i) avoid unnecessary duplication of facilities; (ii) avoid the imposition of unreasonable costs on any Regional Transmission Owner or any user of Transmission Facilities; (iii) take into account the legal and contractual rights and obligations of the Regional Transmission Owners; (iv) provide, if appropriate, alternative means for meeting transmission needs in the PJM Control Area; and (v) provide for coordination with existing transmission systems and with appropriate interregional and local expansion plans.

   1.5   Procedure for Development of the Regional Transmission Expansion Plan.

      1.5.1   Commencement of the Process.

      (a)   The Office of the Interconnection shall initiate the enhancement and expansion study process if (i) required as a result of a need for transfer capability identified by the Office of the Interconnection in its evaluation of requests for firm transmission service with a term of one year or more or as a result of the Office of the Interconnection's on-going evaluation of transmission system adequacy and performance; (ii) identified as a result of the MAAC reliability assessment or more stringent local reliability criteria, if any; (iii) constraints or available transfer capability shortage are identified by the Office of the Interconnection as a result of generation additions or retirements, evaluation of load forecasts or proposals for the addition of Transmission Facilities in the PJM Control Area; or (iv) expansion of the transmission system is proposed by the Regional Transmission Owners or others.

      (b)   The Office of the Interconnection shall notify the Transmission Expansion Advisory Committee of the commencement of an enhancement and expansion study. The Transmission Expansion Advisory Committee shall notify the Office of the Interconnection in writing of any additional transmission considerations to be included.

      1.5.2   Development of Scope, Assumptions and Procedures.

      Once the need for an enhancement and expansion study has been established, the Office of the Interconnection shall consult with the Transmission Expansion Advisory Committee to prepare the study's scope, assumptions and procedures.

      1.5.3   Scope of Studies.

      In general, enhancement and expansion studies shall include:

      (a)   An identification of existing and projected electric system limitations, with accompanying simulations to identify the costs of controlling those limitations. Potential enhancements and expansions will be proposed to mitigate limitations controlled by non-economic means.

      (b)   Evaluation and analysis of potential enhancements and expansions, including alternatives thereto, needed to mitigate such limitations.

      (c)   Engineering studies needed to determine the effectiveness and compliance (with reliability criteria) of recommended enhancements and expansions.

      1.5.4   Supply of Data.

      (a)   The Regional Transmission Owners shall provide to the Office of the Interconnection on an annual basis a 10-year forecast of summer and winter load and resources expected to be served by, or use, their Transmission Facilities. The forecast shall include to the extent known or reasonably capable of forecast: (i) a description of the total load to be served from each substation; (ii) the amount of any interruptible loads included in the total load (including conditions under which an interruption can be implemented and any limitations on the duration and frequency of interruptions); and (iii) a description of all generation resources to be located in the geographic region encompassed by the Regional Transmission Owner's transmission facilities, including unit sizes, VAR capability, operating restrictions, and any must-run unit designations required for system reliability or contract reasons. The data required under this section shall be provided in the form and manner specified by the Office of the Interconnection.

      (b)   In addition to the foregoing, the Regional Transmission Owners, those entities requesting transmission service and any other entities proposing to provide Transmission Facilities to be integrated into the PJM Control Area shall supply any other information and data reasonably required by the Office of the Interconnection to perform the enhancement and expansion study.

      1.5.5   Coordination of the Regional Transmission Expansion Plan.

      (a)   The Regional Transmission Expansion Plan shall be developed in coordination with the transmission systems of the surrounding regional reliability councils and with the local transmission providers.

      (b)   The Regional Transmission Expansion Plan shall be developed by the Office of the Interconnection in consultation with the Transmission Expansion Advisory Committee during the enhancement and expansion study process.

      1.5.6   Development of the Recommended Regional Transmission Expansion Plan.

      (a)   Upon completion of its studies and analysis, the Office of the Interconnection shall prepare a recommended enhancement and expansion plan for review by the Transmission Expansion Advisory Committee. The recommended plan shall include recommendations for cost responsibility, except for directly assigned costs, for any enhancement or expansion, based on the planning analysis and other input from participants, including any indications of a willingness to bear cost responsibility for an enhancement or expansion.

      (b)   For the purposes of Section 1.5.6(a), any allocation of costs to all of the Regional Transmission Owners shall be proportional to the load within the Zones. Load shall be measured consistent with the loads utilized to develop the rates included in Attachment H to the PJM Tariff.

      (c)   Any Regional Transmission Owner and other participants on the Transmission Expansion Advisory Committee may offer an alternative.

      (d)   If the Office of the Interconnection adopts the alternative, based upon its review of the relative costs and benefits, the ability of the alternative to supply the required level of transmission service, and its impact on the reliability of the Transmission Facilities, the Office of the Interconnection shall make any necessary changes to the recommended plan.

      (e)   If, based upon its review of the relative costs and benefits, the ability of the alternative to supply the required level of transmission service, and the alternative's impact on the reliability of the Transmission Facilities, the Office of the Interconnection does not adopt such alternative, the Regional Transmission Owner or Owners whose alternative or alternatives have not been accepted or to whom cost responsibility has been assigned and other participants on the Transmission Expansion Advisory Committee may require that its or their alternative(s) be submitted to Alternative Dispute Resolution.

   1.6   Approval of the Final Regional Transmission Expansion Plan.

   (a)   The PJM Board shall approve the final Regional Transmission Expansion Plan, including any alternatives therein, in accordance with the requirements of this Section 1.6.

   (b)   If the facilities to be provided in the Regional Transmission Expansion Plan are acceptable, but the Regional Transmission Owners and other entities who have indicated a willingness to bear some or all of the cost responsibility cannot unanimously agree on the allocation of the costs of enhancements or expansions, the cost responsibility shall be allocated (a) to those entities who have indicated a willingness to bear some or all of the cost of responsibility, and (b) among the Regional Transmission Owners in accordance with the following guidelines:

      i)   All of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage of 500 kV or higher shall be allocated to all of the Regional Transmission Owners;

      ii)   One-half of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage of 230 kV or 345 kV shall be allocated to all Regional Transmission Owners and one-half of the costs of such facilities shall be allocated to the Regional Transmission Owners in whose Zone, as that term is defined in the PJM Tariff, the enhancement or expansion is to be located;

      iii)   All of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage below 230 kV shall be allocated to the Regional Transmission Owner or Owners in whose Zone the enhancement or expansion is located; and

      iv)   One-half of the costs of transformers shall be allocated in accordance with the methodology specified in (a), (b), or (c) above, based upon the voltage at the high side of the transformer and one-half of the costs shall be allocated in accordance with the methodology specified in (a), (b), and (c) above based upon the voltage at the low side of the transformer, unless the low side of the transformer is less than 100 kV, in which case all of the costs of the transformer shall be allocated to the Regional Transmission Owner or Owners in whose Zone the transformer is located.

   If a Regional Transmission Expansion Plan is not approved, or if the transmission service requested by any entity is not included in an approved Regional Transmission Expansion Plan, nothing herein shall limit in any way the right of any entity to seek relief pursuant to the provisions of Section 211 of the Federal Power Act.

   (d)   Following PJM Board approval, the final Regional Transmission Expansion Plan shall be submitted to MAAC for verification that all enhancements or expansions conform to all MAAC Reliability Principles and Standards.

   1.7   Obligation to Build.

   (a)   Subject to the requirements of applicable law, government regulations and approvals, including, without limitation, requirements to obtain any necessary state or local siting, construction and operating permits, to the availability of required financing, to the ability to acquire necessary right-of-way, and to the right to recover, pursuant to appropriate financial arrangements and tariffs or contracts, all reasonably incurred costs, plus a reasonable return on investment, Regional Transmission Owners designated as the appropriate entities to construct and own or finance enhancements or expansions specified in the Regional Transmission Expansion Plan shall construct and own or finance such facilities or enter into appropriate contracts to fulfill such obligations.

   (b)   Nothing herein shall prohibit any Regional Transmission Owner from seeking to recover the cost of enhancements or expansions on an incremental cost basis or from seeking approval of such rate treatment from any regulatory agency with jurisdiction over such rates.

   1.8   Relationship to the PJM Control Area Open Access Transmission PJM Tariff.

   Nothing herein shall modify the rights and obligations of an Eligible Customer or a Transmission Customer, as those terms are defined in the PJM Tariff, with respect to required studies and completion of necessary enhancements or expansions. An Eligible Customer or Transmission Customer electing to follow the procedures in the PJM Tariff instead of the procedures provided herein, shall also be responsible for the related costs. The enhancement and expansion study process under this Protocol shall be funded as a part of the operating budget of the Office of the Interconnection.

SCHEDULE 7

   UNDERFREQUENCY RELAY OBLIGATIONS AND CHARGES

1.   UNDERFREQUENCY RELAY OBLIGATION

   1.1   Application.

   The obligations of this Schedule apply to each Member that is an Electric Distributor, whether or not that Member participates in the Electric Distributor sector on the Members Committee or meets the eligibility requirements for any other sector of the Members Committee.

   1.2   Obligations.

   Each Electric Distributor shall install or contractually arrange for underfrequency relays to interrupt at least 30 percent of its peak load with 10 percent of the load interrupted at each of three frequency levels: 59.3 Hz, 58.9 Hz and 58.5 Hz. Upon the request of the Reliability Committee, each Electric Distributor shall document that it has complied with the requirement for underfrequency load shedding relays.

2.   UNDERFREQUENCY RELAY CHARGES

   If an Electric Distributor is determined to not have the required underfrequency relays, it shall pay an underfrequency relay charge of:

      Charge = D x R x 365

         where

      D = the amount, in megawatts, the Electric Distributor is deficient; and

   R = the daily rate per megawatt, which shall be based on the annual carrying charges for a new combustion turbine generator, installed and connected to the transmission system, which daily deficiency rate as of the Effective Date shall be $58.400/per kilowatt-year or $160 per megawatt-day.

3.   DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES

   3.1   Share of Charges.

   Each Electric Distributor that has complied with the requirements for underfrequency relays imposed by this Agreement during a Planning Period, without incurring an underfrequency relay charge, shall share in any underfrequency relay charges paid by any other Electric Distributor that has failed to satisfy said obligation during such Planning Period. Such shares shall be in proportion to the number of megawatts of a Electric Distributor's load in the most recently completed month at the time of the peak for the PJM Control Area during that month rounded to the next higher whole megawatt, as established initially on the Effective Date and as updated at the beginning of each month thereafter.

   3.2   Allocation by the Office of the Interconnection.

   In the event all of the Electric Distributors have incurred underfrequency relay charges during a Planning Period, the underfrequency relay charges shall be distributed among the Electric Distributors on an equitable basis as determined by the Office of the Interconnection.

SCHEDULE 8

DELEGATION OF RELIABILITY RESPONSIBILITIES

1.   DELEGATION

   The following responsibilities shall be delegated to the Office of the Interconnection by the parties to the Reliability Assurance Agreement.

2.   NEW PARTIES

   With regard to the addition, withdrawal or removal of a party to the Reliability Assurance Agreement, the Office of the Interconnection shall:

   (a)   Receive and evaluate the information submitted by entities that plan to serve loads within the PJM Control Area, including entities whose participation in the Agreement will expand the boundaries of the PJM Control Area, such evaluation to be conducted in accordance with the requirements of the Reliability Assurance Agreement; and

   (b)   Evaluate the effects of the withdrawal or removal of a party from the Reliability Assurance Agreement.

3.   IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT

   With regard to the implementation of the provisions of the Reliability Assurance Agreement, the Office of the Interconnection shall:

   (a)   Receive all required data and forecasts from the parties to the Reliability Assurance Agreement and other owners of Capacity Resources;

   (b)   Perform all calculations and analyses necessary to determine the Forecast Pool Requirement and the capacity obligations imposed under the Reliability Assurance Agreement, including periodic reviews of the capacity benefit margin for consistency with the Reliability Principles and Standards, as the foregoing terms are defined in the Reliability Assurance Agreement;

   (c)   Monitor the compliance of each party to the Reliability Assurance Agreement with its obligations under the Reliability Assurance Agreement;

   (d)   Keep cost records, and bill and collect any costs or charges due from the parties to the Reliability Assurance Agreement and distribute those charges in accordance with the terms of the Reliability Assurance Agreement;

   (e)   Assist with the development of rules and procedures for determining and demonstrating the capability of Capacity Resources;

   (f)   Establish the capability and deliverability of Capacity Resources consistent with the requirements of the Reliability Assurance Agreement;

   (g)   Collect and maintain generator availability data;

   (h)   Perform any other forecasts, studies or analyses required to administer the Reliability Assurance Agreement;

   (i)   Coordinate maintenance schedules for generation resources operated as part of the PJM Control Area;

   (j)   Determine and declare that an Emergency exists or has ceased to exist in all or any part of the PJM Control Area or announce that an Emergency exists or ceases to exist in a Control Area interconnected with the PJM Control Area;

   (k)   Enter into agreements for (i) the transfer of energy in Emergencies in the PJM Control Area or in a Control Area interconnected with the PJM Control Area and (ii) mutual support in such Emergencies with other Control Areas interconnected with the PJM Control Area; and

   (l)   Coordinate the curtailment or shedding of load, or other measures appropriate to alleviate an Emergency, to preserve reliability in accordance with FERC, NERC or MAAC principles, guidelines, standards and requirements and the PJM Manuals, and to ensure the operation of the PJM Control Area in accordance with Good Utility Practice.

SCHEDULE 9

EMERGENCY PROCEDURE CHARGES

1.   EMERGENCY PROCEDURE CHARGE

   1.1   Following an Emergency, the compliance of each Member with the instructions of the Office of the Interconnection shall be evaluated by the Office of the Interconnection. If, based on such evaluation, it is determined that a Member failed to comply with the instructions of the Office of the Interconnection to implement PJM emergency procedures, that Member shall demonstrate that it employed its best efforts to comply with such instructions. In the event a Member failed to employ its best efforts to comply with the instructions of the Office of the Interconnection, that Member shall pay (unless otherwise paid by the Member under the Reliability Assurance Agreement) an emergency procedure charge as follows:

   (a)   For each megawatt of voltage reduction that was not implemented as directed, the Member shall pay 365 times the daily deficiency rate per megawatt set forth in Section A of Schedule 11 of the Reliability Assurance Agreement;

   (b)   For each megawatt of load that was not dropped as directed, the Member shall pay 730 times the daily deficiency rate per megawatt set forth in Section A of Schedule 11 of the Reliability Assurance Agreement; and

   (c)   For each megawatt of ALM (as defined in the Reliability Assurance Agreement) that was not implemented as directed and for each megawatt of a Capacity Resource that was not made available as directed despite being capable of producing energy at the time, and that is deliverable to the PJM Control Area in the case of a Capacity Resource located outside of the PJM Control Area, the Party shall pay 365 times the daily deficiency rate per megawatt set forth in Section A of Schedule 11 of the Reliability Assurance Agreement.

2.   DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES

   2.1   Complying Parties.

   Each Member that has complied with the emergency procedures imposed by this Agreement during an Emergency, without incurring an emergency procedure charge, shall share in any emergency procedure charges paid by any other Member that has failed to satisfy said obligation during such Emergency in an equitable manner to be determined by the PJM Board.

   2.2   All Parties.

   In the event all of the Members have incurred emergency procedure charges with respect to an Emergency, the emergency procedure charges related to that Emergency shall be distributed in an equitable manner as directed by the PJM Board.

SCHEDULE 10 - Reserved

Reserved for future use.

SCHEDULE 11

PJM CAPACITY CREDIT MARKETS

1.   PURPOSES AND OBJECTIVES

1.1   PJM Capacity Credit Markets.

   This Schedule sets forth the procedures applicable to the operation of the PJM Capacity Credit Markets. The PJM Capacity Credit Markets will allow Market Participants to buy and sell Capacity Credits at market clearing prices that are established by the PJM Capacity Credit Markets and made public by the Office of the Interconnection. The PJM Capacity Credit Markets shall be administered by the Office of Interconnection in accordance with the principles and procedures specified in this Schedule.

1.2   [Reserved.]

1.3   Use of Capacity Credits.

   An entity may use Capacity Credits to meet all or part of its capacity obligations imposed under the Reliability Assurance Agreement. Such Capacity Credits may be used by themselves, or along with any other options for meeting capacity obligations imposed under the Reliability Assurance Agreement.

2.   DEFINITIONS

   Unless the context otherwise specifies or requires, capitalized terms used in this Schedule shall have the respective meanings assigned herein or in the Agreement for all purposes of this Schedule (such definitions to be equally applicable to both the singular and the plural forms of the terms defined).

2.1   Buy Bid.

   "Buy Bid" shall mean a bid to buy Capacity Credits in a PJM Capacity Credit Market.

2.2   Capacity Credit.

   "Capacity Credit" shall, subject to the transition provision specified below, mean an entitlement to a specified number of megawatts of Unforced Capacity from a Capacity Resource for the purpose of satisfying capacity obligations imposed under the Reliability Assurance Agreement, such entitlement not to include any entitlement to the output of the Capacity Resource.

2.3   Capacity Resources.   

   "Capacity Resources" shall have the meaning specified in the Reliability Assurance Agreement.

2.4   PJM Capacity Credit Market.

   "PJM Capacity Credit Market" shall mean the PJM Daily Capacity Credit Market and the PJM Monthly Capacity Credit Market.

2.5   PJM Daily Capacity Credit Market.

   "PJM Daily Capacity Credit Market" shall mean a competitive market, administered by the Office of the Interconnection in accordance with the provisions of this Schedule, for the purchase and sale of Capacity Credits for the business day following the day on which the market is conducted and for each of any intervening weekend days or Holidays if the market is conducted on a Friday or the day before a Holiday.

2.6   PJM Monthly Capacity Credit Market.

   "PJM Monthly Capacity Credit Market" shall mean a competitive market, administered by the Office of the Interconnection in accordance with the provisions of this Schedule, for the purchase and sale of Capacity Credits for each or any of the twelve months following the month during which the market is conducted.

2.7   Sell Offer.

   "Sell Offer" shall mean an offer to sell Capacity Credits in a PJM Capacity Credit Market.

2.8   Unforced Capacity.

   "Unforced Capacity" shall have the meaning specified in the Reliability Assurance Agreement.

2.9   Up-To Block.

   "Up-To Block" shall mean a Sell Offer or Buy Bid for a quantity of Capacity Credits equal to or less than a specified quantity.

3.   PARTICIPATION IN THE PJM CAPACITY CREDIT MARKET

3.1   Eligibility.

   A Member shall become eligible to participate in any of the PJM Capacity Credit Markets by becoming a Market Buyer or a Market Seller, or both as may be appropriate, in accordance with the provisions of Schedule 1 of the Agreement. In order to participate in any of the PJM Capacity Credit Markets, a Market Buyer also either must be (a) an entity that is or will become a Load Serving Entity in the PJM Control Area and a party to the Reliability Assurance Agreement, or (b) have a contractual obligation to sell capacity (including sales for resale) which will be used in the PJM Control Area. A Market Seller may participate in any PJM Capacity Credit Market only to the extent that it has Capacity Credits available to sell in excess of its capacity obligation imposed under the Reliability Assurance Agreement and other contractual obligations to sell capacity (including sales for resale), as determined in accordance with Section 6.1.3.

3.2   Effect of Withdrawal.

   Withdrawal from the Agreement shall not relieve a Market Participant of any obligation to furnish or pay for Capacity Credits incurred in connection with participation in a PJM Capacity Credit Market prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions or events occurring prior to such withdrawal; and provided, further, that withdrawal from this Agreement shall not relieve any Market Participant of any obligations it may have under, or constitute withdrawal from, any Related PJM Agreement.

4.   RESPONSIBILITIES OF THE OFFICE OF THE INTERCONNECTION

4.1   Operation of the PJM Capacity Credit Market.

   The Office of the Interconnection shall operate the PJM Capacity Credit Markets in accordance with the provisions of this Schedule and applicable provisions of the Agreement and the Reliability Assurance Agreement. Operation of the PJM Capacity Credit Markets shall include, but not be limited to, provision of the following services:

i)   Determining the qualification of entities to become Market Participants;

ii)   Administering the PJM Capacity Credit Markets;

iii)   Accounting for PJM Capacity Credit Market transactions, including but not limited to rendering bills to, receiving payments from, and disbursing payments to, participants in the PJM Capacity Credit Markets;

iv)   Maintaining such records of Sell Offers and Buy Bids, clearing price determinations, and other aspects of PJM Capacity Credit Market transactions, as may be appropriate to the administration of the PJM Capacity Credit Markets; and

v)   Monitoring compliance of participants in the PJM Capacity Credit Markets with the provisions of this Schedule and the Agreement.

4.2   Records and Reports.

   The Office of the Interconnection shall prepare and maintain such records as are required for the administration of the PJM Capacity Credit Markets. For each day of operation of the PJM Capacity Credit Markets, the Office of the Interconnection shall publish, as specified below: (i) the price, if determined, at which the PJM Capacity Credit Market cleared; (ii) the total volume of Capacity Credits purchased; and (iii) such other PJM Capacity Credit Market data as may be appropriate to the efficient and competitive operation of the PJM Capacity Credit Markets, consistent with preservation of the confidentiality of commercially sensitive or proprietary information. Publication of the foregoing information shall be by posting on the PJM web site. Such information shall remain available on the PJM web site for twelve months from the date of posting. The Office of the Interconnection shall not disclose commercially sensitive or proprietary information in any report or web site posting.

5.   GENERAL PROVISIONS

5.1   Market Sellers.

   Only Market Sellers shall be eligible to submit Sell Offers. Market Sellers shall comply with the terms and conditions of all Sell Offers, as established by the Office of the Interconnection in accordance with this Schedule and the Agreement.

5.2   Market Buyers.

   Only Market Buyers shall be eligible to submit Buy Bids. Market Buyers shall comply with the terms and conditions of all Buy Bids, as established by the Office of the Interconnection in accordance with this Schedule and the Agreement.

5.3   Agents.

   A Market Participant may participate in the PJM Capacity Credit Markets through an agent, provided that the Market Participant informs the Office of the Interconnection in advance in writing of the appointment of such agent. A Market Participant participating in the PJM Capacity Credit Markets through an agent shall be bound by all of the acts or representations of such agent with respect to transactions in the PJM Capacity Credit Markets, and shall ensure that any such agent complies with the requirements of this Schedule and the Agreement.

5.4   General Obligations of Market Participants.

   Each Market Participant shall comply with all laws and regulations applicable to the operation of the PJM Capacity Credit Markets and the use of Capacity Credits, and shall comply with all applicable provisions of this Schedule, the Agreement, and the Reliability Assurance Agreement, and all procedures and requirements for the operation of the PJM Capacity Credit Markets and the PJM Control Area established by the Office of the Interconnection in accordance with the foregoing.

5.5   Relationship of Capacity Credits to Capacity Obligations Imposed under the Reliability Assurance Agreement.

   A megawatt of Capacity Credit shall satisfy a megawatt of capacity obligation imposed under the Reliability Assurance Agreement. Capacity Credits purchased from a PJM Capacity Credit Market shall not be adjusted for forced outages or other reasons. Because Capacity Credits are based on Capacity Resources, no further capability or deliverability demonstrations beyond those for the related Capacity Resource shall be required.

5.6   Deficiency Charges.

   If the Office of the Interconnection determines that the first Market Seller in a PJM Capacity Credit Market of a Capacity Credit did not have sufficient Unforced Capacity to support the Capacity Credit transaction at the time for which the Capacity Credit was applicable, any such deficiency shall be satisfied through payment of deficiency charges by such first Market Seller calculated as specified in the Reliability Assurance Agreement. Any amounts collected from such deficiency charges shall be distributed in accordance with the Reliability Assurance Agreement.

5.7   Fixed Transmission Rights.

   Acquisition of a Capacity Credit shall not entitle the holder to a Fixed Transmission Right.

5.8   Confidentiality.

   The following information submitted to the Office of the Interconnection in connection with any PJM Capacity Credit Market shall be deemed confidential information for purposes of Section 18.17 of the Agreement: (i) the terms and conditions of all Sell Offers and Buy Bids; and (ii) the terms and conditions of any bilateral transactions for capacity or Capacity Credits.

6.   OPERATION OF THE PJM CAPACITY CREDIT MARKETS

6.1   Content of Sell Offers.

6.1.1   Specifications.

      Sell Offers shall specify:

i)   The quantity of Capacity Credits offered, in increments of 0.1 megawatt;

ii)   The minimum price, in dollars and cents per megawatt per day, that will be accepted by the seller;

iii)   For a PJM Daily Capacity Credit Market, the dates on which the offered Capacity Credits may be used; and

iv)   For a PJM Monthly Capacity Credit Market, the month or months for which the offered Capacity Credits may be used.

6.1.2   Market-based Offers.

      A Market Seller that is authorized by FERC to sell electric generating capacity at market-based prices, or that is not required to have such authorization, may submit Sell Offers to PJM Capacity Credit Markets that specify market-based prices.

6.1.3   Availability of Capacity Credits for Sale.

i)   The Office of the Interconnection shall determine the maximum megawatts of Capacity Credits each Market Seller may offer in a PJM Capacity Credit Market, through verification of the availability of megawatts of capacity from: (a) Capacity Resources owned by or under contract to the Market Seller; (b) rights obtained in bilateral transactions; (c) the results of prior PJM Capacity Credit Markets; and (d) such other information as may be available to the Office of the Interconnection. The Office of the Interconnection may reject Sell Offers or portions of Sell Offers for Capacity Credits determined by it not to be available for sale.

ii)   The Office of the Interconnection shall determine the maximum amount of Capacity Credits available for sale in a PJM Capacity Credit Market as of the beginning of the period during which Buy Bids and Sell Offers are accepted for each market. To enable the Office of the Interconnection to make this determination, no bilateral transactions for capacity or Capacity Credits applicable to the period covered by a PJM Capacity Credit Market will be processed from the beginning of the period for submission of Sell Offers and Buy Bids for that market until completion of the clearing determination for that market. Processing of such bilateral transactions will recommence once all sales for that market are deemed final as specified below.

iii)   In order for a bilateral transaction for the purchase and sale of a Capacity Credit to be processed by the Office of the Interconnection, both parties to the transaction must notify the Office of the Interconnection of the transfer of the Capacity Credit from the seller to the buyer in accordance with procedures established by the Office of the Interconnection.

6.2   Content of Buy Bids.

   Buy Bids shall specify:

i)   The quantity of Capacity Credits desired, in increments of 0.1 megawatt;

ii)   The maximum price, in dollars and cents per megawatt per day, that will be paid by the buyer;

iii)   For a PJM Daily Capacity Credit Market, the dates for which Capacity Credits are desired; and

iv)   For a PJM Monthly Capacity Credit Market, the month or months for which Capacity Credits are desired.

6.3   Submission of Sell Offers and Buy Bids.

   The submission of Sell Offers and Buy Bids shall be subject to the following requirements:

i)   A Sell Offer or Buy Bid that fails to specify price or quantity, or the date or months for which Capacity Credits are to be used if applicable, shall be rejected by the Office of the Interconnection.

ii)   All Sell Offers and Buy Bids are for an Up-To Block.

iii)   All Sell Offers and Buy Bids for a PJM Daily Capacity Market must be received by the Office of the Interconnection during a specified period, as determined by the Office of the Interconnection. A Sell Offer or Buy Bid may be withdrawn by a notification of withdrawal received by the Office of the Interconnection at any time during the foregoing period, but may not be withdrawn after that period.

iv)   Sell Offers and Buy Bids for a PJM Monthly Capacity Credit Market must be received by the Office of the Interconnection during a specified period, as determined by the Office of the Interconnection, on the day of each month designated by the Office of the Interconnection for the conduct of a PJM Monthly Capacity Credit Market. A Sell Offer or Buy Bid may be withdrawn by a notification of withdrawal received by the Office of the Interconnection at any time during the foregoing period, but may not be withdrawn after that period.

v)   Sell Offers and Buy Bids shall be submitted or withdrawn via the Internet site designated by the Office of the Interconnection; provided, however, that if that Internet site cannot be accessed at any time during the period specified in the foregoing paragraph, a Sell Offer or Buy Bid may be submitted or withdrawn by a facsimile transmitted to the number specified by the Office of the Interconnection.

6.4   Conduct of PJM Capacity Credit Markets.

6.4.1   PJM Daily Capacity Credit Markets.

      Following the submission of Sell Offers and Buy Bids in accordance with the specified deadline for PJM Daily Capacity Credit Markets, a PJM Daily Capacity Credit Market will be conducted each day. Each such PJM Daily Capacity Credit Market will clear Sell Offers and Buy Bids for Capacity Credits for use the next day.

6.4.2   PJM Monthly Capacity Credit Markets.

      Following the submission of Sell Offers and Buy Bids in accordance with the specified deadline for PJM Monthly Capacity Credit Markets, a PJM Monthly Capacity Credit Market will be conducted. Each such PJM Monthly Capacity Credit Market will clear Sell Offers and Buy Bids for Capacity Credits for use in each of the following twelve months.

6.5   Market Clearing Procedures.

i)   For purposes of the rank ordering and market clearing procedures described below, the Office of the Interconnection will: (a) evaluate all Sell Offers for an Up-To Block at the same price as one Sell Offer for an Up-to Block, with the quantity equal to the total quantity of the equally-priced Sell Offers; and (b) evaluate all Buy Bids for an Up-To Block at the same price as one Buy Bid for an Up-to Block, with the quantity equal to the total quantity of the equally-priced Buy Bids.

ii)   The Office of the Interconnection will rank order all Sell Offers and Buy Bids by price. Sell Offers will be ranked by lowest price first and then ranked in ascending price order. Buy Bids will be ranked by highest price first and then ranked in descending price order. In the event that a Market Participant enters one or more Buy Bids with a price higher than the lowest offer price of that Market Participant's Sell Offers, then all of the Market Participant's Buy Bids priced higher than its lowest priced Sell Offer shall be rejected.

iii)   The Office of the Interconnection will determine the largest quantity of Sell Offers and Buy Bids for which the price of the marginal Sell Offer is equal to or less than the price of the marginal Buy Bid. The market will clear at price specified in the marginal Sell Offer.

iv)   If a marginal Sell Offer or Buy Bid is a combination of Sell Offers or Buy Bids deemed to be a single Sell Offer or Buy Bid for an Up-To Block as specified above, the quantity purchased or sold will be allocated among the combined Sell Offers or Buy Bids in proportion to the quantities offered in each of the combined Sell Offers or Buy Bids.

v)   If all Sell Offers remaining in the rank order are at prices higher than the highest price of any Buy Bid remaining in the rank order, the market will be cleared with no transactions, and a market clearing price will not be determined.

6.6   Settlement Procedures.

   Upon determination of the market clearing price as specified above: (a) all Sell Offers at a price equal to or less than the market clearing price and not removed from the rank ordering and for which there is sufficient Buy Bid demand at or above the market clearing price will be deemed sold at the market clearing price, and all Buy Bids at a price equal to or greater than the market clearing price and not removed from the rank ordering and for which there is sufficient Sell Offer supply at or below the market clearing price will be deemed satisfied at the market clearing price, with any Up-To Blocks split and pro-rated as may be appropriate; and (b) the accounts of Market Sellers and Market Buyers will be credited or debited accordingly. The foregoing determinations shall be made, and all sales and purchases shall be deemed final, as of specified times, as designated by the Office of the Interconnection, on the day on which each PJM Capacity Market is conducted.

6.7   Billing.

   The Office of the Interconnection shall prepare a billing statement for each Market Participant in accordance with the charges and credits specified in this Schedule, and showing the net amount to be paid or received by each Market Participant. Billing statements for PJM Daily Capacity Markets shall be rendered following the end of each month for Capacity Credits bought and sold in the month just ended. Billing statements for PJM Monthly Capacity Credit Markets shall be rendered following the end of the month for which the Capacity Credit applies. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Participant's internal accounting. Payment of statements shall be made in accordance with the Agreement.

6.8   Time Standard.

   All deadlines for the submission or withdrawal of Sell Offers or Buy Bids, or for other purposes specified in this Schedule, shall be determined by the time observed in the Eastern time zone.

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EX-10

Exhibit 10(n)-4

AMENDMENT NO. 3

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 July 1, 2000, and subsequently amended by Amendments No. 1 and 2; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.Effective January 1, 2001, Article 2 (e), (k) and (n) are amended to read:

2. Definitions.

(e)"Change in Control" means the occurrence of any one of the following events: (1) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board of Directors of PPL Corporation and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of PPL Corporation) whose appointment or election by the Board of Directors of PPL Corporation or nomination for election by PPL Corporation's shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who were either directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; (2) any Person becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PPL Corporation representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors; (3) there is consummated a merger or consolidation of PPL Corporation or any direct or indirect subsidiary of PPL Corporation with any other corporation or other entity, other than, (A) a merger or consolidation which would result in the voting securities of PPL Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any subsidiary of PPL Corporation, at least 60% of the combined voting power of the securities of PPL Corporation or at least 60% of the combined voting power of the securities of such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of PPL Corporation (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of PPL Corporation (excluding in the securities beneficially owned by such Person any securities acquired directly from PPL Corporation or its Affiliates) representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities; (4) the shareowners of PPL Corporation approve a plan of complete liquidation or dissolution of PPL Corporation; or (5) the Board of Directors of PPL Corporation adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur.

(k)"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.

(n)"Person" shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof; provided, however, a Person shall not include (1) PPL Corporation or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any of its subsidiaries, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the stockholders of PPL Corporation in substantially the same proportions as their ownership of stock of PPL Corporation.

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 _____________________, 2001.

PPL SERVICES CORPORATION

By:_______________________________

Charles P. Pinto

Vice President - Human Resources

EX-10

Exhibit 10(n)-5

AMENDMENT NO. 4

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 July 1, 2000, and subsequently amended by Amendments No. 1, 2 and 3; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.This Amendment shall be effective on the date that PPL Electric Utilities Corporation files articles of division required by sections 1951-1957 of the Pennsylvania Business Law of 1988, 15 Pa. C.S. Sections 1951-1957, to effect a corporate division pursuant to said law.

5.Account. Solely for Participants ("Electric Employees") who are employees of PPL Electric Utilities Corporation and any subsidiaries thereof ("PPL Electric"), PPL Electric shall maintain an Account in the name of each Participant. For all Participants who are not Electric Employees, PPL Corporation or any Participating Company except PPL Electric ("PPL (Non-Electric)") shall maintain an Account in the name of each Participant. Such Account shall be maintained as follows:

(a)For Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric) shall credit the Deferred Cash Compensation to the applicable Participant's Account on a daily basis for each business day as if Cash Compensation that would have been paid was paid over each business day of the calendar year.

(b)For Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric) shall credit the Deferred Cash Award to the applicable Participant's Account as of the same day that all Cash Awards not being deferred are paid.

(c)Within sixty (60) days of the close of any calendar year during which Participant authorized salary reduction contributions to the Deferred Savings Plan, for Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric) will credit the applicable Participant's Account with the difference, if any, between the Participating Company matching contributions Participant would have received for the prior calendar year under the Deferred Savings Plan if Participant had participated in the Deferred Savings Plan based on Participant's Cash Compensation and the actual Participating Company matching contributions allocated to Participant's Account in the Deferred Savings Plan for the prior calendar year. Participant will forfeit any such allocation to his Account if Participant terminates employment with all Participating Companies at a time when Participating Company matching contributions under the Deferred Savings Plan are not vested under that plan.

(d)At the time when any allocations are made under ESOP for contributions under Article IV of that plan, for Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric) will credit the applicable Participant's Account with an amount equal to the difference, if any, between the value of contributions that would have been made under ESOP based on Participant's Cash Compensation and the value of contributions actually made for Participant under ESOP.

(e)Participant's Account shall be credited in substantially equivalent frequency and with a calculated rate of return substantially equivalent to the rate of return that would have been realized had the Account been invested in one or more mutual fund choices offered by the PPL Deferred Savings Plan as of December 1, 2000. The mutual fund or funds utilized to calculate the rate of return on the Participant's Account shall be that mutual fund or funds elected by the Participant in writing on an election form submitted to the EBPB. The Participant may change investment choices in the same manner as may be permitted by the PPL Deferred Savings Plan for Participant funds in that Plan as of December 1, 2000.

9.Miscellaneous.

(e)All payments from this Plan to Participant or a beneficiary of such Participant shall be made from the general assets of, for Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric). This Plan shall not require any Participating Company or an Affiliated Company to set aside, segregate, earmark, pay into trust or special account or otherwise restrict the use of its assets in the operation of the business. Participant shall have no greater right or status than as an unsecured general creditor of PPL Electric, if an Electric Employee, or PPL (Non-Electric) if not an Electric Employee, with respect to any amounts owed to Participant hereunder.

II.Except as provided for in this Amendment No. 4, all other provisions of the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Amendment No. 4 is executed this _____ day of _____________________, 2001.

PPL SERVICES CORPORATION

By:_______________________________

Charles P. Pinto

Vice President - Human Resources

EX-10

Exhibit 10(o)-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, 2000; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.Effective January 1, 2001 the following sections of Article 2 are amended to read:

2.Definitions.

(f)"Change in Control" means the occurrence of any one of the following events:

(1)the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board of Directors of PPL Corporation and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of PPL Corporation) whose appointment or election by the Board of Directors of PPL Corporation or nomination for election by PPL Corporation's shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;

(2)any Person becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PPL Corporation representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors;

(3)there is consummated a merger or consolidation of PPL Corporation or any direct or indirect subsidiary of PPL Corporation with any other corporation or other entity, other than (A) a merger or consolidation which would result in the voting securities of PPL Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any subsidiary of PPL Corporation, at least 60% of the combined voting power of the securities of PPL Corporation or at least 60% of the combined voting power of the securities of such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of PPL Corporation (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of PPL Corporation (excluding in the securities beneficially owned by such Person any securities acquired directly from PPL Corporation or its Affiliates) representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities;

(4)the shareowners of PPL Corporation approve a plan of complete liquidation or dissolution of PPL Corporation; or

(5)the Board of Directors of PPL Corporation adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur.

(q)"Person" shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof; provided however, a Person shall not include (1) PPL Corporation or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any of its subsidiaries, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the stockholders of PPL Corporation in substantially the same proportions as their ownership of stock of PPL Corporation.

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 _________________________, 2001.

PPL SERVICES CORPORATION

By:_______________________________

Charles P. Pinto

Vice President-Human Resources

EX-10

Exhibit 10(o)-4

AMENDMENT NO. 3

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, 2000 and subsequently amended by Amendment Nos. 1 and 2; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.This Amendment shall be effective on the date that PPL Electric Utilities Corporation files articles of division required by sections 1951-1957 of the Pennsylvania Business Law of 1988, 15 Pa. C.S. Sections 1951-1957, to effect a corporate division pursuant to said law.

2.Definitions.

(i)"Displaced Participant" means a Participant who has a Termination of Employment after completing one or more Years of Vesting Service, and who qualifies for benefits pursuant to PPL's Displaced Managers Procedure (General Procedure 402) and who executes a severance agreement and release as specified by the Participating Company.

9.Miscellaneous.

(a)If any person to receive payment is a minor, or is deemed by the EBPB or is adjudged to be legally incompetent, the payments shall be made to the duly appointed guardian or committee of such minor or incompetent, or they may be made to such person or persons who the EBPB believes are caring for or supporting such minor or incompetent.

(b)All payments to persons entitled to benefits under this Plan shall be made to such persons and shall not be grantable, transferable or otherwise assignable in anticipation of payment thereof, in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be liable or taken for any obligation of such person. PPL will observe the terms of the Plan unless and until ordered to do otherwise by a state or Federal court. As a condition of participation, Participant agrees to hold PPL harmless from any claim that arises out of PPL's obeying any such order whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court.

(c)Nothing in this Plan shall confer any right on any Participant to continue in a Participating Company's employ or to receive compensation, nor shall anything in this Plan affect in any way the right of a Participating Company to terminate any Participant's employment at any time.

(d)The expenses of administration hereunder shall be borne by PPL.

(e)This Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Pennsylvania.

(f)Solely for Participants who are employees of PPL Electric Utilities Corporation and any subsidiaries thereof ("PPL Electric") immediately prior to their termination of employment ("Electric Employees"), all payments from this Plan to an Electric Employee or a beneficiary of such an Electric Employee shall be made from the general assets of PPL Electric. For all Participants who are not Electric Employees, all payments from this Plan to a Participant or a beneficiary of such Participant shall be made from the general assets of PPL Corporation and all Participating Companies except PPL Electric ("PPL (Non-Electric"). This Plan shall not require PPL, any Participating Company or an Affiliated Company to set aside, segregate, earmark, pay into trust or special account or otherwise restrict the use of its assets in the operation of the business. Participant shall have no greater right or status than as an unsecured creditor of PPL Electric, if an Electric Employee, or PPL (Non-Electric) i f not an Electric Employee, with respect to any amounts owed to Participant hereunder.

(g)The masculine pronoun shall be deemed to include the feminine and the singular to include the plural unless a different meaning is plainly required by the context.

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 _________________________, 2001.

PPL SERVICES CORPORATION

By:_______________________________

Charles P. Pinto

Vice President-Human Resources

EX-10

Exhibit 10(p)-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 February 14, 2000; and

WHEREAS, PPL desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I.Effective January 1, 2001, the following sections are amended to read:

SECTION 2. DEFINITIONS.

(e) "Change in Control" means the occurrence of any one of the following events: (1) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board of Directors of PPL Corporation and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of PPL Corporation) whose appointment or election by the Board of Directors of PPL Corporation or nomination for election by PPL Corporation's shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; (2) any Person becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PPL Corporation representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors; (3) there is consummated a merger or consolidation of PPL Corporation or any direct or indirect subsidiary of PPL Corporation with any other corporation or other entity, other than (A) a merger or consolidation which would result in the voting securities of PPL Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any subsidiary of PPL Corporation, at least 60% of the combined voting power of the securities of PPL Corporation or at least 60% of the combined voting power of the securities of such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of PPL Corporation (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of PPL Corporation (excluding in the securities beneficially owned by such Person any securities acquired directly from PPL Corporation or its Affiliates) representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities; (4) the shareowners of PPL Corporation approve a plan of complete liquidation or dissolution of PPL Corporation; or (5) the Board of Directors of PPL Corporation adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur.

(t) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof; provided, however, a Person shall not include (1) PPL Corporation or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any of its subsidiaries, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the stockholders of PPL Corporation in substantially the same proportions as their ownership of stock of 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 _____________, 2001.

PPL CORPORATION

By:_______________________________

Charles P. Pinto

Vice President-Human Resources

EX-10

Exhibit 10(r)

AGREEMENT

THIS AGREEMENT, effective as of _______________, ____, is made by and between PPL Corporation, a Pennsylvania corporation and _______________ (the "Executive").

WHEREAS, the Company considers it essential to the best interests of its shareowners to foster the continued employment of key management personnel; and

WHEREAS, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly-held corporations, the possibility of a Change in Control (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareowners; and

WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;

WHEREAS, the Executive and the Company have entered into a Severance Agreement effective as of __________________ (the "Prior Severance Agreement"), which the Executive and the Company desire to terminate, in its entirety, effective as of the date hereof, and in lieu thereof enter into this Agreement;

NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:

1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.

2. Term of Agreement. The Term of this Agreement shall commence on the date hereof and shall continue in effect through December 31, ____; provided, however, that commencing on January 1, ____ and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, either the Company or the Executive gives at least 15 months advance notice of termination by, not later than September 30 of the year preceding the year in which the Term is then scheduled to expire, giving notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than thirty-six (36) months beyond the month in which such Change in Control occurred. Notwithstanding the foregoing, and subject to any extensions pursuant to Section 7.3, in the event that prior to the occurrence of a Change in Control or Potential Change in Control, the Executive's employment is terminated for any reason then this Agreement shall terminate as of the date that the Executive's employment is terminated.

3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed to in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.

4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months after the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason.

5. Compensation Other Than Severance Payments.

5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability.

5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's full base salary through the Date of Termination at the rate in effect immediately prior to the Date of Termination, or if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation or benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination, or if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.

5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits due the Executive as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.

6. Severance Payments.

6.1 The Company shall pay the Executive the payments, and provide the Executive the benefits, described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control and during the Term, in addition to the payments and benefits described in Section 5 hereof, unless such termination is (i) by the Company for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason if (A) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control or (B) if the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (C) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.

(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive including any payments under the Displaced Managers Procedure (General Procedure 402) or any similar plan, policy or procedure or arrangement, or the Executive's Prior Severance Agreement or any employment agreement or arrangement between the Executive and the Company, to the extent provided in Section 11 of this Agreement, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the highest annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by the Company in respect of any of the last three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason (including as an amount so paid any amount that would have been so paid but for the Executive's request that the amount not be paid), less (iii) the sum of the values on the date of the termination of Executive's employment of any amounts designated under any other agreement or agreements with Executive as "Retention Agreement Amounts" for purposes of this Agreement. For purposes of determining the value of the annual bonus earned by the Executive in any calendar year, the value of any restricted stock awards or stock options earned by the Executive in any such year shall not be included in the value of the annual bonus for such year;

(B) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents, life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason) or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence; provided, however, that, unless the Executive consents to a different method (after taking into account the effect of such method on the calculation of "parachute payments" pursuant to Section 6.2 hereof), such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty-six (36) month period following the Date of Termination (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.

(C) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation that has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii) to the extent not otherwise paid or deferred at the Executive's election, pursuant to the terms of the applicable plan, a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the level that would produce the maximum award, of the individual and corporate performance goals established with respect to such award, by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period.

(D) In addition to the retirement benefits to which the Executive may be entitled under each Pension Plan, if any, or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the excess of (i) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the third anniversary of the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive would have accrued under the terms of all Pension Plans (without regard to any amendment to any Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated after the Date of Termination thirty-six (36) additional months of service credit thereunder (and if any Pension Plan imposes a maximum number of months for purposes of accrual of benefits thereunder, such thirty-six (36) additional months shall be reduced, but not below zero, to the extent necessary so that the total number of months of service credited thereunder, including the number of months credited pursuant to this Section 6.1(D), does not exceed such maximum number of months) and had been credited under each Pension Plan during such period with compensation equal to the Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, over (ii) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive had accrued pursuant to the provisions of the Pension Plans as of the Date of Termination. For purposes of this Section 6.1(D), "actuarial equivalent" shall be determined using the same assumptions utilized under the PPL [Global/Montana] Supplemental Executive Retirement Plan immediately prior to the Date of Termination, or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason.

(E) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive's employment terminated at any time during the period of thirty-six (36) months after the Date of Termination, the Company shall provide such post-retirement health care or life insurance benefits to the Executive and the Executive's dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.

(F) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of three years or, if earlier, until the first acceptance by the Executive of an offer of employment.

6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (such payments or benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments.

(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount (within the meaning of Section 280G(b)(3) of the Code) allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.

(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code). In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

6.3 The payments provided in subsection 6.1(A), (C) and (D) hereof and Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).

6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment hereunder or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.

7. Termination Procedures and Compensation During Dispute.

7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.

7.2 Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).

7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.

7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.

8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7.4 hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than in Section 6.1(B) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.

9. Successors; Binding Agreement.

9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.

9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.

10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, to the Executive at the last known address maintained in the Company's personnel records, and to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:

To the Company:

PPL Corporation

Two North Ninth Street

Allentown, Pennsylvania 18101

Attention: Corporate Secretary

11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof, which have been made by either party, including but not limited to, the Prior Severance Agreement; provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement that by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.

12. Validity; Pooling. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. In the event that the Company is party to a transaction that is otherwise intended to qualify for "pooling of interests" accounting treatment then (a) this Agreement shall, to the extent practicable, be interpreted so as to permit such accounting treatment, and (b) to the extent that the application of clause (a) of this Section 12 does not preserve the availability of such accounting treatment, then, to the extent that any provision of this Agreement disqualifies the transaction as a "pooling" transaction (including, if applicable, the entire Agreement), such provision shall be null and void as of the date hereof. All determinations under this Section 12 shall be made by the accounting firm whose opinion with respect to "pooling of interests" is required as a condition to the consummation of such transaction.

13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

14. Settlement of Disputes; Arbitration. The Board shall make all determinations as to the Executive's right to benefits under this Agreement. Any denial by the Board of a claim for benefits under this Agreement shall be stated in writing and delivered or mailed to the Executive and such notice shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon, and shall be written in a manner that may be understood without legal or actuarial counsel. In addition, the Board shall afford a reasonable opportunity to the Executive for a review of the decision denying the Executive's claim and, in the event of continued disagreement, the Executive may appeal within a period of 60 days after receipt of notification of denial. Failure to perfect an appeal within the 60-day period shall make the decision conclusive. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Philadelphia, Pennsylvania in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:

(A) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code.

(B) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

(C) "Board" shall mean the Board of Directors of the Company.

(D) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company, and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.

(E) "Change in Control" means the occurrence of any one of the following events:

(I) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;

(II) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors;

(III) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation or other entity, other than (I) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 60% of the combined voting power of the securities of the Company or at least 60% of the combined voting power of the securities of such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (II) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (excluding in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities;

(IV) the shareowners of the Company approve a plan of complete liquidation or dissolution of the Company; or

(V) the Board adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur.

(F) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.

(G) "Company" shall mean PPL Corporation and, except in determining, under Section 15(E) hereof, whether or not any Change in Control of the Company has occurred in connection with such succession, shall include its subsidiaries and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. For purposes of this Agreement, the Executive's employment by (including termination of such employment) and compensation from any subsidiary of the Company shall be deemed employment by and compensation from the Company.

(H) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof.

(I) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.

(J) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.

(K) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code.

(L) "Executive" shall mean the individual named in the first paragraph of this Agreement.

(M)"Good Reason" for termination of the Executive's employment with the Company by such Executive shall mean the occurrence (without the Executive's express written consent) after a Change in Control, or prior to a Change in Control under the circumstances described in clauses (B) and (C) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act:

(I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer or key employee of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to a Change in Control;

(II) a reduction by the Company of the Executive's annual base salary as in effect on the date of this Agreement, or as the same may be increased from time to time, except for across-the-board decreases uniformly affecting management, key employees and salaried employees of the Company or the business unit in which the Executive is then employed;

(III) the relocation of the Executive's principal work location to a location more than 30 miles from the vicinity of such work location immediately prior to a Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations;

(IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due, except for across-the-board compensation deferrals uniformly affecting management, key employees and salaried employees of the Company or the business unit in which the Executive is then employed;

(V) the failure by the Company to continue in effect any compensation or benefit plan in which the Executive participates immediately prior to a Change in Control which is material to the Executive's total compensation, or any substitute plans adopted prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control;

(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to a Change in Control, except for across-the-board changes to any such plans uniformly affecting all participants in such plans, the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy at the time of the Change in Control; or

(VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof. For purposes of this Agreement, no such purported termination shall be effective.

The Executive's right to terminate his or her employment with the Company for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed correct unless the Company established to the Board by clear and convincing evidence that Good Reason does not exist.

(N) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof.

(O) "Pension Plan" shall mean any tax-qualified, supplemental or excess defined benefit pension plan maintained by the Company and any other agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits.

(P) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; provided, however, a Person shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company.

(Q) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied:

(I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

(II) any Person publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control;

(III) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors; or

(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(R) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.

(S) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.

(T) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).

(U) "Total Payments" shall mean those payments described in Section 6.2 hereof.

PPL CORPORATION

By                                                                                                          
      William F. Hecht                                                 Date
      Chairman/President and CEO

By                                                                                                          
      [Name of Executive]                                           Date

EX-10

Exhibit 10s

RETENTION AGREEMENT

THIS RETENTION AGREEMENT, effective as of _________, is made and entered into between PPL Corporation ("PPL") and ______________ (the "Executive").

WHEREAS, PPL recognizes the need to develop and retain the Executive; and

WHEREAS, PPL has determined that certain steps should be taken to encourage the Executive to remain with PPL;

WHEREAS, the Executive and PPL have entered into a Retention Agreement effective as of _______________ (the prior Retention Agreement), which the Executive and PPL desire to terminate, in its entirety, effective as of the date hereof, and in lieu thereof, enter into this Retention Agreement;

NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained and intending to be legally bound, PPL and the Executive agree as follows:

SECTION 1. DEFINITIONS.

The following definitions are applicable to this Retention Agreement:

1.1 "Affiliated Company" or "Affiliated Companies" means any parent or majority or 50% owned subsidiaries of PPL (or companies, limited liability companies or other legal entities under common control with PPL) including entities that are members of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code) as PPL.

1.2 "Board" means the Board of Directors of PPL.

1.3 "Code" means the Internal Revenue Code of 1986, as may be amended from time to time.

1.4 "Committee" means two or more non-employee directors, unless otherwise determined by the Board, who have been designated by the Board to act as the Committee and qualify as non-employee directors under the Exchange Act.

1.5 "Common Stock" means the common stock of PPL.

1.6 "Disability" or "Disabled" means the inability of the Executive to perform each and every duty pertaining to the Executive's regular occupation by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than six months.

1.7 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. Reference in this Retention Agreement to any section of the Exchange Act shall be deemed to include any amendments or successor provisions to such section and any rules promulgated thereunder.

1.8 "Fair Market Value" means the average of the high and low sale prices of the Common Stock as reflected in the New York Stock Exchange Composite Transactions on the date as of which Fair Market Value is being determined or, if no Common Stock is traded on the date as of which Fair Market Value is being determined, Fair Market Value shall be the average of the high and low sale prices of the Common Stock as reflected in the New York Stock Exchange Composite Transactions on the next preceding day on which the Common Stock was traded.

1.9 "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; provided, however, a Person shall not include (i) PPL or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of PPL or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of PPL in substantially the same proportions as their ownership of stock of PPL.

1.10 "Termination for Cause" means the termination by PPL or an Affiliated Company of the Executive's employment due to the willful violation of any PPL or an Affiliated Company policy (including PPL's Standards of Conduct and Integrity or any successor thereto), violation of any lawful direction of PPL or an Affiliated Company, gross negligence in the performance of duties, or commission of a felony.

SECTION 2. RESTRICTED STOCK AWARDS

2.1 In order to induce the Executive to remain in the employ of PPL or an Affiliated Company, the Committee has authorized an award under Section 11 of the PPL Corporation Incentive Compensation Plan (the "Award") to the Executive of _0,000 shares of Common Stock ("Shares") with a restriction period that will lapse, unless the restrictions lapse sooner or later pursuant to Section 2.2 or 2.3 of this Retention Agreement, on [_date______] (the "Lapse Date"), provided the Executive has remained in continuous employment with PPL or an Affiliated Company until such date. [Such Award shall constitute a "retention agreement amount" in the Executive's Severance Agreement concerning change in control.]

2.2 In the event of the Executive's death or Disability while in the employ of PPL or an Affiliated Company prior to the Lapse Date, the Award will be prorated by multiplying the amount of shares that would have been free of restriction at the Lapse Date by a fraction, the numerator of which will be the years of actual service of the Executive from the date of the Award up to the date of death or Disability, and the denominator of which will be the number of years of service the Executive would have had if the Executive had maintained active employment from the date of the Award until the Lapse Date.

2.3 As a condition of receiving the Award, the Executive shall agree in writing to notify PPL within 30 days of the date of execution of this Retention Agreement whether the Executive has made an election under Section 83(b) of the Code to report the value of the Shares as income on the date of the grant. An Award of Shares shall be restricted as provided herein. The Shares shall be issued without the payment of consideration by the Executive. The certificates for the Shares shall be issued in the name of the Executive to whom the Award is made, shall be retained by PPL on behalf of the Executive (together with a stock power endorsed in blank) and shall bear a restrictive legend prohibiting the sale, transfer, pledge or hypothecation of the Shares until the Lapse Date. The Committee may also impose such other restrictions and conditions on the Shares as it deems appropriate.

On the Lapse Date, if all conditions in this Retention Agreement have been met, all restrictions on the Award will expire and new certificates representing the Shares will be issued without the restrictive legend described in Section 5.11. As a condition precedent to the receipt of these new certificates, the Executive (or the Executive's designated beneficiary or personal representative) will agree to make payment to PPL or an Affiliated Company of the amount of any federal, state or local taxes, payable by the Executive, which are required to be withheld by PPL or an Affiliated Company with respect to the Award.

SECTION 3.FORFEITURE OF AWARD

3.1 The Executive shall forfeit all rights to the Award if the Executive retires or resigns employment with PPL or an Affiliated Company prior to the Lapse Date, unless, in the case of a resignation, the Executive resigns to immediately assume, and does assume, another position with PPL or an Affiliated Company.

3.2 If the Executive's employment ends as a result of a Termination for Cause, the Executive shall forfeit all rights to the Award.

3.3 Any Shares which are forfeited hereunder will be transferred to PPL.

SECTION 4. MISCELLANEOUS PROVISIONS.

4.1 Nontransferability. No benefit or right provided under this Retention Agreement shall be subject to alienation or assignment by an Executive (or by any person entitled to such benefit pursuant to the terms of the Retention Agreement) or subject to attachment or other legal process of whatever nature. Any attempted alienation, assignment or attachment shall be void and of no effect. Payment shall be made only to the Executive entitled to receive the same or to the Executive's authorized legal representative. PPL and all Affiliated Companies will observe the terms of this Retention Agreement unless and until ordered to do otherwise by a state or federal court. As a condition of participation, each Executive agrees to hold PPL and all Affiliated Companies harmless from any claim that arises out of PPL's or an Affiliated Company's obeying any such order whether such order affects a judgment of such court or is issued to enforce a judgment or order of another court.

4.2 No Employment Right. Neither this Retention Agreement nor any action taken hereunder shall be construed as giving any right to be retained as an employee of PPL or any Affiliated Company.

4.3 Tax Withholding. PPL may require, as a condition of delivery of the Award, that the Executive remit an amount sufficient to satisfy all federal, state and local tax withholding requirements related thereto. In addition, PPL may deduct from any salary or other payment due to such Executive, an amount sufficient to satisfy all federal, state and local tax withholding requirements related to the Award. Without limiting the generality of the foregoing, the Executive may elect to satisfy all or part of the foregoing withholding requirements by delivery of unrestricted shares of Common Stock owned by the Executive for at least six months (or such other period as PPL may determine), having a Fair Market Value (determined as of the date of such delivery by Executive) equal to all or part of the amounts to be so withheld. As a condition of accepting such delivery, PPL may require the Executive to furnish an opinion of counsel acceptable to PPL to the effect that such delivery will not result in the Executive incurring any liability under Section 16(b) of the Exchange Act. Alternatively, PPL may permit any such delivery to be made by withholding certain shares of the Award from the shares otherwise issuable pursuant to the Award giving rise to the tax withholding obligation (in which event the shares shall be valued at their Fair Market Value on the date when the withholding taxes are otherwise due).

4.4 Government and Other Regulations. The obligation of PPL to make payment for the Award shall be subject to all applicable laws, rules and regulations, and to such approvals by any government agencies.

4.5 Changes in Capital Structure. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the Common Stock, appropriate adjustments shall be made to the number and/or kind of shares awarded under the Award, as may be determined by the Committee in its sole discretion. Such adjustments shall be conclusive and binding for all purposes. Additional Shares issued to the Executive as the result of any such change shall bear the same restrictions as the shares of Common Stock to which they relate. Without limiting the generality of the foregoing, in connection with a change in capital structure, the Committee may provide, in its sole discretion, for the cancellation of any outstanding Awards in exchange for payment in cash or other property of the Fair Market Value (on the date of such exchange) of the Shares covered by such Awards.

4.6 Company Successors. In the event PPL becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which PPL will not be the surviving corporation or in which the holders of the Common Stock will receive securities of another corporation, then such other corporation shall assume the rights and obligations of PPL under this Retention Agreement.

4.7 Governing Law. All matters relating to this Retention Agreement and to the Award granted hereunder shall be governed by the laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles.

4.8 Relationship to Other Benefits. The Award shall not be taken into account in determining any benefits under any pension, retirement, profit sharing, disability or group insurance plan of PPL or any Affiliated Company except as may be required by federal tax law and regulation or to meet other applicable legal requirements.

4.9 Dividends and Voting Rights. Subject to the restrictions set forth in this Retention Agreement, the Executive shall possess all incidents of ownership of the Shares granted hereunder, including the right to receive dividends with respect to such Shares and the right to vote such Shares.

4.10 Administration. The Committee shall have final authority to interpret and construe this Retention Agreement and to make any and all determinations thereunder, and its decision shall be binding and conclusive upon the Executive and his legal representative in respect of any questions arising under this Retention Agreement. The Committee shall have the authority to delegate any and all of its authority under this Retention Agreement to any employee or group of employees of PPL or an Affiliated Company.

4.11 Certificate; Restrictive Legend. The Executive agrees that any certificate issued for Shares prior to the lapse of any outstanding restrictions relating thereto shall be inscribed with the following legend:

This certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture provisions and restrictions against transfer (the "Restrictions"), contained in the Retention Agreement entered into between the registered owner and PPL. Any attempt to dispose of these shares in contravention of the Restrictions, including by way of sale, assignment, transfer, pledge, hypothecation or otherwise, shall be null and void and without effect.

4.12 Entire Agreement. [The prior Retention Agreement effective as of __________________ is hereby terminated and void.] This Retention Agreement contains the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersedes all prior communications, representations and negotiations in respect thereto.

4.13 Titles and Headings. The titles and headings of the sections in this Retention Agreement are for convenience of reference only, and in the event of any conflict, the text of the Retention Agreement, rather than such titles or headings, shall control.

PPL CORPORATION

By                                                                                                          
      William F. Hecht                                                 Date
      Chairman/President and CEO

By                                                                                                          
      Executive                                                            Date

EX-12

Exhibit 12(a)
PPL CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
					2001		2000		1999		1998		1997
Fixed charges, as defined:
	Interest on long-term debt				$	351	$	323	$	233	$	203	$	196
	Interest on short-term debt and other interest					44		64		47		33		26
	Amortization of debt discount, expense and premium - net					17		5		4		2		2
		Interest on capital lease obligations
			Charged to expense					4		9		8		9
			Capitalized							1		2		2
	Estimated interest component of operating rentals					36		25		20		18		15
				Total fixed charges	$	448	$	421	$	314	$	266	$	250
Earnings, as defined:
	Net income (a)				$	167	$	491	$	492	$	379	$	296
	Preferred security dividend requirements					52		26		26		25		24
	Less undistributed income of equity method investments					20		74		56		3		(25)
						199		443		462		401		345
Add (Deduct):
	Income taxes					261		294		174		259		238
	Amortization of capitalized interest on capital leases							2		2		2		2
	Total fixed charges as above (excluding capitalized interest on capital lease obligations)					448		421		313		264		248
				Total earnings	$	908	$	1,160	$	951	$	926	$	833
Ratio of earnings to fixed charges (b)						2.0		2.8		3.0		3.5		3. 3
Fixed charges and preferred dividend requirements:
	Fixed charges above					448		421		314		266		250
	Preferred dividend requirements					64		31		30		31		33
				Total	$	512	$	452	$	344	$	297		283
Ratio of earnings to fixed charges and preferred dividend requirements (c)						1.8		2.6		2.8		3.1		2.9
(a)	2001, 2000, 1999 and 1998 net income excluding extraordinary items, minority interest and the cumulative effect of a change in accounting principle.
(b)	Based on earnings excluding unusual items, the ratio of earnings to fixed charges are: 2001, 3.2; 2000, 2.7; 1999, 2.8; 1998, 3.1; and 1997, 3.5.
(c)	Based on earnings excluding unusual items, the ratio of earnings to fixed charges and preferred dividend requirements are: 2001, 2.8; 2000, 2.5; 1999, 2.7; 1998, 2.8; and 1997, 3.1.

EX-12

Exhibit 12(b)
PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
				2001		2000		1999		1998		1997
Fixed charges, as defined:
	Interest on long-term debt			$	36	$	54	$	20	$	11	$	1
	Interest on short-term debt				33
		and other interest			2		75		32		14		11
	Amortization of debt discount, expense and premium - net						11		1
	Estimated interest component of operating rentals				19		9
			Total fixed charges	$	90	$	149	$	53	$	25	$	12
Earnings, as defined:
	Net income (a)			$	168	$	246	$	(20)	$	12	$	(15)
	Less undistributed income of equity method investment				20		74		56		3		(25)
				$	148	$	172	$	(76)	$	9	$	10
Add (Deduct):
	Income taxes				274		124		(29)		(6)		(1)
	Amortization of capitalized interest on capital leases
	Total fixed charges as above (excluding capitalized interest on capital lease obligations)				90		149		53		25		12
			Total earnings	$	512	$	445	$	(52)	$	28	$	21
Ratio of earnings to fixed charges (b) (c)					5.7		3.0		(1.0)		1.1		1.8
Deficiency				$	0	$	0	$	105	$	0	$	0
(a)	2001, 2000 and 1999 net income excluding minority interest and the cumulative effect of a change in accounting principle.
(b)	Based on earnings excluding unusual items, the ratio of earnings to fixed charges are: 2001, 11.6; 2000, 2.5; 1999, 3.1; and 1998, 3.5.
(c)	Due to the corporate realignment on July 1, 2000, both 2001 and 2000 are not comparable to prior years.

EX-12

Exhibit 12(c)
PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
					2001 (c)		2000 (c)		1999		1998		1997
Fixed charges, as defined:
	Interest on long-term debt				$	220	$	223	$	205	$	188	$	195
	Interest on short-term debt and other interest					4		16		12		14		17
	Amortization of debt discount, expense and premium - net					6		4		3		2		2
	Interest on capital lease obligations
			Charged to expense					4		9		8		9
			Capitalized							1		2		2
	Estimated interest component of operating rentals					8		14		19		18		15
				Total fixed charges	$	238	$	261	$	249	$	232	$	240
Earnings, as defined:
	Net income (a)				$	114	$	250	$	444	$	361	$	308
	Preferred security dividend requirements					26		26		37		48		40
	Less undistributed income of equity method investment
					$	140	$	276	$	481	$	409	$	348
Add (Deduct):
	Income taxes					65		171		151		273		248
	Amortization of capitalized interest on capital leases							2		2		2		2
	Total fixed charges as above
		(excluding capitalized interest on capital lease obligations)				238		261		248		230		238
				Total earnings	$	443	$	710	$	882	$	914	$	836
Ratio of earnings to fixed charges (b) (c)						1.9		2.7		3.5		3.9		3.5
(a)	2001, 2000, 1999 and 1998 net income excluding extraordinary items and the cumulative effect of a change in accounting principle.
(b)	Based on earnings excluding unusual items, the ratio of earnings to fixed charges are: 2001, 1.9; 2000, 2.6; 1999, 3.4; and 1998, 3.5.
(c)	Due to the corporate realignment on July 1, 2000, both 2001 and 2000 are not comparable to prior years.

EX-12

				Exhibit 12(d)
PPL MONTANA, LLC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
				2001		2000
Fixed charges, as defined:
	Interest expense on credit facility		$	2	$	16
	Amortization of financing costs			1		3
	Amortization of wholesale energy commitments			6		7
	Interest with rental expense			15		6
		Total fixed charges	$	24	$	32
Earnings, as defined:
	Net income		$	103	$	87
Add (Deduct):
	Income taxes			68		58
	Total fixed charges as above			24		32
		Total earnings	$	195	$	177
Ratio of earnings to fixed charges				8.1		5.5
(a) 2000 net income excluding extraordinary item.

EX-18

Exhibit 18(a)

PricewaterhouseCoopers, LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
Telephone (267) 330 3000
Facsimile (267) 330 3300

February 4, 2002

Board of Directors
PPL Corporation
Two North Ninth Street
Allentown, PA 18101-1179

Dear Directors:

We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K.

We have audited the consolidated financial statements of PPL Corporation, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and issued our report thereon dated February 4, 2002. Note 14 to the financial statements describes a change in accounting principle related to the method of amortization of unrecognized gains and losses in the annual pension expense/income determined under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"). Under the prior method, unrecognized gains and losses in excess of ten percent were amortized on a straight line basis over the estimated average future service period of plan participants. Under the current method, a second corridor will be utilized for unrecognized gains and losses in excess of thirty percent of the plan's projected benefit obligation. Unrecognized gains and losses on the second corridor will be amortized on a straight-lin e method over a period equal to one-half of the average future service period of the active plan participants who are expected to receive plan benefits. It should be understood that the preferability of one acceptable method of accounting over another for the amortization of unrecognized gains or losses calculated in the annual pension expense/income determined under SFAS 87 has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-K, and our discussions with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20.

Very truly yours,

PricewaterhouseCoopers LLP

EX-18

Exhibit 18(b)

PricewaterhouseCoopers, LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
Telephone (267) 330 3000
Facsimile (267) 330 3300

February 4, 2002

Board of Managers
PPL Energy Supply, LLC
Two North Ninth Street
Allentown, PA 18101-1179

Dear Managers:

We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K.

We have audited the consolidated financial statements of PPL Energy Supply, LLC, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and issued our report thereon dated February 4, 2002. Note 12 to the financial statements describes a change in accounting principle related to the method of amortization of unrecognized gains and losses in the annual pension expense/income determined under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"). Under the prior method, unrecognized gains and losses in excess of ten percent were amortized on a straight line basis over the estimated average future service period of plan participants. Under the current method, a second corridor will be utilized for unrecognized gains and losses in excess of thirty percent of the plan's projected benefit obligation. Unrecognized gains and losses on the second corridor will be amortized on a strai ght-line method over a period equal to one-half of the average future service period of the active plan participants who are expected to receive plan benefits. It should be understood that the preferability of one acceptable method of accounting over another for the amortization of unrecognized gains or losses calculated in the annual pension expense/income determined under SFAS 87 has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-K, and our discussions with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20.

Very truly yours,

PricewaterhouseCoopers LLP

EX-18

Exhibit 18(c)

PricewaterhouseCoopers, LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
Telephone (267) 330 3000
Facsimile (267) 330 3300

February 4, 2002

Board of Directors
PPL Electric Utilities Corporation
Two North Ninth Street
Allentown, PA 18101-1179

Dear Directors:

We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K.

We have audited the consolidated financial statements of PPL Electric Utilities Corporation, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and issued our report thereon dated February 4, 2002. Note 9 to the financial statements describes a change in accounting principle related to the method of amortization of unrecognized gains and losses in the annual pension expense/income determined under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"). Under the prior method, unrecognized gains and losses in excess of ten percent were amortized on a straight line basis over the estimated average future service period of plan participants. Under the current method, a second corridor will be utilized for unrecognized gains and losses in excess of thirty percent of the plan's projected benefit obligation. Unrecognized gains and losses on the second corridor will be amortized on a straight-line method over a period equal to one-half of the average future service period of the active plan participants who are expected to receive plan benefits. It should be understood that the preferability of one acceptable method of accounting over another for the amortization of unrecognized gains or losses calculated in the annual pension expense/income determined under SFAS 87 has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-K, and our discussions with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20.

Very truly yours,

PricewaterhouseCoopers LLP

EX-21

Exhibit 21(a)
PPL Corporation
Subsidiaries of the Registrant
As of December 31, 2001

Company Name Business Conducted under Same Name	State or Jurisdiction of Incorporation/Formation
PPL Brunner Island	Delaware
PPL Capital Funding, Inc	Delaware
PPL Electric Utilities Corporation	Pennsylvania
PPL Energy Funding Corporation	Pennsylvania
PPL EnergyPlus, LLC	Pennsylvania
PPL Energy Supply, LLC	Delaware
PPL Generation, LLC	Delaware
PPL Global, LLC	Delaware
PPL Investment Corp.	Delaware
PPL Montana Holdings, LLC	Delaware
PPL Montour, LLC	Delaware
PPL Susquehanna, LLC	Delaware
PPL Transition Bond Company, LLC	Delaware

EX-21

Exhibit 21(b)
PPL Electric Utilities Corporation
Subsidiaries of the Registrant
As of December 31, 2001

Company Name Business Conducted under Same Name	State or Jurisdiction of Incorporation/Formation
PPL Transition Bond Company, LLC	Delaware

EX-23

Exhibit 23(a)

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-48781, 333-54504, 333-54504-01, 333-54504-02) of PPL Corporation and in the Registration Statements on Form S-8 (Nos. 33-50031, 333-02003 and 333-95967) of PPL Corporation of our report dated February 4, 2002 relating to the consolidated financial statements and financial statement schedule, which appear in PPL Corporation's Form 10-K.

PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 1, 2002

EX-23

Exhibit 23(b)

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statement on Form S-4 (No. 333-74794) of PPL Energy Supply, LLC of our report dated February 4, 2002 relating to the consolidated financial statements and financial statement schedule, which appear in PPL Energy Supply, LLC's Form 10-K.

PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 1, 2002

EX-23

Exhibit 23(c)

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-64880) of PPL Electric Utilities Corporation of our report dated February 4, 2002 relating to the consolidated financial statements and financial statement schedule, which appear in PPL Electric Utilities Corporation's Form 10-K.

PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 1, 2002

EX-24

Exhibit 24

PPL CORPORATION

2001 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 2001 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 and seals this 22nd day of February, 2002.

_______________________________LS	_______________________________LS
Frederick M. Bernthal	William F. Hecht
_______________________________LS	_______________________________LS
John R. Biggar	Stuart Heydt
_______________________________LS	_______________________________LS
John W. Conway	W. Keith Smith
_______________________________LS	_______________________________LS
E. Allen Deaver	Susan M. Stalnecker
_______________________________LS
William J. Flood

EX-99

Exhibit 99
PPL Corporation Corporate Organization (Selected Subsidiaries)
PPL Corporation
	PPL Electric Utilities Corporation
		PPL Transition Bond Company, LLC
		PPL Capital Trust
		PPL Capital Trust II
		CEP Commerce, LLC
	PPL Gas Utilities Corporation
	PPL Services Corporation
	PPL Capital Funding, Inc.
	PPL Properties
	Ninth Street and Hamilton Corp.
	PPL Energy Funding Corporation
		CEP Delaware, Inc.
		CEP Reserves, Inc.
		PPL Ventures, LLC
		PPL Energy Supply, LLC
			PPL Investment Corp.
			PPL Global, LLC
			PPL EnergyPlus, LLC
				PPL Synfuel Investments, LLC
				PPL Spectrum, Inc.
				PPL Energy Services Holdings, LLC
						Burns Mechanical, Inc.
						H.T. Lyons, Inc.
						McClure Company
						McCarl's Inc.
						Western Mass. Holdings, Inc.
			PPL Generation, LLC
				PPL Holtwood, LLC
				Pennsylvania Mines, LLC
				PPL Maine, LLC
				PPL Interstate Energy Company
				Realty Company of Pennsylvania
				PPL Montana Holdings, LLC
				PPL Susquehanna, LLC
				PPL Montour, LLC
				PPL Martins Creek, LLC
				PPL Brunner Island, LLC
					PPL Rights, Inc. (jointly owned by PPL Montour, PPL Martins Creek, and PPL Brunner Island)