UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2005
	OR
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

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

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

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

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

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

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

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

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

PPL Corporation	Common stock, $.01 par value, 380,138,936 shares outstanding at October 31, 2005, excluding 62,113,042 shares held as treasury stock
PPL Energy Supply, LLC	PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.
PPL Electric Utilities Corporation	Common stock, no par value, 78,029,863 shares outstanding and all held by PPL Corporation at October 31, 2005, excluding 79,270,519 shares held as treasury stock

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

PPL CORPORATION

PPL ENERGY SUPPLY, LLC

PPL ELECTRIC UTILITIES CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2005

Table of Contents

				Page
GLOSSARY OF TERMS AND ABBREVIATIONS				i
FORWARD-LOOKING INFORMATION				1
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		PPL Corporation and Subsidiaries
			Condensed Consolidated Statement of Income	2
			CondensedConsolidated Statement of Cash Flows	3
			Condensed ConsolidatedBalance Sheet	4
		PPL Energy Supply, LLC and Subsidiaries
			CondensedConsolidated Statement of Income	6
			Condensed Consolidated Statement of Cash Flows	7
			Condensed Consolidated Balance Sheet	8
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statement of Income	10
			Condensed Consolidated Statement of Cash Flows	11
			CondensedConsolidated Balance Sheet	12
		Combined Notesto Condensed Consolidated Financial Statements		14
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
			PPL Corporation and Subsidiaries	42
			PPL EnergySupply, LLC andSubsidiaries	56
			PPL ElectricUtilities Corporation and Subsidiaries	68
	Item 3. Quantitative andQualitativeDisclosures About Market Risk			72
	Item 4. Controls and Procedures			72
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			72
	Item 6. Exhibits			73
SIGNATURES				74
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
			PPL Corporation and Subsidiaries	75
			PPL Energy Supply, LLC and Subsidiaries	76
			PPL Electric Utilities Corporation and Subsidiaries	77
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation	78
			PPL Energy Supply, LLC	80
			PPL Electric Utilities Corporation	82
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation	84
			PPL EnergySupply, LLC	86
			PPL Electric Utilities Corporation	88

GLOSSARY OF TERMS AND ABBREVIATIONS

£ - British pounds sterling.

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

2004 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2004.

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

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

APA - Asset Purchase Agreement.

ARO - asset retirement obligation.

Bcf - billion cubic feet.

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

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

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

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

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

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

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

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

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

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

DIG- Derivatives Implementation Group.

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

EMF - electric and magnetic fields.

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

EPS - earnings per share.

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

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

FIN - FASB Interpretation.

Fitch - Fitch Ratings.

FSP - FASB Staff Position.

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

GAAP - generally accepted accounting principles.

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

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

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

ISO - Independent System Operator.

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

LIBOR-London Interbank Offered Rate.

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

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

MW - megawatt, one thousand kilowatts.

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

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

NPDES - National Pollutant Discharge Elimination System.

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

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

NYMEX- New York Mercantile Exchange.

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

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

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

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

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

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

PP&E- property, plant and equipment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PPL Telcom - PPL Telcom, LLC, an indirect subsidiary of PPL Energy Funding that delivers high bandwidth telecommunication services in the Northeast corridor from Washington, D.C., to New York City and to six metropolitan areas in central and eastern Pennsylvania.

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

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

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

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

PURTA - the Pennsylvania Public Utility Realty Tax Act.

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

RTO - Regional Transmission Organization.

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

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

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

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

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

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

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

WPD - refers collectively to WPDH Limited and WPDL.

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

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

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

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

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

FORWARD-LOOKING INFORMATION

Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts are "forward-looking statements" within the meaning of the federal securities laws. Although PPL, PPL Energy Supply and PPL Electric believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. These forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the forward-looking statements. In addition to the specific factors discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," the following are among the important factors that could cause actual results to differ materially from the forward-looking statements:

· market demand and prices for energy, capacity and fuel;

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

· weather conditions affecting customer energy usage and operating costs;

· competition in retail and wholesale power markets;

· the effect of any business or industry restructuring;

· the profitability and liquidity of PPL and its subsidiaries;

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

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

· transmission and distribution system conditions and operating costs;

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

· development of new projects, markets and technologies;

· performance of new ventures;

· asset acquisitions and dispositions;

· political, regulatory or economic conditions in states, regions or countries where PPL or its subsidiaries conduct business, including potential effects of threatened or actual terrorism or war or other hostilities;

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

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

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

· state, federal and foreign regulatory developments;

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

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

· stock price performance;

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

· securities and credit ratings;

· foreign currency exchange rates;

· the outcome of litigation against PPL and its subsidiaries; and

· the commitments and liabilities of PPL and its subsidiaries.

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

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

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except per share data)
					Three Months Ended September 30,				Nine Months Ended September 30,
					2005		2004		2005		2004
Operating Revenues
	Utility				$	1,068	$	923	$	3,234	$	2,916
	Unregulated retail electric					25		27		73		87
	Wholesale energy marketing					358		363		899		927
	Net energy trading margins					20		6		35		18
	Energy related businesses					172		135		480		383
	Total					1,643		1,454		4,721		4,331
Operating Expenses
	Operation
			Fuel			284		191		697		577
			Energy purchases			221		218		732		690
			Other operation and maintenance			331		288		1,026		920
			Amortization of recoverable transition costs			71		64		199		192
	Depreciation					107		103		315		300
	Taxes, other than income					73		67		214		186
	Energy related businesses					170		140		486		409
	Total					1,257		1,071		3,669		3,274
Operating Income						386		383		1,052		1,057
Other Income - net						5		18		23		45
Interest Expense						127		128		387		382
Income from Continuing Operations Before Income Taxes,    Minority Interest and Dividends on Preferred Stock						264		273		688		720
Income Taxes						65		74		137		179
Minority Interest						1		2		5		6
Dividends on Preferred Stock						1		1		2		2
Income from Continuing Operations						197		196		544		533
Loss from Discontinued Operations (net of income taxes)										51		12
Net Income					$	197	$	196	$	493	$	521
Earnings Per Share of Common Stock (a):
	Income from Continuing Operations:
				Basic	$	0.52	$	0.52	$	1.43	$	1.46
				Diluted		0.51		0.52		1.42		1.45
	Net Income:
				Basic	$	0.52	$	0.52	$	1.30	$	1.42
				Diluted		0.51		0.52		1.29		1.42
Dividends Declared per Share of Common Stock (a)					$	0.25	$	0.205	$	0.71	$	0.615
(a)		Prior periods have been adjusted to reflect PPL's 2-for-1 common stock split completed in August 2005. See Note 2 to the Financial Statements for additional information.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
				Nine Months Ended September 30,
				2005			2004
Cash Flows from Operating Activities
	Net income			$	493		$	521
	Adjustments to reconcile net income to net cash provided by operating activities
		Pre-tax loss from the sale of the Sundance plant			72
		Depreciation			318			306
		Stock compensation expense			30			10
		Amortizations - recoverable transition costs and other			190			178
		Pension expense (income) - net			20			(18	)
		Pension funding			(54	)		(2	)
		Deferred income taxes (benefits) and investment tax credits			(43	)		90
		Accrual for PJM billing dispute			47
		Accrual for remediation of ash basin leak			33
		Unrealized gain on derivatives and other hedging activities			(26	)		(12	)
		Deferral of storm-related costs			(12	)
		Interest accretion on asset retirement obligation and other			18			17
		Other			29			19
	Change in current assets and current liabilities
		Accounts receivable			(85	)		81
		Accounts payable			97			(48	)
		Fuel, materials and supplies			33			(37	)
		Other			(59	)		11
	Other operating activities
		Other assets			(50	)		(42	)
		Other liabilities			(10	)		(22	)
			Net cash provided by operating activities		1,041			1,052
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(538	)		(501	)
	Investment in generating assets and electric energy projects							(32	)
	Proceeds from the sale of the Sundance plant				190
	Proceeds from the sale of minority interest in CGE							123
	Purchases of auction rate securities				(19	)		(103	)
	Proceeds from the sale of auction rate securities				83			69
	Net increase in restricted cash				(20	)		(53	)
	Other investing activities				(13	)		(1	)
		Net cash used in investing activities			(317	)		(498	)
Cash Flows from Financing Activities
	Issuance of common stock				36			595
	Issuance of long-term debt				224			322
	Retirement of long-term debt				(1,177	)		(1,008	)
	Payment of common dividends				(252	)		(218	)
	Net increase in short-term debt				80			31
	Other financing activities				(20	)		(12	)
		Net cash used in financing activities			(1,109	)		(290	)
Effect of Exchange Rates on Cash and Cash Equivalents					4			4
Net Increase (Decrease) in Cash and Cash Equivalents					(381	)		268
Cash and Cash Equivalents at Beginning of Period					616			466
Cash and Cash Equivalents at End of Period				$	235		$	734
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			September 30, 2005		December 31, 2004
Assets
Current Assets
	Cash and cash equivalents		$	235	$	616
	Restricted cash			86		50
	Accounts receivable (less reserve: 2005, $86; 2004, $88)			539		459
	Unbilled revenues			413		407
	Fuel, materials and supplies			275		309
	Prepayments			74		56
	Deferred income taxes			321		162
	Price risk management assets			657		115
	Other			93		130
				2,693		2,304
Investments
	Investment in unconsolidated affiliates - at equity			56		51
	Nuclear plant decommissioning trust fund			432		409
	Other			8		12
				496		472
Property, Plant and Equipment
	Electric plant in service
		Transmission and distribution		8,003		7,936
		Generation		8,698		8,946
		General		641		666
				17,342		17,548
	Construction work in progress			249		148
	Nuclear fuel			289		314
		Electric plant		17,880		18,010
	Gas and oil plant			342		336
	Other property			286		285
				18,508		18,631
	Less: accumulated depreciation			7,628		7,482
				10,880		11,149
Regulatory and Other Noncurrent Assets
	Recoverable transition costs			1,234		1,431
	Goodwill			1,090		1,127
	Other acquired intangibles			381		336
	Other			989		942
				3,694		3,836
			$	17,763	$	17,761
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		September 30, 2005			December 31, 2004
Liabilities and Equity
Current Liabilities
	Short-term debt	$	112		$	42
	Long-term debt		798			866
	Accounts payable		500			407
	Above market NUG contracts		71			73
	Taxes		194			164
	Interest		102			129
	Dividends		96			79
	Price risk management liabilities		716			167
	Other		485			368
			3,074			2,295
Long-term Debt			5,879			6,792
Long-term Debt with Affiliate Trust			89			89
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		2,376			2,426
	Accrued pension obligations		413			476
	Asset retirement obligations		276			257
	Above market NUG contracts		153			206
	Other		1,091			874
			4,309			4,239
Commitments and Contingent Liabilities
Minority Interest			56			56
Preferred Stock without Sinking Fund Requirements			51			51
Shareowners' Common Equity
	Common stock		4			2
	Capital in excess of par value		3,622			3,577
	Treasury stock		(838	)		(838	)
	Earnings reinvested		2,092			1,870
	Accumulated other comprehensive loss		(552	)		(323	)
	Capital stock expense and other		(23	)		(49	)
			4,305			4,239
		$	17,763		$	17,761
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Three Months Ended September 30,				Nine Months Ended September 30,
			2005		2004		2005		2004
Operating Revenues
	Wholesale energy marketing		$	358	$	363	$	899	$	927
	Wholesale energy marketing to affiliate			415		373		1,194		1,129
	Utility			265		237		842		771
	Unregulated retail electric			25		27		73		87
	Net energy trading margins			20		6		35		18
	Energy related businesses			163		131		459		369
	Total			1,246		1,137		3,502		3,301
Operating Expenses
	Operation
		Fuel		273		184		611		506
		Energy purchases		156		160		525		523
		Energy purchases from affiliate		41		40		111		116
		Other operation and maintenance		255		200		759		664
	Depreciation			76		73		220		211
	Taxes, other than income			25		26		75		74
	Energy related businesses			162		133		463		388
	Total			988		816		2,764		2,482
Operating Income				258		321		738		819
Other Income - net				9		15		28		52
Interest Expense				69		65		199		182
Interest Expense with Affiliates				5		6		18		13
Income from Continuing Operations Before Income Taxes   and Minority Interest				193		265		549		676
Income Taxes				33		71		75		163
Minority Interest				1		2		5		6
Income from Continuing Operations				159		192		469		507
Loss from Discontinued Operations (net of income taxes)								51		12
Net Income			$	159	$	192	$	418	$	495
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
						Nine Months Ended September 30,
						2005			2004
Cash Flows from Operating Activities
		Net income				$	418		$	495
		Adjustments to reconcile net income to net cash provided by operating activities
				Pre-tax loss from the sale of the Sundance plant			72
				Depreciation			223			217
				Stock compensation expense			19			7
				Amortizations - energy commitments and other			(29	)		(41	)
				Pension expense (income) - net			12			(23	)
				Pension funding			(43	)
				Deferred income taxes and investment tax credits			49			107
				Accrual for remediation of ash basin leak			33
				Unrealized gain on derivatives and other hedging activities			(25	)		(10	)
				Interest accretion on asset retirement obligation and other			18			17
				Other			26			3
		Change in current assets and current liabilities
				Accounts receivable			(42	)		(4	)
				Accounts payable			95			(24	)
				Collateral on PLR energy supply						(302	)
				Fuel, materials and supplies			31			(28	)
				Other			(59	)		35
		Other operating activities
				Other assets			(51	)		(44	)
				Other liabilities			(40	)		21
					Net cash provided by operating activities		707			426
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment						(387	)		(336	)
	Investment in generating assets and electric energy projects									(32	)
	Proceeds from the sale of the Sundance plant						190
	Proceeds from the sale of minority interest in CGE									123
	Purchase of auction rate securities						(15	)		(48	)
	Proceeds from the sale of auction rate securities						66			14
	Net increase in restricted cash						(11	)		(16	)
	Other investing activities						(17	)		(6	)
			Net cash used in investing activities				(174	)		(301	)
Cash Flows from Financing Activities
	Issuance of long-term debt									322
	Retirement of long-term debt						(209	)		(669	)
	Distributions to Member						(206	)		(169	)
	Contributions from Member						50			358
	Net increase (decrease) in short-term debt						80			(57	)
	Net increase (decrease) in note payable to affiliate						(495	)		495
	Other financing activities						(4	)		(1	)
			Net cash provided by (used in) financing activities				(784	)		279
Effect of Exchange Rates on Cash and Cash Equivalents							4			4
Net Increase (Decrease) in Cash and Cash Equivalents							(247	)		408
Cash and Cash Equivalents at Beginning of Period							357			222
Cash and Cash Equivalents at End of Period						$	110		$	630
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			September 30, 2005		December 31, 2004
Assets
Current Assets
	Cash and cash equivalents		$	110	$	357
	Restricted cash			33		3
	Accounts receivable (less reserve: 2005, $65; 2004, $68)			316		259
	Unbilled revenues			268		250
	Accounts receivable from affiliates			117		152
	Collateral on PLR energy supply to affiliate			300		300
	Fuel, materials and supplies			224		256
	Prepayments			40		42
	Deferred income taxes			273		128
	Price risk management assets			648		113
	Other			71		97
				2,400		1,957
Investments
	Investment in unconsolidated affiliates - at equity			56		51
	Nuclear plant decommissioning trust fund			432		409
	Other			4		5
				492		465
Property, Plant and Equipment
	Electric plant in service
		Transmission and distribution		4,004		4,032
		Generation		8,698		8,946
		General		271		303
				12,973		13,281
	Construction work in progress			198		115
	Nuclear fuel			289		314
		Electric plant		13,460		13,710
	Gas and oil plant			64		64
	Other property			203		210
				13,727		13,984
	Less: accumulated depreciation			5,820		5,755
				7,907		8,229
Other Noncurrent Assets
	Goodwill			1,034		1,072
	Other acquired intangibles			250		202
	Other			588		559
				1,872		1,833
			$	12,671	$	12,484
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
		September 30, 2005		December 31, 2004
Liabilities and Equity
Current Liabilities
	Short-term debt	$	70
	Long-term debt		103	$	181
	Accounts payable		434		338
	Accounts payable to affiliates		47		52
	Above market NUG contracts		71		73
	Taxes		97		101
	Interest		80		87
	Deferred revenue on PLR energy supply to affiliate		12		12
	Price risk management liabilities		706		163
	Other		325		262
			1,945		1,269
Long-term Debt			3,555		3,694
Note Payable to Affiliate					495
Long-term Debt with Affiliate Trust			89		89
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		1,281		1,261
	Accrued pension obligations		276		341
	Asset retirement obligations		276		257
	Above market NUG contracts		153		206
	Deferred revenue on PLR energy supply to affiliate		38		46
	Other		927		720
			2,951		2,831
Commitments and Contingent Liabilities
Minority Interest			56		56
Member's Equity			4,075		4,050
		$	12,671	$	12,484
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Three Months Ended September 30,				Nine Months Ended September 30,
			2005		2004		2005		2004
Operating Revenues
	Retail electric		$	782	$	663	$	2,258	$	2,017
	Wholesale electric			1		1		3		5
	Wholesale electric to affiliate			41		40		111		116
	Total			824		704		2,372		2,138
Operating Expenses
	Operation
		Energy purchases		65		54		208		164
		Energy purchases from affiliate		415		373		1,194		1,129
		Other operation and maintenance		75		87		261		252
		Amortization of recoverable transition costs		71		64		199		192
	Depreciation			28		27		83		80
	Taxes, other than income			48		41		138		110
	Total			702		646		2,083		1,927
Operating Income				122		58		289		211
Other Income - net				5		11		15		12
Interest Expense				39		46		132		142
Interest Expense with Affiliate				3		1		8		1
Income Before Income Taxes				85		22		164		80
Income Taxes				32		6		59		27
Income Before Dividends on Preferred Stock				53		16		105		53
Dividends on Preferred Stock				1		1		2		2
Income Available to PPL Corporation			$	52	$	15	$	103	$	51
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
				Nine Months Ended September 30,
				2005			2004
Cash Flows from Operating Activities
	Net income			$	103		$	51
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			83			80
		Stock compensation expense			7			2
		Accrual for PJM billing dispute			47
		Amortizations - recoverable transition costs and other			216			208
		Deferred income taxes (benefits) and investment tax credits			(5	)		48
		Deferral of storm-related costs			(12	)
	Change in current assets and current liabilities
		Accounts receivable			(16	)		9
		Accounts payable			(39	)		37
		Collateral on PLR energy supply						302
		Other			(38	)		(60	)
	Other operating activities
		Other assets			(3	)		(3	)
		Other liabilities			18			(24	)
			Net cash provided by operating activities		361			650
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(125	)		(140	)
	Purchases of auction rate securities							(50	)
	Proceeds from the sale of auction rate securities				10			50
	Net increase in note receivable from affiliate							(300	)
	Net increase in restricted cash				(3	)		(35	)
	Other investing activities				2			1
		Net cash used in investing activities			(116	)		(474	)
Cash Flows from Financing Activities
	Issuance of long-term debt				224
	Retirement of long-term debt				(497	)		(333	)
	Payment of common dividends to PPL Corporation				(59	)		(23	)
	Net increase in short-term debt							88
	Other financing activities				(11	)		(10	)
		Net cash used in financing activities			(343	)		(278	)
Net Decrease in Cash and Cash Equivalents					(98	)		(102	)
Cash and Cash Equivalents at Beginning of Period					151			162
Cash and Cash Equivalents at End of Period				$	53		$	60
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			September 30, 2005		December 31, 2004
Assets
Current Assets
	Cash and cash equivalents		$	53	$	151
	Restricted cash			42		42
	Accounts receivable (less reserve: 2005, $19; 2004, $18)			204		179
	Unbilled revenues			141		148
	Accounts receivable from affiliates			8		17
	Note receivable from affiliate			300		300
	Prepayments			27		6
	Prepayment on PLR energy supply from affiliate			12		12
	Other			81		66
				868		921
Property, Plant and Equipment
	Electric plant in service
		Transmission and distribution		3,999		3,904
		General		357		352
				4,356		4,256
	Construction work in progress			41		29
		Electric plant		4,397		4,285
	Other property			5		4
				4,402		4,289
	Less: accumulated depreciation			1,703		1,632
				2,699		2,657
Regulatory and Other Noncurrent Assets
	Recoverable transition costs			1,234		1,431
	Intangibles			114		117
	Prepayment on PLR energy supply from affiliate			38		46
	Other			373		354
				1,759		1,948
			$	5,326	$	5,526
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		September 30, 2005			December 31, 2004
Liabilities and Equity
Current Liabilities
	Short-term debt	$	42		$	42
	Long-term debt		427			336
	Accounts payable		39			39
	Accounts payable to affiliates		136			168
	Taxes		65			46
	Collateral on PLR energy supply from affiliate		300			300
	Other		125			98
			1,134			1,029
Long-term Debt			1,846			2,208
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		791			776
	Other		187			190
			978			966
Commitments and Contingent Liabilities
Preferred Stock without Sinking Fund Requirements			51			51
Shareowner's Common Equity
	Common stock		1,476			1,476
	Additional paid-in capital		361			361
	Treasury stock		(912	)		(912	)
	Earnings reinvested		399			354
	Capital stock expense and other		(7	)		(7	)
			1,317			1,272
		$	5,326		$	5,526
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

Combined Notes to Condensed Consolidated Financial Statements

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

1.Interim Financial Statements

(PPL, PPL Energy Supply and PPL Electric)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (including normal, recurring accruals) considered necessary for a fair presentation in accordance with accounting principles generally accepted in the U.S. are reflected in the condensed consolidated financial statements. The Balance Sheet as of December 31, 2004, is derived from each Registrant's 2004 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant's 2004 Form 10-K. The results of operations for the three and nine months ended September 30, 2005, are not necessarily indicative of the results to be expected for the full year ending December 31, 2005, or other future periods, because results for interim periods can be disproportionately influenced by various factors and developments and seasonal variations.

Certain amounts in the September 30, 2004 and December 31, 2004, financial statements have been reclassified to conform to the presentation in the September 30, 2005, financial statements. On the Statement of Income, components of operating losses of the Sundance plant were reclassified from certain line items to "Loss from Discontinued Operations." See Note 8 for further discussion.

2.Summary of Significant Accounting Policies

The following accounting policy disclosures represent updates to the "Summary of Significant Accounting Policies" Note in each Registrant's 2004 Form 10-K.

Depreciation(PPL and PPL Energy Supply)

PPL subsidiaries periodically review the useful lives of their fixed assets. In light of significant planned environmental capital expenditures, PPL Generation conducted studies of the useful lives of Montour Units 1 and 2 and Brunner Island Unit 3 during the first quarter of 2005. Based on these studies, the useful lives of these units were extended from 2025 to 2035, effective January 1, 2005. In the second quarter of 2005, PPL Generation conducted additional studies of the useful lives of certain Eastern fossil-fuel and hydroelectric generation plants. The most significant change related to the useful lives of Brunner Island Units 1 and 2 and Martins Creek Units 3 and 4, which were extended from 2025 to 2035, effective July 1, 2005. The effect of these changes in useful lives for the three and nine months ended September 30, 2005, was to increase net income, as a result of lower depreciation, by approximately $2 million and $4 million.

As a result of the final regulatory outcome published by Ofgem of the most recent price control review and an assessment of the economic life of meters, WPD reduced the remaining depreciable lives of its existing meter stock to approximately nine years. The lives of new meters were reduced from 40 years to 19 years. The effect for the three and nine months ended September 30, 2005, was to decrease net income, as a result of higher depreciation, by approximately $3 million.

Goodwill(PPL and PPL Energy Supply)

The change in the carrying amount of "Goodwill," as shown on the Balance Sheet, was due to the effect of foreign currency exchange rates.

Regulation (PPL and PPL Electric)

Included in "Regulatory and Other Noncurrent Assets - Other" on the Balance Sheet are approximately $12 million of costs associated with severe ice storms in PPL Electric's service territory in January 2005. These costs have been deferred based on an assessment of an order issued by the PUC on August 26, 2005. The ratemaking treatment of these costs will be addressed in PPL Electric's next distribution base rate case. PPL and PPL Electric believe there is a reasonable basis for recovery of all regulatory assets.

2-for-1 Stock Split(PPL)

In August 2005, PPL completed a 2-for-1 stock split of its common stock. The record date for the stock split was August 17, 2005, and the distribution date was August 24, 2005. As a result of the stock split, approximately 190 million shares were issued to shareholders and approximately 31 million shares were issued as treasury shares as of the record date. The par value of the stock remains at $0.01 per share and, accordingly, $2 million was transferred from "Capital in excess of par value" to "Common stock" on the Balance Sheet. The number of shares, the market price, and earnings and dividends per share amounts, as well as PPL's stock-based compensation awards, the conversion rate and market price trigger of PPL Energy Supply's 2-5/8% Convertible Senior Notes due 2023 and the threshold appreciation price and shares issued under the PEPS Units transaction, included in these financial statements have been adjusted for all periods presented to reflect the stock split.

Stock-Based Compensation (PPL, PPL Energy Supply and PPL Electric)

Effective January 1, 2003, PPL and its subsidiaries prospectively adopted the fair value method of accounting for stock-based compensation. If the fair value method had been used to account for all outstanding stock-based compensation awards in both periods, there would not have been a material impact on reported net income and EPS.

In SFAS 123 (revised 2004), "Share-Based Payment," the FASB provided additional guidance on the requirement to accelerate expense recognition for employees who are at or near retirement age and who are under a plan that allows for accelerated vesting upon an employee's retirement. Such guidance is relevant to prior accounting for stock-based compensation under other accounting guidance. PPL's stock-based compensation plans allow for accelerated vesting upon an employee's retirement. Thus, for employees who are retirement eligible when stock-based awards are granted, PPL will recognize the expense immediately. For employees who are not retirement eligible when stock-based awards are granted, PPL will amortize the awards over the shorter of the vesting period or the period up to the employee's attainment of retirement age. Retirement eligible has been defined by PPL as the early retirement age of 55. See Note 16 for a discussion of SFAS 123 (revised 2004).

(PPL)

In the first quarter of 2005, PPL recorded a charge of approximately $10 million after tax, or $0.03 per share, to accelerate stock-based compensation expense for retirement-eligible employees. Approximately $5 million of the after-tax total, or $0.01 per share, was related to periods prior to 2005. The prior period amounts were not material to previously issued financial statements.

(PPL Energy Supply)

In the first quarter of 2005, PPL Energy Supply recorded a charge of approximately $7 million after tax to accelerate stock-based compensation expense for retirement-eligible employees. Approximately $3 million of the after-tax total was related to periods prior to 2005. The prior period amounts were not material to previously issued financial statements.

(PPL Electric)

In the first quarter of 2005, PPL Electric recorded a charge of approximately $3 million after tax to accelerate stock-based compensation expense for retirement-eligible employees. Approximately $2 million of the after-tax total was related to periods prior to 2005. The prior period amounts were not material to previously issued financial statements.

New Accounting Standards(PPL, PPL Energy Supply and PPL Electric)

See Note 16 for information on new accounting standards pending adoption.

3.Segment and Related Information

(PPL and PPL Energy Supply)

See the "Segment and Related Information" Note in each Registrant's 2004 Form 10-K for a discussion of reportable segments. As of September 30, 2005, there were no changes to the reportable segments except that the segments were renamed to more specifically describe their businesses. The reportable segments are now Supply, International Delivery (formerly International) and Pennsylvania Delivery (formerly Delivery).

Financial data for the segments are as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
PPL		2005		2004		2005		2004
Income Statement Data
Revenues from external customers
	Supply	$	557	$	514	$	1,431	$	1,364
	International Delivery		283		253		897		821
	Pennsylvania Delivery		803		687		2,393		2,146
			1,643		1,454		4,721		4,331
Intersegment revenues
	Supply		415		373		1,194		1,129
	Pennsylvania Delivery		42		40		113		118
Net Income
	Supply (a)		112		145		238		314
	International Delivery (b)		36		38		152		152
	Pennsylvania Delivery		49		13		103		55
		$	197	$	196	$	493	$	521

PPL		September 30, 2005		December 31, 2004
Balance Sheet Data
Total assets
	Supply	$	7,073	$	6,673
	International Delivery		5,171		5,390
	Pennsylvania Delivery		5,519		5,698
		$	17,763	$	17,761

		Three Months Ended September 30,				Nine Months Ended September 30,
PPL Energy Supply		2005		2004		2005		2004
Income Statement Data
Revenues from external customers
	Supply	$	963	$	884	$	2,605	$	2,480
	International Delivery		283		253		897		821
			1,246		1,137		3,502		3,301
Net Income
	Supply (a)		123		154		266		343
	International Delivery (b)		36		38		152		152
		$	159	$	192	$	418	$	495

PPL Energy Supply		September 30, 2005		December 31, 2004
Balance Sheet Data
Total assets
	Supply	$	7,500	$	7,094
	International Delivery		5,171		5,390
		$	12,671	$	12,484

(a)

The nine months ended September 30, 2005, and the three and nine months ended September 30, 2004, include the operating results of the Sundance plant that are recorded in "Loss from Discontinued Operations." The nine months ended September 30, 2005, also includes the loss on the sale of the Sundance plant that is recorded in "Loss from Discontinued Operations." See Note 8 for additional information.

(b)

The nine months ended September 30, 2004, includes the operating results of a Latin American telecommunications company, as well as an insignificant write-down of its net assets, that are recorded in "Loss from Discontinued Operations." See Note 8 for additional information.

4.Earnings Per Share

(PPL)

Basic EPS is calculated using the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated using weighted-average shares outstanding that are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock. Potentially dilutive securities consist of:

· stock options, restricted stock and restricted stock units granted under the incentive compensation plans;

· stock units representing common stock granted under the directors compensation programs;

· common stock purchase contracts that were a component of the PEPS Units and PEPS Units, Series B; and

· convertible senior notes.

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

		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004		2005		2004
Income (Numerator)
Income from continuing operations		$	197	$	196	$	544	$	533
	Loss from discontinued operations (net of income taxes)						51		12
Net Income		$	197	$	196	$	493	$	521
Shares (Denominator)
Shares for Basic EPS			379,660		377,172		378,955		365,778
Add incremental shares:
	Convertible Senior Notes		3,326				2,106
	Stock options and other share-based awards		2,523		1,485		2,288		1,275
Shares for Diluted EPS			385,509		378,657		383,349		367,053
Basic EPS
Income from continuing operations		$	0.52	$	0.52	$	1.43	$	1.46
	Loss from discontinued operations (net of income taxes)						0.13		0.04
Net Income		$	0.52	$	0.52	$	1.30	$	1.42
Diluted EPS
Income from continuing operations		$	0.51	$	0.52	$	1.42	$	1.45
	Loss from discontinued operations (net of income taxes)						0.13		0.03
Net Income		$	0.51	$	0.52	$	1.29	$	1.42

In May 2001, PPL and PPL Capital Funding Trust I issued 23 million PEPS Units that contained a purchase contract component for PPL's common stock. The purchase contracts were only dilutive if the average price of PPL's common stock exceeded a threshold appreciation price, which was adjusted for cash distributions on PPL common stock. The threshold appreciation price was initially set at $32.52 and was adjusted to $31.69 as of April 1, 2004, based on dividends paid on PPL's common stock since issuance. The purchase contracts were settled in May 2004. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculation for the nine months ended September 30, 2004.

In January 2004, PPL completed an exchange offer resulting in the exchange of approximately four million PEPS Units for PEPS Units, Series B. The primary difference in the units related to the debt component. The purchase contract components of both units, which were potentially dilutive, were identical. The threshold appreciation price for the purchase contract component of the PEPS Units, Series B was adjusted in the same manner as that of the PEPS Units and was $31.69 as a result of the adjustment as of April 1, 2004. These purchase contracts were settled in May 2004. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculation for the nine months ended September 30, 2004.

In May 2003, PPL Energy Supply issued $400 million of 2-5/8% Convertible Senior Notes due 2023. Based on the terms at the time of issuance, the Convertible Senior Notes could be settled entirely in cash or shares of PPL common stock. The notes were modified in November 2004 to require cash settlement of the principal amount, permit settlement of any conversion premium in cash or stock and eliminate a provision that required settlement in stock in the event of default. These modifications were made in response to the FASB's ratification in October 2004 of EITF Issue 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share," as well as other anticipated rules relating to EPS. EITF Issue 04-8 requires contingently convertible instruments to be included in diluted EPS. It also requires restatement of prior-period diluted EPS, in certain circumstances, based upon the terms of the contingently convertible instruments as of the date of adoption, which was December 31, 2004, for PPL.

Based upon the current conversion rate of 40.2212 shares per $1,000 principal of notes, the Convertible Senior Notes have a dilutive impact when the average market price of PPL common stock exceeds the conversion price of $24.87. The Convertible Senior Notes did not have a dilutive impact on EPS for the three and nine months ended September 30, 2004.

The maximum number of shares that could potentially be issued to settle the conversion premium, based upon the current conversion rate, is 16,088,480 shares. Based on PPL's common stock price at September 30, 2005, the conversion premium equated to 3,716,070 shares, or approximately $120 million.

See Note 7 for discussion of attainment of the market price trigger related to the Convertible Senior Notes in the third quarter of 2005.

The following number of stock options to purchase PPL common shares were excluded in the periods' computations of diluted EPS because the effect would have been antidilutive.

	Three Months Ended September 30,		Nine Months Ended September 30,
(Thousands of Shares)	2005	2004	2005	2004
Antidilutive stock options		1,494		2,532

5.Income Taxes

(PPL, PPL Energy Supply and PPL Electric)

Reconciliations of effective income tax rates are as follows:

		Three Months Ended September 30,						Nine Months Ended September 30,
PPL		2005			2004			2005			2004
Reconciliation of Income Tax Expense
	Indicated federal income tax on Income from Continuing Operations Before Income Taxes, Minority Interest and Dividends on Preferred Stock at statutory tax rate - 35%	$	93		$	96		$	241		$	252
Increase (decrease) due to:
	State income taxes		8			9			10			11
	Amortization of investment tax credit		(3	)		(3	)		(8	)		(8	)
	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(5	)		(8	)		(25	)		(26	)
	Federal income tax credits		(27	)		(21	)		(81	)		(50	)
	Other		(1	)		1
			(28	)		(22	)		(104	)		(73	)
Total income tax expense		$	65		$	74		$	137		$	179
Effective income tax rate			24.6%			27.1%			19.9%			24.9%

PPL Energy Supply
Reconciliation of Income Tax Expense
	Indicated federal income tax on Income from Continuing Operations Before Income Taxes and Minority Interest at statutory tax rate - 35%	$	67		$	93		$	192		$	237
Increase (decrease) due to:
	State income taxes		1			9			(3	)		9
	Amortization of investment tax credit		(2	)		(2	)		(6	)		(6	)
	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(5	)		(8	)		(25	)		(26	)
	Federal income tax credits		(27	)		(21	)		(81	)		(50	)
	Other		(1	)					(2	)		(1	)
			(34	)		(22	)		(117	)		(74	)
Total income tax expense		$	33		$	71		$	75		$	163
Effective income tax rate			17.1%			26.8%			13.7%			24.1%

		Three Months Ended September 30,						Nine Months Ended September 30,
PPL Electric		2005			2004			2005			2004
Reconciliation of Income Tax Expense
	Indicated federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	30		$	8		$	58		$	28
Increase (decrease) due to:
	State income taxes		3			(1	)		3			1
	Amortization of investment tax credit		(1	)		(1	)		(2	)		(2	)
	Change in tax reserves								(1	)
	Other								1
			2			(2	)		1			(1	)
Total income tax expense		$	32		$	6		$	59		$	27
Effective income tax rate			37.6%			27.3%			36.0%			33.8%

(PPL and PPL Energy Supply)

In October 2004, President Bush signed the American Jobs Creation Act of 2004 (the Act). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. PPL does not anticipate repatriating foreign earned income subject to the Act.

The Act also provides, beginning in 2005, a tax deduction from income for certain qualified domestic production activities. FSP FAS 109-1, "Application of FASB Statement No. 109, 'Accounting for Income Taxes', to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004," specifies that this tax deduction will be treated as a special deduction and not as a tax rate reduction. During the first quarter of 2005, the Treasury Department and the IRS issued interim guidance related to the tax deduction. Based on the interim guidance, PPL and PPL Energy Supply estimate an annual tax benefit for the year 2005 of approximately $3 million.

6.Comprehensive Income

(PPL and PPL Energy Supply)

The after-tax components of comprehensive income are:

		Three Months Ended September 30,						Nine Months Ended September 30,
PPL		2005			2004			2005			2004
Net Income		$	197		$	196		$	493		$	521
Other comprehensive income (loss):
	Foreign currency translation adjustments		9			(11	)		(30	)		39
	Sale of CEMAR - currency translation adjustment											(4	)
	Sale of CGE - currency translation adjustment											10
	Unrealized gain (loss) on available-for-sale securities		5			1			5			(3	)
	Unrealized loss on qualifying derivatives		(124	)		(8	)		(204	)		(37	)
	Total other comprehensive income (loss)		(110	)		(18	)		(229	)		5
Comprehensive Income		$	87		$	178		$	264		$	526
PPL Energy Supply
Net Income		$	159		$	192		$	418		$	495
Other comprehensive income (loss):
	Foreign currency translation adjustments		9			(11	)		(30	)		39
	Sale of CEMAR - currency translation adjustment											(4	)
	Sale of CGE - currency translation adjustment											10
	Unrealized gain (loss) on available-for-sale securities		6			(2	)		5			(6	)
	Unrealized loss on qualifying derivatives		(134	)		(2	)		(213	)		(39	)
	Total other comprehensive loss		(119	)		(15	)		(238	)
Comprehensive Income		$	40		$	177		$	180		$	495

(PPL Electric)

PPL Electric's comprehensive income approximates net income.

7.Credit Arrangements and Financing Activities

Credit Arrangements

(PPL and PPL Electric)

PPL Electric maintains credit facilities in order to enhance liquidity and provide credit support, and as a credit back-stop to its commercial paper program. In June 2005, PPL Electric extended to June 2010 its $200 million five-year facility originally set to expire in 2009. PPL Electric also maintains a $100 million three-year credit facility maturing in June 2006. At September 30, 2005, no cash borrowings were outstanding under any PPL Electric credit facilities. PPL Electric has the ability to cause the lenders under its facilities to issue letters of credit. At September 30, 2005, PPL Electric had less than $1 million of letters of credit outstanding under its credit facilities.

(PPL and PPL Energy Supply)

PPL Energy Supply maintains credit facilities in order to enhance liquidity and provide credit support, and as a credit back-stop to its commercial paper program. In June 2005, PPL Energy Supply extended to June 2010 its $800 million five-year facility originally set to expire in 2009 and entered into a new $600 million five-year credit facility expiring in June 2010, which replaced its $300 million three-year facility due to expire in 2006. At September 30, 2005, no cash borrowings were outstanding under any PPL Energy Supply credit facilities. PPL Energy Supply has the ability to cause the lenders under its facilities to issue letters of credit. At September 30, 2005, PPL Energy Supply had $583 million of letters of credit outstanding under these credit facilities.

In March 2005, PPL Energy Supply entered into a 364-day reimbursement agreement with a bank for the purpose of issuing letters of credit. Under the agreement, PPL Energy Supply can cause the bank to issue up to $200 million of letters of credit. As of September 30, 2005, there were $199 million letters of credit outstanding under this agreement.

WPD (South West) maintains three committed credit facilities: a £100 million 364-day facility, a £150 million three-year facility and a £150 million five-year facility. In October 2005, WPD (South West) extended the £100 million 364-day facility until October 2006 and the £150 million three-year facility until October 2008. The £150 million five-year facility expires in October 2009. At September 30, 2005, WPD (South West) also had uncommitted credit facilities of £35 million, which were increased to £65 million in October 2005. The balance outstanding under the WPD (South West) credit facilities at September 30, 2005, was £39 million (approximately $70 million at current exchange rates).

(PPL, PPL Energy Supply and PPL Electric)

The subsidiaries of PPL are separate legal entities. PPL's subsidiaries are not liable for the debts of PPL. Accordingly, creditors of PPL may not satisfy their debts from the assets of the subsidiaries absent a specific contractual undertaking by a subsidiary to pay PPL's creditors or as required by applicable law or regulation. Similarly, absent a specific contractual undertaking or as required by applicable law or regulation, PPL is not liable for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries may not satisfy their debts from the assets of PPL absent a specific contractual undertaking by PPL to pay the creditors of its subsidiaries or as required by applicable law or regulation.

Similarly, the subsidiaries of PPL Energy Supply and PPL Electric are separate legal entities. These subsidiaries are not liable for the debts of PPL Energy Supply and PPL Electric. Accordingly, creditors of PPL Energy Supply and PPL Electric may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. In addition, absent a specific contractual undertaking or as required by applicable law or regulation, PPL Energy Supply and PPL Electric are not liable for the debts of their subsidiaries. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Energy Supply or PPL Electric absent a specific contractual undertaking by that parent to pay the creditors of its subsidiaries or as required by applicable law or regulation.

Financing Activities

(PPL)

In April 2005, PPL Capital Funding retired all $320 million of its 7-3/4% Medium-term Notes due April 2005 upon maturity. The funds for the retirement were primarily obtained from PPL Energy Supply's August 2004 issuance of $300 million of 5.40% Senior Notes maturing in August 2014.

In July 2005, PPL Capital Funding retired $142 million of its 7.29% Subordinated Notes due May 2006 at a market value of $145 million. PPL recorded a loss of $3 million related to this transaction in the third quarter of 2005.

In September 2005, PPL Capital Funding retired all $10 million of its 6.17% Medium-term Notes due September 2005 upon maturity.

(PPL and PPL Energy Supply)

In December 2004, WPD borrowed £108 million (approximately $208 million at December 2004 exchange rates) under its credit facilities to retire $178 million of 6.75% Unsecured Bonds due December 2004 and settle the related $30 million cross-currency swap. The total amount is included on the Statement of Cash Flows as "Retirement of long-term debt." This bond retirement was recorded in January 2005, due to the one-month reporting lag.

At September 30, 2005, PPL Energy Supply had no commercial paper outstanding under its commercial paper program.

During the nine months ended September 30, 2005, PPL Energy Supply distributed $206 million to its parent company and received capital contributions of $50 million.

The terms of PPL Energy Supply's 2-5/8% Convertible Senior Notes due 2023 include a market price trigger that permits holders to convert the notes during any fiscal quarter if the closing sale price of PPL's common stock exceeds $29.83 for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter. This market price trigger was met in the third quarter of 2005. Therefore, holders of the Convertible Senior Notes are entitled to convert their notes at any time during the fourth quarter of 2005. As discussed in Note 4, if holders elect to convert the Convertible Senior Notes, PPL Energy Supply would be required to settle the principal amount in cash and any conversion premium in cash or PPL common stock. As a result of the market price trigger being met, PPL Energy Supply wrote-off $6 million of unamortized debt issuance costs during the third quarter of 2005, which is included in "Interest Expense" on the Statement of Income.

On October 26, 2005, PPL Energy Supply issued $300 million aggregate principal amount of 5.70% REset Put Securities due 2035 (REPSSM). The REPS bear interest at a rate of 5.70% per annum to, but excluding, October 15, 2015 (Remarketing Date). The REPS are required to be put by existing holders on the Remarketing Date either for (a) purchase and remarketing by a designated remarketing dealer, or (b) repurchase by PPL Energy Supply. If the remarketing dealer elects to purchase the REPS for remarketing, it will purchase the REPS at 100% of the principal amount, and the REPS will bear interest on and after the Remarketing Date at a new fixed rate per annum determined in the remarketing. PPL Energy Supply has the right to terminate the remarketing process. If the remarketing is terminated at the option of PPL Energy Supply, or under certain other circumstances, including the occurrence of an event of default by PPL Energy Supply under the related indenture or a failed remarketing for certain specified reasons, PPL Energy Supply will be required to pay the remarketing dealer a settlement amount. The settlement amount will be the present value of an annuity equal to the positive difference, if any, between (a) a stream of interest payments that would have been due on the REPS after the Remarketing Date, assuming the REPS were to bear interest at a rate based on the 20-year swap rate in effect on October 20, 2005, and (b) a stream of interest payments that would have been due on the REPS after the Remarketing Date, assuming the REPS were to bear interest at a rate based on the 20-year swap rate in effect on the date of calculation of the settlement amount. Also, if the remarketing is terminated for any reason, PPL Energy Supply must repurchase the entire principal amount of the REPS on the Remarketing Date at 100% of the principal amount. PPL Energy Supply received net proceeds of approximately $311 million from the issuance of the REPS, which includes a premium associated with the remarketing feature. These proceeds will be used by PPL Energy Supply’s affiliates to repay indebtedness and by PPL Energy Supply for capital expenditures and/or general corporate purposes.

(PPL and PPL Electric)

At September 30, 2005, $117 million of accounts receivable and $117 million of unbilled revenue were pledged by a PPL Electric subsidiary under the credit agreement related to PPL Electric's and the subsidiary's participation in an asset-backed commercial paper program. Also at this date, there was $42 million of short-term debt outstanding under the credit agreement at an interest rate of 3.8%, all of which was being used to cash collateralize letters of credit issued on PPL Electric's behalf. At September 30, 2005, based on the accounts receivable and unbilled revenue pledged, an additional $100 million was available for borrowing. PPL Electric's sale to its subsidiary of the pledged accounts receivable and unbilled revenue is an absolute sale of the assets, and PPL Electric does not retain an interest in these assets. However, for financial reporting purposes, the subsidiary's financial results are consolidated in PPL Electric's financial statements.

In February 2005, the Lehigh County Industrial Development Authority (LCIDA) issued $116 million of 4.70% Pollution Control Revenue Refunding Bonds due 2029 on behalf of PPL Electric. The proceeds of the LCIDA bonds were used in March 2005 to refund the LCIDA's $116 million of 6.40% Pollution Control Revenue Refunding Bonds due 2029, previously issued on behalf of PPL Electric. A $2 million premium was paid to redeem these bonds.

In May 2005, the LCIDA issued $108 million of 4.75% Pollution Control Revenue Refunding Bonds due 2027 on behalf of PPL Electric. The proceeds of these LCIDA bonds were used in June 2005 to refund the LCIDA's $53 million of 5.50% Pollution Control Revenue Refunding Bonds due 2027 and in August 2005 to refund the LCIDA's $55 million of 6.15% Pollution Control Revenue Refunding Bonds due 2029, previously issued on behalf of PPL Electric. A $1 million premium was paid as part of each bond redemption.

In connection with the issuance of each of these new series of LCIDA bonds, PPL Electric entered into a loan agreement with the LCIDA pursuant to which the LCIDA has loaned to PPL Electric the proceeds of the LCIDA bonds on payment terms that correspond to the LCIDA bonds. The scheduled principal and interest payments on the LCIDA bonds are insured. In order to secure its obligations to the insurance provider, PPL Electric issued $224 million aggregate principal amount of its Senior Secured Bonds (under its 2001 Senior Secured Bond Indenture), which also have payment terms that correspond to the LCIDA bonds.

In April 2005, PPL Electric retired all $69 million of its 6-1/2% First Mortgage Bonds due April 2005 upon maturity.

During the nine months ended September 30, 2005, PPL Transition Bond Company made principal payments on transition bonds of $204 million.

At September 30, 2005, PPL Electric had no commercial paper outstanding under its commercial paper program.

During the nine months ended September 30, 2005, PPL Electric paid common dividends of $59 million to PPL.

In July 2005, PPL Electric executed a bond purchase agreement with certain institutional buyers in the private placement market to sell $200 million of Senior Secured Bonds. Subject to customary closing conditions, the bonds will be issued on or about December 20, 2005, in two tranches: $100 million of bonds maturing in December 2015 with a coupon of 4.95%, and $100 million of bonds maturing in December 2020 with a coupon of 5.15%. PPL Electric intends to use the proceeds from the bonds to refund existing Senior Secured Bonds and/or First Mortgage Bonds and/or for general corporate purposes.

Dividends (PPL)

There have been two common stock dividend increases in 2005. In February 2005, PPL announced an increase to its quarterly common stock dividend to 23 cents per share (equivalent to $0.92 per annum) and in August 2005, PPL announced an increase, payable October 1, 2005, to 25 cents per share (equivalent to $1.00 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

8.Acquisitions, Development and Divestitures

Domestic Generation Projects (PPL and PPL Energy Supply)

In 2003, PPL Maine entered into an agreement in principle with a coalition of government agencies and private groups to sell three of its nine hydroelectric dams in Maine. The parties reached a final agreement in 2004 and submitted it to the FERC for approval. Under the agreement, a non-profit organization designated by the coalition would have a five-year option to purchase the dams for approximately $25 million, and PPL Maine would receive rights to increase energy output at its other hydroelectric dams in Maine. The coalition has announced plans to remove or bypass the dams subject to the agreement in order to restore runs of Atlantic salmon and other migratory fish to the Penobscot River. The agreement requires several approvals by the FERC, and PPL cannot predict whether or when all of these regulatory approvals will be obtained.

International Energy Projects(PPL and PPL Energy Supply)

Sale of CEMAR

In 2001, PPL Global estimated that the long-term viability of its CEMAR investment was jeopardized and that there was minimal probability of positive future cash flows. At that time, PPL Global recorded an impairment loss in the carrying value of its net assets in CEMAR. In March 2002, PPL Global recorded a further impairment loss. In June 2002, PPL made a decision to exit the investment. At that time, PPL Global's remaining portion of its CEMAR investment was written-off.

In August 2002, ANEEL authorized an administrative intervention in CEMAR and fully assumed operational and financial control of the company. The intervenor appointed by ANEEL initiated efforts to transfer the ownership interest in CEMAR to a new owner. Since PPL Global no longer controlled or managed CEMAR, it deconsolidated the assets and liabilities of CEMAR from its financial statements and stopped recording CEMAR's operating results at that time. Due to the inability to discharge their obligations under the continuing intervention, PPL-related officers and directors of CEMAR resigned from their respective positions in February 2003.

In April 2004, PPL Global transferred its interest in CEMAR to two companies controlled by a private equity fund managed by GP Investimentos, a Brazilian private equity firm. The sale resulted in a credit of approximately $23 million as a result of the reversal of the negative carrying value and the associated cumulative translation adjustment, which is included in "Other Income - net" on the Statement of Income.

Sale of CGE

In March 2004, PPL Global completed the sale of its minority interest in shares of CGE for approximately $123 million. The sale resulted in a charge of approximately $15 million pre-tax, which is included in operating expenses, as "Energy related businesses," on the Statement of Income. This charge was due to the write-off of the associated cumulative translation adjustment, primarily as a result of the devaluation of the Chilean peso since the original acquisition in 2000.

Discontinued Operations (PPL and PPL Energy Supply)

Sale of Sundance Plant

In May 2005, a subsidiary of PPL Generation completed the sale of its 450 MW Sundance power plant located in Pinal County, Arizona, to Arizona Public Service Company for approximately $190 million in cash. Proceeds from the sale were used to reduce PPL's and PPL Energy Supply's outstanding debt and improve liquidity. The book value of the plant was approximately $260 million on the sale date. PPL and PPL Energy Supply recorded a loss on the sale in May 2005 of approximately $47 million, or $0.12 per share for PPL, net of a tax benefit of $26 million. The loss on the sale is reflected as "Loss from Discontinued Operations," along with operating losses of the Sundance plant of $4 million for the nine months ended September 30, 2005, and $10 million for the nine months ended September 30, 2004. At December 31, 2004, the Sundance plant had a book value of $263 million, which was recorded in "Electric plant in service - Generation" on the Balance Sheet. The plant had been included in the total assets of the Supply segment prior to the sale.

Sale of Latin American Telecommunications Company

In December 2003, PPL Global's Board of Managers authorized PPL Global to sell its investment in a Latin American telecommunications company, and approved a plan of sale. It was determined that this non-strategic business was not economically viable. PPL Global sold this investment to local management for a nominal amount in June 2004. The operating results of the Latin American telecommunications company, which were a loss of approximately $2 million for the nine months ended September 30, 2004, as well as an insignificant write-down of its net assets, are reflected as "Loss from Discontinued Operations" on the Statement of Income.

Other (PPL)

In June 2004, a PPL subsidiary evaluated its investment in a technology supplier for impairment. As a result of the evaluation, the subsidiary recorded an impairment charge of approximately $10 million pre-tax, which is included in "Other Income - net" on the Statement of Income.

9.Commitments and Contingent Liabilities

Energy Purchases, Energy Sales and Other Commitments

Energy Purchase Commitments(PPL, PPL Energy Supply and PPL Electric)

PPL and PPL Energy Supply enter into long-term purchase contracts to supply the fuel requirements for generation facilities. These include contracts to purchase coal, natural gas, oil and uranium. These contracts extend for terms through 2019. PPL and PPL Energy Supply also enter into long-term contracts for the storage and transport of natural gas. These contracts extend through 2014 and 2032, respectively. Additionally, PPL Energy Supply enters into long-term contracts to purchase power to meet load requirements and emissions allowances for its generation facilities. These contracts extend for terms through April 2010.

PPL Energy Supply entered into long-term power purchase agreements with two wind project developers to purchase the full output of their facilities when they begin commercial operation. One of the power purchase agreements is for 100 MW and extends for a term of 15 years, and the project is expected to be in service during 2006. The other agreement is for 20 MW and extends for a term of 20 years, and the project is expected to be in service by the end of 2005.

As part of the purchase of generation assets from Montana Power, PPL Montana assumed a power purchase agreement, which was still in effect at September 30, 2005. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $58 million as the estimated fair value of the agreement at the acquisition date. The liability is being reduced over the term of the agreement, through 2010, as an adjustment to "Energy purchases" on the Statement of Income. The unamortized balance of the liability related to the agreement at September 30, 2005, was $51 million and is included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet.

Liability for Above Market NUG Contracts

In 1998, PPL Electric recorded a loss accrual for above market contracts with NUGs of $854 million, due to its generation business being deregulated. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy purchases" on the Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment in 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. At September 30, 2005, the remaining liability associated with the above market NUG contracts was $224 million.

Energy Sales Commitments(PPL and PPL Energy Supply)

PPL Energy Supply enters into long-term power sales contracts in connection with its load-serving activities or associated with certain of its power plants. These power sales contracts extend for terms through 2017. All long-term contracts were executed at pricing that approximated market rates, including profit margin, at the time of execution.

As part of the purchase of generation assets from Montana Power, PPL Montana assumed a power sales agreement, which was still in effect at September 30, 2005. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $7 million as the estimated fair value of the agreement at the acquisition date. The agreement was re-evaluated under DIG Issue C20, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts with a Price Adjustment Feature," which changed its fair value and reclassified it as a derivative instrument. The current liability balance was $5 million as of September 30, 2005.

On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate of 450 MW of energy supplied by PPL Montana. Under two five-year agreements, PPL EnergyPlus is supplying 300 MW of around-the-clock electricity and 150 MW of unit-contingent on-peak electricity. PPL Montana also makes short-term energy sales to NorthWestern.

As a result of New Jersey's Electric Discount and Energy Competition Act, the New Jersey Board of Public Utilities authorized and made available to power suppliers, on a competitive basis, the opportunity to provide Basic Generation Service (BGS) to all non-shopping New Jersey customers. In February 2003, PPL EnergyPlus was awarded a 34-month fixed-price BGS contract for a fixed percentage of customer load (approximately 1,000 MW) for Atlantic City Electric Company, Jersey Central Power & Light Company and Public Service Electric & Gas Company. This contract commenced in August 2003. In February 2004, PPL EnergyPlus was awarded a 12-month hourly energy price supply BGS contract for a fixed percentage of customer load (approximately 450 MW) for Atlantic City Electric Company, Jersey Central Power & Light Company and Public Service Electric & Gas Company. These contracts commenced in June 2004 and expired in May 2005. In the first quarter of 2005, PPL EnergyPlus was awarded a portion of the Commercial Industrial Energy Pricing tranche, which will amount to approximately 85 MW after expected shopping. These contracts commenced in June 2005.

In January 2004, PPL EnergyPlus began supplying 12.5% of Connecticut Light & Power Company's Transitional Standard Offer load under a three-year fixed-price contract. During peak hours, PPL EnergyPlus' obligation to supply the Transitional Standard Offer load may reach 625 MW.

PPL Montana Hydroelectric License Commitments(PPL and PPL Energy Supply)

PPL Montana has 11 hydroelectric facilities and one storage reservoir licensed by the FERC pursuant to the Federal Power Act under long-term licenses that expire in 2035 and 2040. Pursuant to Section 8(e) of the Federal Power Act, the FERC approved the transfer from Montana Power to PPL Montana of all pertinent licenses and any amendments in connection with the Montana APA.

The Kerr Dam Project license was jointly issued by the FERC to Montana Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation in 1985, and required Montana Power to hold and operate the project for 30 years. The license required Montana Power, and subsequently PPL Montana as a result of the purchase of the Kerr Dam from Montana Power, to continue to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife and the habitat. Under this arrangement, PPL Montana has a remaining commitment to spend approximately $19 million between 2005 and 2015, at which point the tribes have the option to purchase, hold and operate the project.

PPL Montana entered into two Memorandums of Understanding (MOUs) with state, federal and private entities related to the issuance in 2000 of the FERC renewal license for the nine dams for the Missouri-Madison project. The MOUs require PPL Montana to implement plans to mitigate the impact of its projects on fish, wildlife and the habitat, and to increase recreational opportunities. The MOUs were created to maximize collaboration between the parties and possibilities for matching funds from relevant federal agencies. Under this arrangement, PPL Montana has a remaining commitment to spend approximately $36 million between 2005 and 2040.

Legal Matters

(PPL, PPL Energy Supply and PPL Electric)

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

Montana Power Shareholders' Litigation(PPL and PPL Energy Supply)

In August 2001, a purported class-action lawsuit was filed by a group of shareholders of Montana Power against Montana Power, the directors of Montana Power, certain advisors and consultants of Montana Power and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to and participated in a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. This lawsuit is currently pending in the U.S. District Court of Montana, Butte Division. In July 2004, the plaintiffs notified the District Court that the parties had reached an oral partial settlement of the case that would result in the dismissal of PPL Montana as a defendant, and in January 2005 a global settlement agreement was filed with the District Court along with a motion to approve the agreement. Under the terms of the global settlement agreement, the plaintiffs' claims against PPL Montana would be dismissed and PPL Montana would not have to pay any amounts to the plaintiffs. In April 2005, the District Court provided the parties to the global settlement agreement additional time to engage in further discussions and file with the court a more comprehensive form of agreement. These additional discussions have not yet resulted in a more comprehensive agreement, and it is possible that the District Court may order a resumption of the litigation schedule for this matter if a more comprehensive agreement is not reached. Any agreement reached by the parties must be approved by the District Court. PPL and PPL Energy Supply cannot predict the outcome of this matter.

NorthWestern Corporation Litigation(PPL and PPL Energy Supply)

In connection with the acquisition of the Montana generation assets, the Montana Power APA, which was previously assigned to PPL Montana by PPL Global, includes a provision concerning the proposed purchase by PPL Montana of a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission System (CTS) for $97 million. During 2002, PPL Montana had been in discussions with NorthWestern regarding the proposed purchase of the CTS and the claims that PPL Montana believed it had against NorthWestern arising from the Montana Power APA and related agreements. Notwithstanding such discussions, in September 2002, NorthWestern filed a lawsuit against PPL Montana in Montana state court seeking specific performance of PPL Montana's purchase of the CTS or, alternatively, damages for breach of contract. Pursuant to PPL Montana's application, the matter was removed to the U.S. District Court of Montana, Butte Division. Following removal, NorthWestern asserted additional claims for damages against PPL Montana, including a claim for punitive damages. PPL Montana filed defenses denying liability for NorthWestern's claims as well as counterclaims against NorthWestern seeking damages PPL Montana believed it had suffered under the Montana Power APA and related agreements.

In May 2005, PPL Montana and NorthWestern reached an agreement in principle to settle the litigation, and PPL and PPL Energy Supply recorded a charge of $9 million ($6 million after tax, or $0.02 per share for PPL) in the first quarter of 2005 related to the agreement in principle. In September 2005, the parties reached a final agreement that was approved by the U.S. Bankruptcy Court for the District of Delaware overseeing NorthWestern's bankruptcy case. Pursuant to this final agreement, all claims of the parties in the litigation have been dismissed with prejudice, NorthWestern will retain its interest in the CTS and PPL Montana has paid NorthWestern $9 million in October 2005.

Montana Hydroelectric Litigation(PPL and PPL Energy Supply)

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

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

Regulatory Issues

California ISO and Western Markets(PPL and PPL Energy Supply)

Through its subsidiaries, PPL made approximately $18 million of sales to the California ISO during the period from October 2000 through June 2001, of which $17 million has not been paid to PPL subsidiaries. Given the myriad of electricity supply problems presently faced by the California electric utilities and the California ISO, PPL cannot predict whether or when it will receive payment. As of September 30, 2005, PPL has fully reserved for possible underrecoveries of payments for these sales.

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

In June 2003, the FERC took several actions as a result of a number of related investigations. The FERC terminated proceedings pursuant to which it had been considering whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. The FERC explained that the totality of the circumstances made refunds unfeasible and inequitable, and that it had provided adequate relief by adopting a price cap throughout the western U.S. The FERC also denied pending complaints against long-term contracts in the western U.S. In these complaints, various power buyers had challenged selected long-term contracts that they entered into during 2000 and 2001, complaining that the power prices were too high and reflected manipulation of those energy markets. The FERC found that the complainants had not met their burden of showing that changing or canceling the contracts was "in the public interest" and that the dysfunction in the California markets did not justify changing these long-term contracts. These orders have been appealed to the U.S. Court of Appeals for the Ninth Circuit. In two separate orders, the FERC also ordered 65 different companies, agencies or municipalities to show cause why they should not be ordered to disgorge profits for "gaming" or anomalous market behavior during 2000 and 2001. These orders to show cause address both unilateral and joint conduct identified as the "Enron trading strategies." Neither PPL EnergyPlus nor PPL Montana was included in these orders to show cause, and they previously have explained in responses to data requests from the FERC that they have not engaged in such trading strategies. Finally, the FERC issued a new investigation order directing its staff to investigate any bids made into the California markets in excess of $250/MWh during the period from May 2000 to October 2000, a period of time prior to the period examined in connection with most of the proceedings described above. To their knowledge, neither PPL EnergyPlus nor PPL Montana is being investigated by the FERC under this new order.

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

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

While PPL and its subsidiaries believe that they have not engaged in any improper trading practices, they cannot predict whether, or the extent to which, any PPL subsidiaries will be the target of any additional governmental investigations or named in other lawsuits or refund proceedings, the outcome of any such lawsuits or proceedings or whether the ultimate impact on them of the electricity supply situation in California and other western states will be material.

PJM Capacity Litigation(PPL, PPL Energy Supply and PPL Electric)

In December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus and PPL Electric filed in the U.S. District Court for the Eastern District of Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleges, among other things, violations of the federal antitrust laws in connection with the pricing of installed capacity in the PJM daily market during the first quarter of 2001. These boroughs were wholesale customers of PPL Electric. The claims of the boroughs are similar to those previously alleged by a single borough in litigation brought in the same court that is still pending. In addition, in November 2003, PPL and PPL EnergyPlus were served with a complaint which was filed in the same court by Joseph Martorano, III (d/b/a ENERCO), that also alleges violations of the federal antitrust laws in early 2001. The complaint indicates that ENERCO provides consulting and energy procurement services to clients in Pennsylvania and New Jersey. In September 2004, this complaint was dismissed by the District Court, and in June 2005, the U.S. Court of Appeals for the Third Circuit denied the plaintiff's appeal.

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

Although PPL, PPL Energy Supply and PPL Electric believe the claims in these complaints are without merit, they cannot predict the outcome of these matters.

New England Investigation(PPL and PPL Energy Supply)

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

PJM Billing(PPL, PPL Energy Supply and PPL Electric)

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

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

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

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

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

FERC Market-Based Rate Authority(PPL and PPL Energy Supply)

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

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

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

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

FERC Proposed Rules(PPL, PPL Energy Supply and PPL Electric)

In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design." The proposed rule contained a proposed implementation date of July 31, 2003. This far-reaching proposed rule purported to establish uniform transmission rules and a standard market design by, among other things:

· enacting standard transmission tariffs and uniform market mechanisms,

· monitoring and mitigating "market power,"

· managing transmission congestion through pricing and tradable financial rights,

· requiring independent operational control over transmission facilities,

· forming state advisory committees on regional transmission organizations and resource adequacy, and

· exercising FERC jurisdiction over all transmission service.

In April 2003, the FERC issued a white paper describing certain modifications to the proposed rule. The FERC requested comments and held numerous public comment sessions concerning the white paper. In July 2005, the FERC terminated the proposed rule based on its conclusion that the objectives of the proposed rule had been overtaken by other events in the industry, such as the continuing development of voluntary ISOs and RTOs.

In November 2003, the FERC adopted a proposed rule to require all existing and new electric market-based tariffs and authorizations to include provisions prohibiting the seller from engaging in anticompetitive behavior or the exercise of market power. The FERC order adopts a list of market behavior rules that apply to all electric market-based rate tariffs and authorizations, including those of PPL EnergyPlus and any other PPL subsidiaries that hold market-based rate authority. PPL does not expect this rule to have a significant impact on its subsidiaries.

Wallingford Cost-Based Rates (PPL and PPL Energy Supply)

In January 2003, PPL negotiated an agreement with ISO - New England that would declare that four of the five units at PPL's Wallingford, Connecticut facility are "reliability must run" units and put those units under cost-based rates. This agreement and the cost-based rates are subject to the FERC's approval, and PPL filed a request with the FERC for such approval. PPL requested authority for cost-based rates because the current and anticipated wholesale prices in New England are insufficient to cover the costs of keeping these units available for operation. In March 2003, PPL filed an application with the New England Power Pool to temporarily deactivate these four units. In May 2003, the FERC denied PPL's request for cost-based rates in light of the FERC's changes to the market and bid mitigation rules of ISO - New England made in a similar case involving generating units owned by NRG Energy, Inc. PPL subsequently has explained to the FERC that its changes to the market and bid mitigation rules of ISO - New England will not provide sufficient revenues to PPL, and PPL continues to seek approval of its cost-based rates. However, PPL has informed the New England Power Pool that it will not pursue its request to temporarily deactivate certain Wallingford units. In August 2005, the U.S. Court of Appeals for the District of Columbia Circuit reversed the FERC's denial of PPL's request for cost-based rates and remanded the case to the FERC for further consideration. PPL cannot predict the outcome of this matter.

IRS Synthetic Fuels Tax Credits(PPL and PPL Energy Supply)

PPL, through its subsidiaries, has interests in two synthetic fuel production facilities: the Somerset facility located in Pennsylvania and the Tyrone facility located in Kentucky. PPL receives tax credits pursuant to Section 29 of the Internal Revenue Code based on the sale of synthetic fuel from these facilities to unaffiliatedthird-party purchasers. Section 29 of the Internal Revenue Code provides tax credits for the production and sale of solid synthetic fuels produced from coal. Section 29 tax credits are currently scheduled to expire at the end of 2007.

To qualify for the Section 29 tax credits, the synthetic fuel must meet three primary conditions: (i) there must be a significant chemical change in the coal feedstock, (ii) the product must be sold to an unaffiliated entity, and (iii) the production facility must have been placed in service before July 1, 1998.

In addition, Section 29 provides for the synthetic fuel tax credit to begin to phase-out when the relevant annual reference price for crude oil, which is the domestic first purchase price (DFPP), falls within a designated range and to be eliminated when the DFPP exceeds the range. The phase-out range is adjusted annually for inflation. The DFPP is published by the IRS annually in April for the prior year and is calculated based on the annual average wellhead price per barrel for all unregulated domestic crude oil. The DFPP for crude oil in 2004 was $36.75 per barrel, significantly below the phase-out level. Accordingly, the tax credit phase-out did not impact results in 2004. Accounting for inflation, PPL estimates that the 2005 tax credit phase-out would start at a DFPP for the year of about $52 per barrel and the tax credit would be totally eliminated at about $65 per barrel. PPL currently does not expect any significant phase-out of the synthetic fuel tax credit for 2005. However, based on current market conditions and given the recent increases in and volatility of crude oil prices, PPL cannot predict the final DFPP for crude oil for each of the years 2005 through 2007 or inflation for those years that affects the determination of the phase-out range of the tax credit.

PPL has entered into economic hedge transactions that serve to mitigate some of the earnings and cash flow impact of increases in crude oil prices for the years 2005 through 2007, with the mark-to-market value of these hedges reflected in "Energy related businesses" revenues on the Statement of Income.  Nonetheless, a significant increase in the price for crude oil beyond current price levels could significantly reduce PPL's expected synthetic fuel tax credits for the year 2005, and if the price of crude oil remains at, or increases above, current price levels in 2006 or 2007, PPL's expected synthetic fuel tax credits for either or both of those years could be significantly reduced.  Based on forecasted oil prices and other market factors for 2006 and 2007, PPL will evaluate its synthetic fuel production levels and operations.

A PPL subsidiary owns and operates the Somerset facility. In November 2001, PPL received a private letter ruling from the IRS pursuant to which, among other things, the IRS concluded that the synthetic fuel produced at the Somerset facility qualifies for Section 29 tax credits. The Somerset facility uses the Covol technology to produce synthetic fuel, and the IRS issued the private letter ruling after its review and approval of that technology. In reliance on this private letter ruling, PPL has sold synthetic fuel produced at the Somerset facility resulting in an aggregate of approximately $251 million of tax credits as of September 30, 2005.

PPL owns a limited partnership interest in the entity that owns and operates the Tyrone facility. In April 2004, this entity received a private letter ruling from the IRS. Similar to its conclusions relating to the Somerset facility, the IRS concluded that the synthetic fuel to be produced at the Tyrone facility qualifies for Section 29 tax credits. In reliance on this private letter ruling, this entity has sold synthetic fuel produced at the Tyrone facility resulting in an aggregate of approximately $48 million of tax credits as of September 30, 2005. The Tyrone facility began commercial operation in the third quarter of 2004, after being relocated to Kentucky from Pennsylvania.

PPL also purchases synthetic fuel from unaffiliated third parties, at prices below the market price of coal, for use at its coal-fired power plants.

In October 2003, it was reported that the U.S. Senate Permanent Subcommittee on Investigations, of the Committee on Governmental Affairs, had begun an investigation of the synthetic fuel industry and its producers. That investigation is ongoing. PPL cannot predict when the investigation will be completed or the potential results of the investigation.

Energy Policy Act of 2005(PPL, PPL Energy Supply and PPL Electric)

In August 2005, President Bush signed into law the Energy Policy Act of 2005 (the "2005 Energy Act"). The 2005 Energy Act is comprehensive legislation that will substantially affect the regulation of energy companies. The Act amends federal energy laws and provides the FERC with new oversight responsibilities. Among the important changes to be implemented as a result of this legislation are the following:

· The Public Utility Holding Company Act of 1935, or PUHCA, will be repealed effective six months after the 2005 Energy Act is enacted. PUHCA significantly restricted mergers and acquisitions in the electric utility sector.

· The FERC will appoint and oversee an electric reliability organization to establish and enforce mandatory reliability rules regarding the interstate electric transmission system.

· The FERC will establish incentives for transmission companies, such as performance-based rates, recovery of the costs to comply with reliability rules and accelerated depreciation for investments in transmission infrastructure.

· The Price Anderson Amendments Act of 1988, which provides the framework for nuclear liability protection, will be extended by twenty years to 2025.

· Federal support will be available for certain clean coal power initiatives, nuclear power projects and renewable energy technologies.

The implementation of the 2005 Energy Act requires proceedings at the state level and the development of regulations by the FERC and the Department of Energy, as well as other federal agencies. PPL cannot predict when these proceedings and regulations will commence or be finalized.

PPL is still studying the legislation and its effects and cannot predict with certainty the impact on PPL and its subsidiaries.

Environmental Matters - Domestic

(PPL, PPL Energy Supply and PPL Electric)

Due to the environmental issues discussed below or other environmental matters, PPL subsidiaries may be required to modify, replace or cease operating certain facilities to comply with statutes, regulations and actions by regulatory bodies or courts. In this regard, PPL subsidiaries also may incur capital expenditures or operating expenses in amounts which are not now determinable, but could be significant.

Air (PPL and PPL Energy Supply)

The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards, fine particulate matter standards and toxic air emissions and visibility in the U.S. PPL's subsidiaries are in substantial compliance with the Clean Air Act. Amendments to the Clean Air Act continue to be considered in the U.S. Congress that could require significant further reductions in emissions of nitrogen oxide and sulfur dioxide and reductions in emissions of mercury.

Citing its authority under the Clean Air Act, the EPA has developed new standards for ambient levels of ozone and fine particulates in the U.S. These standards have been upheld following court challenges. To facilitate attainment of these standards, the EPA has promulgated the Clean Air Interstate Rule (CAIR) for 28 midwestern and eastern states, including Pennsylvania, to reduce national sulfur dioxide emissions by about 50% by 2010 and to extend the current seasonal program for nitrogen oxide emission reductions to a year-round program starting in 2009. CAIR requires further reductions, starting in 2015, in sulfur dioxide and nitrogen oxide of 30% and 20%, respectively, from 2010 levels. CAIR allows these reductions to be achieved through cap-and-trade programs, and is consistent with the Bush administration's proposed amendments to the Clean Air Act, except that it applies to only the 28 states. Pennsylvania and Montana have not challenged CAIR, but the rule has been challenged by several states and environmental groups as not being sufficiently strict, and by industry petitioners as being too strict. In addition, several Canadian environmental groups have petitioned the EPA under the Clean Air Act to revise CAIR to require deeper reductions in sulfur dioxide and mercury.

In order to continue meeting existing sulfur dioxide reduction requirements of the Clean Air Act, PPL will need to use its banked sulfur dioxide allowances and to purchase additional allowances. Currently, PPL has enough allowances to cover expected consumption through 2006, but will experience shortfalls in some years after 2006. As a result and based on projected allowance prices, PPL plans to install sulfur dioxide scrubbers at its Montour Units 1 and 2 and Brunner Island Unit 3 by 2008. PPL also plans to install a scrubber at Brunner Island Units 1 and 2 during 2009. PPL's current installation plan for the scrubbers and other pollution control equipment from 2005 to 2010 reflects a cost of approximately $1.5 billion.

Also citing its authority under the Clean Air Act, the EPA has finalized mercury regulations that affect coal-fired plants. These regulations establish an emission trading program to take effect beginning January 2010, with a second phase to take effect in 2018. At the same time that it finalized these mercury regulations, the EPA determined that it currently does not need to regulate nickel emissions from oil-fired units. PPL is still assessing what measures it will need to take to comply with the mercury regulations. PPL expects that the scrubbers to be installed at Montour and Brunner Island will provide mercury removal co-benefits. However, PPL believes that it may need to take additional measures to comply with the 2010 requirements of the EPA's mercury regulations, and that it will need to take additional measures to comply with the 2018 requirements. The capital costs to PPL of complying with these new mercury regulations are not now determinable, but could be significant. Based on preliminary industry estimates, the costs are expected to exceed $150 million.

Pennsylvania and ten other states have challenged the new EPA mercury regulations in the D.C. Circuit Court of Appeals as not being sufficiently strict. The Pennsylvania Environmental Quality Board (PaEQB) has accepted a petition filed by PennFuture, an environmental organization, requesting the PaEQB to develop mercury rules that would require by 2008 a level of mercury reduction that would be more stringent than the level required by 2018 under the EPA's mercury regulations. In addition, the Ozone Transport Commission (consisting of Pennsylvania and 11 other states and the District of Columbia) has passed a resolution calling for reductions in sulfur dioxide, nitrogen oxide and mercury emissions that are more stringent than those under CAIR and the EPA's mercury regulations. The Pennsylvania DEP (which works with the PaEQB to develop Pennsylvania environmental regulations) has stated that it intends to develop mercury regulations that are more stringent than the EPA's regulations but different from those requested by PennFuture, and it also has indicated support for developing more stringent regulations for reductions in sulfur dioxide and nitrogen oxide.

In September 2005, a petition to initiate state-specific rulemaking for mercury emissions was filed by a coalition of environmental and other public interest groups with the Montana Board of Environmental Review (BER). The petition proposed an administrative rule that would have required coal burning power plants in Montana to achieve a 90% reduction in mercury emissions by July 1, 2011, with certain exceptions. On September 30, 2005, a public hearing was held before the Montana BER to determine whether to accept the petition for rulemaking or deny the same. Upon the recommendation of the director of the Montana Department of Environmental Quality (DEQ), the Montana BER voted to deny the petition at that time but instructed the Montana DEQ to meet with all stakeholders and attempt to come up with an alternate form of rule and present it to the Montana BER no later than February 2006. PPL Montana intends to actively participate in the stakeholder process.

PPL and other energy companies and industry groups oppose state-specific regulations. PPL cannot predict whether more stringent regulations will ultimately be adopted in Pennsylvania or Montana. The additional costs to comply with any such regulations are not now determinable, but could be significant.

In addition to the above rules, the Clean Air Visibility Rule was issued by the EPA on June 15, 2005, to address regional haze or regionally-impaired visibility caused by multiple sources over a wide area. The rule defines Best Available Retrofit Technology requirements for electric generating units, including presumptive limits for sulfur dioxide and nitrogen oxide controls for large units. The EPA has stated that this rule will not require reductions in sulfur dioxide or nitrogen oxide beyond those required by CAIR. However, in states like Montana that are not within the CAIR region, the need for and costs of additional controls as a result of this new rule are not now determinable, but could be significant.

In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA subsequently issued notices of violation and commenced enforcement activities against other utilities. In 2003, the EPA issued changes to its regulations that clarified what projects are exempt from "New Source" requirements as routine maintenance and repair. Under these clarifications, any project to replace existing equipment with functionally equivalent equipment would be considered routine maintenance and excluded from "New Source" review if the cost of the replaced equipment does not exceed 20% of the replacement cost of the entire process unit, the basic design is not changed and no permit limit is exceeded. These clarifications would have substantially reduced the uncertainties under the prior "New Source" regulations; however, they have been stayed by the U.S. Court of Appeals for the District of Columbia Circuit. PPL is therefore continuing to operate under the "New Source" regulations as they existed prior to the EPA's 2003 clarifications.

In October 2005, the EPA proposed changing its rules on how to determine whether a project results in an emissions increase and is therefore subject to review under the "New Source" regulations. The EPA's proposed tests are consistent with the position of energy companies and industry groups and, if adopted, would substantially reduce the uncertainties under the current regulations. PPL cannot predict whether these new tests will be adopted. In addition to announcing these proposed new tests, the EPA also announced in October 2005 that it will not bring new enforcement actions with respect to projects that would satisfy the proposed tests or the EPA's 2003 clarifications referenced above. Accordingly, PPL believes that it is unlikely that the EPA will follow up on the information requests that had been issued to PPL Montana's Corette and Colstrip plants by EPA Region VIII in 2000 and 2003, respectively, and to PPL Generation's Martins Creek plant by EPA Region III in 2002. However, states and environmental groups have also been bringing enforcement actions alleging violations of "New Source" requirements by coal-fired plants and PPL is unable to predict whether such state or citizens enforcement actions will be brought with respect to any of its affiliates' plants.

The New Jersey DEP and some New Jersey residents raised environmental concerns with respect to the Martins Creek plant, particularly with respect to sulfur dioxide emissions and the opacity of the plant's plume. These issues were raised in the context of an appeal by the New Jersey DEP of the Air Quality Plan Approval issued by the Pennsylvania DEP to PPL's Lower Mt. Bethel generating plant. In October 2003, PPL finalized an agreement with the New Jersey DEP and the Pennsylvania DEP pursuant to which PPL will reduce sulfur dioxide emissions from its Martins Creek power plant. Under the agreement, PPL Martins Creek will shut down the plant's two coal-fired generating units by September 2007 and may repower them any time after shutting them down so long as it follows all applicable state and federal requirements, including installing the best available pollution control technology. Pursuant to the agreement, PPL Martins Creek began reducing the fuel sulfur content for the coal units as well as the plant's two oil-fired units in June 2004. The agreement also calls for PPL to donate to a non-profit organization 70% of the excess emission allowances and emission reduction credits that result from shutting down or repowering the coal units. Some of these donations have already been made to the Pennsylvania Environmental Council. As a result of the agreement, the New Jersey DEP withdrew its challenge to the Air Quality Plan Approval for the Lower Mt. Bethel facility. The agreement will not result in material costs to PPL. The agreement does not address the issues raised by the New Jersey DEP regarding the visible opacity of emissions from the oil-fired units at the Martins Creek plant. If it is determined that actions must be taken to address the visible opacity of these emissions, such actions could result in costs that are not now determinable, but could be significant.

In addition to the opacity concerns raised by the New Jersey DEP, PPL and the Pennsylvania DEP are litigating issues relating to the opacity of emissions from the Montour plant and negotiating issues relating to the opacity of emissions from the Martins Creek plant. PPL believes that it is in compliance with state emission regulations and is continuing to discuss these matters with the Pennsylvania DEP. If it is determined that actions must be taken to address the Pennsylvania DEP's concerns, such actions could result in costs that are not now determinable, but could be significant.

In December 2003, PPL Montana, as operator of the Colstrip facility, received an Administrative Compliance Order (ACO) from the EPA pursuant to the Clean Air Act. The ACO alleges that Units 3 and 4 of the facility have been in violation of the Clean Air Act permit at Colstrip since 1980. The permit required Colstrip to submit for review and approval by the EPA an analysis and proposal for reducing emissions of nitrogen oxide to address visibility concerns upon the occurrence of certain triggering events. The EPA is asserting that regulations it promulgated in 1980 triggered this requirement. PPL believes that the ACO is unfounded. PPL is engaged in settlement negotiations on these matters with the EPA, the Montana DEQ and the Northern Cheyenne Tribe.

In addition to the requirements related to emissions of sulfur dioxide, nitrogen oxide and mercury noted above, there is a growing concern nationally and internationally about carbon dioxide emissions. In June 2005, the U.S. Senate adopted a resolution declaring that mandatory reductions in carbon dioxide are needed. Various legislative proposals are being considered in Congress, and several states have already passed legislation capping carbon dioxide emissions. The Bush administration is promoting a voluntary carbon dioxide reduction program, called the Climate VISION program. In support of this program, the electric power industry has committed to reducing its greenhouse gas emission intensity levels (measured as tons of carbon dioxide equivalent against electric power production in MWh) by 3% to 5% by the 2010 to 2012 period. Furthermore, an initiative is underway in nine Northeast states to propose a cap-and-trade program for carbon dioxide emissions from fossil fuel-fired power plants, the details of which are expected to be released in 2005. Increased pressure for carbon dioxide emissions reduction is also coming from investor organizations and the international community. Pennsylvania and Montana have not, at this time, established any formal programs to address carbon dioxide and other greenhouse gases.

As a result of the national and international concerns, PPL has conducted an inventory of its carbon dioxide emissions and is continuing to evaluate various options for reducing, avoiding, off-setting or sequestering its emissions. If the above-described initiatives or other legislative or regulatory initiatives result in mandatory reductions being imposed, the cost of such reductions could be significant.

In June 2005, PPL Montour, along with 20 other companies with coal-fired generating plants, was named as a defendant in a toxic-tort, purported class-action lawsuit filed in the Ontario Superior Court of Justice. PPL Montour has not yet been served with this lawsuit. On behalf of a purported class comprised of all persons resident in Ontario within the past six years (and/or their family members or heirs), the named plaintiffs allege, in essence, that the defendant power companies negligently failed to prevent their plants from emitting air pollutants in such a manner as to cause death and multiple adverse health effects, as well as economic damages, to the plaintiff class. PPL Montour is alleged to be among those responsible for the plaintiffs' injuries because of its ownership of the Montour plant, as well as its ownership interests in the Keystone and Conemaugh plants. The plaintiffs seek damages in the approximate amount of Canadian $49 billion (approximately $42 billion at current exchange rates), along with continuing damages in the amount of Canadian $4.1 billion (approximately $3.5 billion at current exchange rates) per year and punitive damages of Canadian $1 billion (approximately $861 million at current exchange rates), along with such other relief as the court deems just. PPL and PPL Energy Supply cannot predict the outcome of this matter.

Water/Waste (PPL and PPL Energy Supply)

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

At this time, PPL has no reason to believe that the Martins Creek leak has caused any danger to human health or any adverse biological impact on the river aquatic life. However, PPL currently expects that as a result of the leak it will be subject to an enforcement action by the Pennsylvania DEP and that claims may be brought against it by certain federal and other state agencies and private litigants. PPL and PPL Energy Supply recognized a $33 million charge in the third quarter of 2005 (or $22 million after tax, which is $0.06 per share for PPL) in connection with the current expected on-site and off-site costs relating to the leak. Approximately $29 million of the charge, or $19 million after tax, relates to the off-site costs, and the balance of the charge, $4 million, or $3 million after tax, relates to the on-site costs. PPL and PPL Energy Supply cannot predict the final cost of assessment and remediation of the leak, the exact nature of any regulatory or other legal actions that may be initiated against PPL, PPL Energy Supply or their subsidiaries as a result of the disposal basin leak, the extent of the fines or damages that may be sought in connection with any such actions, when the coal-fired generating units may be placed back in service or the ultimate financial impact on PPL or PPL Energy Supply.

Seepages have been detected at one of the wastewater basins at the Montour generating facility, and PPL is working with the Pennsylvania DEP to assess and abate the seepage. PPL is assessing groundwater impacted by seepages from two closed wastewater basins at the Brunner Island station to determine what abatement actions may be needed. PPL plans to comprehensively address issues related to wastewater basins at all of its Pennsylvania plants, as part of the process to renew the residual waste permits for these basins which expire within the next three years. The cost of addressing seepages at PPL's Pennsylvania plants is not now determinable, but could be significant.

In May 2003, approximately 50 plaintiffs brought an action now pending at the Montana Sixteenth Judicial District Court, Rosebud County, against PPL Montana and the other owners of the Colstrip plant alleging property damage from seepage from the freshwater and wastewater ponds at Colstrip. PPL Montana has undertaken certain groundwater investigation and remediation measures at the Colstrip plant to address groundwater contamination alleged by the plaintiffs as well as other groundwater contamination at the plant. These measures include offering to extend city water to certain residents who live near the plant, some of whom are plaintiffs in the litigation. Beyond estimated costs of approximately $1 million (PPL Montana's share of the estimated costs, for which PPL has recorded a contingency reserve) for a proposed settlement of the property damage claims raised in the litigation, for extending city water and for a portion of the remedial investigation costs, PPL Montana may incur further costs based on its additional groundwater investigations and any related remedial measures, which costs are not now determinable, but could be significant.

Brunner Island's NPDES permit contains a provision requiring further studies on the thermal impact of the cooling water discharge from the plant. These studies are underway and are expected to be completed in 2006. The Pennsylvania DEP has stated that it believes the studies to date show that the temperature of the discharge must be lowered. The Pennsylvania DEP has also stated that it believes the plant is in violation of a permit condition prohibiting the discharge from changing the river temperature by more than two degrees per hour. PPL is discussing these matters with the agency. Depending on the outcome of these discussions, the plant could be subject to additional capital and operating costs that are not now determinable, but could be significant.

The EPA has significantly tightened the water quality standard for arsenic. The revised standard becomes effective in 2006. The revised standard may result in action by individual states that could require several PPL subsidiaries to either further treat wastewater or take abatement action at their power plants, or both. The cost of complying with any such requirements is not now determinable, but could be significant.

The EPA finalized requirements in 2004 for new or modified water intake structures. These requirements affect where generating facilities are built, establish intake design standards, and could lead to requirements for cooling towers at new and modified power plants. Another new rule that was finalized in 2004 addresses existing structures. PPL does not believe that either of these rules will impose material costs on PPL subsidiaries. However, six northeastern states have challenged the new rules for existing structures as being inadequate. If this challenge is successful, it could result in the EPA establishing stricter standards for existing structures that could impose significant costs on PPL subsidiaries.

Superfund and Other Remediation

(PPL, PPL Energy Supply and PPL Electric)

In 1995, PPL Electric and PPL Generation and, in 1996, PPL Gas Utilities entered into consent orders with the Pennsylvania DEP to address a number of sites that were not being addressed under another regulatory program such as Superfund, but for which PPL Electric, PPL Generation or PPL Gas Utilities may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; oil or other contamination which may exist at some of PPL Electric's former generating facilities; and potential contamination at abandoned power plant sites owned by PPL Generation. This may also include former coal gas manufacturing facilities and potential mercury contamination from gas meters and regulators at PPL Gas Utilities' sites.

Since the PPL Electric Consent Order expired on January 31, 2005, and since only four sites remained, PPL has negotiated a new consent order and agreement (COA) with the Pennsylvania DEP that combines both PPL Electric's and PPL Gas Utilities' consent orders into one single agreement. As of September 30, 2005, PPL Electric and PPL Gas Utilities have 178 sites to address under the new combined COA. Additional sites formerly owned or operated by PPL Electric, PPL Generation or PPL Gas Utilities are added to the consent orders on a case-by-case basis.

At September 30, 2005, PPL Electric and PPL Gas Utilities had accrued approximately $3 million and $7 million, respectively, representing the estimated amounts each will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above. Depending on the outcome of investigations at sites where investigations have not begun or have not been completed, the costs of remediation and other liabilities could be substantial. PPL and its subsidiaries also could incur other non-remediation costs at sites included in the consent orders or other contaminated sites, the costs of which are not now determinable, but could be significant.

The EPA is evaluating the risks associated with naphthalene, a chemical by-product of coal gas manufacturing operations. As a result of the EPA's evaluation, individual states may establish stricter standards for water quality and soil clean-up. This could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing facilities. The costs to PPL of complying with any such requirements are not now determinable, but could be significant.

(PPL and PPL Energy Supply)

Under the Pennsylvania Clean Streams Law, subsidiaries of PPL Generation are obligated to remediate acid mine drainage at former mine sites and may be required to take additional measures to prevent potential acid mine drainage at previously capped refuse piles. One PPL Generation subsidiary is pumping and treating mine water at two mine sites. Another PPL Generation subsidiary is installing passive wetlands treatment at a third site, and the Pennsylvania DEP has suggested that it may require that PPL Generation subsidiary to pump and treat the mine water at that third site. At September 30, 2005, a PPL Energy Supply subsidiary had accrued $28 million to cover the costs of pumping and treating groundwater at the two mine sites for 50 years and for operating and maintaining passive wetlands treatment at the third site.

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

(PPL, PPL Energy Supply and PPL Electric)

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

Asbestos(PPL and PPL Energy Supply)

There have been increasing litigation claims throughout the U.S. based on exposure to asbestos against companies that manufacture or distribute asbestos products or that have these products on their premises. Certain of PPL's generation subsidiaries and certain of its energy services subsidiaries, such as those that have supplied, may have supplied or installed asbestos material in connection with the repair or installation of process piping and heating, ventilating and air conditioning systems, have been named as defendants in asbestos-related lawsuits. PPL cannot predict the outcome of these lawsuits or whether additional claims may be asserted against its subsidiaries in the future. PPL does not expect that the resolution of the current lawsuits will have a material adverse effect on its results of operations.

Electric and Magnetic Fields(PPL, PPL Energy Supply and PPL Electric)

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

Lower Mt. Bethel(PPL and PPL Energy Supply)

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

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

Environmental Matters - International (PPL and PPL Energy Supply)

U.K.

WPD's distribution businesses are subject to numerous regulatory and statutory requirements with respect to environmental matters. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment. There are no material legal or administrative proceedings pending against WPD with respect to environmental matters. See "Environmental Matters - Domestic - Electric and Magnetic Fields" for a discussion of EMFs.

Latin America

Certain of PPL's affiliates have electric distribution operations in Latin America. PPL believes that these affiliates have taken and continue to take measures to comply with the applicable laws and governmental regulations for the protection of the environment. There are no material legal or administrative proceedings pending against PPL's affiliates in Latin America with respect to environmental matters.

Other

Nuclear Insurance(PPL and PPL Energy Supply)

PPL Susquehanna is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PPL Susquehanna is also a member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience. At September 30, 2005, this maximum assessment was about $38 million.

In the event of a nuclear incident at the Susquehanna station, PPL Susquehanna's public liability for claims resulting from such incident would be limited to about $10.8 billion under provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price Anderson Amendments Act of 1988, PPL Susquehanna could be assessed up to $201 million per incident, payable at $30 million per year.

Guarantees and Other Assurances

(PPL)

PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.

(PPL, PPL Energy Supply and PPL Electric)

The table below provides an update to those guarantees that are within the scope of FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34," and are specifically disclosed in Note 14 to the Financial Statements contained in each Registrant's 2004 Form 10-K.

		Recorded Liability at			Exposure at
		September 30, 2005	December 31, 2004		September 30, 2005 (a)			Expiration Date
PPL
Residual value guarantees of leased equipment					$	10			2006	(b)
PPL Energy Supply (c)
WPD LLP guarantee of obligations under SIUK Capital Trust I preferred securities						82	(d)		2027
Letters of credit issued on behalf of affiliates						5	(e)		2007
Support agreements to guarantee partnerships' obligations for the sale of coal						9			2007
Retroactive premiums under nuclear insurance programs						38
Nuclear claims under The Price Anderson Amendments Act of 1988						201	(f)
Contingent purchase price payments to former owners of synfuel projects			$	11		33			2007
Residual value guarantees of leased equipment						3			2006	(b)
WPD guarantee of pension and other obligations of unconsolidated entities (g)	$	4				43			2017
Indemnifications for entities in liquidation						270			2008 to 2012
WPD guarantee of an unconsolidated entity's lease obligations						1			2008
Indemnifications related to the sale of the Sundance plant		1					(h)			(h)
Tax indemnification related to unconsolidated WPD affiliates						9			2012
Obligation to purchase commodities under option contracts		2				50			2007

	Recorded Liability at			Exposure at
	September 30, 2005	December 31, 2004		September 30, 2005 (a)			Expiration Date
PPL Electric (c)
Guarantee of a portion of an unconsolidated entity's debt					7	(d)		2008
Residual value guarantees of leased equipment			1		75			2006	(b)

(a)	Represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee.
(b)	Although the expiration date noted is 2006, equipment of similar value is generally leased and guaranteed on an on-going basis.
(c)	Other than the exceptions noted in (e) below, all guarantees of PPL Energy Supply and PPL Electric also apply to PPL on a consolidated basis.
(d)	Reflects principal payments only.
(e)	Represents letters of credit issued at the direction of PPL Energy Supply for the benefit of third parties for assurance against nonperformance by PPL and PPL Gas Utilities. This is not a guarantee by PPL on a consolidated basis.
(f)	Amount is per incident.
(g)	As a result of the privatization of the utility industry in the U.K., certain electric associations' roles and responsibilities were discontinued or modified. As a result, certain obligations, primarily pension-related, associated with these organizations have been guaranteed by the participating members. Costs are allocated to the members based on predetermined percentages as outlined in specific agreements. However, if a member becomes insolvent, costs can be reallocated to and are guaranteed by the remaining members. At September 30, 2005, WPD has recorded an estimated discounted liability based on its current allocated percentage of the total expected costs. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements and, therefore, have been estimated based on the types of obligations.
(h)	In connection with the sale of the Sundance plant, PPL Energy Supply has provided indemnifications to the purchaser for losses arising out of any breach of the representations, warranties and covenants under the related transaction documents and for losses arising with respect to liabilities not specifically assumed by the purchaser, including certain pre-closing environmental and tort liabilities. PPL Energy Supply's maximum exposure with respect to these indemnifications and the expiration of the indemnifications cannot be estimated because, in the case of certain of the indemnification provisions, the maximum potential liability is not capped by the transaction documents and the expiration date is based on the applicable statute of limitations. Certain of the indemnifications are triggered only if the purchaser's losses reach $1 million in the aggregate, are capped at 50% of the purchase price (or approximately $95 million), and survive for a period of only 24 months after the May 13, 2005, transaction closing. The indemnification provision for unknown environmental and tort liabilities related to periods prior to PPL Energy Supply's ownership of the real property on which the facility is located are capped at approximately $4 million in the aggregate and survive for a maximum period of five years after the transaction closing.

10.Related Party Transactions

Affiliate Trust (PPL and PPL Energy Supply)

At both September 30, 2005, and December 31, 2004, PPL and PPL Energy Supply's Balance Sheets reflect $89 million of "Long-term Debt with Affiliate Trust." This debt represents obligations of PPL Energy Supply under 8.23% subordinated debentures maturing in February 2027 that are held by SIUK Capital Trust I, which is a variable interest entity whose common securities are owned by PPL Energy Supply but which is not consolidated by PPL Energy Supply. Interest expense on this obligation was $3 million for the three months ended September 30, 2005 and 2004, and $9 million for the nine months ended September 30, 2005 and 2004. This interest is reflected in "Interest Expense" for PPL and "Interest Expense with Affiliates" for PPL Energy Supply on the Statement of Income. See Note 22 in each Registrant's 2004 Form 10-K for additional information.

PLR Contracts (PPL Energy Supply and PPL Electric)

PPL Electric has power sales agreements with PPL EnergyPlus, effective July 2000 and January 2002, to supply all of PPL Electric's PLR load through 2009. Under these contracts, PPL EnergyPlus provides electricity at the predetermined capped prices that PPL Electric is authorized to charge its PLR customers. For the three months ended September 30, 2005 and 2004, these purchases totaled $415 million and $373 million. For the nine months ended September 30, 2005 and 2004, these purchases totaled $1.2 billion and $1.1 billion. These purchases include nuclear decommissioning recovery and amortization of an up-front contract payment, and are included in the Statement of Income as "Energy purchases from affiliate" by PPL Electric, and as "Wholesale energy marketing to affiliate" by PPL Energy Supply.

Under one of the PLR contracts, PPL Electric is required to make performance assurance deposits with PPL EnergyPlus when the market price of electricity is less than the contract price by more than its contract collateral threshold. Conversely, PPL EnergyPlus is required to make performance assurance deposits with PPL Electric when the market price of electricity is greater than the contract price by more than its contract collateral threshold. PPL Electric estimated that at September 30, 2005, the market price of electricity would exceed the contract price by approximately $3.7 billion. Accordingly, at September 30, 2005, PPL Energy Supply was required to provide PPL Electric with performance assurance of $300 million, the maximum amount required under the contract. PPL Energy Supply's deposit with PPL Electric was $300 million at September 30, 2005, and December 31, 2004. This deposit is shown on the Balance Sheet as "Collateral on PLR energy supply to/from affiliate," a current asset of PPL Energy Supply and a current liability of PPL Electric. PPL Electric pays interest equal to the one-month LIBOR plus 0.5% on this deposit, which is included in "Interest Expense with Affiliate" on the Statement of Income. PPL Energy Supply records this as interest income, which is included in "Other Income - net" on the Statement of Income.

In 2001, PPL Electric made a $90 million up-front payment to PPL EnergyPlus in connection with the PLR contracts. The up-front payment is being amortized by both parties over the term of the PLR contracts. The unamortized balance of this payment and other payments under the contract was $50 million at September 30, 2005, and $58 million at December 31, 2004. The current and noncurrent balances are reported on the Balance Sheet as "Prepayment on PLR energy supply from affiliate" by PPL Electric, and as "Deferred revenue on PLR energy supply to affiliate" by PPL Energy Supply.

NUG Purchases (PPL Energy Supply and PPL Electric)

PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates and then sells the electricity at the same price to PPL EnergyPlus. For the three months ended September 30, 2005 and 2004, these NUG purchases totaled $41 million and $40 million. For the nine months ended September 30, 2005 and 2004, these NUG purchases totaled $111 million and $116 million. These amounts are included in the Statement of Income as "Wholesale electric to affiliate" by PPL Electric, and as "Energy purchases from affiliate" by PPL Energy Supply.

Allocations of Corporate Service Costs(PPL Energy Supply and PPL Electric)

PPL Services provides corporate functions such as financial, legal, human resources and information services. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that is not directly charged to PPL subsidiaries is allocated to certain of the subsidiaries based on an average of the subsidiaries' relative invested capital, operation and maintenance expenses, and number of employees. PPL Services allocated the following charges to PPL Energy Supply and PPL Electric:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004		2005		2004
Direct expenses
	PPL Energy Supply	$	26	$	25	$	77	$	73
	PPL Electric		17		15		45		43
Overhead costs
	PPL Energy Supply		17		15		56		47
	PPL Electric		6		6		25		19

Intercompany Borrowings

(PPL Energy Supply)

PPL Energy Supply had no notes receivable from affiliates at September 30, 2005 and December 31, 2004. Interest earned on cash collateral and loans to affiliates, included in "Other Income - net" on the Statement of Income, was $5 million and $1 million for the three months ended September 30, 2005 and 2004, and $10 million and $2 million for the nine months ended September 30, 2005 and 2004.

In May 2004, PPL Energy Supply issued a $495 million note payable to an affiliate. There was no balance at September 30, 2005, and a balance of $495 million at December 31, 2004, which is shown on the Balance Sheet as "Note Payable to Affiliate." PPL Energy Supply can borrow under the note until May 2010. Interest is payable monthly in arrears at LIBOR plus 1%. Interest expense on this note was $2 million and $3 million for the three months ended September 30, 2005 and 2004, and $9 million and $4 million for the nine months ended September 30, 2005 and 2004. This interest is reflected in "Interest Expense with Affiliates" on the Statement of Income.

(PPL Electric)

In August 2004, a PPL Electric subsidiary made a $300 million demand loan to an affiliate, with interest due quarterly at a rate equal to the 3-month LIBOR plus 1.25%. This loan is shown on the Balance Sheet as "Note receivable from affiliate." Interest earned on loans to affiliates, included in "Other Income - net" on the Statement of Income, was $4 million and $10 million for the three and nine months ended September 30, 2005, and $1 million for each of the same periods in 2004.

Trademark Royalties (PPL Energy Supply)

A PPL subsidiary owns PPL trademarks and bills certain affiliates for their use. PPL Energy Supply was allocated $9 million of this license fee for each of the three months ended September 30, 2005 and 2004, and $24 million and $25 million for the nine months ended September 30, 2005 and 2004. The allocation of this license fee is primarily included in "Other operation and maintenance" on the Statement of Income.

11.Other Income - Net

(PPL, PPL Energy Supply and PPL Electric)

The breakdown of "Other Income - net" was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
PPL		2005		2004		2005		2004
Other Income
	Interest income - IRS settlement			$	23			$	23
	Other interest income	$	5		5	$	17		11
	Equity earnings				1		2		3
	Realized earnings on nuclear decommissioning trust				2		3		6
	Sale of CEMAR (Note 8)								23
	Miscellaneous - International		3				6		3
	Miscellaneous - Domestic		2				6		7
	Total		10		31		34		76
Other Deductions
	Impairment of investment in technology supplier (Note 8)								10
	Realized loss on available-for-sale investment				6				6
	Taxes, other than income						1		1
	Charitable contributions		1		1		3		3
	Miscellaneous - International		1		4		2		6
	Miscellaneous - Domestic		3		2		5		5
Other Income - net		$	5	$	18	$	23	$	45
PPL Energy Supply
Other Income
	Affiliated interest income	$	5	$	1	$	10	$	2
	Interest income - IRS settlement				15				15
	Other interest income		3		3		11		7
	Equity earnings		1		1		3		3
	Realized earnings on nuclear decommissioning trust				2		3		6
	Sale of CEMAR (Note 8)								23
	Miscellaneous - International		3				6		3
	Miscellaneous - Domestic		1				3		3
	Total		13		22		36		62
Other Deductions
	Taxes, other than income		1				1		1
	Miscellaneous - International		1		4		2		6
	Miscellaneous - Domestic		2		3		5		3
Other Income - net		$	9	$	15	$	28	$	52
PPL Electric
Other Income
	Affiliated interest income	$	4	$	1	$	10	$	1
	Interest income - IRS settlement				8				8
	Other interest income		2		2		5		3
	Miscellaneous						2		1
	Total		6		11		17		13
Other Deductions			1				2		1
Other Income - net		$	5	$	11	$	15	$	12

12.Derivative Instruments and Hedging Activities

(PPL and PPL Energy Supply)

Fair Value Hedges

PPL and PPL Energy Supply enter into financial or physical contracts to hedge a portion of the fair value of firm commitments of forward electricity sales and emission allowance positions. These contracts range in maturity through 2007. Additionally, PPL and PPL Energy Supply enter into financial contracts to hedge fluctuations in the market value of existing debt issuances. These contracts range in maturity through 2013. PPL and PPL Energy Supply also enter into foreign currency forward contracts to hedge the exchange rates associated with firm commitments denominated in foreign currencies. These forward contracts range in maturity through 2008.

PPL and PPL Energy Supply did not recognize significant gains or losses resulting from hedges of firm commitments that no longer qualified as fair value hedges for the three and nine months ended September 30, 2005 or 2004.

PPL and PPL Energy Supply did not recognize any gains or losses resulting from the ineffective portion of fair value hedges for the three and nine months ended September 30, 2005 or 2004.

Cash Flow Hedges

PPL and PPL Energy Supply enter into financial and physical contracts, including forwards, futures and swaps, to hedge the price risk associated with electric, gas and oil commodities. These contracts range in maturity through 2010. Additionally, PPL and PPL Energy Supply enter into financial interest rate swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. These interest rate swap contracts range in maturity through 2016. PPL and PPL Energy Supply also enter into foreign currency forward contracts to hedge the cash flows associated with foreign currency-denominated debt, the exchange rates associated with firm commitments denominated in foreign currencies and the net investment of foreign operations. These forward contracts range in maturity through 2028.

Net investment hedge activity is reported in the foreign currency translation adjustments component of other comprehensive income. PPL recorded insignificant net investment hedge amounts for the three and nine months ended September 30, 2005 and 2004.

During the third quarter of 2005, PPL's and PPL Energy Supply's derivative liability with a bank counterparty was replaced with another derivative liability on substantially the same terms with another bank counterparty.  The value of the swap with the new counterparty at inception was $7 million.

Cash flow hedges may be discontinued if it is probable that the original forecasted transaction will not occur by the end of the originally specified time period. PPL and PPL Energy Supply did not discontinue any cash flow hedges for that reason during the three and nine months ended September 30, 2005. Due to the extinguishment of a consolidated trust's debt related to the Sundance and University Park generating facilities in September 2004, interest rate swaps that hedged the interest payments on the debt were terminated. Therefore, PPL and PPL Energy Supply reclassified a $3 million pre-tax loss from other comprehensive income to "Interest Expense" on the Statement of Income. PPL and PPL Energy Supply did not discontinue any other cash flow hedges during the three and nine months ended September 30, 2004.

Due to hedge ineffectiveness, PPL and PPL Energy Supply reclassified a loss of $1 million, after tax, and an insignificant amount from other comprehensive income into earnings (reported in "Wholesale energy marketing" and "Energy purchases" on the Statement of Income) for the three and nine months ended September 30, 2005. PPL and PPL Energy Supply reclassified an insignificant amount into earnings for the three and nine months ended September 30, 2004.

As of September 30, 2005, the deferred net loss, after tax, on derivative instruments in accumulated other comprehensive income expected to be reclassified into earnings during the next 12 months was $95 million for PPL and $89 million for PPL Energy Supply.

The following table shows the change in accumulated unrealized gains or losses on derivatives, after tax, in accumulated other comprehensive income for the following periods:

	Three Months Ended September 30,						Nine Months Ended September 30,
PPL	2005			2004			2005			2004
Beginning accumulated derivative gain (loss)	$	(143	)	$	12		$	(63	)	$	41
Net change associated with current period hedging activities and other		(131	)		(3	)		(179	)		(83	)
Net change from reclassification into earnings		7			(5	)		(25	)		46
Ending accumulated derivative gain (loss)	$	(267	)	$	4		$	(267	)	$	4
PPL Energy Supply
Beginning accumulated derivative gain (loss)	$	(124	)	$	23		$	(45	)	$	60
Net change associated with current period hedging activities and other		(140	)		5			(184	)		(80	)
Net change from reclassification into earnings		6			(7	)		(29	)		41
Ending accumulated derivative gain (loss)	$	(258	)	$	21		$	(258	)	$	21

Related Implementation Issue

During the second quarter of 2005, industry participants and external auditors recognized disparities in the accounting for FTRs. As FTR markets have evolved within RTOs, some companies began to account for them as derivatives under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." PPL began to apply derivative accounting rules to FTRs effective July 1, 2005. PPL has commitments to purchase FTRs from RTOs that total $9 million through May 2006. Valuing FTRs requires significant judgment because market prices are generally only observable when RTOs conduct monthly auctions for the next month; therefore, the September 30, 2005, value reflects a significant modeling and liquidity reserve.

Credit Concentration

(PPL and PPL Energy Supply)

PPL and PPL Energy Supply enter into contracts with many entities for the purchase and sale of energy. Many of these contracts are considered a normal part of doing business and, as such, the mark-to-market value of these contracts is not reflected in the financial statements. However, the mark-to-market value of these contracts is considered when committing to new business from a credit perspective.

PPL and PPL Energy Supply have credit exposures to energy trading partners. The majority of these exposures are the mark-to-market value of multi-year contracts for energy sales and purchases. Therefore, if these counterparties fail to perform their obligations under such contracts, PPL and PPL Energy Supply would not experience an immediate financial loss, but would experience lower revenues or higher costs in future years to the extent that replacement sales or purchases could not be made at the same prices as those under the defaulted contracts.

At September 30, 2005, PPL had a credit exposure of $650 million to energy trading partners. Ten counterparties accounted for 71% of this exposure. No other individual counterparty accounted for more than 3% of the exposure. All ten of the major counterparties had an investment grade credit rating from S&P.

At September 30, 2005, PPL Energy Supply had a credit exposure of $630 million to energy trading partners. Ten counterparties accounted for 73% of this exposure. No other individual counterparty accounted for more than 3% of the exposure. All ten of the major counterparties had an investment grade credit rating from S&P.

PPL and PPL Energy Supply generally have the right to request collateral from their counterparties in the event that the counterparties' credit ratings fall below investment grade. It is also the policy of PPL and PPL Energy Supply to enter into netting agreements with all of their counterparties to minimize credit exposure.

(PPL Electric)

Prior to 2004, PPL Energy Supply had an exposure to PPL Electric under the long-term contract for PPL EnergyPlus to provide PPL Electric's PLR load. However, beginning in 2004, increases in electricity prices reversed this position. PPL Electric estimated that at September 30, 2005, the market price of electricity would exceed the contract price by approximately $3.7 billion. In accordance with the terms of one of the PLR contracts, PPL Energy Supply provided PPL Electric with cash collateral in the amount of $300 million, the maximum amount required under the contract. This is the only credit exposure for PPL Electric that has a mark-to-market element. No other counterparty accounts for more than 1% of PPL Electric's total exposure.

13.Pension and Other Postretirement Benefits

(PPL and PPL Energy Supply)

The components of net pension and other postretirement benefits cost (credit) were as follows:

	Pension Benefits
	Three Months Ended September 30,												Nine Months Ended September 30,
	Domestic						International						Domestic						International
	2005			2004			2005			2004			2005			2004			2005			2004
PPL
Service cost	$	14		$	12		$	4		$	4		$	42		$	36		$	13		$	11
Interest cost		29			28			37			35			86			84			113			107
Expected return on plan assets		(40	)		(38	)		(49	)		(53	)		(119	)		(113	)		(153	)		(158	)
Amortization of transition obligation		(1	)		(1	)								(3	)		(3	)
Amortization of prior service cost		4			4			2			2			11			11			4			4
Amortization of (gain) loss					(2	)		7			2			2			(5	)		21			5
Net periodic pension cost (credit) prior to termination benefits		6			3			1			(10	)		19			10			(2	)		(31	)
Termination benefits																				6
Net periodic pension cost (credit)	$	6		$	3		$	1		$	(10	)	$	19		$	10		$	4		$	(31	)
PPL Energy Supply
Service cost	$	1		$	1		$	4		$	4		$	3		$	3		$	13		$	11
Interest cost		1			1			37			35			3			3			113			107
Expected return on plan assets		(1	)		(2	)		(49	)		(53	)		(4	)		(4	)		(153	)		(158	)
Amortization of prior service cost					1			2			2						1			4			4
Amortization of loss								7			2									21			5
Net periodic pension cost (credit) prior to termination benefits		1			1			1			(10	)		2			3			(2	)		(31	)
Termination benefits																				6
Net periodic pension cost (credit)	$	1		$	1		$	1		$	(10	)	$	2		$	3		$	4		$	(31	)

	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
PPL	2005			2004			2005			2004
Service cost	$	1		$	2		$	5		$	5
Interest cost		6			7			19			21
Expected return on plan assets		(5	)		(4	)		(15	)		(13	)
Amortization of transition obligation		2			3			7			7
Amortization of prior service cost		1						3			2
Amortization of loss					1			4			5
Net other postretirement benefits cost	$	5		$	9		$	23		$	27

Expected Cash Flows - Domestic Pension and Other Postretirement Benefit Plans (PPL)

In the nine months ended September 30, 2005, PPL contributed $25 million to its domestic pension plans. No further contributions are expected for 2005. At December 31, 2004, PPL had expected to contribute approximately $10 million to these plans in 2005.

In the nine months ended September 30, 2005, PPL contributed $24 million to its other postretirement benefit plans and expects to contribute an additional $5 million during the fourth quarter of 2005. Total contributions for 2005 are expected to be $29 million. At December 31, 2004, PPL had expected to contribute approximately $36 million to these plans in 2005.

14.Restricted Cash

(PPL, PPL Energy Supply and PPL Electric)

The following table details the components of restricted cash by reporting entity and by type:

			September 30, 2005
			PPL		PPL Energy Supply		PPL Electric
Current:
Collateral for letters of credit (a)			$	42			$	42
Deposits for trading purposes with NYMEX broker				17	$	17
Counterparty collateral				12		12
Client deposits				11
Miscellaneous				4		4
	Restricted cash - current			86		33		42
Noncurrent:
Required deposit of WPD's insurance subsidiary				17		17
PPL Transition Bond Company Indenture reserves (b)				25				25
	Restricted cash - noncurrent			42		17		25
		Total restricted cash	$	128	$	50	$	67

			December 31, 2004
			PPL		PPL Energy Supply		PPL Electric
Current:
Collateral for letters of credit (a)			$	42			$	42
Client deposits				5
Miscellaneous				3	$	3
	Restricted cash - current			50		3		42
Noncurrent:
Required deposit of WPD's insurance subsidiary				37		37
PPL Transition Bond Company Indenture reserves (b)				22				22
	Restricted cash - noncurrent			59		37		22
		Total restricted cash	$	109	$	40	$	64

(a)	A deposit with a financial institution of funds from the asset-backed commercial paper program to fully collateralize $42 million of letters of credit. See Note 7 for further discussion on the asset-backed commercial paper program.
(b)	Credit enhancement for PPL Transition Bond Company's $2.4 billion Series 1999-1 Bonds to protect against losses or delays in scheduled payments.

15.Asset Retirement Obligations

(PPL and PPL Energy Supply)

The change in the carrying amounts of the AROs was as follows:

AROs at December 31, 2004	$	257
Add: Accretion expense		16
Add: Additional liabilities		3
AROs at September 30, 2005	$	276

PPL and PPL Energy Supply identified and recorded $3 million of other AROs related to interim retirements of certain equipment at the Susquehanna station during 2005.

Funds in the nuclear decommissioning trust are legally restricted for purposes of settling PPL's and PPL Energy Supply's ARO related to the decommissioning of the Susquehanna station. PPL Electric collects authorized nuclear decommissioning costs through the CTC. These revenues are passed on to PPL EnergyPlus under the power supply agreements between PPL Electric and PPL EnergyPlus. Similarly, these revenues are passed on to PPL Susquehanna under a power supply agreement between PPL EnergyPlus and PPL Susquehanna. These revenues, less applicable taxes, are used to fund the nuclear plant decommissioning trust funds and can only be used for future decommissioning costs. The aggregate fair value of the nuclear plant decommissioning trust funds was $432 million as of September 30, 2005, and $409 million as of December 31, 2004.

See Note 16 for a discussion of FIN 47, "Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143," and its potential impact on PPL and its subsidiaries.

16.New Accounting Standards

(PPL, PPL Energy Supply and PPL Electric)

SFAS 123(R)

In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment," which is known as SFAS 123(R) and replaces SFAS 123, "Accounting for Stock-Based Compensation," as amended by SFAS 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." Among other things, SFAS 123(R) eliminates the alternative to use the intrinsic value method of accounting for stock-based compensation. SFAS 123(R) requires public entities to recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of the awards. For public entities that do not file as small business issuers, SFAS 123(R) was originally effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. However, in April 2005, the SEC issued a rule that amended Regulation S-X to change this effective date to the beginning of an entity's fiscal year that begins on or after June 15, 2005.

SFAS 123(R) requires public entities to apply the modified prospective application transition method of adoption.  Under this application, entities must recognize compensation expense based on the grant-date fair value for new awards granted or modified after the effective date and for unvested awards outstanding on the effective date.  Additionally, public entities may choose to apply modified retrospective application to periods before the effective date of SFAS 123(R).  This application may be applied either to all prior years for which SFAS 123 was effective or only to prior interim periods in the year of initial adoption of SFAS 123(R).  Under modified retrospective application, prior periods would be adjusted to recognize compensation expense as though stock-based awards granted, modified or settled in cash in fiscal years beginning after December 15, 1994, had been accounted for under SFAS 123.

PPL and its subsidiaries must adopt SFAS 123(R) no later than January 1, 2006.  PPL and its subsidiaries do not plan to apply modified retrospective application to any periods prior to the date of adoption.  In addition, PPL and its subsidiaries adopted the fair-value method of accounting for stock-based compensation under SFAS 123 effective January 1, 2003.  Therefore, the adoption of SFAS 123(R) is not expected to have a material impact on PPL and its subsidiaries.

FIN 47

In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143."  FIN 47 clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated.  FIN 47 also clarifies when an entity would be expected to have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  FIN 47 is effective for fiscal years ending after December 15, 2005.  The impact of initially applying FIN 47 is required to be recognized as a cumulative effect of a change in accounting principle.  Retrospective application of interim financial information is permitted but not required. 

PPL and its subsidiaries are currently in the process of reviewing (i) certain obligations to perform asset retirement activities that are conditional upon a future event occurring and (ii) certain legal retirement obligations that were identified but are not measurable at this time due to indeterminable dates of retirement.  The potential impact of applying the guidance in FIN 47 to these items is not yet determinable, but could be material.

PPL CORPORATION AND SUBSIDIARIES

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

Overview

PPL is an energy and utility holding company with headquarters in Allentown, PA. In PPL's 2004 Form 10-K, descriptions of its domestic and international businesses are found in "Item 1. Business - Background" and the current corporate organizational structure is shown in Exhibit 99. Through its subsidiaries, PPL is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in Pennsylvania, the U.K. and Latin America. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in PPL's 2004 Form 10-K for an overview of PPL's strategy and the risks and the challenges that it faces in its business.

PPL's reportable segments are Supply, International Delivery and Pennsylvania Delivery. See Note 3 to the Financial Statements for further segment information.

The following information should be read in conjunction with PPL's Condensed Consolidated Financial Statements and the accompanying Notes.

Data included in these financial statements have been adjusted for all periods presented to reflect PPL's 2-for-1 common stock split completed in August 2005. See Note 2 to the Financial Statements for details.

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

Results of Operations

The following discussion begins with a review of PPL's earnings and a description of key factors by segment that management expects may impact future earnings. "Results of Operations" continues with a summary of results by reportable segment and ends with explanations of significant changes in principal items on PPL's Statement of Income, comparing the three and nine months ended September 30, 2005, to the comparable periods in 2004.

WPD's results, as consolidated in PPL's Statement of Income, are impacted by changes in foreign currency exchange rates. WPD's portion of revenue and expense line items decreased by about 2% for the three months ended September 30, 2005, and increased by about 2% for the nine months ended September 30, 2005, compared with the same periods in 2004, due to changes in foreign currency exchange rates.

PPL's results in 2005 and 2004 were impacted by the reclassification of the operating losses of the Sundance plant prior to its sale in the second quarter of 2005. See Note 1 to the Financial Statements for further discussion.

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

Earnings

Net income and the related EPS were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Net income	$	197	$	196	$	493	$	521
EPS - basic	$	0.52	$	0.52	$	1.30	$	1.42
EPS - diluted	$	0.51	$	0.52	$	1.29	$	1.42

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

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended			Nine Months Ended
Domestic:
	Eastern U.S. non-trading margins		$	(23	)	$	(12	)
	Northwestern U.S. non-trading margins			2			(4	)
	Southwestern U.S. non-trading margins			(1	)		(4	)
	Net energy trading margins			8			10
	Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)			34			92
	Operation and maintenance expenses						(21	)
	Depreciation			1			(2	)
	Taxes, other than income (excluding gross receipts tax)			1			(7	)
	Interest expense			(1	)		2
	Interest income on 2004 IRS tax settlement			(14	)		(14	)
	Reversal of certain state income tax credits in 2004			6
	Realized loss in 2004 on available-for-sale investment			3			3
	Earnings from synfuel projects			10			29
	Other			(4	)		(2	)
		Total Domestic		22			70

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended			Nine Months Ended
International:
	U.K.
		Delivery margins		10			12
		Operation and maintenance expenses		(9	)		(20	)
		Interest expense		2			5
		Impact of changes in foreign currency exchange rates		(1	)		4
		U.K. income taxes		(7	)		(3	)
	Latin America			(1	)
	U.S. income taxes			4			14
	Other						2
		Total International		(2	)		14
Unusual items				(19	)		(112	)
			$	1		$	(28	)

The changes in net income from period to period were, in part, attributable to several items that management considers unusual and that had significant earnings impacts. The after-tax impacts of these items were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005			2004	2005			2004
Supply Segment
Off-site remediation of ash basin leak (Note 9)	$	(19	)		$	(19	)
Sale of the Sundance plant (Note 8)						(47	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 2)						(3	)
NorthWestern litigation (Note 9)						(6	)
Impairment of investment in technology supplier (Note 8)								$	(6	)
		(19	)			(75	)		(6	)
International Delivery Segment
Sale of CGE (Note 8)									(7	)
Sale of CEMAR (Note 8)									23
Sale of Latin American telecommunications company (Note 8)									(2	)
									14
Pennsylvania Delivery Segment
PJM billing dispute (Note 9)						(27	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 2)						(2	)
						(29	)
Total	$	(19	)		$	(104	)	$	8

The period-to-period changes in earnings components, including domestic gross energy margins by region and income statement line items, are discussed following the future earnings factors and segment results.

PPL's 2005 and future earnings could be, or will be, impacted by a number of key factors, including the following:

Supply Segment

· PPL's future energy margins can be impacted by changes in market prices and demand for electricity, as well as fluctuations in fuel prices, fuel transportation costs and emission allowance expenses. For instance, although PPL expects market prices for electricity in 2005 to continue to be higher than in 2004, PPL is not expecting an increase in its 2005 energy margins due to expected increases in the cost of fuel, fuel transportation and emissions allowances.

· PPL's ability to manage operational risk with respect to its generation plants is critical to its financial performance. Specifically, depending on the timing and duration of both planned and unplanned outages (in particular, if such outages are during peak periods or during periods of, or caused by, severe weather), PPL's revenue from energy sales could be adversely affected and its need to purchase power at then-current market prices to satisfy its energy commitments could be significantly increased. For instance, in late-October 2005, PPL Susquehanna shut down its Unit 1 nuclear reactor for a maintenance outage to improve the operation of the unit's control rods prior to the planned 2006 refueling outage. PPL expects this discretionary outage to last approximately three weeks, but PPL cannot predict with certainty the length of the outage or the final costs associated with it.

· A key part of PPL's overall strategy has been to enter into long-term energy supply agreements in order to mitigate market price and supply risk. Whether PPL continues to enter into such agreements or renews existing energy supply agreements and the market conditions at that time will affect its future earnings. For example, based on current forward energy prices, PPL currently expects that, upon the expiration of certain of its existing supply agreements, it may be able to enter new supply agreements or arrangements at significantly higher market prices than the prices included in those existing supply agreements. See "Energy Purchases, Energy Sales and Other Commitments" in Note 9 to the Financial Statements for more information regarding PPL's wholesale energy commitments and "PLR Contracts" in Note 10 for more information regarding the PLR contracts.

· Due to current electricity and natural gas price levels, there is a risk that PPL may be unable to recover its investment in certain gas-fired generation facilities. Under GAAP, PPL does not believe that there is an impairment charge to be recorded for these facilities at this time. PPL is unable to predict the earnings impact of this issue, based upon future energy and fuel price levels, applicable accounting rules and other factors, but such impact may be material.

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

· PPL has interests in two synthetic fuel facilities and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on its sale of synthetic fuel to unaffiliated third-party purchasers. PPL has estimated that these facilities will contribute approximately $0.11 to annual EPS through 2007, when the availability of such tax credits is scheduled to expire. See "Regulatory Issues - IRS Synthetic Fuels Tax Credits" in Note 9 to the Financial Statements for a discussion of the requirements to receive the Section 29 tax credits and the impact of higher oil prices on the Section 29 tax credits. Also see "Risk Management - Energy Marketing & Trading and Other - Synthetic Fuel Tax Credit Risk" for a discussion of PPL's risk management activities to mitigate the impact of a potential phase-out of the synthetic fuel tax credit due to high oil prices.

· To comply with existing and future environmental requirements and as a result of pollution control measures it may take, PPL expects to spend significant amounts on environmental control and compliance in the future. The costs of such measures, in many cases, are not now determinable, but could be material. For instance, PPL's current cost estimates for sulfur dioxide reduction at its generating plants are preliminary and PPL could incur significantly higher capital and operating expenses due to more stringent environmental requirements, changing market conditions with respect to the cost of pollution control equipment or emissions allowances, delays in the installation of pollution control equipment or other factors. See "Environmental Matters - Domestic" in Note 9 to the Financial Statements for more information regarding current environmental requirements and initiatives, including those relating to air emissions, and PPL's anticipated capital expenditure program to meet the sulfur dioxide reduction requirements of the Clean Air Act.

· In August 2005, a leak from one of two disposal basins containing fly ash and water used in connection with the operation of the coal-fired generating units at PPL's Martins Creek plant caused the discharge of approximately 100 million gallons of water containing ash from the basin onto adjacent roadways and fields and into the Delaware River. See "Environmental Matters - Domestic - Water/Waste" in Note 9 to the Financial Statements for more information regarding the Martins Creek leak. In the third quarter of 2005, PPL Energy Supply recognized a charge of $22 million after tax (or $0.06 per share for PPL), in connection with the current expected on-site and off-site costs relating to the leak. PPL cannot predict the final costs to be incurred as a result of this matter.

· In September 2005, PPL and NorthWestern reached a final agreement to settle litigation described under "Legal Matters - NorthWestern Corporation Litigation" in Note 9 to the Financial Statements. See Note 9 for more information regarding the settlement of this matter. In the first quarter of 2005, PPL recognized a charge of $6 million after tax (or $0.02 per share) related to the agreement in principle to settle the lawsuit that the parties reached in May 2005.

International Delivery Segment

· Earnings in 2005 and beyond are expected to continue to be adversely affected by increased pension costs. Specifically, WPD will experience increased pension costs based upon an actuarial valuation of WPD's plans that reflects higher pension obligations. The increase in pension costs in 2005 is forecasted to be approximately $24 million after tax and the increase in pension costs is expected to continue to be significant in 2006. An additional $4 million of after-tax expense was recognized in the first quarter of 2005 related to termination benefits.

Pennsylvania Delivery Segment

·	In December 2004, the PUC approved an increase in PPL Electric's distribution rates of approximately $137 million (based on a return on equity of 10.7%), and approved PPL Electric's proposed mechanism for collecting an additional $57 million in transmission-related charges, for a total annual increase of approximately $194 million, effective January 1, 2005.
·	PPL Electric has agreed to provide electricity supply to its PLR customers at predetermined rates through 2009 and has entered into PUC-approved, full requirements energy supply agreements with PPL EnergyPlus to fulfill its PLR obligation. The predetermined charges for generation supply which PPL Electric collects from its PLR customers and pays to PPL EnergyPlus under the energy supply agreements provide for annual increases in each year commencing in 2006 and continuing through 2009. PPL Electric's PLR obligation after 2009 will be determined by the PUC pursuant to rules that have not yet been promulgated. See "PLR Contracts" in Note 10 to the Financial Statements for more information.
·	In January 2005, severe ice storms hit PPL Electric's service territory. As a result, PPL Electric had to restore service to approximately 238,000 customers. The total cost of restoring service, excluding capitalized costs and regular payroll expenses, was approximately $16 million (or $0.02 per share for PPL).
	On February 11, 2005, PPL Electric filed a petition with the PUC for authority to defer and amortize for regulatory accounting and reporting purposes these storm costs. On August 26, 2005, the PUC issued an order granting PPL Electric's petition subject to certain conditions, including: (i) the PUC's authorization of deferred accounting is not an assurance of future rate recovery of the storm costs, (ii) PPL Electric must request recovery of the deferred storm costs in its next distribution base rate case, and (iii) PPL Electric must begin immediately to expense the deferred storm costs on a ten-year amortization schedule for regulatory accounting and reporting purposes. As a result of the PUC Order and in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation," in the third quarter of 2005, PPL Electric deferred approximately $12 million (or $0.02 per share for PPL) of the previously expensed storm costs. The deferral was based on its assessment of the timing and likelihood of recovering the deferred costs in PPL Electric's next distribution base rate case. At this time, PPL Electric cannot be certain that it will recover the storm costs, nor can it predict whether other incidents of severe weather will cause significant facility damage and service disruptions that would also result in significant costs.
·	As a result of the Order issued by the FERC in connection with the litigation described under "Regulatory Issues - PJM Billing" in Note 9 to the Financial Statements, PPL recognized an after-tax charge of $27 million (or $0.07 per share) in the first quarter of 2005 for a loss contingency related to the litigation. See Note 9 for information concerning the settlement agreement reached by PPL Electric and Exelon Corporation to settle this litigation, which is subject to approval by the FERC. PPL cannot be certain of the outcome of this matter or the impact on PPL and its subsidiaries.

All Segments

· PPL is unable to predict whether future impairments of goodwill may be required for its domestic and international investments. While no goodwill impairments were required based on the annual review performed in the fourth quarter of 2004, future impairments may occur due to determinations of carrying value exceeding the fair value of these investments.

· From time to time, PPL and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets. Any such transactions may impact future earnings.

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

· See Note 16 to the Financial Statements for new accounting standards that have been issued but not yet adopted by PPL that may impact future earnings.

Segment Results

Net income by segment was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004		2005		2004
Supply		$	112	$	145	$	238	$	314
International Delivery			36		38		152		152
Pennsylvania Delivery			49		13		103		55
	Total	$	197	$	196	$	493	$	521

Supply Segment

The Supply segment owns and operates power plants to generate electricity, markets this electricity and other power purchases to deregulated wholesale and retail markets and acquires and develops domestic generation projects. The Supply segment primarily consists of the activities of PPL Generation and PPL EnergyPlus.

Segment net income was as follows:

		Three Months Ended September 30,					Nine Months Ended September 30,
		2005			2004		2005			2004
Energy revenues
	External	$	403		$	396	$	1,007		$	1,032
	Intersegment		415			373		1,194			1,129
Energy related businesses			154			118		424			332
	Total operating revenues		972			887		2,625			2,493
Fuel and energy purchases
	External		362			290		939			870
	Intersegment		42			40		113			118
Other operation and maintenance			189			145		549			482
Depreciation			36			38		109			106
Taxes, other than income			10			11		32			34
Energy related businesses			162			135		465			376
	Total operating expenses		801			659		2,207			1,986
Other Income - net			(3	)		8		(2	)		6
Interest Expense			32			29		89			82
Income Taxes			24			61		37			105
Minority Interest						1		1			2
Loss from Discontinued Operations								51			10
	Total	$	112		$	145	$	238		$	314

The after-tax change in net income was due to the following factors, including the unusual items presented in the "Earnings" section:

		Sept. 30, 2005 vs. Sept. 30, 2004
		Three Months Ended			Nine Months Ended
Eastern U.S. non-trading margins		$	(23	)	$	(12	)
Northwestern U.S. non-trading margins			2			(4	)
Southwestern U.S. non-trading margins			(1	)		(4	)
Net energy trading margins			8			10
Operation and maintenance expenses			(7	)		(15	)
Earnings from synfuel projects			10			29
Depreciation			2
Interest expense			(3	)		(2	)
Interest income on 2004 IRS tax settlement			(9	)		(9	)
Reversal of certain state income tax credits in 2004			6
Realized loss in 2004 on available-for-sale investment			3			3
Other			(2	)		(3	)
	Total		(14	)		(7	)
Unusual items			(19	)		(69	)
		$	(33	)	$	(76	)

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

· Higher operation and maintenance expenses for both periods were primarily due to outage costs at the Brunner Island facility and the on-site Martins Creek remediation costs of the ash basin leak. The nine months ended September 30, 2005, was further impacted by outage costs at the Colstrip Unit 2 and Corette facilities and the accelerated amortization of stock-based compensation for retirement-eligible employees, which resulted from additional guidance. See Note 2 to the financial statements for information on the additional accounting guidance.

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

International Delivery Segment

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

Segment net income was as follows:

		Three Months Ended September 30,					Nine Months Ended September 30,
		2005		2004			2005		2004
Utility revenues		$	265	$	237		$	842	$	771
Energy related businesses			18		16			55		50
	Total operating revenues		283		253			897		821
Fuel and energy purchases			69		54			197		159
Other operation and maintenance			56		45			180		154
Depreciation			41		37			117		109
Taxes, other than income			15		14			44		41
Energy related businesses			7		5			20		32
	Total operating expenses		188		155			558		495
Other Income - net			3		(1	)		10		27
Interest Expense			50		51			152		153
Income Taxes			11		7			41		42
Minority Interest			1		1			4		4
Loss from Discontinued Operations										2
	Total	$	36	$	38		$	152	$	152

The after-tax change in net income was due to the following factors, including the unusual items presented in the "Earnings" section:

		Sept. 30, 2005 vs. Sept. 30, 2004
		Three Months Ended			Nine Months Ended
U.K.
	Delivery margins	$	10		$	12
	Operation and maintenance expenses		(9	)		(20	)
	Interest expense		2			5
	Impact of changes in foreign currency exchange rates		(1	)		4
	U.K. income taxes		(7	)		(3	)
Latin America			(1	)
U.S. income taxes			4			14
Other						2
	Total		(2	)		14
Unusual items						(14	)
		$	(2	)	$

· The U.K.'s earnings were positively impacted in both periods by higher delivery margins primarily due to favorable customer mix and an incentive revenue award for outstanding customer service. These favorable variances were offset by higher operation and maintenance expenses, primarily due to increased pension costs in both periods.

· U.S. income taxes decreased, primarily due to greater utilization of foreign tax credits in both periods.

Pennsylvania Delivery Segment

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

Segment net income was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004		2005		2004
Operating revenues
	External	$	803	$	687	$	2,393	$	2,146
	Intersegment		42		40		113		118
	Total operating revenues		845		727		2,506		2,264
Fuel and energy purchases
	External		74		65		293		238
	Intersegment		415		373		1,194		1,129
Other operation and maintenance			86		98		297		284
Amortization of recoverable transition costs			71		64		199		192
Depreciation			30		28		89		85
Taxes, other than income			48		42		138		111
Energy related businesses			1				1		1
	Total operating expenses		725		670		2,211		2,040
Other Income - net			5		11		15		12
Interest Expense			45		48		146		147
Income Taxes			30		6		59		32
Dividends on Preferred Stock			1		1		2		2
	Total	$	49	$	13	$	103	$	55

The after-tax change in net income was due to the following factors, including the unusual items presented in the "Earnings" section:

		Sept. 30, 2005 vs. Sept. 30, 2004
		Three Months Ended			Nine Months Ended
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)		$	34		$	92
Operation and maintenance expenses			7			(6	)
Taxes, other than income (excluding gross receipts tax)						(8	)
Interest income on 2004 IRS tax settlement			(5	)		(5	)
Other						4
	Total		36			77
Unusual items						(29	)
		$	36		$	48

· Delivery revenues increased for both periods as a result of higher transmission and distribution customer rates effective January 1, 2005, and a 7.4% and a 3.9% increase in electricity delivery sales volumes for the three and nine months ended September 30, 2005, compared to the same periods in 2004.

· The decrease in operation and maintenance expenses for the three months ended September 30, 2005, was primarily due to the deferral, based on a PUC Order, of costs incurred in January 2005 to restore electric service to customers as a result of severe ice storms that affected portions of PPL Electric's service territory. The increase for the nine months ended September 30, 2005, was primarily due to $4 million of storm-related costs that were not deferred and the accelerated amortization of stock-based compensation for retirement-eligible employees, which resulted from additional guidance. See Note 2 to the financial statements for information on the additional accounting guidance.

· Taxes, other than income, benefited in 2004 from the reversal of 1998 and 1999 PURTA tax accruals related to the PPL Susquehanna tax appeals.

Consolidated Statement of Income Line Item Discussion --

Domestic Gross Energy Margins

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

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended			Nine Months Ended
Utility			$	145		$	318
Unregulated retail electric				(2	)		(14	)
Wholesale energy marketing				(5	)		(28	)
Net energy trading margins				14			17
Other revenue adjustments (a)				(101	)		(223	)
	Total revenues			51			70
Fuel				93			120
Energy purchases				3			42
Other cost adjustments (a)				(22	)		(75	)
	Total cost of sales			74			87
		Domestic gross energy margins	$	(23	)	$	(17	)

(a) Adjusted to exclude the impact of any revenues and costs not associated with domestic gross energy margins, in particular, revenues and energy costs related to the international operations of PPL Global, the domestic delivery operations of PPL Electric and PPL Gas Utilities and an accrual for the loss contingency related to the PJM billing dispute in March 2005 (see Note 9 to the Financial Statements for additional information). Also adjusted to include the margins of PPL's Sundance plant, which are included in "Loss from Discontinued Operations," and gains or losses on sales of emission allowances, which are included in "Other operation and maintenance" expenses, on the Statement of Income.

Changes in Domestic Gross Energy Margins By Region

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

		Sept. 30, 2005 vs. Sept. 30, 2004
		Three Months Ended			Nine Months Ended
Eastern U.S.		$	(39	)	$	(21	)
Northwestern U.S.			3			(6	)
Southwestern U.S.			(1	)		(7	)
Net energy trading			14			17
	Domestic gross energy margins	$	(23	)	$	(17	)

Eastern U.S.

Eastern U.S. non-trading margins were lower for the three and nine months ended September 30, 2005, compared with the same periods in 2004, due primarily to supplying higher PLR sales volumes, which increased by 10% and 5%, respectively, with higher-priced generation and power purchases. The average consumed cost of fuel in those periods increased by 42% and 21%, respectively, due to increases in fossil fuel prices and increased utilization of PPL's oil and gas generating units. Average purchased power costs in those periods increased 31% and 16%, respectively, reflecting current market conditions. Partially offsetting the effects of higher supply costs were gains on the sales of emission allowances, as well as a 2% increase in PLR sales prices, in accordance with a schedule established by the PUC.

Northwestern U.S.

Northwestern U.S. non-trading margins were higher for the three months ended September 30, 2005, compared with the same period in 2004, primarily due to an 8% increase in sales volumes. Improved hydroelectric and coal generation resulted in less reliance on higher cost purchased power. Partially offsetting the increased generation was a 14% increase in the average consumed cost of fuel and an 18% increase in power purchase prices.

Northwestern U.S. non-trading margins were lower for the nine months ended September 30, 2005, compared with the same period in 2004, due to lower wholesale sales resulting from extended outages at coal-fired stations, compounded by higher purchased power prices. Sales volumes decreased 3%, while purchased power prices increased 9%. Partially offsetting this margin decrease was a 2004 charge of $6 million for a retroactive coal price increase, resulting from an unfavorable arbitration ruling effective April 2004 that increased coal costs for purchases back to 2001.

Southwestern U.S.

Southwestern U.S. non-trading margins decreased for the three and nine months ended September 30, 2005, compared to the same periods in 2004. The lower margins were primarily due to the sale of PPL's Sundance plant in May 2005 and the cost to terminate a tolling arrangement on the Griffith plant during the second quarter of 2005.

Net Energy Trading

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

The $14 million increase for the three months ended September 30, 2005, compared with the same period in 2004, was primarily due to an increase in realized gains on physical gas positions as well as the inclusion of FTRs in "Net energy trading margins" on the Statement of Income. As of July 1, 2005, FTRs were deemed to meet the definition of a derivative and were accounted for as such prospectively. Therefore, the forward and realized value for FTRs entered into for speculative purposes are accounted for as part of "Net energy trading margins." From July 1 through September 30, 2005, gains on speculative FTRs totaled $7 million. The physical volumes associated with energy trading for the three months ended September 30, 2005, were 1,457 GWh and 2.2 Bcf, compared with 1,616 GWh and 3.3 Bcf for the three months ended September 30, 2004.

The $17 million increase for the nine months ended September 30, 2005, compared with the same period in 2004, was primarily due to an increase in realized gains on physical gas positions and the inclusion of speculative FTRs in "Net energy trading margins." The physical volumes associated with energy trading for the nine months ended September 30, 2005, were 3,722 GWh and 9.7 Bcf, compared with 3,796 GWh and 7.6 Bcf for the nine months ended September 30, 2004.

Utility Revenues

The increases in utility revenues were attributable to the following:

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended			Nine Months Ended
Domestic:
	Retail electric revenue (PPL Electric)
		Electric delivery	$	67		$	149
		PLR electric generation supply		50			91
	Gas revenue (PPL Gas Utilities)			(1	)		10
	Wholesale electric revenue (PPL Electric)						(2	)
	Other			1			(1	)

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended		Nine Months Ended
International:
	Retail electric delivery (PPL Global)
		Chile		15		36
		U.K.		10		27
		El Salvador		1		6
		Bolivia		2		2
			$	145	$	318

The increases for both periods were primarily due to:

· higher domestic delivery revenues resulting from higher transmission and distribution customer rates effective January 1, 2005, and increases in volumes of 7.4% and 3.9% for the three and nine months ended September 30, 2005, compared with the same periods in 2004;

· higher PLR revenues due to higher energy and capacity rates in 2005 compared with 2004, and increases in volumes of 8.9% and 5.7% for the three and nine months ended September 30, 2005, compared with the same periods in 2004, in part due to the return of customers previously served by alternate suppliers;

· higher revenues in Chile, primarily due to a 7% increase in sales volumes and higher average prices overall; and

· higher U.K. revenues, primarily due to favorable customer mix and an incentive revenue award for outstanding customer service.

The increase in U.K. revenues for the three months ended September 30, 2005, compared with the same period in 2004, was partially offset by an unfavorable change in foreign currency exchange rates. The increase in U.K. revenues for the nine months ended September 30, 2005, compared with the same period in 2004, was positively impacted by a favorable change in foreign currency exchange rates.

The increase in PPL Gas Utilities revenues for the nine months ended September 30, 2005, was primarily due to the increase in natural gas prices, which are a pass-through to customer rates, and an increase in volumes.

Energy Related Businesses

Energy related businesses contributed $7 million more to operating income for the three months ended September 30, 2005, compared with the same period in 2004. The increase was primarily attributable to:

· a $3 million increase from PPL Telcom due to an increase in transport-related sales, as well as reduced spending on a product line; and

· a $4 million higher pre-tax contribution from synfuel projects. This reflects a $12 million net unrealized gain on options purchased to hedge the risk associated with synthetic fuel tax credits for 2006 and 2007, offset by $8 million of additional expenses due to higher production levels.

Energy related businesses contributed $20 million more to operating income for the nine months ended September 30, 2005, compared with the same period in 2004. The increase was primarily attributable to:

· a $15 million pre-tax loss in 2004, related to the sale of CGE (see Note 8 to the Financial Statements);

· an aggregate increase of $5 million from various international subsidiary businesses;

· a $4 million increase from PPL Telcom due to an increase in transport-related sales, as well as reduced spending on a product line; and

· a $2 million increase from energy services subsidiaries due to a favorable closeout on a major project and an increase in business; partially offset by

· additional pre-tax losses in 2005 of $8 million on synfuel projects. This reflects $25 million of additional expenses due to higher production levels, offset by a $17 million net unrealized gain on options purchased to hedge the risk associated with synthetic fuel tax credits for 2006 and 2007.

Other Operation and Maintenance

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

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Increase in domestic and international pension costs	$	10		$	38
Martins Creek ash basin remediation (Note 9)		33			33
Costs associated with severe ice storms in January 2005					16
Subsequent deferral of a portion of costs associated with January 2005 ice storms (Note 2)		(12	)		(12	)
Accelerated amortization of stock-based compensation (Note 2)					18
NorthWestern litigation accrual (Note 9)					9
Outage costs at Brunner Island and Lower Mt. Bethel plants		5			8
Outage costs at the Colstrip Unit 2 and Corette facilities					4
Change in foreign currency exchange rates		(1	)		2
Reduction in WPD costs that are a pass-through to customers					(6	)
Gain on sales of emission allowances					(11	)
Other		8			7
	$	43		$	106

The increases in net pension costs were primarily attributable to a reduction in the discount rate assumptions for PPL's domestic pension plans at December 31, 2004, increased amortization of prior year actuarial losses for WPD's pension plans and termination benefits. These events will result in PPL's recognition of increased net pension costs in 2005. See Note 13 to the Financial Statements for details of the costs of PPL's pension plans.

Depreciation

The increases in depreciation expense were due to:

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Lower Mt. Bethel generation facility, which began commercial operation in May 2004				$	6
Other additions to PP&E	$	3			10
Reduction of useful lives of certain assets (Note 2)		5			5
Foreign currency exchange rates		(1	)		2
Extension of useful lives of certain generation assets (Note 2)		(3	)		(8	)
	$	4		$	15

Taxes, Other Than Income

Taxes, other than income, increased by $6 million during the three months ended September 30, 2005, compared with the same period in 2004, primarily due to a $7 million increase in domestic gross receipts tax expense, which is a result of higher transmission and distribution customer rates effective January 1, 2005.

In the first quarter of 2004, PPL Electric reversed a $14 million accrued liability for 1998 and 1999 PURTA taxes that had been accrued based on potential exposure in the proceedings regarding the Susquehanna nuclear station tax assessment. The rights of third-party intervenors to further appeal expired in 2004. The reversal, and a $14 million increase in domestic gross receipts tax expense in 2005, are the primary reasons for the $28 million increase in taxes, other than income, for the nine months ended September 30, 2005, compared with the same period in 2004.

Other Income - net

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

Interest Expense

The increase (decrease) in interest expense was due to:

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Interest expense related to the Lower Mt. Bethel generation facility, which began commercial operation in May 2004 (a)				$	14
Increase in interest expense due to hedging activities accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities"	$	9			19
Interest accrued for PJM billing dispute (Note 9)					8
Write-off of financing costs associated with PPL Energy Supply's 2-5/8% Convertible Senior Notes (Note 7)		6			6
Increase in short-term debt interest expense		1			4
Change in foreign currency exchange rates		(1	)		2
Decrease in interest expense due to the repayment in June 2004 of financing related to the University Park generation facility (b)					(7	)
Financing costs associated with the repayment of the consolidated trust's debt for the University Park generation facility (b)					(6	)
Decrease in other long-term debt interest expense due to lower debt levels		(17	)		(37	)
Other		1			2
	$	(1	)	$	5

(a)	Prior to commercial operation, interest related to the Lower Mt. Bethel financing was capitalized as part of the cost of the facility.
(b)	In June 2004, a subsidiary of PPL Energy Supply purchased the University Park generation facility from the lessor that was consolidated by PPL Energy Supply under FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." In connection with the purchase, the related financing was repaid.

Income Taxes

Income taxes decreased by $9 million and $42 million for the three and nine months ended September 30, 2005, compared with the same periods in 2004. The decreases were primarily attributable to:

· tax benefits of $6 million and $31 million for the three and nine months ended September 30, 2005, related to additional nonconventional fuel tax credits in excess of credits recognized for the same periods in 2004;

· decreases of $5 million and $13 million in income tax expense due to lower pre-tax book income for the three and nine months ended September 30, 2005, relative to the same periods in 2004; offset by

· a $2 million increase in tax expense on foreign earnings for the three months ended September 30, 2005, relative to the same period in 2004.

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

Discontinued Operations

In the second quarter of 2005, PPL recorded a $47 million loss, net of a tax benefit of $26 million, on the sale of its Sundance power plant. See Note 8 to the Financial Statements for information on the sale, along with information regarding operating losses recorded in 2004 and 2005 for the Sundance plant prior to the sale and for losses recorded in 2004 related to the sale of PPL Global's investment in a Latin American telecommunications company.

Financial Condition

Liquidity

At September 30, 2005, PPL had $237 million of cash, cash equivalents and short-term investments and $112 million of short-term debt. At December 31, 2004, PPL had $682 million in cash, cash equivalents and short-term investments and $42 million of short-term debt. The decrease in PPL's cash, cash equivalents and short-term investment position was primarily the net result of:

· the retirement of $1.2 billion of long-term debt;

· the payment of $254 million of common and preferred dividends;

· a $20 million net increase in restricted cash; and

· $538 million of capital expenditures; offset by

· $1 billion of cash provided by operating activities;

· the issuance of $224 million of tax-exempt long-term debt at PPL Electric;

· $190 million of proceeds from the sale of the Sundance power plant; and

· a $70 million net increase in short-term debt (includes the impact of currency translation adjustments).

In May 2003, PPL Energy Supply issued $400 million of 2-5/8% Convertible Senior Notes due 2023. Based on the terms at the time of issuance, the Convertible Senior Notes could be settled entirely in cash or shares of PPL common stock. The notes were modified in November 2004 to require cash settlement of the principal amount, permit settlement of any conversion premium in cash or stock and eliminate a provision that required settlement in stock in the event of default.

The terms of the Convertible Senior Notes include a market price trigger that permits holders to convert the notes during any fiscal quarter if the closing sale price of PPL's common stock exceeds $29.83 for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter. This market price trigger was met in the third quarter of 2005. Therefore, holders of the Convertible Senior Notes are entitled to convert their notes at any time during the fourth quarter of 2005. As indicated above, if holders elect to convert the Convertible Senior Notes, PPL Energy Supply would be required to settle the principal amount in cash and any conversion premium in cash or PPL common stock. PPL and PPL Energy Supply have, and expect to continue to have, sufficient liquidity sources to fund any such conversions.

Rating Agency Decisions

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

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

S&P

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

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

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

Fitch

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

· WPDH Limited to BBB- from BBB

· WPD LLP to BBB from BBB+

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

Fitch has a stable outlook on all of the WPD companies.

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

Moody's

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

For additional information on PPL's liquidity, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's 2004 Form 10-K.

Capital Expenditure Requirements

The schedule below shows PPL's current capital expenditure projections for the years 2005-2009:

		Projected
		2005		2006		2007		2008		2009
Generating facilities		$	195	$	231	$	208	$	150	$	138
Transmission and distribution facilities			481		505		521		511		532
Environmental			53		349		500		376		150
Other			73		77		56		30		9
	Total Construction Expenditures (a) (b)		802		1,162		1,285		1,067		829
Nuclear fuel			68		69		76		76		78
	Total Capital Expenditures	$	870	$	1,231	$	1,361	$	1,143	$	907

(a)	Construction expenditures include AFUDC and capitalized interest, which are expected to be approximately $98 million for the 2005-2009 period.
(b)	This information excludes any potential investments by PPL Global and PPL Development Company for new projects.

PPL's capital expenditure projections for the years 2005-2009 total approximately $5.5 billion. Capital expenditure plans are revised periodically to reflect changes in market and asset regulatory conditions. The above schedule has been revised from that which was presented in PPL's 2004 Form 10-K primarily to reflect the installation costs of sulfur dioxide scrubbers and other pollution control equipment. See Note 9 to the Financial Statements for additional information. PPL also leases vehicles, personal computers and other equipment, as described in Note 10 to the Financial Statements of PPL's 2004 Form 10-K.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-Trading)

PPL's commodity derivative contracts that hedge its commodity price risk mature at various times through 2010. The following table sets forth PPL's net fair value of these contracts:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Fair value of contracts outstanding at the beginning of the period	$	(129	)	$	88		$	(11	)	$	86
Contracts realized or otherwise settled during the period		(8	)		(11	)		(31	)		(56	)
Fair value of new contracts at inception		9						22
Other changes in fair values		(147	)		(15	)		(255	)		32
Fair value of contracts outstanding at the end of the period	$	(275	)	$	62		$	(275	)	$	62

The following table segregates estimated fair values of PPL's commodity derivative contracts that qualify for hedge accounting treatment at September 30, 2005, based on whether the fair values are determined by quoted market prices or other more subjective means:

	Fair Value of Contracts at Period-End Gains (Losses)
	Maturity Less Than 1 Year			Maturity 1-3 Years			Maturity 4-5 Years			Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	21		$	18		$	2			$	41
Prices provided by other external sources		(77	)		(238	)		(42	)			(357	)
Prices based on models and other valuation methods		18			23							41
Fair value of contracts outstanding at the end of the period	$	(38	)	$	(197	)	$	(40	)		$	(275	)

The "Prices actively quoted" category includes the fair value of exchange-traded energy commodity futures contracts quoted on the NYMEX. The NYMEX has currently quoted prices through 2010.

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

The "Prices based on models and other valuation methods" category includes the value of transactions for which a price curve was developed by PPL due to the long-dated nature of the transaction or the illiquidity of the market point, or the value of options not quoted by an exchange or OTC broker.

As of September 30, 2005, PPL estimated that a 10% adverse movement in market prices of both electricity and fuel across all geographic areas and time periods would have decreased the value of the commodity contracts in its non-trading portfolio by approximately $282 million. For purposes of this calculation, an increase in the market price for electricity is considered an adverse movement because PPL's electricity portfolio is generally in a net sales position, and a decrease in the market price for fuel is considered an adverse movement because PPL's commodity fuels portfolio is generally in a net purchase position. PPL enters into these commodity contracts to reduce the market risk inherent in the generation of electricity.

In accordance with its marketing strategy, PPL does not completely hedge its generation output or fuel requirements. PPL estimates that for its entire portfolio, including all generation and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2005 gross margins by $8 million. Similarly, a 10% adverse movement in all fossil fuel prices would decrease expected 2005 gross margins by $15 million.

The data in the above tables includes the activity for PPL's synthetic fuel tax credit hedges. Additional information regarding these hedges can be found in the "Synthetic Fuel Tax Credit Risk" section below.

Commodity Price Risk (Trading)

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

PPL's trading contracts mature at various times through 2008. The following table sets forth PPL's net fair value of trading contracts:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Fair value of contracts outstanding at the beginning of the period	$	11		$	12		$	10		$	3
Contracts realized or otherwise settled during the period		(10	)		(3	)		(17	)		(10	)
Fair value of new contracts at inception		(2	)					2			4
Other changes in fair values		11			3			15			15
Fair value of contracts outstanding at the end of the period	$	10		$	12		$	10		$	12

PPL will reverse $5 million of the $10 million unrealized trading gains over the next three months of 2005 as the transactions are realized.

The following table segregates estimated fair values of PPL's trading portfolio at September 30, 2005, based on whether the fair values are determined by quoted market prices or other more subjective means:

	Fair Value of Contracts at Period-End Gains (Losses)
	Maturity Less Than 1 Year			Maturity 1-3 Years		Maturity 4-5 Years	Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	6						$	6
Prices provided by other external sources		9		$	1				10
Prices based on models and other valuation methods		(6	)						(6	)
Fair value of contracts outstanding at the end of the period	$	9		$	1			$	10

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

As of September 30, 2005, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its trading portfolio by $5 million.

Interest Rate Risk

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

At September 30, 2005, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $6 million.

PPL is also exposed to changes in the fair value of its domestic and international debt portfolios. At September 30, 2005, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $184 million.

PPL utilizes various risk management instruments to reduce its exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL is exposed to changes in the fair value of these instruments, any changes in the fair value of these instruments are recorded in equity and then reclassified into earnings in the same period during which the item being hedged affects earnings. At September 30, 2005, the market value of these instruments, representing the amount PPL would receive upon their termination, was approximately $16 million. At September 30, 2005, PPL estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in the hedged exposure, was approximately $8 million.

PPL also utilizes various risk management instruments to adjust the mix of fixed and floating interest rates in its debt portfolio. While PPL is exposed to changes in the fair value of these instruments, any change in market value is recorded with an equal and offsetting change in the value of the debt being hedged. At September 30, 2005, PPL estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, was approximately $11 million.

Foreign Currency Risk

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

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

To protect expected income denominated in British pounds sterling, PPL entered into average rate options for £32 million. These options terminate in November 2005. At September 30, 2005, the market value of these positions, representing the amount PPL would receive upon their termination, was approximately $1 million.

To protect expected income in Chilean pesos, PPL entered into an average rate forward for 4 billion Chilean pesos. The settlement date of this forward is November 2005. At September 30, 2005, the market value of this position, representing the amount PPL would pay upon its termination, was insignificant.

PPL executed net forward sale transactions for £10 million to hedge a portion of its net investment in WPDH Limited. In May 2005, PPL entered into an offsetting transaction effectively closing this hedge. Both trades are scheduled to expire in December 2005. The net amount PPL will owe upon settlement of these trades is approximately $1 million.

WPDH Limited held a net position in cross-currency swaps totaling $1.1 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds with maturity dates ranging from December 2006 to December 2028. The estimated value of this position at September 30, 2005, being the amount PPL would pay to terminate it, including accrued interest, was approximately $175 million.

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

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of September 30, 2005, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL's Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities in the trusts are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At September 30, 2005, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $32 million reduction in the fair value of the trust assets. See the "Nuclear Decommissioning" Note in the 2004 Form 10-K for more information regarding the nuclear decommissioning trust funds.

Synthetic Fuel Tax Credit Risk

Recent increases in and the volatility of crude oil prices threaten to reduce the amount of synthetic fuel tax credits that PPL expects to receive through its synthetic fuel production. The tax credits are reduced if the annual average wellhead price of domestic crude oil falls within a phase-out range. The tax credits are eliminated if this reference price exceeds the phase-out range. See "Regulatory Issues - IRS Synthetic Fuels Tax Credits" in Note 9 to the Financial Statements for more information regarding the phase-out of the tax credits.

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

PPL purchased options in the second and third quarters of 2005 to mitigate reductions in synthetic fuel tax credits if the annual average wellhead price for 2006 and 2007 falls within the applicable phase-out range. These positions did not qualify for cash flow hedge accounting treatment. The mark-to-market value of these positions for the three and nine months ended September 30, 2005, was a gain of $12 million and $17 million, and is reflected in "Energy related businesses" revenues on the Statement of Income.

As of September 30, 2005, PPL estimated that a 10% adverse movement in market prices of crude oil would have decreased the value of the synthetic fuel hedges by $17 million. For purposes of this calculation, a decrease in the market price for crude oil is considered an adverse movement.

Related Party Transactions

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

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

Acquisitions, Development and Divestitures

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

PPL is currently planning incremental capacity increases of 255 MW at several existing domestic generating facilities.

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

Environmental Matters

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

New Accounting Standards

See Note 16 to the Financial Statements for information on new accounting standards pending adoption.

Application of Critical Accounting Policies

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

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's 2004 Form 10-K for a discussion of each critical accounting policy. The potential impairment of the Sundance power plant is no longer a consideration, due to its sale in May 2005. See Note 8 to the Financial Statements for additional information. PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management reviewed the Form 10-K disclosures regarding the application of these critical accounting policies with the Audit Committee.

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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

Overview

PPL Energy Supply is an energy company with headquarters in Allentown, PA. In PPL Energy Supply's 2004 Form 10-K, a description of PPL Energy Supply's domestic and international businesses is found in "Item 1. Business - Background" and a listing of its principal subsidiaries is shown in Exhibit 99. Through its subsidiaries, PPL Energy Supply is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in the U.K. and Latin America. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in PPL Energy Supply's 2004 Form 10-K for an overview of PPL Energy Supply's strategy and the risks and the challenges that it faces in its business.

PPL Energy Supply's reportable segments are Supply and International Delivery. See Note 3 to the Financial Statements for further segment information.

The following information should be read in conjunction with PPL Energy Supply's Condensed Consolidated Financial Statements and the accompanying Notes.

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

Results of Operations

The following discussion begins with a review of PPL Energy Supply's earnings and a description of key factors by segment that management expects may impact future earnings. "Results of Operations" continues with a summary of results by reportable segment and ends with explanations of significant changes in principal items on PPL Energy Supply's Statement of Income, comparing the three and nine months ended September 30, 2005, to the comparable periods in 2004.

WPD's results, as consolidated in PPL Energy Supply's Statement of Income, are impacted by changes in foreign currency exchange rates. WPD's portion of revenue and expense line items decreased by about 2% for the three months ended September 30, 2005, and increased by about 2% for the nine months ended September 30, 2005, compared with the same periods in 2004, due to changes in foreign currency exchange rates.

PPL Energy Supply's results in 2005 and 2004 were impacted by the reclassification of the operating losses of the Sundance plant prior to its sale in the second quarter of 2005. See Note 1 to the Financial Statements for further discussion.

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

Earnings

Net income was as follows:

Three Months Ended September 30,				Nine Months Ended September 30,
2005		2004		2005		2004
$	159	$	192	$	418	$	495

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

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended			Nine Months Ended
Domestic:
	Eastern U.S. non-trading margins		$	(23	)	$	(12	)
	Northwestern U.S. non-trading margins			2			(4	)
	Southwestern U.S. non-trading margins			(1	)		(4	)
	Net energy trading margins			8			10
	Operation and maintenance expenses			(8	)		(13	)
	Interest expense			(2	)		(8	)
	Interest income on 2004 IRS tax settlement			(9	)		(9	)
	Interest income on loans to affiliates			2			5
	Reversal of certain state income tax credits in 2004			6
	Earnings from synfuel projects			10			29
	Other			3			4
		Total Domestic		(12	)		(2	)
International:
	U.K.
		Delivery margins		10			12
		Operation and maintenance expenses		(9	)		(20	)
		Interest expense		2			5
		Impact of changes in foreign currency exchange rates		(1	)		4
		U.K. income taxes		(7	)		(3	)
	Latin America			(1	)
	U.S. income taxes			4			14
	Other						2
		Total International		(2	)		14
Unusual items				(19	)		(89	)
			$	(33	)	$	(77	)

The changes in net income from period to period were, in part, attributable to several items that management considers unusual and that had significant earnings impacts. The after-tax impacts of these items were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005			2004	2005			2004
Supply Segment
Off-site remediation of ash basin leak (Note 9)	$	(19	)		$	(19	)
Sale of the Sundance plant (Note 8)						(47	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 2)						(3	)
NorthWestern litigation (Note 9)						(6	)
		(19	)			(75	)
International Delivery Segment
Sale of CGE (Note 8)								$	(7	)
Sale of CEMAR (Note 8)									23
Sale of Latin American telecommunications company (Note 8)									(2	)
									14
Total	$	(19	)		$	(75	)	$	14

The period-to-period changes in earnings components, including domestic gross energy margins by region and income statement line items, are discussed following the future earnings factors and segment results.

PPL Energy Supply's 2005 and future earnings could be, or will be, impacted by a number of key factors, including the following:

Supply Segment

· PPL Energy Supply's future energy margins can be impacted by changes in market prices and demands for electricity, as well as fluctuations in fuel prices, fuel transportation costs and emission allowance expenses. For instance, although PPL Energy Supply expects market prices for electricity in 2005 to continue to be higher than in 2004, PPL Energy Supply is not expecting an increase in its 2005 energy margins due to expected increases in the cost of fuel, fuel transportation and emissions allowances.

· PPL Energy Supply's ability to manage operational risk with respect to its generation plants is critical to its financial performance. Specifically, depending on the timing and duration of both planned and unplanned outages (in particular, if such outages are during peak periods or during periods of, or caused by, severe weather), PPL Energy Supply's revenue from energy sales could be adversely affected and its need to purchase power at then-current market prices to satisfy its energy commitments could be significantly increased. For instance, in late-October 2005, PPL Susquehanna shut down its Unit 1 nuclear reactor for a maintenance outage to improve the operation of the unit's control rods prior to the planned 2006 refueling outage. PPL Energy Supply expects this discretionary outage to last approximately three weeks, but PPL Energy Supply cannot predict with certainty the length of the outage or the final costs associated with it.

· A key part of PPL Energy Supply's overall strategy has been to enter into long-term energy supply agreements in order to mitigate market price and supply risk. Whether PPL Energy Supply continues to enter into such agreements or renews existing energy supply agreements and the market conditions at that time will affect its future earnings. For example, based on current forward energy prices, PPL Energy Supply currently expects that, upon the expiration of certain of its existing supply agreements, it may be able to enter new supply agreements or arrangements at significantly higher market prices than the prices included in those existing supply agreements. See "Energy Purchases, Energy Sales and Other Commitments" in Note 9 to the Financial Statements for more information regarding PPL Energy Supply's wholesale energy commitments and "PLR Contracts" in Note 10 for more information regarding the PLR contracts.

· PPL Electric has agreed to provide electricity supply to its PLR customers at predetermined rates through 2009 and has entered into PUC-approved, full requirements energy supply agreements with PPL EnergyPlus to fulfill its PLR obligation. The predetermined charges for generation supply which PPL Electric collects from its PLR customers and pays to PPL EnergyPlus under the energy supply agreements provide for annual increases in each year commencing in 2006 and continuing through 2009. PPL Electric's PLR obligation after 2009 will be determined by the PUC pursuant to rules that have not yet been promulgated. See Note 10 to the Financial Statements for more information regarding the PLR contracts.

· Due to current electricity and natural gas price levels, there is a risk that PPL Energy Supply may be unable to recover its investment in certain gas-fired generation facilities. Under GAAP, PPL Energy Supply does not believe that there is an impairment charge to be recorded for these facilities at this time. PPL Energy Supply is unable to predict the earnings impact of this issue, based upon future energy and fuel price levels, applicable accounting rules and other factors, but such impact may be material.

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

· PPL Energy Supply has interests in two synthetic fuel facilities and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on its sale of synthetic fuel to unaffiliated third-party purchasers. PPL Energy Supply has estimated that these facilities will contribute approximately $40 million per year to earnings through 2007, when the availability of such tax credits is scheduled to expire. See "Regulatory Issues - IRS Synthetic Fuels Tax Credits" in Note 9 to the Financial Statements for a discussion of the requirements to receive the Section 29 tax credits and the impact of higher oil prices on the Section 29 tax credits. Also see "Risk Management - Energy Marketing & Trading and Other - Synthetic Fuel Tax Credit Risk" for a discussion of PPL Energy Supply's risk management activities to mitigate the impact of a potential phase-out of the synthetic fuel tax credit due to high oil prices.

· To comply with existing and future environmental requirements and as a result of pollution control measures it may take, PPL Energy Supply expects to spend significant amounts on environmental control and compliance in the future. The costs of such measures, in many cases, are not now determinable, but could be material. For instance, PPL Energy Supply's current cost estimates for sulfur dioxide reduction at its generating plants are preliminary and PPL Energy Supply could incur significantly higher capital and operating expenses due to more stringent environmental requirements, changing market conditions with respect to the cost of pollution control equipment or emissions allowances, delays in the installation of pollution control equipment or other factors. See "Environmental Matters - Domestic" in Note 9 to the Financial Statements for more information regarding current environmental requirements and initiatives, including those relating to air emissions, and PPL Energy Supply's anticipated capital expenditure program to meet the sulfur dioxide reduction requirements of the Clean Air Act.

· In August 2005, a leak from one of two disposal basins containing fly ash and water used in connection with the operation of the coal-fired generating units at PPL Energy Supply's Martins Creek plant caused the discharge of approximately 100 million gallons of water containing ash from the basin onto adjacent roadways and fields and into the Delaware River. See "Environmental Matters - Domestic - Water/Waste" in Note 9 to the Financial Statements for more information regarding the Martins Creek leak. In the third quarter of 2005, PPL Energy Supply recognized a charge of $22 million after tax, in connection with the current expected on-site and off-site costs relating to the leak. PPL Energy Supply cannot predict the final costs to be incurred as a result of this matter.

· In September 2005, PPL Energy Supply and NorthWestern reached a final agreement to settle litigation described under "Legal Matters - NorthWestern Corporation Litigation" in Note 9 to the Financial Statements. See Note 9 for more information regarding the settlement of this matter. In the first quarter of 2005, PPL Energy Supply recognized a charge of $6 million after tax related to the agreement in principle to settle the lawsuit that the parties reached in May 2005.

International Delivery Segment

· Earnings in 2005 and beyond are expected to continue to be adversely affected by increased pension costs. Specifically, WPD will experience increased pension costs based upon an actuarial valuation of WPD's plans that reflects higher pension obligations. The increase in pension costs in 2005 is forecasted to be approximately $24 million after tax and the increase in pension costs is expected to continue to be significant in 2006. An additional $4 million of after-tax expense was recognized in the first quarter of 2005 related to termination benefits.

All Segments

· PPL Energy Supply is unable to predict whether future impairments of goodwill may be required for its domestic and international investments. While no goodwill impairments were required based on the annual review performed in the fourth quarter of 2004, future impairments may occur due to determinations of carrying value exceeding the fair value of these investments.

· From time to time, PPL Energy Supply and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets. Any such transactions may impact future earnings.

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

· See Note 16 to the Financial Statements for new accounting standards that have been issued but not yet adopted by PPL Energy Supply that may impact future earnings.

Segment Results

Net income by segment was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004		2005		2004
Supply		$	123	$	154	$	266	$	343
International Delivery			36		38		152		152
	Total	$	159	$	192	$	418	$	495

Supply Segment

The Supply segment owns and operates power plants to generate electricity, markets this electricity and other power purchases to deregulated wholesale and retail markets and acquires and develops domestic generation projects. The Supply segment primarily consists of the activities of PPL Generation and PPL EnergyPlus.

Segment net income was as follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004		2005		2004
Energy revenues		$	818	$	769	$	2,201	$	2,161
Energy related businesses			145		115		404		319
	Total operating revenues		963		884		2,605		2,480
Fuel and energy purchases			401		330		1,050		986
Other operation and maintenance			199		155		579		510
Depreciation			35		36		103		102
Taxes, other than income			10		12		31		33
Energy related businesses			155		128		443		356
	Total operating expenses		800		661		2,206		1,987
Other Income - net			6		16		18		25
Interest Expense			24		20		65		42
Income Taxes			22		64		34		121
Minority Interest					1		1		2
Loss from Discontinued Operations							51		10
	Total	$	123	$	154	$	266	$	343

The after-tax change in net income was due to the following factors, including the unusual items presented in the "Earnings" section:

		Sept. 30, 2005 vs. Sept. 30, 2004
		Three Months Ended			Nine Months Ended
Eastern U.S. non-trading margins		$	(23	)	$	(12	)
Northwestern U.S. non-trading margins			2			(4	)
Southwestern U.S. non-trading margins			(1	)		(4	)
Net energy trading margins			8			10
Operation and maintenance expenses			(8	)		(13	)
Interest expense			(2	)		(8	)
Interest income on 2004 IRS tax settlement			(9	)		(9	)
Interest income on loans to affiliates			2			5
Reversal of certain state income tax credits in 2004			6
Earnings from synfuel projects			10			29
Other			3			4
	Total		(12	)		(2	)
Unusual items			(19	)		(75	)
		$	(31	)	$	(77	)

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

· Higher operation and maintenance expenses for both periods were primarily due to outage costs at the Brunner Island facility and the on-site Martins Creek remediation costs of the ash basin leak. The nine months ended September 30, 2005, was further impacted by outage costs at the Colstrip Unit 2 and Corette facilities and the accelerated amortization of stock-based compensation for retirement-eligible employees, which resulted from additional guidance. See Note 2 to the financial statements for information on the additional accounting guidance.

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

International Delivery Segment

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

Segment net income was as follows:

		Three Months Ended September 30,					Nine Months Ended September 30,
		2005		2004			2005		2004
Utility revenues		$	265	$	237		$	842	$	771
Energy related businesses			18		16			55		50
	Total operating revenues		283		253			897		821
Fuel and energy purchases			69		54			197		159
Other operation and maintenance			56		45			180		154
Depreciation			41		37			117		109
Taxes, other than income			15		14			44		41
Energy related businesses			7		5			20		32
	Total operating expenses		188		155			558		495
Other Income - net			3		(1	)		10		27
Interest Expense			50		51			152		153
Income Taxes			11		7			41		42
Minority Interest			1		1			4		4
Loss from Discontinued Operations										2
	Total	$	36	$	38		$	152	$	152

The after-tax change in net income was due to the following factors, including the unusual items presented in the "Earnings" section:

		Sept. 30, 2005 vs. Sept. 30, 2004
		Three Months Ended			Nine Months Ended
U.K.
	Delivery margins	$	10		$	12
	Operation and maintenance expenses		(9	)		(20	)
	Interest expense		2			5
	Impact of changes in foreign currency exchange rates		(1	)		4
	U.K. income taxes		(7	)		(3	)
Latin America			(1	)
U.S. income taxes			4			14
Other						2
	Total		(2	)		14
Unusual items						(14	)
		$	(2	)	$

· The U.K.'s earnings were positively impacted in both periods by higher delivery margins primarily due to favorable customer mix and an incentive revenue award for outstanding customer service. These favorable variances were offset by higher operation and maintenance expenses, primarily due to increased pension costs in both periods.

· U.S. income taxes decreased, primarily due to greater utilization of foreign tax credits in both periods.

Consolidated Statement of Income Line Item Discussion --

Domestic Gross Energy Margins

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

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended			Nine Months Ended
Wholesale energy marketing			$	(5	)	$	(28	)
Wholesale energy marketing to affiliate				42			65
Unregulated retail electric				(2	)		(14	)
Net energy trading margins				14			17
Other revenue adjustments (a)				2			30
	Total revenues			51			70
Fuel				89			105
Energy purchases				(4	)		2
Energy purchases from affiliate				1			(5	)
Other cost adjustments (a)				(12	)		(15	)
	Total cost of sales			74			87
		Domestic gross energy margins	$	(23	)		(17	)

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

Changes in Domestic Gross Energy Margins By Region

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

		Sept. 30, 2005 vs. Sept. 30, 2004
		Three Months Ended			Nine Months Ended
Eastern U.S.		$	(39	)	$	(21	)
Northwestern U.S.			3			(6	)
Southwestern U.S.			(1	)		(7	)
Net energy trading			14			17
	Domestic gross energy margins	$	(23	)	$	(17	)

Eastern U.S.

Eastern U.S. non-trading margins were lower for the three and nine months ended September 30, 2005, compared with the same periods in 2004, due primarily to supplying higher PLR sales volumes, which increased by 10% and 5%, respectively, with higher-priced generation and power purchases. The average consumed cost of fuel in those periods increased by 42% and 21%, respectively, due to increases in fossil fuel prices and increased utilization of PPL Energy Supply's oil and gas generating units. Average purchased power costs in those periods increased 31% and 16%, respectively, reflecting current market conditions. Partially offsetting the effects of higher supply costs were gains on the sales of emission allowances, as well as a 2% increase in PLR sales prices, in accordance with a schedule established by the PUC.

Northwestern U.S.

Northwestern U.S. non-trading margins were higher for the three months ended September 30, 2005, compared with the same period in 2004, primarily due to an 8% increase in sales volumes. Improved hydroelectric and coal generation resulted in less reliance on higher cost purchased power. Partially offsetting the increased generation was a 14% increase in the average consumed cost of fuel and an 18% increase in power purchase prices.

Northwestern U.S. non-trading margins were lower for the nine months ended September 30, 2005, compared with the same period in 2004, due to lower wholesale sales resulting from extended outages at coal-fired stations, compounded by higher purchased power prices. Sales volumes decreased 3%, while purchased power prices increased 9%. Partially offsetting this margin decrease was a 2004 charge of $6 million for a retroactive coal price increase, resulting from an unfavorable arbitration ruling effective April 2004 that increased coal costs for purchases back to 2001.

Southwestern U.S.

Southwestern U.S. non-trading margins decreased for the three and nine months ended September 30, 2005, compared to the same periods in 2004. The lower margins were primarily due to the sale of PPL Energy Supply's Sundance plant in May 2005 and the cost to terminate a tolling arrangement on the Griffith plant during the second quarter of 2005.

Net Energy Trading

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

The $14 million increase for the three months ended September 30, 2005, compared with the same period in 2004, was primarily due to an increase in realized gains on physical gas positions as well as the inclusion of FTRs in "Net energy trading margins" on the Statement of Income. As of July 1, 2005, FTRs were deemed to meet the definition of a derivative and were accounted for as such prospectively. Therefore, the forward and realized value for FTRs entered into for speculative purposes are accounted for as part of "Net energy trading margins." From July 1 through September 30, 2005, gains on speculative FTRs totaled $7 million. The physical volumes associated with energy trading for the three months ended September 30, 2005, were 1,457 GWh and 2.2 Bcf, compared with 1,616 GWh and 3.3 Bcf for the three months ended September 30, 2004.

The $17 million increase for the nine months ended September 30, 2005, compared with the same period in 2004, was primarily due to an increase in realized gains on physical gas positions and the inclusion of speculative FTRs in "Net energy trading margins." The physical volumes associated with energy trading for the nine months ended September 30, 2005, were 3,722 GWh and 9.7 Bcf, compared with 3,796 GWh and 7.6 Bcf for the nine months ended September 30, 2004.

Utility Revenues

The increases in utility revenues were attributable to the following:

			Sept. 30, 2005 vs. Sept. 30, 2004
			Three Months Ended		Nine Months Ended
International:
	Retail electric delivery (PPL Global)
		Chile	$	15	$	36
		U.K.		10		27
		El Salvador		1		6
		Bolivia		2		2
			$	28	$	71

The increases for both periods were primarily due to:

· higher revenues in Chile, primarily due to a 7% increase in sales volumes and higher average prices overall; and

· higher U.K. revenues, primarily due to favorable customer mix and an incentive revenue award for outstanding customer service.

The increase in U.K. revenues for the three months ended September 30, 2005, compared with the same period in 2004, was partially offset by an unfavorable change in foreign currency exchange rates. The increase in U.K. revenues for the nine months ended September 30, 2005, compared with the same period in 2004, was positively impacted by a favorable change in foreign currency exchange rates.

Energy Related Businesses

Energy related businesses contributed $3 million more to operating income for the three months ended September 30, 2005, compared with the same period in 2004. The increase was primarily attributable to a $4 million higher pre-tax contribution from synfuel projects. This reflects a $12 million net unrealized gain on options purchased to hedge the risk associated with synthetic fuel tax credits for 2006 and 2007, offset by $8 million of additional expenses due to higher production levels.

Energy related businesses contributed $15 million more to operating income for the nine months ended September 30, 2005, compared with the same period in 2004. The increase was primarily attributable to:

· a $15 million pre-tax loss in 2004, related to the sale of CGE (see Note 8 to the Financial Statements);

· an aggregate increase of $5 million from various international subsidiary businesses; and

· a $2 million increase from energy services subsidiaries due to a favorable closeout on a major project and an increase in business; partially offset by

· additional pre-tax losses in 2005 of $8 million on synfuel projects. This reflects $25 million of additional expenses due to higher production levels, offset by a $17 million net unrealized gain on options purchased to hedge the risk associated with synthetic fuel tax credits for 2006 and 2007.

Other Operation and Maintenance

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

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Increase in domestic and international pension costs	$	9		$	34
Martins Creek ash basin remediation (Note 9)		33			33
Accelerated amortization of stock-based compensation (Note 2)					13
Increase in allocation of corporate service costs (Note 10)		3			13
NorthWestern litigation accrual (Note 9)					9
Outage costs at Brunner Island and Lower Mt. Bethel plants		5			8
Outage costs at the Colstrip Unit 2 and Corette facilities					4
Change in foreign currency exchange rates		(1	)		2
Reduction in WPD costs that are a pass-through to customers					(6	)
Gain on sales of emission allowances					(11	)
Other		6			(4	)
	$	55		$	95

The increases in net pension costs were primarily attributable to a reduction in the discount rate assumptions for PPL Energy Supply's domestic pension plans at December 31, 2004, increased amortization of prior year actuarial losses for WPD's pension plans and termination benefits. These events will result in PPL Energy Supply's recognition of increased net pension costs in 2005. See Note 13 to the Financial Statements for details of the costs of PPL Energy Supply's pension plans.

Depreciation

The increases in depreciation expense were due to:

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Lower Mt. Bethel generation facility, which began commercial operation in May 2004				$	6
Other additions to PP&E	$	2			4
Reduction of useful lives of certain assets (Note 2)		5			5
Foreign currency exchange rates		(1	)		2
Extension of useful lives of certain generation assets (Note 2)		(3	)		(8	)
	$	3		$	9

Other Income - net

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

Interest Expense

The increase in interest expense, including interest with affiliates, was due to:

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Interest expense related to the Lower Mt. Bethel generation facility, which began commercial operation in May 2004 (a)				$	14
Write-off of financing costs associated with PPL Energy Supply's 2-5/8% Convertible Senior Notes (Note 7)	$	6			6
Increase in short-term debt interest expense		1			4
Increase (decrease) in other long-term debt interest expense		(2	)		1
Increase (decrease) in interest expense with affiliate		(1	)		5
Change in foreign currency exchange rates		(1	)		2
Decrease in interest expense due to the repayment in June 2004 of financing related to the University Park generation facility (b)					(7	)
Financing costs associated with the repayment of the consolidated trust's debt for the University Park generation facility (b)					(6	)
Other					3
	$	3		$	22

(a)	Prior to commercial operation, interest related to the Lower Mt. Bethel financing was capitalized as part of the cost of the facility.
(b)	In June 2004, a subsidiary of PPL Energy Supply purchased the University Park generation facility from the lessor that was consolidated by PPL Energy Supply under FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." In connection with the purchase, the related financing was repaid.

Income Taxes

Income taxes decreased by $38 million and $88 million for the three and nine months ended September 30, 2005, compared with the same periods in 2004. The decreases were primarily attributable to:

· decreases of $31 million and $57 million in income tax expense due to lower pre-tax book income for the three and nine months ended September 30, 2005, relative to the same periods in 2004;

· tax benefits of $6 million and $31 million for the three and nine months ended September 30, 2005, related to additional nonconventional fuel tax credits in excess of credits recognized for the same periods in 2004; offset by

· a $2 million increase in tax expense on foreign earnings for the three months ended September 30, 2005, relative to the same period in 2004.

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

Discontinued Operations

In the second quarter of 2005, PPL Energy Supply recorded a $47 million loss, net of a tax benefit of $26 million, on the sale of its Sundance power plant. See Note 8 to the Financial Statements for information on the sale, along with information regarding operating losses recorded in 2004 and 2005 for the Sundance plant prior to the sale and for losses recorded in 2004 related to the sale of PPL Global's investment in a Latin American telecommunications company.

Financial Condition

Liquidity

At September 30, 2005, PPL Energy Supply had $110 million of cash, cash equivalents and short-term investments and $70 million of short-term debt. At December 31, 2004, PPL Energy Supply had $408 million in cash, cash equivalents and short-term investments and no short-term debt. The decrease in PPL Energy Supply's cash, cash equivalents and short-term investment position was primarily the net result of:

· the retirement of $209 million of foreign long-term debt;

· distributions to Member of $206 million;

· the retirement of $495 million in note payable to affiliate; and

· $387 million of capital expenditures; offset by

· $707 million of cash provided by operating activities;

· $190 million of proceeds from the sale of the Sundance power plant;

· a $70 million net increase in short-term debt (includes the impact of currency translation adjustments); and

· a $50 million capital contribution from Member.

In May 2003, PPL Energy Supply issued $400 million of 2-5/8% Convertible Senior Notes due 2023. Based on the terms at the time of issuance, the Convertible Senior Notes could be settled entirely in cash or shares of PPL common stock. The notes were modified in November 2004 to require cash settlement of the principal amount, permit settlement of any conversion premium in cash or stock and eliminate a provision that required settlement in stock in the event of default.

The terms of the Convertible Senior Notes include a market price trigger that permits holders to convert the notes during any fiscal quarter if the closing sale price of PPL's common stock exceeds $29.83 for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter. This market price trigger was met in the third quarter of 2005. Therefore, holders of the Convertible Senior Notes are entitled to convert their notes at any time during the fourth quarter of 2005. As indicated above, if holders elect to convert the Convertible Senior Notes, PPL Energy Supply would be required to settle the principal amount in cash and any conversion premium in cash or PPL common stock. PPL Energy Supply has, and expects to continue to have, sufficient liquidity sources to fund any such conversions.

Rating Agency Decisions

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

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

S&P

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

In October 2005, S&P affirmed its ratings of PPL Energy Supply and PPL Montana. All outlooks are stable. The ratings affirmation is the result of S&P's annual review of PPL Energy Supply, including its business and financial risk profiles.

Fitch

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

· WPDH Limited to BBB- from BBB

· WPD LLP to BBB from BBB+

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

Fitch has a stable outlook on all of the WPD companies.

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

Moody's

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

For additional information on PPL Energy Supply's liquidity, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's 2004 Form 10-K.

Capital Expenditure Requirements

The schedule below shows PPL Energy Supply's current capital expenditure projections for the years 2005-2009:

			Projected
			2005		2006		2007		2008		2009
Generating facilities			$	195	$	231	$	208	$	150	$	138
Transmission and distribution facilities				287		292		283		286		293
Environmental				51		347		498		374		148
Other				37		52		38		17		18
	Total Construction Expenditures (a) (b)			570		922		1,027		827		597
Nuclear fuel				68		69		76		76		78
		Total Capital Expenditures	$	638	$	991	$	1,103	$	903	$	675

(a)	Construction expenditures include capitalized interest, which are expected to be approximately $85 million for the 2005-2009 period.
(b)	This information excludes any potential investments by PPL Global for new projects.

PPL Energy Supply's capital expenditure projections for the years 2005-2009 total approximately $4.3 billion. Capital expenditure plans are revised periodically to reflect changes in market and asset regulatory conditions. The above schedule has been revised from that which was presented in PPL Energy Supply's 2004 Form 10-K primarily to reflect the installation costs of sulfur dioxide scrubbers and other pollution control equipment. See Note 9 to the Financial Statements for additional information. PPL Energy Supply also leases vehicles, personal computers and other equipment as described in Note 10 to the Financial Statements of PPL Energy Supply's 2004 Form 10-K.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-Trading)

PPL Energy Supply's commodity derivative contracts that hedge its commodity price risk mature at various times through 2010. The following table sets forth PPL Energy Supply's net fair value of these contracts:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Fair value of contracts outstanding at the beginning of the period	$	(127	)	$	85		$	(9	)	$	86
Contracts realized or otherwise settled during the period		(9	)		(11	)		(33	)		(55	)
Fair value of new contracts at inception		9						22
Other changes in fair values		(145	)		(12	)		(252	)		31
Fair value of contracts outstanding at the end of the period	$	(272	)	$	62		$	(272	)	$	62

The following table segregates estimated fair values of PPL Energy Supply's commodity derivative contracts that qualify for hedge accounting treatment at September 30, 2005, based on whether the fair values are determined by quoted market prices or other more subjective means:

	Fair Value of Contracts at Period-End Gains (Losses)
	Maturity Less Than 1 Year			Maturity 1-3 Years			Maturity 4-5 Years			Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	21		$	18		$	2			$	41
Prices provided by other external sources		(75	)		(238	)		(41	)			(354	)
Prices based on models and other valuation methods		18			23							41
Fair value of contracts outstanding at the end of the period	$	(36	)	$	(197	)	$	(39	)		$	(272	)

The "Prices actively quoted" category includes the fair value of exchange-traded energy commodity futures contracts quoted on the NYMEX. The NYMEX has currently quoted prices through 2010.

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

The "Prices based on models and other valuation methods" category includes the value of transactions for which a price curve was developed by PPL Energy Supply due to the long-dated nature of the transaction or the illiquidity of the market point, or the value of options not quoted by an exchange or OTC broker.

As of September 30, 2005, PPL Energy Supply estimated that a 10% adverse movement in market prices of both electricity and fuel across all geographic areas and time periods would have decreased the value of the commodity contracts in its non-trading portfolio by approximately $282 million. For purposes of this calculation, an increase in the market price for electricity is considered an adverse movement because PPL Energy Supply's electricity portfolio is generally in a net sales position, and a decrease in the market price for fuel is considered an adverse movement because PPL Energy Supply's commodity fuels portfolio is generally in a net purchase position. PPL Energy Supply enters into these commodity contracts to reduce the market risk inherent in the generation of electricity.

In accordance with its marketing strategy, PPL Energy Supply does not completely hedge its generation output or fuel requirements. PPL Energy Supply estimates that for its entire portfolio, including all generation and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2005 gross margins by $8 million. Similarly, a 10% adverse movement in all fossil fuel prices would decrease expected 2005 gross margins by $15 million.

The data in the above tables includes the activity for PPL Energy Supply's synthetic fuel tax credit hedges. Additional information regarding these hedges can be found in the "Synthetic Fuel Tax Credit Risk" section below.

Commodity Price Risk (Trading)

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

PPL Energy Supply's trading contracts mature at various times through 2008. The following table sets forth PPL Energy Supply's net fair value of trading contracts:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Fair value of contracts outstanding at the beginning of the period	$	11		$	12		$	9		$	3
Contracts realized or otherwise settled during the period		(10	)		(3	)		(16	)		(10	)
Fair value of new contracts at inception		(2	)					2			4
Other changes in fair values		11			3			15			15
Fair value of contracts outstanding at the end of the period	$	10		$	12		$	10		$	12

PPL Energy Supply will reverse $5 million of the $10 million unrealized trading gains over the next three months of 2005 as the transactions are realized.

The following table segregates estimated fair values of PPL Energy Supply's trading portfolio at September 30, 2005, based on whether the fair values are determined by quoted market prices or other more subjective means:

	Fair Value of Contracts at Period-End Gains (Losses)
	Maturity Less Than 1 year			Maturity 1-3 years		Maturity 4-5 years	Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	6						$	6
Prices provided by other external sources		9		$	1				10
Prices based on models and other valuation methods		(6	)						(6	)
Fair value of contracts outstanding at the end of the period	$	9		$	1			$	10

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

As of September 30, 2005, PPL Energy Supply estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its trading portfolio by $5 million.

Interest Rate Risk

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

At September 30, 2005, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $2 million.

PPL Energy Supply is also exposed to changes in the fair value of its domestic and international debt portfolios. At September 30, 2005, PPL Energy Supply estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $141 million.

PPL and PPL Energy Supply utilize various risk management instruments to reduce PPL Energy Supply's exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL Energy Supply is exposed to changes in the fair value of these instruments, any changes in the fair value of these instruments are recorded in equity and then reclassified into earnings in the same period during which the item being hedged affects earnings. At September 30, 2005, the market value of these instruments, representing the amount PPL Energy Supply would receive upon their termination, was approximately $3 million. At September 30, 2005, PPL Energy Supply estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in the hedged exposure, was insignificant.

PPL and PPL Energy Supply also utilize various risk management instruments to adjust the mix of fixed and floating interest rates in PPL Energy Supply's debt portfolio. While PPL Energy Supply is exposed to changes in the fair value of these instruments, any change in market value is recorded with an equal and offsetting change in the value of the debt being hedged. At September 30, 2005, PPL Energy Supply estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, was approximately $1 million.

Foreign Currency Risk

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

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

To protect expected income denominated in British pounds sterling, PPL entered into average rate options for £32 million. These options terminate in November 2005. At September 30, 2005, the market value of these positions, representing the amount PPL would receive upon their termination, was approximately $1 million.

To protect expected income in Chilean pesos, PPL entered into an average rate forward for 4 billion Chilean pesos. The settlement date of this forward is November 2005. At September 30, 2005, the market value of this position, representing the amount PPL would pay upon its termination, was insignificant.

PPL executed net forward sale transactions for £10 million to hedge a portion of its net investment in WPDH Limited. In May 2005, PPL entered into an offsetting transaction effectively closing this hedge. Both trades are scheduled to expire in December 2005. The net amount PPL will owe upon settlement of these trades is approximately $1 million.

WPDH Limited held a net position in cross-currency swaps totaling $1.1 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds with maturity dates ranging from December 2006 to December 2028. The estimated value of this position at September 30, 2005, being the amount PPL would pay to terminate it, including accrued interest, was approximately $175 million.

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

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of September 30, 2005, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL Energy Supply's Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities in the trusts are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At September 30, 2005, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $32 million reduction in the fair value of the trust assets. See the "Nuclear Decommissioning" Note in the 2004 Form 10-K for more information regarding the nuclear decommissioning trust funds.

Synthetic Fuel Tax Credit Risk

Recent increases in and the volatility of crude oil prices threaten to reduce the amount of synthetic fuel tax credits that PPL Energy Supply expects to receive through its synthetic fuel production. The tax credits are reduced if the annual average wellhead price of domestic crude oil falls within a phase-out range. The tax credits are eliminated if this reference price exceeds the phase-out range. See "Regulatory Issues - IRS Synthetic Fuels Tax Credits" in Note 9 to the Financial Statements for more information regarding the phase-out of the tax credits.

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

PPL Energy Supply purchased options in the second and third quarters of 2005 to mitigate reductions in synthetic fuel tax credits if the annual average wellhead price for 2006 and 2007 falls within the applicable phase-out range. These positions did not qualify for cash flow hedge accounting treatment. The mark-to-market value of these positions for the three and nine months ended September 30, 2005, was a gain of $12 million and $17 million and is reflected in "Energy related businesses" revenues on the Statement of Income.

As of September 30, 2005, PPL Energy Supply estimated that a 10% adverse movement in market prices of crude oil would have decreased the value of the synthetic fuel hedges by $17 million. For purposes of this calculation, a decrease in the market price for crude oil is considered an adverse movement.

Related Party Transactions

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

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

Acquisitions, Development and Divestitures

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

PPL Energy Supply is currently planning incremental capacity increases of 255 MW at several existing domestic generating facilities.

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

Environmental Matters

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

New Accounting Standards

See Note 16 to the Financial Statements for information on new accounting standards pending adoption.

Application of Critical Accounting Policies

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

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's 2004 Form 10-K for a discussion of each critical accounting policy. The potential impairment of the Sundance power plant is no longer a consideration, due to its sale in May 2005. See Note 8 to the Financial Statements for additional information. PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management reviewed the Form 10-K disclosures regarding the application of these critical accounting policies with the Audit Committee.

PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES

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

Overview

PPL Electric provides electricity delivery service in eastern and central Pennsylvania. Its headquarters are in Allentown, PA. In PPL Electric's 2004 Form 10-K, a description of its business is found in "Item 1. Business - Background" and an overview of its strategy and the risks and the challenges that it faces in its business are discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

The following information should be read in conjunction with PPL Electric's Condensed Consolidated Financial Statements and the accompanying Notes.

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

Results of Operations

The following discussion, which explains significant changes in principal items on the Statement of Income, compares the three and nine months ended September 30, 2005, to the comparable periods in 2004.

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

Earnings

Income available to PPL was as follows:

Three Months Ended September 30,				Nine Months Ended September 30,
2005		2004		2005		2004
$	52	$	15	$	103	$	51

The after-tax changes in income available to PPL were due to:

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)	$	34		$	92
Operation and maintenance expenses		7			(4	)
Taxes, other than income (excluding gross receipts taxes)		(1	)		(9	)
Interest income on 2004 IRS tax settlement		(5	)		(5	)
Interest income on loans to affiliates		2			5
Other					2
Unusual items					(29	)
	$	37		$	52

The change in net income for the nine months ended September 30, 2005, compared with the same period in 2004 was, in part, attributable to two unusual items in 2005 with significant earnings impacts. The after-tax impacts of these unusual items were as follows:

	Nine Months Ended September 30,
	2005			2004
PJM billing dispute (Note 9)	$	(27	)
Acceleration of stock-based compensation expense for periods prior to 2005 (Note 2)		(2	)
Total	$	(29	)

The period-to-period changes in earnings components are discussed following the future earnings factors.

PPL Electric's 2005 and future earnings could be, or will be, impacted by a number of key factors, including the following:

·	In December 2004, the PUC approved an increase in PPL Electric's distribution rates of approximately $137 million (based on a return on equity of 10.7%), and approved PPL Electric's proposed mechanism for collecting an additional $57 million in transmission-related charges, for a total increase of approximately $194 million, effective January 1, 2005.
·	PPL Electric has agreed to provide electricity supply to its PLR customers at predetermined rates through 2009 and has entered into PUC-approved, full requirements energy supply agreements with PPL EnergyPlus to fulfill its PLR obligation. The predetermined charges for generation supply which PPL Electric collects from its PLR customers and pays to PPL EnergyPlus under the energy supply agreements provide for annual increases in each year commencing in 2006 and continuing through 2009. PPL Electric's PLR obligation after 2009 will be determined by the PUC pursuant to rules that have not yet been promulgated. See "PLR Contracts" in Note 10 to the Financial Statements for more information.
·	In January 2005, severe ice storms hit PPL Electric's service territory. As a result, PPL Electric had to restore service to approximately 238,000 customers. The total cost of restoring service, excluding capitalized costs and regular payroll expenses, was approximately $16 million.
	On February 11, 2005, PPL Electric filed a petition with the PUC for authority to defer and amortize for regulatory accounting and reporting purposes these storm costs. On August 26, 2005, the PUC issued an order granting PPL Electric's petition subject to certain conditions, including: (i) the PUC's authorization of deferred accounting is not an assurance of future rate recovery of the storm costs, (ii) PPL Electric must request recovery of the deferred storm costs in its next distribution base rate case, and (iii) PPL Electric must begin immediately to expense the deferred storm costs on a ten-year amortization schedule for regulatory accounting and reporting purposes. As a result of the PUC Order and in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation," in the third quarter of 2005, PPL Electric deferred approximately $12 million of the previously expensed storm costs. The deferral was based on its assessment of the timing and likelihood of recovering the deferred costs in PPL Electric's next distribution base rate case. At this time, PPL Electric cannot be certain that it will recover the storm costs, nor can it predict whether other incidents of severe weather will cause significant facility damage and service disruptions that would also result in significant costs.
·	As a result of the Order issued by the FERC in connection with the litigation described under "Regulatory Issues - PJM Billing" in Note 9 to the Financial Statements, PPL Electric recognized an after-tax charge of $27 million in the first quarter of 2005 for a loss contingency related to the litigation. See Note 9 for information concerning the settlement agreement reached by PPL Electric and Exelon Corporation to settle this litigation, which is subject to approval by the FERC. PPL Electric cannot be certain of the outcome of this matter.
·	See Note 9 to the Financial Statements for other potential commitments and contingent liabilities that may impact future earnings.
·	See Note 16 to the Financial Statements for new accounting standards that have been issued but not yet adopted by PPL Electric that may impact future earnings.

Operating Revenues

Retail Electric

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

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended		Nine Months Ended
Electric delivery	$	67	$	149
PLR electric generation supply		50		91
Other		2		1
	$	119	$	241

The increases in delivery revenues for both periods were primarily due to higher transmission and distribution customer rates effective January 1, 2005, and increases in volumes of 7.4% and 3.9% for the three and nine months ended September 30, 2005, compared to the same periods in 2004.

Higher PLR revenues for both periods were due to higher energy and capacity rates in 2005 compared with 2004, and increases in volumes of 8.9% and 5.7% for the three and nine months ended September 30, 2005, compared with the same periods in 2004, in part due to the return of customers previously served by alternate suppliers.

Wholesale Electric to Affiliate

PPL Electric has a contract to sell to PPL EnergyPlus the electricity that PPL Electric purchases under contracts with NUGs. The $5 million decrease in wholesale revenue to affiliate for the nine months ended September 30, 2005, compared with the same period in 2004, was primarily due to an unplanned outage at a NUG facility during the second quarter of 2005. PPL Electric therefore had less electricity to sell to PPL EnergyPlus.

Energy Purchases

Energy purchases increased by $11 million for the three months ended September 30, 2005, compared with the same period in 2004, primarily due to $5 million in higher ancillary costs in connection with the power supply contracts with PPL EnergyPlus and $3 million due to a charge to load-serving entities which began in May 2005, retroactive to December 2004. This charge minimizes the revenue impacts to transmission owners that result from the integration of the Midwest ISO and PJM markets. This charge will continue until March 2006.

Energy purchases increased by $44 million for the nine months ended September 30, 2005, compared with the same period in 2004, primarily due to the $39 million pre-tax accrual for the PJM billing dispute and $8 million due to the charge to load-serving entities discussed above, offset by a $7 million decrease due to an unplanned NUG outage in the second quarter of 2005. See Note 9 to the Financial Statements for additional information regarding the loss accrual recorded for the PJM billing dispute.

Energy Purchases from Affiliate

Energy purchases from affiliate increased by $42 million and $65 million for the three and nine months ended September 30, 2005, compared with the same periods in 2004. The increases reflect higher prices for energy purchased under the power supply contracts with PPL EnergyPlus needed to support PLR load, as well as increases in that load for both periods.

Other Operation and Maintenance

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

	Sept. 30, 2005 vs. Sept. 30, 2004
	Three Months Ended			Nine Months Ended
Costs associated with severe ice storms in January 2005				$	16
Subsequent deferral of a portion of costs associated with January 2005 ice storms (Note 2)	$	(12	)		(12	)
Accelerated amortization of stock-based compensation (Note 2)					5
Increase in domestic pension costs					2
Other					(2	)
	$	(12	)	$	9

Taxes, Other Than Income

Taxes, other than income, increased by $7 million during the three months ended September 30, 2005, compared with the same period in 2004, primarily due to a $7 million increase in domestic gross receipts tax expense, which is a result of higher transmission and distribution customer rates effective January 1, 2005.

In the first quarter of 2004, PPL Electric reversed a $14 million accrued liability for 1998 and 1999 PURTA taxes that had been accrued based on potential exposure in the proceedings regarding the Susquehanna nuclear station tax assessment. The rights of third-party intervenors to further appeal expired in 2004. The reversal, and a $14 million increase in domestic gross receipts tax expense in 2005, are the primary reasons for the $28 million increase in taxes, other than income, for the nine months ended September 30, 2005, compared with the same period in 2004.

Other Income - net

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

Interest Expense

Interest expense, including interest expense with affiliate, decreased by $5 million for the three months ended September 30, 2005, compared with the same period in 2004, primarily due to the net impact of long-term debt retirements and new issuances. This decrease was partially offset by $2 million of additional interest paid on collateral held by PPL Electric relating to the PLR contract.

Interest expense, including interest expense with affiliate, decreased by $3 million for the nine months ended September 30, 2005, compared with the same period in 2004, primarily due to the net impact of long-term debt retirements and new issuances. This decrease was partially offset by $8 million of interest accrued for the PJM billing dispute and $7 million of additional interest paid on collateral held by PPL Electric relating to the PLR contract. Over the last 12 months, $558 million of long-term debt retirements have occurred, while new issuances over the same period totaled $224 million. See Note 10 to the Financial Statements for further discussion of collateral held under the PLR contract.

Income Taxes

Income taxes increased by $26 million and $32 million for the three and nine months ended September 30, 2005, compared with the same periods in 2004, primarily due to higher pre-tax book income in 2005 relative to 2004.

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

Financial Condition

Liquidity

At September 30, 2005, PPL Electric had $53 million of cash, cash equivalents and short-term investments and $42 million of short-term debt. At December 31, 2004, PPL Electric had $161 million in cash, cash equivalents and short-term investments and $42 million of short-term debt. The decrease in PPL Electric's cash, cash equivalents and short-term investment position was primarily the net result of:

· the retirement of $497 million of long-term debt;

· the payment of $61 million of common and preferred dividends; and

· $125 million of capital expenditures; partially offset by

· $361 million of cash provided by operating activities; and

· the issuance of $224 million of tax-exempt long-term debt.

Rating Agency Decisions

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

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

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

In October 2005, S&P affirmed its A-/A-2 ratings of PPL Electric. The outlook is stable. The ratings affirmation is the result of S&P's annual review of PPL Electric, including its business and financial risk profiles.

For additional information on PPL Electric's liquidity, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's 2004 Form 10-K.

Risk Management

Market Risk

Commodity Price Risk - PLR Contracts

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

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which increases its interest rate risk. At September 30, 2005, PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Electric is also exposed to changes in the fair value of its debt portfolio. At September 30, 2005, PPL Electric estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $37 million.

Related Party Transactions

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

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

Environmental Matters

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

New Accounting Standards

See Note 16 to the Financial Statements for information on new accounting standards pending adoption.

Application of Critical Accounting Policies

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

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's 2004 Form 10-K for a discussion of each critical accounting policy. PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management reviewed the Form 10-K disclosures regarding the application of these critical accounting policies with the Audit Committee.

PPL CORPORATION

PPL ENERGY SUPPLY, LLC

PPL ELECTRIC UTILITIES CORPORATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Reference is made to "Risk Management - Energy Marketing & Trading and Other" for PPL and PPL Energy Supply and "Risk Management" for PPL Electric in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 4. Controls and Procedures
(a)	Evaluation of disclosure controls and procedures.
	The registrants' principal executive officers and principal financial officers, based on their evaluation of the registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of September 30, 2005, the registrants' disclosure controls and procedures are adequate and effective to ensure that material information relating to the registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the chief executive and chief financial officers, to allow for timely decisions regarding required disclosure.
(b)	Change in internal controls over financial reporting.
	The registrants' principal executive officers and principal financial officers have concluded that there were no changes in the registrants' internal control over financial reporting during the registrants' third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrants' internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
For additional information regarding various pending administrative and judicial proceedings involving regulatory, environmental and other matters, which information is incorporated by reference into this Part II, see:
·	"Item 3. Legal Proceedings" in PPL's, PPL Energy Supply's and PPL Electric's 2004 Form 10-K; and
·	Note 9 of the registrants' "Combined Notes to Condensed Consolidated Financial Statements" in Part I of this report.

Item 6. Exhibits
*3(a)	-	Amended and Restated Articles of Incorporation of PPL Corporation, effective August 17, 2005 (Exhibit 3.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated August 19, 2005)
*3(b)	-	Bylaws of PPL Corporation, as amended and restated effective August 17, 2005 (Exhibit 3.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated August 19, 2005)
*4(a)	-	Supplement, dated October 1, 2005, to Indenture, dated as of October 1, 2001, by PPL Energy Supply and JPMorgan Chase Bank, N.A., as Trustee (Exhibit 4(a) to PPL Energy Supply Form 8-K Report (File No. 333-74794) dated October 28, 2005)
*4(b)	-	Form of Note for PPL Energy Supply’s $300 million aggregate principal amount of 5.70% REset Put Securities due 2035 (REPSSM) (Exhibit 4(b) to PPL Energy Supply Form 8-K Report (File No. 333-74794) dated October 28, 2005)
10(a)	-	Second Amendment dated as of September 1, 2005, to Reimbursement Agreement, dated as of March 31, 2005, among PPL Energy Supply, LLC, The Bank of Nova Scotia, as Issuer and Administrative Agent, and the Lenders party thereto from time to time
12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
12(b)	-	PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
12(c)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*	-	previously filed
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2005, filed by the following officers for the following companies:
31(a)	-	William F. Hecht for PPL Corporation
31(b)	-	John R. Biggar for PPL Corporation
31(c)	-	William F. Hecht for PPL Energy Supply, LLC
31(d)	-	Paul A. Farr for PPL Energy Supply, LLC
31(e)	-	John F. Sipics for PPL Electric Utilities Corporation
31(f)	-	Paul A. Farr for PPL Electric Utilities Corporation
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2005, furnished by the following officers for the following companies:
32(a)	-	William F. Hecht for PPL Corporation
32(b)	-	John R. Biggar for PPL Corporation
32(c)	-	William F. Hecht for PPL Energy Supply, LLC
32(d)	-	Paul A. Farr for PPL Energy Supply, LLC
32(e)	-	John F. Sipics for PPL Electric Utilities Corporation
32(f)	-	Paul A. Farr for PPL Electric Utilities Corporation

SIGNATURES

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

	PPL Corporation
	(Registrant)
	PPL Energy Supply, LLC
	(Registrant)
	PPL Electric Utilities Corporation
	(Registrant)
Date: November 3, 2005	/s/  John R. Biggar
	John R. Biggar
	Executive Vice President and
	Chief Financial Officer
	(PPL Corporation)
	(principal financial officer)
	/s/  Paul A. Farr
	Paul A. Farr
	Vice President and Controller
	(PPL Energy Supply, LLC)
	Senior Vice President-Financial and Controller
	(PPL Electric Utilities Corporation)
	(principal financial officer)