UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

Form 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2008
	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
1-32944	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 large accelerated filers, accelerated filers, non-accelerated filers, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the 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, 374,576,538 shares outstanding at October 31, 2008.
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, 66,368,056 shares outstanding and all held by PPL Corporation at October 31, 2008.

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, 2008

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 Statements of Income		2
			Condensed Consolidated Statements of Cash Flows		3
			Condensed Consolidated Balance Sheets		4
		PPL Energy Supply, LLC and Subsidiaries
			Condensed Consolidated Statements of Income		6
			Condensed Consolidated Statements of Cash Flows		7
			Condensed Consolidated Balance Sheets		8
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statements of Income		10
			Condensed Consolidated Statements of Cash Flows		11
			Condensed Consolidated Balance Sheets		12
		Combined Notes to Condensed Consolidated Financial Statements			14
	Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
			PPL Corporation and Subsidiaries		53
			PPL Energy Supply, LLC and Subsidiaries		72
			PPL Electric Utilities Corporation and Subsidiaries		87
	Item 3.  Quantitative and Qualitative Disclosures About Market Risk				95
	Item 4.  Controls and Procedures				95
	Item 4T.  Controls and Procedures				95
PART II.  OTHER INFORMATION
	Item 1.  Legal Proceedings				96
	Item 1A.  Risk Factors				96
	Item 6.  Exhibits				96
SIGNATURES					97
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
			PPL Corporation and Subsidiaries		98
			PPL Energy Supply, LLC and Subsidiaries		99
			PPL Electric Utilities Corporation and Subsidiaries		100
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation		101
			PPL Energy Supply, LLC		103
			PPL Electric Utilities Corporation		105
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation		107
			PPL Energy Supply, LLC		109
			PPL Electric Utilities Corporation		111

GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and its current and former subsidiaries

Emel - Empresas Emel S.A., a Chilean electric distribution holding company in which PPL Global had a majority ownership interest until its sale in November 2007.

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).

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 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 and trades 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 provided natural gas distribution, transmission and storage services, and the competitive sale of propane until its sale in October 2008.

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 primarily owns and operates a business in the U.K. that is focused on the regulated distribution of electricity.

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

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

SIUK Capital Trust I - a business trust created to issue preferred securities, the common equity of which was held by WPD LLP.  The preferred securities were redeemed in February 2007.

WPD - refers collectively to WPDH Limited and WPDL.

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

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

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

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

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

Other terms and abbreviations

£ - British pounds sterling.

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

2001 Senior Secured Bond Indenture - PPL Electric's Indenture, dated as of August 1, 2001, to The Bank of New York Mellon (as successor to JPMorgan Chase Bank), as trustee, as supplemented.

2007 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2007.

A.M. Best - A.M. Best Company, a company that reports on the condition of insurance companies.

APB - Accounting Principles Board.

ARB - Accounting Research Bulletin.

ARO - asset retirement obligation.

Bcf - billion cubic feet.

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

COLA - license application for a combined construction permit and operating license from the NRC.

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.

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

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, among other things, interstate transmission and wholesale sales of electricity, hydro power projects and related matters.

FIN - FASB Interpretation.

Fitch - Fitch, Inc.

FSP - FASB Staff Position.

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

GAAP - generally accepted accounting principles in the U.S.

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

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.

MTM - mark-to-market.

MW - megawatt, one thousand kilowatts.

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

NERC - North American Electric Reliability Corporation.

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.

NRC - Nuclear Regulatory Commission, the federal agency that regulates 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.

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 default electricity supply 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.

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

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

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

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

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.

RFC- ReliabilityFirst Corporation (the regional reliability entity that replaced the Mid-Atlantic Area Coordination Council).

RMR - reliability must run.

SCR - selective catalytic reduction, a pollution control process.

Scrubber - an air pollution control device that can remove particulates and/or gases (such as sulfur dioxide) from exhaust gases.

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

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

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

Smart meter - an electric meter that utilizes smart metering technology.

Smart metering technology - technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals.

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

Synfuel projects - production facilities that manufactured synthetic fuel from coal or coal byproducts.  Favorable federal tax credits, which expired effective December 31, 2007, were 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.

VaR - value-at-risk.

Accounting Pronouncements

APB Opinion No. 23 - Accounting for Income Taxes-Special Areas.

EITF 87-24 - Allocation of Interest to Discontinued Operations.

EITF Issue No. 02-3 - Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.

FIN 39 - Offsetting of Amounts Related to Certain Contracts, as amended and interpreted.

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.

FSP APB 14-1 - Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).

FSP EITF 03-6-1 - Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.

FSP FAS 157-1 -  Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13.

FSP FAS 157-2 - Effective Date of FASB Statement No. 157.

FSP FAS 157-3 - Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.

SFAS 128 - Earnings per Share.

SFAS 133 - Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted.

SFAS 141 - Business Combinations.

SFAS 141(R) - Business Combinations (revised 2007).

SFAS 144 - Accounting for the Impairment or Disposal of Long-Lived Assets.

SFAS 146 - Accounting for Costs Associated with Exit or Disposal Activities.

SFAS 157 - Fair Value Measurements.

SFAS 159 - The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.

SFAS 160 - Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.

SFAS 161 - Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.

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.  Forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements.  In addition to the specific factors discussed in "Item 1A. Risk Factors" in the companies' 2007 Form 10-K and in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q report, 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, emission allowances and fuel;

· fuel supply availability;

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

· competition in retail and wholesale power markets;

· liquidity of wholesale power markets;

· defaults by our counterparties under our energy, fuel or other power product contracts;

· the effect of any business or industry restructuring;

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

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

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

· 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, emission allowance costs and other expenses;

· significant delays in the ongoing installation of pollution control equipment at certain coal-fired generating units in Pennsylvania due to weather conditions, contractor performance or other reasons;

· market prices of commodity inputs for ongoing capital expenditures;

· collective labor bargaining negotiations;

· development of new projects, markets and technologies;

· performance of new ventures;

· asset acquisitions and dispositions;

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

· any impact of hurricanes or other severe weather 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;

· the impact of any 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 of PPL;

· the fair value of debt and equity securities and the impact on defined benefit costs and resultant cash funding requirements for defined benefit plans;

· securities and credit ratings;

· foreign currency exchange rates;

· the outcome of litigation against PPL and its subsidiaries;

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

· the commitments and liabilities of PPL and its subsidiaries.

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

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

PartI. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except per share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Operating Revenues
Utility	$	1,007		$	1,016		$	3,108		$	3,074
Unregulated retail electric and gas		43			28			110			73
Wholesale energy marketing
Realized		758			517			1,639			1,244
Unrealized economic activity (Note 14)		1,157						361			(99	)
Net energy trading margins		(132	)		20			(82	)		38
Energy-related businesses		148			193			395			563
Total		2,981			1,774			5,531			4,893
Operating Expenses
Operation
Fuel		267			257			718			692
Energy purchases
Realized		500			228			1,126			677
Unrealized economic activity (Note 14)		1,058			7			173			(127	)
Other operation and maintenance		364			324			1,101			996
Amortization of recoverable transition costs		73			78			217			229
Depreciation		117			108			347			334
Taxes, other than income		77			73			224			223
Energy-related businesses (Note 8)		134			178			361			581
Total		2,590			1,253			4,267			3,605
Operating Income		391			521			1,264			1,288
Other Income - net		1			23			17			71
Interest Expense		120			117			338			357
Income from Continuing Operations Before Income Taxes, Minority Interest and Dividends on Preferred Securities of a Subsidiary		272			427			943			1,002
Income Taxes		59			88			285			188
Minority Interest					1			1			2
Dividends on Preferred Securities of a Subsidiary		5			5			14			14
Income from Continuing Operations		208			333			643			798
(Loss) Income from Discontinued Operations (net of income taxes) (Note 8)		(5	)		(11	)		10			72
Net Income	$	203		$	322		$	653		$	870
Earnings Per Share of Common Stock:
Income from Continuing Operations:
Basic	$	0.55		$	0.88		$	1.72		$	2.08
Diluted		0.55			0.87			1.70			2.06
Net income:
Basic	$	0.54		$	0.85		$	1.75		$	2.27
Diluted		0.54			0.84			1.73			2.25
Dividends Declared Per Share of Common Stock	$	0.335		$	0.305		$	1.01		$	0.915
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Nine Months Ended September 30,
	2008			2007
Cash Flows from Operating Activities
Net income	$	653		$	870
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		347			345
Amortization - recoverable transition costs and other		286			327
Pre-tax gain from the sale of a Latin American business					(94	)
Defined benefits		(55	)		31
Deferred income taxes and investment tax credits		(56	)		(95	)
Impairment of assets		65			98
Gain on the sale of emission allowances		(1	)		(85	)
Unrealized gain on derivatives and other hedging activities		(83	)		(68	)
Other		56			42
Change in current assets and current liabilities
Accounts receivable		127			(65	)
Accounts payable		(31	)		(50	)
Fuel, materials and supplies		(15	)		23
Other		(150	)		61
Other operating activities
Other assets		28			(33	)
Other liabilities		(10	)		(55	)
Net cash provided by operating activities		1,161			1,252
Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(979	)		(1,119	)
Proceeds from the sale of Latin American businesses					191
Proceeds from the sale of telecommunication operations					47
Expenditures for intangible assets		(283	)		(24	)
Proceeds from the sale of intangible assets		11			86
Purchases of nuclear plant decommissioning trust investments		(169	)		(176	)
Proceeds from the sale of nuclear decommissioning trust investments		149			165
Purchases of other investments		(50	)		(516	)
Proceeds from the sale of other investments		36			574
Net increase in restricted cash and cash equivalents		(70	)		(35	)
Other investing activities		5			10
Net cash used in investing activities		(1,350	)		(797	)
Cash Flows from Financing Activities
Issuance of long-term debt		699			855
Retirement of long-term debt		(299	)		(904	)
Issuance of common stock		19			25
Repurchase of common stock		(38	)		(565	)
Payment of common stock dividends		(365	)		(343	)
Net increase in short-term debt		109			150
Other financing activities		(9	)		(17	)
Net cash provided by (used in) financing activities		116			(799	)
Effect of Exchange Rates on Cash and Cash Equivalents		(5	)		2
Net Decrease in Cash and Cash Equivalents		(78	)		(342	)
Cash and Cash Equivalents at Beginning of Period		430			794
Cash and Cash Equivalents included in Assets Held for Sale		(3	)		(13	)
Cash and Cash Equivalents at End of Period	$	349		$	439
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	September 30, 2008		December 31, 2007
Assets
Current Assets
Cash and cash equivalents	$	349	$	430
Short-term investments		82		108
Restricted cash and cash equivalents		326		203
Accounts receivable (less reserve:  2008, $36; 2007, $39)
Customer		460		574
Other		75		87
Unbilled revenues		553		531
Fuel, materials and supplies		321		316
Prepayments		112		160
Deferred income taxes		35		25
Price risk management assets		630		319
Other intangibles		60		76
Assets held for sale (Note 8)		328		318
Other		19		21
Total Current Assets		3,350		3,168
Investments
Investment in unconsolidated affiliates - at equity		44		44
Nuclear plant decommissioning trust funds		498		555
Other		30		9
Total Investments		572		608
Property, Plant and Equipment
Electric plant in service
Transmission and distribution		8,595		8,787
Generation		9,560		8,812
General		802		836
		18,957		18,435
Construction work in progress		999		1,287
Nuclear fuel		365		387
Electric plant		20,321		20,109
Gas and oil plant		68		66
Other property		184		202
		20,573		20,377
Less:  accumulated depreciation		7,871		7,772
Total Property, Plant and Equipment		12,702		12,605
Regulatory and Other Noncurrent Assets
Recoverable transition costs		357		574
Goodwill		889		991
Other intangibles		550		335
Price risk management assets		970		587
Other		1,116		1,104
Total Regulatory and Other Noncurrent Assets		3,882		3,591
Total Assets	$	20,506	$	19,972
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		September 30, 2008			December 31, 2007
Liabilities and Equity
Current Liabilities
Short-term debt		$	200		$	92
Long-term debt			1,075			678
Accounts payable			656			689
Above market NUG contracts			29			42
Taxes			67			127
Interest			146			131
Dividends			130			118
Price risk management liabilities			722			423
Liabilities held for sale (Note 8)			40			68
Other			440			514
Total Current Liabilities			3,505			2,882
Long-term Debt			6,714			6,890
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits			2,006			2,192
Price risk management liabilities			1,144			916
Accrued pension obligations			58			59
Asset retirement obligations			384			376
Above market NUG contracts			10			29
Other			781			752
Total Deferred Credits and Other Noncurrent Liabilities			4,383			4,324
Commitments and Contingent Liabilities (Note 10)
Minority Interest			19			19
Preferred Securities of a Subsidiary			301			301
Shareowners' Common Equity
Common stock - $0.01 par value (a)			4			4
Capital in excess of par value			2,185			2,172
Earnings reinvested			3,725			3,448
Accumulated other comprehensive loss			(330	)		(68	)
Total Shareowners' Common Equity			5,584			5,556
Total Liabilities and Equity		$	20,506		$	19,972
(a)	780 million shares authorized; 375 million shares issued and outstanding at September 30, 2008, and 373 million shares issued and outstanding at December 31, 2007.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
Operating Revenues
Wholesale energy marketing
Realized	$	758		$	517	$	1,639		$	1,244
Unrealized economic activity (Note 14)		1,157					361			(99	)
Wholesale energy marketing to affiliate		453			453		1,370			1,356
Utility		195			204		647			638
Unregulated retail electric and gas		43			28		110			73
Net energy trading margins		(132	)		20		(82	)		38
Energy-related businesses		146			191		389			557
Total		2,620			1,413		4,434			3,807
Operating Expenses
Operation
Fuel		267			257		718			692
Energy purchases
Realized		456			171		996			520
Unrealized economic activity (Note 14)		1,058			7		173			(127	)
Energy purchases from affiliate		29			43		87			117
Other operation and maintenance		287			238		837			743
Depreciation		81			72		240			227
Taxes, other than income		25			24		70			74
Energy-related businesses (Note 8)		136			177		360			578
Total		2,339			989		3,481			2,824
Operating Income		281			424		953			983
Other Income - net		1			21		12			57
Interest Income from Affiliates		4			11		11			23
Interest Expense		89			73		236			217
Interest Expense with Affiliate										4
Income from Continuing Operations Before Income Taxes and Minority Interest		197			383		740			842
Income Taxes		36			72		222			139
Minority Interest					1		1			2
Income from Continuing Operations		161			310		517			701
Income from Discontinued Operations (net of income taxes) (Note 8)					13		5			89
Net Income	$	161		$	323	$	522		$	790
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Nine Months Ended September 30,
	2008			2007
Cash Flows from Operating Activities
Net income	$	522		$	790
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		240			234
Amortization		51			83
Pre-tax gain from the sale of a Latin American business					(94	)
Defined benefits		(61	)		26
Deferred income taxes and investment tax credits		31			(25	)
Impairment of assets		61			98
Gain on the sale of emission allowances		(1	)		(85	)
Unrealized gains on derivatives and other hedging activities		(86	)		(70	)
Other		40			28
Change in current assets and current liabilities
Accounts receivable		164			(61	)
Accounts payable		(27	)		(90	)
Fuel, materials and supplies		(9	)		32
Other		(101	)		125
Other operating activities
Other assets		14			(26	)
Other liabilities		(4	)		(71	)
Net cash provided by operating activities		834			894
Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(761	)		(884	)
Proceeds from the sale of Latin American businesses					191
Proceeds from the sale of telecommunication operations					47
Expenditures for intangible assets		(276	)		(22	)
Proceeds from the sale of intangible assets		11			86
Purchases of nuclear plant decommissioning trust investments		(169	)		(176	)
Proceeds from the sale of nuclear decommissioning trust investments		149			165
Purchases of other investments		(47	)		(477	)
Proceeds from the sale of other investments		33			509
Net increase in restricted cash and cash equivalents		(120	)		(27	)
Net increase in note receivable with affiliate		(10	)
Other investing activities		2			5
Net cash used in investing activities		(1,188	)		(583	)
Cash Flows from Financing Activities
Issuance of long-term debt		699			6
Retirement of long-term debt		(57	)		(141	)
Distributions to Member		(666	)		(1,272	)
Contributions from Member		125			700
Net increase in short-term debt		150			111
Other financing activities		(8	)		(7	)
Net cash provided by (used in) financing activities		243			(603	)
Effect of Exchange Rates on Cash and Cash Equivalents		(5	)		2
Net Decrease in Cash and Cash Equivalents		(116	)		(290	)
Cash and Cash Equivalents at Beginning of Period		355			524
Cash and Cash Equivalents included in Assets Held for Sale					(13	)
Cash and Cash Equivalents at End of Period	$	239		$	221
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	September 30, 2008		December 31, 2007
Assets
Current Assets
Cash and cash equivalents	$	239	$	355
Short-term investments		82		102
Restricted cash and cash equivalents		277		146
Accounts receivable (less reserve:  2008, $21; 2007, $20)
Customer		246		376
Other		49		61
Unbilled revenues		403		339
Accounts receivable from affiliates		138		169
Note receivable from affiliate		10
Collateral on PLR energy supply to affiliate		300		300
Fuel, materials and supplies		287		282
Prepayments		63		120
Deferred income taxes		66		49
Price risk management assets		628		318
Other intangibles		60		76
Other		5		7
Total Current Assets		2,853		2,700
Investments
Investment in unconsolidated affiliates - at equity		44		44
Nuclear plant decommissioning trust funds		498		555
Other		24		5
Total Investments		566		604
Property, Plant and Equipment
Electric plant in service
Transmission and distribution		4,141		4,470
Generation		9,560		8,812
General		255		334
		13,956		13,616
Construction work in progress		894		1,165
Nuclear fuel		365		387
Electric plant		15,215		15,168
Gas and oil plant		68		66
Other property		182		200
		15,465		15,434
Less:  accumulated depreciation		5,935		5,904
Total Property, Plant and Equipment		9,530		9,530
Other Noncurrent Assets
Goodwill		889		991
Other intangibles		422		214
Price risk management assets		950		568
Other		715		660
Total Other Noncurrent Assets		2,976		2,433
Total Assets	$	15,925	$	15,267
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	September 30, 2008		December 31, 2007
Liabilities and Equity
Current Liabilities
Short-term debt	$	200	$	51
Long-term debt		225		283
Accounts payable		590		611
Accounts payable to affiliates		63		61
Above market NUG contracts		29		42
Taxes		70		102
Interest		130		94
Deferred revenue on PLR energy supply to affiliate		12		12
Price risk management liabilities		722		421
Other		305		357
Total Current Liabilities		2,346		2,034
Long-term Debt		5,297		4,787
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		1,321		1,413
Price risk management liabilities		1,143		904
Accrued pension obligations		19		23
Asset retirement obligations		384		376
Above market NUG contracts		10		29
Deferred revenue on PLR energy supply to affiliate		3		12
Other		461		465
Total Deferred Credits and Other Noncurrent Liabilities		3,341		3,222
Commitments and Contingent Liabilities (Note 10)
Minority Interest		19		19
Member's Equity		4,922		5,205
Total Liabilities and Equity	$	15,925	$	15,267
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Operating Revenues
Retail electric	$	813	$	812	$	2,463	$	2,438
Wholesale electric to affiliate		29		43		87		117
Total		842		855		2,550		2,555
Operating Expenses
Operation
Energy purchases		44		55		129		156
Energy purchases from affiliate		453		453		1,370		1,356
Other operation and maintenance		102		104		306		295
Amortization of recoverable transition costs		73		78		217		229
Depreciation		32		34		97		99
Taxes, other than income		51		49		155		149
Total		755		773		2,274		2,284
Operating Income		87		82		276		271
Other Income - net				2		4		12
Interest Income from Affiliate		1		5		5		14
Interest Expense		22		29		72		91
Interest Expense with Affiliate		3		4		8		13
Income Before Income Taxes		63		56		205		193
Income Taxes		22		16		72		62
Net Income		41		40		133		131
Dividends on Preferred Securities		5		5		14		14
Income Available to PPL	$	36	$	35	$	119	$	117
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Nine Months Ended September 30,
	2008			2007
Cash Flows from Operating Activities
Net income	$	133		$	131
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		97			99
Amortization - recoverable transition costs and other		232			242
Other		1			7
Change in current assets and current liabilities
Accounts receivable		(14	)		(14	)
Accounts payable		(53	)		(26	)
Prepayments		(34	)		(52	)
Other		23			(34	)
Other operating activities
Other assets					13
Other liabilities		18			(7	)
Net cash provided by operating activities		403			359
Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(193	)		(208	)
Expenditures for intangible assets		(7	)		(2	)
Purchases of investments					(32	)
Proceeds from the sale of investments					57
Net decrease (increase) in restricted cash and cash equivalents		41			(10	)
Net decrease in note receivable from affiliate		147
Other investing activities		3			7
Net cash used in investing activities		(9	)		(188	)
Cash Flows from Financing Activities
Issuance of long-term debt					250
Retirement of long-term debt		(232	)		(483	)
Payment of common stock dividends to PPL		(73	)		(95	)
Payment of dividends on preferred securities		(14	)		(14	)
Net (decrease) increase in short-term debt		(41	)		39
Other financing activities					(3	)
Net cash used in financing activities		(360	)		(306	)
Net Increase (Decrease) in Cash and Cash Equivalents		34			(135	)
Cash and Cash Equivalents at Beginning of Period		33			150
Cash and Cash Equivalents at End of Period	$	67		$	15
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	September 30, 2008		December 31, 2007
Assets
Current Assets
Cash and cash equivalents	$	67	$	33
Restricted cash and cash equivalents		43		42
Accounts receivable (less reserve:  2008, $15; 2007, $18)
Customer		214		197
Other		17		17
Unbilled revenues		149		192
Accounts receivable from affiliates		13		16
Note receivable from affiliate		130		277
Prepayments		50		16
Prepayment on PLR energy supply from affiliate		12		12
Other		48		53
Total Current Assets		743		855
Property, Plant and Equipment
Electric plant in service
Transmission and distribution		4,453		4,316
General		479		443
		4,932		4,759
Construction work in progress		92		114
Electric plant		5,024		4,873
Other property		2		2
		5,026		4,875
Less:  accumulated depreciation		1,913		1,854
Total Property, Plant and Equipment		3,113		3,021
Regulatory and Other Noncurrent Assets
Recoverable transition costs		357		574
Intangibles		128		121
Prepayment on PLR energy supply from affiliate		3		12
Taxes recoverable through future rates		243		245
Other		115		158
Total Regulatory and Other Noncurrent Assets		846		1,110
Total Assets	$	4,702	$	4,986
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	September 30, 2008		December 31, 2007
Liabilities and Equity
Current Liabilities
Short-term debt			$	41
Long-term debt	$	649		395
Accounts payable		45		46
Accounts payable to affiliates		145		192
Taxes		30		44
Collateral on PLR energy supply from affiliate		300		300
Other		111		120
Total Current Liabilities		1,280		1,138
Long-term Debt		793		1,279
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		752		763
Other		245		220
Total Deferred Credits and Other Noncurrent Liabilities		997		983
Commitments and Contingent Liabilities (Note 10)
Shareowners' Equity
Preferred securities		301		301
Common stock - no par value (a)		364		364
Additional paid-in capital		424		424
Earnings reinvested		543		497
Total Shareowners' Equity		1,632		1,586
Total Liabilities and Equity	$	4,702	$	4,986

(a)	170 million shares authorized; 66 million shares issued and outstanding at September 30, 2008 and December 31, 2007.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

Combined Notes to Condensed Consolidated Financial Statements (Unaudited)

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 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.  All adjustments are of a normal recurring nature, except as otherwise disclosed.  The Balance Sheets at December 31, 2007, are derived from each Registrant's 2007 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 2007 Form 10-K.  The results of operations for the nine months ended September 30, 2008, are not necessarily indicative of the results to be expected for the full year ending December 31, 2008, or other future periods, because results for interim periods can be disproportionately influenced by various factors and developments and seasonal variations.

The classification of certain prior period amounts has been changed to conform to the presentation in the September 30, 2008 financial statements.

(PPL)

In October 2008, PPL completed the sale of its natural gas distribution and propane businesses.  On the Statements of Income, the operating results of the natural gas distribution and propane businesses for the three and nine months ended September 30, 2008 and 2007, are classified as Discontinued Operations.  At September 30, 2008 and December 31, 2007, the assets and liabilities related to the natural gas distribution and propane businesses are reflected in the Balance Sheets as held for sale.  See Note 8 for additional information.  The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.

(PPL and PPL Energy Supply)

Discontinued Operations for the nine months ended September 30, 2008, and the three and nine months ended September 30, 2007, include the results of Latin American businesses that were sold during 2007.  See Note 8 for additional information.  The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.

2.   Summary of Significant Accounting Policies

(PPL, PPL Energy Supply and PPL Electric)

The following accounting policy disclosures represent updates to the "Summary of Significant Accounting Policies" Note in each Registrant's 2007 Form 10-K and should be read in conjunction with that discussion.

Price Risk Management

Master Netting Arrangements

As permitted by FIN 39, PPL and its subsidiaries have elected not to offset net derivative positions in the financial statements.  Accordingly, PPL and its subsidiaries do not offset such derivative positions against the fair value of amounts (or amounts that approximate fair value) recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

PPL's and PPL Energy Supply's obligation to return counterparty cash collateral under master netting arrangements was $3 million at September 30, 2008 and $21 million at December 31, 2007.

PPL Electric's obligation to return cash collateral to PPL Energy Supply under master netting arrangements was $300 million at September 30, 2008 and December 31, 2007.  See Note 11 for additional information.

PPL and PPL Electric have not posted any cash collateral under master netting arrangements.

New Accounting Standards Adopted

SFAS 157, as amended

In September 2006, the FASB issued SFAS 157, which provides a definition of fair value as well as a framework for measuring fair value.  In addition, SFAS 157 expands the fair value disclosure requirements of other accounting pronouncements to require, among other things, disclosure of the methods and assumptions used to measure fair value as well as the earnings impact of certain fair value measurement techniques.  SFAS 157 excludes from its scope fair value measurements related to stock-based compensation.  See Note 13 for additional information and related disclosures.

In February 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-1 and FSP FAS 157-2.  FSP FAS 157-1 was effective upon the initial adoption of SFAS 157 and amends SFAS 157 to exclude from its scope certain accounting pronouncements that address fair value measurements associated with leases.  FSP FAS 157-2 was effective upon issuance and delays the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

PPL and its subsidiaries adopted SFAS 157, as amended by FSP FAS 157-1 and FSP FAS 157-2, prospectively, effective January 1, 2008.  Limited retrospective application for financial instruments that were previously measured at fair value in accordance with footnote 3 of EITF Issue No. 02-3 was not required.  The January 1, 2008 adoption did not have a significant impact on PPL and its subsidiaries.  As permitted by this guidance, PPL and its subsidiaries will apply SFAS 157, as amended, prospectively, effective January 1, 2009, to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis.  PPL and its subsidiaries are in the process of evaluating the impact of applying SFAS 157, as amended, to these items.  The potential impact of this application is not yet determinable, but could be material.

In October 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-3, which was effective upon issuance, including prior periods for which financial statements have not been issued.  FSP FAS 157-3 amends SFAS 157 to clarify its application in a market that is not active.  PPL and its subsidiaries adopted FSP FAS 157-3, prospectively, effective July 1, 2008.  The adoption of FSP FAS 157-3 did not have a material effect on PPL and its subsidiaries.

Since PPL and PPL Energy Supply elected to defer the effective date of SFAS 157, as amended, for eligible assets and liabilities, the provisions of this standard were not applied to intangible assets acquired, charges related to certain emission allowances and AROs recognized in 2008.  PPL also did not apply this standard to determine the impairments recognized during 2008 related to its natural gas distribution and propane businesses.

SFAS 159

In February 2007, the FASB issued SFAS 159, which provides entities with an option to measure, upon adoption of this standard and at specified election dates, certain financial assets and liabilities at fair value, including available-for-sale and held-to-maturity securities, as well as other eligible items.  The fair value option (i) may be applied on an instrument-by-instrument basis, with a few exceptions, (ii) is irrevocable (unless a new election date occurs), and (iii) is applied to an entire instrument and not to only specified risks, cash flows, or portions of that instrument.  An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between similar assets and liabilities measured using different attributes.  Upon adoption of SFAS 159, an entity may elect the fair value option for eligible items that exist at that date and must report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings.

PPL and its subsidiaries adopted SFAS 159 effective January 1, 2008.  PPL and its subsidiaries did not elect the fair value option for eligible items.  Therefore, the January 1, 2008 adoption did not have an impact on PPL and its subsidiaries.

New Accounting Standards Pending Adoption

See Note 19 for a discussion of 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 2007 Form 10-K for a discussion of reportable segments.

Financial data for the segments are:

	Three Months Ended September 30,				Nine Months Ended September 30,
PPL	2008		2007		2008		2007
Income Statement Data
Revenues from external customers
Supply (a)	$	1,965	$	751	$	2,396	$	1,792
International Delivery		203		212		673		665
Pennsylvania Delivery		813		811		2,462		2,436
		2,981		1,774		5,531		4,893
Intersegment revenues
Supply		453		453		1,370		1,356
Pennsylvania Delivery		30		44		89		119
Net Income
Supply (a)		98		205		297		454
International Delivery (b)		73		108		233		319
Pennsylvania Delivery (c)		32		9		123		97
	$	203	$	322	$	653	$	870

	September 30, 2008		December 31, 2007
Balance Sheet Data
Total assets
Supply	$	10,506	$	9,231
International Delivery		5,142		5,639
Pennsylvania Delivery		4,858		5,102
	$	20,506	$	19,972

	Three Months Ended September 30,				Nine Months Ended September 30,
PPL Energy Supply	2008		2007		2008		2007
Income Statement Data
Revenues from external customers
Supply (a)	$	2,417	$	1,201	$	3,761	$	3,142
International Delivery		203		212		673		665
		2,620		1,413		4,434		3,807
Net Income
Supply (a)		88		215		289		471
International Delivery (b)		73		108		233		319
	$	161	$	323	$	522	$	790

	September 30, 2008		December 31, 2007
Balance Sheet Data
Total assets
Supply	$	10,783	$	9,628
International Delivery		5,142		5,639
	$	15,925	$	15,267

(a)	Includes unrealized gains and losses from economic activity.  See Note 14 for additional information.
(b)	The nine-month period in 2008 and both periods in 2007 include the results of Discontinued Operations of the Latin American businesses.  See Note 8 for additional information.
(c)	2008 and 2007 include the results of Discontinued Operations of PPL's natural gas distribution and propane businesses.  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 the weighted-average number of common shares outstanding during the period, increased for additional shares that would be outstanding if potentially dilutive securities were converted to common shares.  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; and

· convertible senior notes.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008		2007
Income (Numerator)
Income from continuing operations	$	208		$	333		$	643	$	798
(Loss) income from discontinued operations (net of income taxes)		(5	)		(11	)		10		72
Net Income	$	203		$	322		$	653	$	870
Shares (Denominator)
Shares for Basic EPS		374,291			379,896			373,394		383,036
Add incremental shares:
Convertible Senior Notes					1,710			585		1,620
Restricted stock, stock options and other share-based awards		2,394			2,969			2,603		3,002
Shares for Diluted EPS		376,685			384,575			376,582		387,658
Basic EPS
Income from continuing operations	$	0.55		$	0.88		$	1.72	$	2.08
(Loss) income from discontinued operations (net of income taxes)		(0.01	)		(0.03	)		0.03		0.19
Net Income	$	0.54		$	0.85		$	1.75	$	2.27
Diluted EPS
Income from continuing operations	$	0.55		$	0.87		$	1.70	$	2.06
(Loss) income from discontinued operations (net of income taxes)		(0.01	)		(0.03	)		0.03		0.19
Net Income	$	0.54		$	0.84		$	1.73	$	2.25

PPL Energy Supply's 2-5/8% Convertible Senior Notes due 2023 (Convertible Senior Notes) required cash settlement of the principal amount and permitted settlement of any conversion premium in cash or PPL common stock.  Based upon the conversion rate of 40.2212 shares per $1,000 principal amount of notes (or $24.8625 per share), the Convertible Senior Notes had a dilutive impact when the average market price of PPL common stock equaled or exceeded $24.87.

During the nine months ended September 30, 2008, all Convertible Senior Notes were either converted at the election of the holders or redeemed at par by PPL Energy Supply.  No Convertible Senior Notes were outstanding at September 30, 2008.  See Note 7 for additional information.

During the nine months ended September 30, 2008, PPL issued 1,053,422 shares of common stock related to the exercise of stock options, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors under its stock-based compensation plans.

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

	Three Months Ended September 30,			Nine Months Ended September 30,
	2008		2007	2008		2007
Stock options		662			221
Restricted stock units		12			4

5.   Income Taxes

(PPL, PPL Energy Supply and PPL Electric)

Reconciliations of effective income tax rates are:

	Three Months Ended September 30,						Nine Months Ended September 30,
PPL	2008			2007			2008			2007
Reconciliation of Income Tax Expense
Federal income tax on Income from Continuing Operations Before Income Taxes, Minority Interest and Dividends on Preferred Securities of a Subsidiary at statutory tax rate - 35%	$	95		$	150		$	330		$	351
Increase (decrease) due to:
State income taxes (a)		7			11			24			22
Amortization of investment tax credit		(2	)		(3	)		(7	)		(8	)
Domestic manufacturing deduction		(6	)		(4	)		(13	)		(6	)
Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(20	)		(4	)		(37	)		(21	)
Enactment of the U.K.'s Finance Act 2008 and 2007 (b)		(8	)		(54	)		(8	)		(54	)
Stranded cost securitization (a)		(2	)		(2	)		(5	)		(5	)
Federal income tax credits (c)		3			(3	)		16			(55	)
Change in foreign tax reserves (a)								5
Foreign income tax return adjustments								(17	)
Change in federal tax reserves (a)					(3	)		6			(33	)
Other		(8	)					(9	)		(3	)
		(36	)		(62	)		(45	)		(163	)
Total income tax expense	$	59		$	88		$	285		$	188
Effective income tax rate		21.7%			20.6%			30.2%			18.8%

(a)	For the three months ended September 30, 2008, PPL recorded an insignificant tax benefit related to income tax reserve changes, which consisted of a $2 million benefit reflected in "Stranded cost securitization," offset by a $2 million expense reflected in "State income taxes." For the three months ended September 30, 2007, PPL recorded a $4 million benefit related to income tax reserve changes, which consisted of a $3 million benefit reflected in "Change in federal tax reserves" and a $2 million benefit reflected in "Stranded cost securitization," offset by a $1 million expense reflected in "State income taxes." For the nine months ended September 30, 2008, PPL recorded an $8 million expense related to income tax reserve changes, which consisted of a $5 million expense reflected in "Change in foreign tax reserves" and a $6 million expense reflected in "Change in federal tax reserves" and a $2 million expense reflected in "State income taxes," offset by a $5 million benefit reflected in "Stranded cost securitization." For the nine months ended September 30, 2007, PPL recorded a $37 million benefit related to income tax reserve changes, which consisted of a $33 million benefit reflected in "Change in federal tax reserves" and a $5 million benefit reflected in "Stranded cost securitization," offset by a $1 million expense reflected in "State income taxes."
(b)	The U.K.'s Finance Act 2008, enacted in July 2008, included a phase-out of tax depreciation on certain buildings.  As a result, PPL recorded an $8 million deferred tax benefit during the third quarter of 2008 related to the reduction in its deferred tax liabilities. The U.K.'s Finance Act 2007, enacted in July 2007, included a reduction in the U.K.'s statutory income tax rate.  Effective April 1, 2008, the statutory income tax rate was reduced from 30% to 28%.  As a result, PPL recorded a $54 million deferred tax benefit during the third quarter of 2007 related to the reduction in its deferred tax liabilities.
(c)	In March 2008, PPL recorded a $13 million expense to adjust the amount of synthetic fuel tax credits recorded during 2007.  See Note 10 for additional information.

PPL has evaluated the impact of the change in earnings estimates on its projected annual effective tax rate.  The result of the change in estimate reduced income tax expense for the three months ended September 30, 2008 by approximately $18 million ($.05 per share, basic and diluted).

	Three Months Ended September 30,						Nine Months Ended September 30,
PPL Energy Supply	2008			2007			2008			2007
Reconciliation of Income Tax Expense
Federal income tax on Income from Continuing Operations Before Income Taxes and Minority Interest at statutory tax rate - 35%	$	69		$	134		$	259		$	295
Increase (decrease) due to:
State income taxes (a)		5			13			20			24
Amortization of investment tax credit		(2	)		(2	)		(6	)		(6	)
Domestic manufacturing deduction		(6	)		(4	)		(13	)		(6	)
Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(20	)		(4	)		(37	)		(21	)
Enactment of the U.K.'s Finance Act 2008 and 2007 (b)		(8	)		(54	)		(8	)		(54	)
Federal income tax credits (c)		3			(7	)		16			(58	)
Change in foreign tax reserves (a)								5
Foreign income tax return adjustments								(17	)
Change in federal tax reserves (a)		1			(2	)		7			(31	)
Other		(6	)		(2	)		(4	)		(4	)
		(33	)		(62	)		(37	)		(156	)
Total income tax expense	$	36		$	72		$	222		$	139
Effective income tax rate		18.3%			18.8%			30.0%			16.5%

(a)	For the three months ended September 30, 2008, PPL Energy Supply recorded a $1 million expense related to income tax reserve changes reflected in "Change in federal tax reserves." For the three months ended September 30, 2007, PPL Energy Supply recorded a $2 million benefit related to income tax reserve changes reflected in "Change in federal tax reserves." For the nine months ended September 30, 2008, PPL Energy Supply recorded a $13 million expense related to income tax reserve changes, which consisted of a $5 million expense reflected in "Change in foreign tax reserves," a $7 million expense reflected in "Change in federal tax reserves" and a $1 million expense reflected in "State income taxes." For the nine months ended September 30, 2007, PPL Energy Supply recorded a $30 million benefit related to income tax reserve changes, which consisted of a $31 million benefit reflected in "Change in federal tax reserves," offset by a $1 million expense reflected in "State income taxes."
(b)	The U.K.'s Finance Act 2008, enacted in July 2008, included a phase-out of tax depreciation on certain buildings.  As a result, PPL Energy Supply recorded an $8 million deferred tax benefit during the third quarter of 2008 related to the reduction in its deferred tax liabilities. The U.K.'s Finance Act 2007, enacted in July 2007, included a reduction in the U.K.'s statutory income tax rate.  Effective April 1, 2008, the statutory income tax rate was reduced from 30% to 28%.  As a result, PPL Energy Supply recorded a $54 million deferred tax benefit during the third quarter of 2007 related to the reduction in its deferred tax liabilities.
(c)	In March 2008, PPL Energy Supply recorded a $13 million expense to adjust the amount of synthetic fuel tax credits recorded during 2007.  See Note 10 for additional information

PPL Energy Supply has evaluated the impact of the change in earnings estimates on its projected annual effective tax rate.  The result of the change in estimate reduced income tax expense for the three months ended September 30, 2008 by approximately $18 million.

	Three Months Ended September 30,						Nine Months Ended September 30,
PPL Electric	2008			2007			2008			2007
Reconciliation of Income Tax Expense
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	22		$	20		$	72		$	68
Increase (decrease) due to:
State income taxes (a)		3						9			4
Amortization of investment tax credit		(1	)		(1	)		(2	)		(2	)
Stranded cost securitization (a)		(2	)		(2	)		(5	)		(5	)
Other (a)					(1	)		(2	)		(3	)
					(4	)					(6	)
Total income tax expense	$	22		$	16		$	72		$	62
Effective income tax rate		34.9%			28.6%			35.1%			32.1%

(a) For the three months ended September 30, 2008, PPL Electric recorded a $2 million benefit related to income tax reserve changes, which is reflected in "Stranded cost securitization."   For the three months ended September 30, 2007, PPL Electric recorded a $3 million benefit related to income tax reserve changes, which consisted of a $2 million benefit reflected in "Stranded cost securitization" and a $1 million benefit reflected in "Other."   For the nine months ended September 30, 2008, PPL Electric recorded a $4 million benefit related to income tax reserve changes, which consisted of a $5 million benefit reflected in "Stranded cost securitization" and a $1 million benefit reflected in "Other," offset by a $2 million expense reflected in "State income taxes."   For the nine months ended September 30, 2007, PPL Electric recorded a $6 million benefit related to income tax reserve changes, which consisted of a $5 million benefit reflected in "Stranded cost securitization" and a $2 million benefit reflected in "Other," offset by a $1 million expense reflected in "State income taxes."

Unrecognized Tax Benefits

Changes to unrecognized tax benefits were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
PPL
Beginning of period (a)	$	217		$	192		$	204		$	226
Additions based on tax positions of prior years		3						37
Reduction based on tax positions of prior years		(3	)		(5	)		(13	)		(9)
Additions based on tax positions related to the current year		2						9
Settlements								(12	)
Lapse of applicable statutes of limitations		(2	)		(3	)		(6	)		(33	)
Effects of foreign currency translation		(6	)		1			(8	)		1
End of period	$	211		$	185		$	211		$	185
PPL Energy Supply
Beginning of period (a)	$	130		$	114		$	130		$	143
Additions based on tax positions of prior years		3						20
Reduction based on tax positions of prior years		(3	)		(5	)		(10	)		(8	)
Additions based on tax positions related to the current year		2						6
Settlements								(12	)
Lapse of applicable statutes of limitations											(26	)
Effects of foreign currency translation		(6	)		1			(8	)		1
End of period	$	126		$	110		$	126		$	110
PPL Electric
Beginning of period	$	81		$	73		$	68		$	78
Additions based on tax positions of prior years								17
Reduction based on tax positions of prior years								(3	)		(1	)
Additions based on tax positions related to the current year								3
Lapse of applicable statutes of limitations		(2	)		(3	)		(6	)		(7	)
End of period	$	79		$	70		$	79		$	70

(a) The beginning of period balance for the nine months ended September 30, 2008, includes a $15 million adjustment to exclude recognized uncertain tax positions from unrecognized tax benefits.

At September 30, 2008, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective tax rate were:

	PPL			PPL Energy Supply			PPL Electric
Total unrecognized tax benefits	$	211		$	126		$	79
Unrecognized tax benefits associated with taxable or deductible temporary differences		(19	)		10			(28	)
Unrecognized tax benefits associated with business combinations (a)		(17	)		(17	)
Total indirect effect of unrecognized tax benefits on other tax jurisdictions		(39	)		(11	)		(27	)
Total unrecognized tax benefits and related indirect effects that if recognized would decrease the effective tax rate	$	136		$	108		$	24

(a) Upon adoption, effective January 1, 2009, SFAS 141(R) will require changes in unrecognized tax benefits associated with business combinations to be recognized in tax expense rather than in goodwill.  These amounts do not consider the impact of SFAS 141(R).

At September 30, 2008, it was reasonably possible that during the next 12 months the total amount of unrecognized tax benefits could increase by as much as $2 million or decrease by up to $99 million for PPL, decrease between $3 million and $84 million for PPL Energy Supply and decrease by up to $9 million for PPL Electric.  These increases and decreases could result from subsequent recognition, derecognition and/or changes in measurement of uncertain tax positions related to the creditability of foreign taxes, the timing and utilization of foreign tax credits and the related impact on alternative minimum tax and other credits, the timing and/or valuation of certain deductions, intercompany transactions and unitary filing groups.  The events that could cause these changes are direct settlements with taxing authorities, litigation, legal or administrative guidance by relevant taxing authorities and the lapse of an applicable statute of limitation.

At September 30, 2008, PPL, PPL Energy Supply and PPL Electric had accrued interest related to tax positions of $32 million, $25 million and $7 million.  At December 31, 2007, PPL, PPL Energy Supply and PPL Electric had accrued interest and penalties of $31 million, $26 million and $4 million.

PPL and its subsidiaries recognize interest and penalties in "Income Taxes" on their Statements of Income.  The following amounts were recognized:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
PPL				$	1	$	1		$	(4	)
PPL Energy Supply	$	(1	)		1		(1	)		(4	)
PPL Electric		1					2

The changes during the three and nine months ended September 30, 2008, compared with the same periods in 2007, for PPL, PPL Energy Supply and PPL Electric were primarily the result of additional interest accrued or reversed related to tax positions of prior years and the lapse of applicable statutes of limitations, with respect to certain issues.

6.   Comprehensive Income

(PPL and PPL Energy Supply)

The after-tax components of comprehensive income, including significant tax impacts, were as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
PPL	2008			2007		2008			2007
Net Income	$	203		$	322		653		$	870
Other Comprehensive income (loss):
Foreign currency translation adjustments		(145	)		20		(217	)		34
Net unrealized (loss) gain on available-for-sale securities		(6	)		4		(28	)		15
Net unrealized gain (loss) on qualifying derivatives, net of tax (expense) benefit of $(453), $(7), $(104), $57		665			10		166			(92	)
Equity investee comprehensive loss:
Defined benefit plan							(1	)
Reclassifications to net income:
Foreign currency translation adjustments					3					3
Defined benefit plans:
Prior service costs		4			4		12			11
Net actuarial gain		4			11		9			30
Transition asset					1		1			1
Available-for-sale securities		(1	)							(3	)
Qualifying derivatives, net of tax benefit (expense) of $137, $(5), $135, $(7)		(202	)		12		(203	)		28
Total other comprehensive income (loss)		319			65		(261	)		27
Comprehensive income	$	522		$	387	$	392		$	897
PPL Energy Supply
Net Income	$	161		$	323	$	522		$	790
Other Comprehensive income (loss):
Foreign currency translation adjustments		(145	)		20		(217	)		34
Net unrealized (loss) gain on available-for-sale securities		(7	)		4		(28	)		15
Net unrealized gain (loss) on qualifying derivatives, net of tax (expense) benefit of $(453), $(12), $(103), $54		668			18		167			(88	)
Equity investee comprehensive loss:
Defined benefit plan							(1	)
Reclassifications to net income:
Foreign currency translation adjustments					3					3
Defined benefit plans:
Prior service costs		3			2		9			8
Net actuarial gain		3			10		9			30
Transition asset					1		1			1
Available-for-sale securities		(1	)							(3	)
Qualifying derivatives, net of tax benefit (expense) of $137, $(4), $133, $(5)		(206	)		10		(205	)		25
Total other comprehensive income (loss)		315			68		(265	)		25
Comprehensive income	$	476		$	391	$	257		$	815

(PPL Electric)

PPL Electric's comprehensive income approximates net income.

7.   Credit Arrangements and Financing Activities

Credit Arrangements

(PPL and PPL Energy Supply)

PPL Energy Supply maintains credit facilities in order to enhance liquidity and provide credit support, and as a backstop to its commercial paper program.

In March 2008, PPL Energy Supply increased the capacity of its 364-day reimbursement agreement from $200 million to $300 million and extended the expiration date of the agreement to March 2009.  Under the agreement, PPL Energy Supply can cause the bank to issue up to $300 million of letters of credit but cannot make cash borrowings.  At September 30, 2008, there were $203 million of letters of credit outstanding under this agreement.

PPL Energy Supply maintains a $3.4 billion five-year credit facility that expires in June 2012.  Under this facility, PPL Energy Supply has the ability to make cash borrowings and to cause the lenders to issue letters of credit.  At September 30, 2008, there were no cash borrowings and $274 million of letters of credit outstanding under this facility.  In October 2008, PPL Energy Supply borrowed $285 million under this facility, which currently bears interest at 4.55%.  In connection with this borrowing, one of the participating banks, Lehman Brothers Bank, FSB, became a defaulting lender, as it no longer is honoring its commitment of approximately $175 million.

PPL Energy Supply also maintains a $300 million five-year letter of credit and revolving credit facility expiring in March 2011.  Under this facility, PPL Energy Supply has the ability to make cash borrowings through mid-December 2008, and to cause the lenders to issue letters of credit through the term of the facility.  At September 30, 2008, there were no cash borrowings and $243 million of letters of credit outstanding under this facility.  PPL Energy Supply's obligations under this facility are supported by a $300 million letter of credit issued on PPL Energy Supply's behalf under a separate $300 million five-year letter of credit and reimbursement agreement, also expiring in March 2011.

In September 2008, PPL Energy Supply executed a new $385 million 364-day credit agreement that expires in September 2009.  Under certain conditions, PPL Energy Supply may request that the facility's principal amount be increased by up to $150 million.  Under this facility, PPL Energy Supply has the ability to make cash borrowings and to cause the lenders to issue letters of credit.  At September 30, 2008, there were no cash borrowings and no letters of credit outstanding under this facility.

PPL Energy Supply maintains a commercial paper program for up to $500 million to provide an additional financing source to fund its short-term liquidity needs, if and when necessary.  Commercial paper issuances are supported by PPL Energy Supply's $3.4 billion five-year credit facility.  PPL Energy Supply had no commercial paper outstanding at September 30, 2008.

In January 2008, WPDH Limited extended the expiration date of its £150 million five-year committed credit facility to January 2013, and it has the option to extend the expiration date by another year in January 2009.  During the third quarter of 2008, WPDH Limited made a USD-denominated cash borrowing of $200 million, which equated to £101 million at the time of borrowing and is reflected on the Balance Sheet in "Short-term debt."  This borrowing bears interest at 3.73%.

WPD (South West) maintains a £150 million five-year committed credit facility that expires in October 2009 and uncommitted credit facilities of £65 million.  There were no cash borrowings outstanding under any of these credit facilities at September 30, 2008.

(PPL and PPL Electric)

PPL Electric maintains credit facilities in order to enhance liquidity and provide credit support, and as a backstop to its commercial paper program.

PPL Electric maintains a $200 million five-year credit facility that expires in May 2012.  Under this facility, PPL Electric has the ability to make cash borrowings and to cause the lenders to issue letters of credit.  PPL Electric had no cash borrowings and $41 million of letters of credit outstanding under this facility at September 30, 2008.  In October 2008, PPL Electric borrowed $95 million under this facility, which currently bears interest at 4.35%.  In connection with this borrowing, one of the participating banks, Lehman Brothers Bank, FSB, became a defaulting lender, as it no longer is honoring its commitment of approximately $10 million.

PPL Electric maintains a commercial paper program for up to $200 million to provide an additional financing source to fund its short-term liquidity needs, if and when necessary.  Commercial paper issuances are supported by PPL Electric's $200 million five-year credit facility based on available capacity.  PPL Electric had no commercial paper outstanding at September 30, 2008.

PPL Electric participates in an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly-owned subsidiary on an ongoing basis.  The credit agreement related to PPL Electric's and the subsidiary's participation in a $150 million asset-backed commercial paper program expired in July 2008.  In August 2008, PPL Electric and the subsidiary entered into a new credit agreement governing a similar asset-backed commercial paper program with a different financial institution and commercial paper conduit that expires in July 2009.  The borrowing limit under such program continues to be $150 million.  Borrowings under this program are subject to customary conditions precedent, as well as the requirement that PPL Electric discharge a conditional lien that could attach to the accounts receivable upon a default under PPL Electric's 1945 First Mortgage Bond Indenture.  This discharge is expected to be completed by the end of 2008.  At September 30, 2008, $154 million of accounts receivable and $133 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 the asset-backed commercial paper program.  PPL Electric's sale to its subsidiary of the accounts receivable and unbilled revenue is an absolute sale of the assets, and PPL Electric does not retain an interest in these assets.  However, for financial reporting purposes, the subsidiary's financial results are consolidated in PPL Electric's financial statements.  Subject to market conditions, PPL Electric currently expects that it and the subsidiary will renew the credit agreement on an annual basis.

(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 March 2007, PPL and PPL Capital Funding entered into a Replacement Capital Covenant in connection with the issuance of PPL Capital Funding's 2007 Series A Junior Subordinated Notes due 2067.  In March 2008, there was a redesignation of the series of covered debt benefiting from such Replacement Capital Covenant.  Effective March 1, 2008, PPL Capital Funding's 4.33% Notes Exchange Series A due March 2009 ceased being the covered debt and PPL Capital Funding's 6.85% Senior Notes due 2047 became the covered debt benefiting from the Replacement Capital Covenant.

In August 2008, PPL Gas Utilities prepaid the entire $10 million aggregate principal amount of its 8.70% Senior Notes due December 2022.  PPL Gas Utilities paid a premium of $3 million in connection with the prepayment.

(PPL and PPL Energy Supply)

In March 2008, PPL Energy Supply issued $400 million of 6.50% Senior Notes due 2018 (6.50% Notes).  The 6.50% Notes may be redeemed any time prior to maturity at PPL Energy Supply's option at make-whole redemption prices.  PPL Energy Supply received proceeds of $396 million, net of a discount and underwriting fees, from the issuance of the 6.50% Notes.  The proceeds have been used for general corporate purposes, including capital expenditures relating to the installation of pollution control equipment by PPL Energy Supply subsidiaries.

In April 2008, PPL Energy Supply elected to change the interest rate mode on the Exempt Facilities Revenue Bonds, Series 2007 due 2037 (Bonds) that were issued by the Pennsylvania Economic Development Financing Authority (PEDFA) on behalf of PPL Energy Supply in December 2007.  The interest rate mode was converted from a rate that was reset daily through daily remarketing of the Bonds to a term rate of 1.80% for one year.  In connection with this change, the letter of credit supporting the Bonds was modified accordingly.

The terms of PPL Energy Supply's 2-5/8% Convertible Senior Notes due 2023 (Convertible Senior Notes) included a market price trigger that permitted holders to convert the notes during any fiscal quarter if the closing sale price of PPL's common stock exceeded $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.  The holders of the Convertible Senior Notes also had the right to require PPL Energy Supply to purchase all or any part (equal to $1,000 principal amount or an integral multiple thereof) of the Convertible Senior Notes on May 15, 2008 at 100% of the principal amount, plus accrued and unpaid interest thereon as of such date.  In April 2008, the holders were notified that, in accordance with the terms of the Convertible Senior Notes, PPL Energy Supply was redeeming on May 20, 2008, all outstanding Convertible Senior Notes at 100% of the principal amount, plus accrued and unpaid interest thereon as of such date.

The Convertible Senior Notes were subject to conversion at the election of the holders any time prior to May 20, 2008, as a result of the market price trigger being met and the notes being called for redemption.  Upon conversion of the Convertible Senior Notes, PPL Energy Supply was required to settle the principal amount in cash and any conversion premium in cash or PPL common stock.  During the nine months ended September 30, 2008, Convertible Senior Notes in an aggregate principal amount of $57 million were presented for conversion.  The total conversion premium related to these conversions was $56 million, which was settled with 1,128,341 shares of PPL common stock, together with an insignificant amount of cash in lieu of fractional shares.  On May 20, 2008, PPL Energy Supply redeemed an insignificant amount of Convertible Senior Notes.  As of September 30, 2008, no Convertible Senior Notes remain outstanding.

In July 2008, PPL Energy Supply issued $300 million of 6.30% Senior Notes due 2013 (6.30% Notes).  The 6.30% Notes may be redeemed any time prior to maturity at PPL Energy Supply's option at make-whole redemption prices.  PPL Energy Supply received proceeds of $298 million, net of a discount and underwriting fees, from the issuance of the 6.30% Notes.  The proceeds were used to repay short-term debt that was outstanding at the time of issuance.

(PPL and PPL Electric)

During the nine months ended September 30, 2008, PPL Transition Bond Company made principal payments on transition bonds of $232 million.

In October 2008, PPL Electric issued $400 million of 7.125% Senior Secured Bonds due 2013 (7.125% Bonds).  The 7.125% Bonds were issued on the basis of an equal principal amount of first mortgage bonds issued under the 1945 First Mortgage Bond Indenture pledged to the Senior Secured Bond Indenture Trustee.  The 7.125% Bonds may be redeemed any time prior to maturity at PPL Electric's option at make-whole redemption prices.  PPL Electric received proceeds of $397 million, net of a discount and underwriting fees, from the issuance of the 7.125% Bonds.  The proceeds will be used to partially fund the repayment at maturity of approximately $486 million outstanding aggregate principal amount of PPL Electric's Senior Secured Bonds, 6-1⁄4% Series, due August 2009.  Prior to such use, the proceeds will be invested in short-term investments and used for general corporate purposes.

In October 2008, PEDFA issued $90 million aggregate principal amount of Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023 (Series 2008 Bonds) on behalf of PPL Electric in order to refund $90 million aggregate principal amount of Pollution Control Revenue Refunding Bonds, Series 2003, which were previously issued by the Lehigh County Industrial Development Authority on behalf of PPL Electric and matured on November 1, 2008.  The Series 2008 Bonds are structured as variable-rate remarketable bonds.  The Series 2008 Bonds bear interest for the first week at an initial rate of 2.50% and will be remarketed on a weekly basis until such time that PPL Electric elects to change the interest rate mode.  PPL Electric may convert the interest rate on the Series 2008 Bonds from time to time to a commercial paper rate, daily rate, weekly rate or a term rate of at least one year.  The Series 2008 Bonds are subject to mandatory purchase under certain circumstances, including upon conversion to a different interest rate mode.  PPL Electric acted as initial purchaser of the Series 2008 Bonds upon issuance and expects that they will be remarketed to unaffiliated investors subject to market conditions.

In connection with the issuance of the Series 2008 Bonds by PEDFA, PPL Electric entered into a loan agreement with PEDFA pursuant to which it loaned PPL Electric the proceeds of the Series 2008 Bonds on payment terms that correspond to the Series 2008 Bonds.  PPL Electric issued a note to PEDFA to evidence its obligations under the loan agreement.

Concurrent with, and as a condition to, the issuance of the Series 2008 Bonds, PPL Electric issued to the Trustee of the Series 2008 Bonds, its Senior Secured Bonds, Variable Rate Pollution Control Series 2008, which contain payment and redemption provisions that correspond to the Series 2008 Bonds.  Such senior secured bonds were issued on the basis of an equal principal amount of first mortgage bonds issued under the 1945 First Mortgage Bond Indenture and pledged to the Senior Secured Bond Indenture Trustee.

PPL Electric's senior secured bonds are secured by first mortgage bonds held by the Senior Secured Bond Indenture Trustee and the lien of the 2001 Senior Secured Bond Indenture, which is junior to the lien of the 1945 First Mortgage Bond Indenture.  The 1945 First Mortgage Bond Indenture and the 2001 Senior Secured Bond Indenture create liens on substantially all of PPL Electric's distribution properties and certain of its transmission properties, which liens may be released subject to certain circumstances and conditions, and subject to certain exceptions and exclusions.

Other than first mortgage bonds delivered to the Senior Secured Bond Indenture Trustee as the basis for issuance of senior secured bonds, there were $10 million of first mortgage bonds outstanding at September 30, 2008.  PPL Electric intends to defease such bonds and to discharge the lien of the 1945 First Mortgage Bond Indenture later in 2008, and to cancel the related first mortgage bonds in accordance with the terms of the 2001 Senior Secured Bond Indenture, at which time such Indenture would become a first mortgage lien, subject to certain permitted liens and exceptions, on substantially all of PPL Electric's tangible electric distribution properties and certain of its transmission properties.

Common Stock Repurchase Program (PPL)

In June 2007, PPL's Board of Directors authorized the repurchase by PPL of up to $750 million of its common stock.  Through September 30, 2008, a total of 15,732,708 shares were repurchased for $750 million, excluding related fees, under the plan.  This includes the purchase of 802,816 shares of PPL common stock for $38 million in 2008.  These purchases were primarily recorded as a reduction to "Capital in excess of par value" on the Balance Sheet.

Distributions, Capital Contributions and Related Restrictions

(PPL)

In February 2008, PPL announced an increase to its quarterly common stock dividend, effective April 1, 2008, to 33.5 cents per share (equivalent to $1.34 annually).  Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

(PPL Energy Supply)

During the nine months ended September 30, 2008, PPL Energy Supply distributed $666 million to its parent company, PPL Energy Funding, and received cash capital contributions of $125 million.

(PPL Electric)

During the nine months ended September 30, 2008, PPL Electric paid common stock dividends of $73 million to PPL.

(PPL and PPL Electric)

PPL Electric is subject to Section 305(a) of the Federal Power Act, which makes it unlawful for a public utility to make or pay a dividend from any funds "properly included in capital account."  The meaning of this limitation has never been clarified under the Federal Power Act.  PPL Electric believes, however, that this statutory restriction, as applied to its circumstances, would not be construed or applied by the FERC to prohibit the payment from retained earnings of dividends that are not excessive and are for lawful and legitimate business purposes.

8.   Acquisitions, Development and Divestitures

(PPL, PPL Energy Supply and PPL Electric)

PPL continuously evaluates strategic options for its business segments and, from time to time, PPL and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets, joint ventures and development projects, which may or may not result in definitive agreements.  Any such transactions may impact future financial results.

Domestic

Development

(PPL and PPL Energy Supply)

In January 2008, PPL Susquehanna received NRC approval for its request to increase the amount of electricity the Susquehanna nuclear plant can generate.  The total expected capacity increase is 159 MW, of which PPL Susquehanna's share would be 143 MW.  The first uprate for Unit 1 was completed in May 2008.  The remaining total expected capacity increase is 109 MW, of which PPL Susquehanna's share would be 98 MW.  PPL Susquehanna's share of the expected capital cost for the remainder of this project is $235 million.  PPL expects to achieve the full capacity increase of 159 MW after the refueling outage in 2010 for Unit 1.

In September 2008, a PPL subsidiary submitted Part I of an application to the DOE for a federal loan guarantee for the proposed Bell Bend nuclear generating unit (Bell Bend) to be built adjacent to PPL's Susquehanna plant.  The subsidiary expects to submit the second part of the loan guarantee application as required before the December 2008 deadline.

In October 2008, a PPL subsidiary submitted a COLA to the NRC for Bell Bend.  Submittal of the COLA by December 2008 met the first requirement to qualify for federal production tax credits and loan guarantees, as provided under the Energy Policy Act of 2005.  Another PPL subsidiary contracted with UniStar Nuclear Services, LLC, an affiliate of UniStar Nuclear Energy, LLC, a joint venture between Constellation Energy Nuclear Group, LLC and EDF Development, Inc., to prepare the application.  The facility for which the application was submitted will be based on the U.S. Evolutionary Power Reactor design developed by AREVA NP, Inc. and its affiliates.  PPL and its subsidiaries are currently authorized by PPL's Board of Directors to spend up to $90 million on the COLA and other permits necessary for construction, an estimated $60 million of which is expected to be substantially incurred by the end of 2008.

PPL has made no decision to proceed with construction of the Bell Bend nuclear generating unit and expects that such decision will not be made for several years given the anticipated lengthy NRC license approval process.  Additionally, PPL has announced that it would likely proceed to construction only in a joint arrangement with other interested parties and with a federal loan guarantee or other acceptable financing structures.  Through September 30, 2008, $41 million of costs associated with the licensing effort were capitalized as an intangible asset, as PPL deems it probable that these costs are ultimately recoverable.

(PPL and PPL Electric)

In June 2007, PJM approved the construction of a new 130-mile, 500-kilovolt transmission line between the Susquehanna substation in Pennsylvania and the Roseland substation in New Jersey that has been identified as essential to long-term reliability of the mid-Atlantic electricity grid.  PJM determined that the line is needed to prevent potential overloads that could occur in the next decade on several existing transmission lines in the interconnected PJM system.  PJM has directed PPL Electric to construct the portion of the Susquehanna-Roseland line in Pennsylvania and has directed Public Service Electric & Gas Company (PSE&G) to construct the portion of the line in New Jersey by June 1, 2012.  PPL Electric's estimated share of the project costs at September 30, 2008, was $509 million.  This project is pending certain regulatory approvals.

PPL Electric has identified the approximately 100-mile route for the Pennsylvania portion of the line and expects to file an application with the PUC in the fourth quarter of 2008 for approval to site and construct the line.

In December 2007, PPL Electric and PSE&G filed a joint petition for a declaratory order with the FERC requesting approval of transmission rate incentives for the Susquehanna-Roseland transmission line.  The companies requested:  (1) an additional 1.5% allowed rate of return on equity; (2) recognition of construction work in progress in rate base; (3) recovery of all costs if the project is cancelled; and (4) an additional 0.5% allowed rate of return on equity for membership in PJM.  In April 2008, the FERC approved the filing and granted all of the requested incentives except that the additional allowed rate of return on equity was approved at 1.25%.

(PPL and PPL Energy Supply)

Sale of Telecommunication Operations

In the first quarter of 2007, PPL completed a review of strategic options for the transport operations of its domestic telecommunications subsidiary, which offered fiber optic capacity to other telecommunications companies and enterprise customers.  The operating results of this subsidiary were included in the Supply segment.  Due to a combination of significant capital requirements for the telecommunication operations and competing capital needs in PPL's core electricity supply and delivery businesses, PPL decided to actively market these telecommunication operations.  As a result, PPL and PPL Energy Supply recorded an initial impairment of $31 million ($18 million after tax) of the telecommunication assets based on their estimated fair value.  The impairment is included in "Energy-related businesses" expenses on the Statement of Income.  The transport operations did not meet the criteria for discontinued operations presentation on the Statement of Income because there were not separate and distinguishable cash flows, among other factors.

In May 2007, PPL reached a definitive agreement to sell its telecommunication operations.  In the second quarter of 2007, PPL and PPL Energy Supply recorded an additional impairment of $3 million ($2 million after tax).  In August 2007, PPL completed the sale of its telecommunication operations and recorded an additional impairment of $5 million ($3 million after tax).  PPL realized net proceeds of $47 million from the sale.

Acquisition of a Long-term Tolling Agreement

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  As a result of this agreement, PPL EnergyPlus recognized an intangible asset.  See Notes 15 and 18 for additional information.

Other

In 2004, PPL Maine entered into an agreement with a coalition of government agencies and private groups to sell three of its nine hydroelectric dams in Maine.  Under the agreement, a non-profit organization designated by the coalition would have a five-year option to purchase the dams for $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.  In June 2008, the coalition notified PPL Maine of its intent to exercise the purchase option.  The agreement requires updates to the representations and warranties in the purchase and sale agreement, and several approvals by the FERC.  Certain of these regulatory approvals have been obtained, but PPL cannot predict whether or when all of them will be obtained.

International

Sales

In 2005, WPD effectively sold an equity investment by transferring substantially all risks and rewards of ownership of the two subsidiaries that held the investment.  The gain was deferred until WPD's continuing involvement in the subsidiaries ceased.  In the first quarter of 2007, PPL Global recognized a pre- and after-tax gain of $5 million as WPD's involvement ceased.  This gain is included in "Other Income - net" on the Statements of Income.

Other

In 2000, WPD acquired Hyder.  Subsequently, WPD sold the majority of Hyder's non-electricity delivery businesses and placed the remaining companies in liquidation.  WPD has periodically received distributions related to these ongoing liquidations.  These distributions are included in "Other Income - net" on the Statements of Income (as detailed in Note 12).  The Hyder non-electricity delivery businesses are substantially liquidated at September 30, 2008.  WPD continues to operate the former Hyder electricity delivery business, now named WPD (South Wales).

Discontinued Operations

Sale of Latin American Businesses

In March 2007, PPL completed a review of strategic options for its Latin American businesses and announced its intention to sell its regulated electricity delivery businesses in Chile, El Salvador and Bolivia, which were included in the International Delivery segment.

In April 2007, PPL agreed to sell its Bolivian businesses and recorded an impairment in the first quarter of 2007 of $34 million ($17 million after tax) to reflect the estimated fair value of the businesses at the date the agreement was reached.  In the second and third quarters of 2007, additional pre- and after-tax impairments of $2 million and $1 million were recorded primarily to offset each period's earnings.  This sale was completed in July 2007.

In May 2007, PPL completed the sale of its El Salvadoran business for $180 million in cash.  PPL recorded a gain of $94 million ($89 million after tax) as a result of the sale.

In November 2007, PPL completed the sale of its Chilean business for $660 million in cash.  PPL recorded a gain of $306 million ($197 million after tax) as a result of the sale.

In the first quarter of 2008, PPL Global recognized income tax adjustments and other expenses in Discontinued Operations as the dissolution of the remaining Latin American holding companies commenced.  PPL Global may recognize additional adjustments and/or expenses in Discontinued Operations until this process is complete.

In accordance with SFAS 144, the following results of operations for the nine months ended September 30, 2008, and the three and nine months ended September 30, 2007, have been classified as Discontinued Operations on the Statements of Income.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008	2007			2008			2007
Operating revenues		$	119					$	432
Operating expenses (a)			70		$	2			375
Operating income (loss)			49			(2	)		57
Other income – net			(19	)		(1	)		(16	)
Interest expense (b)			8						19
Income (Loss) before income taxes and minority interest			22			(3	)		22
Income tax expense (benefit) (c) (d)			11			(8	)		31
Minority interest			(2	)					(9	)
Gain on sale of El Salvadoran business (net of tax expense of $5 million)									89
Income from Discontinued Operations		$	13		$	5		$	89

(a)	The three and nine months ended September 30, 2007, include $1 million and $37 million of impairment charges related to the Bolivian businesses.  Also included are fees associated with the divestiture of the Latin American businesses of $5 million ($3 million after tax) for the three and nine months ended September 30, 2007.
(b)	The three and nine months ended September 30, 2007, include $3 million and $7 million of interest expense allocated pursuant to EITF 87-24.  The allocation was based on the discontinued operation's share of the net assets of PPL Energy Supply.
(c)	The three and nine months ended September 30, 2007, include U.S. deferred tax (credits) charges of $(7) million and $20 million.  As a result of PPL's decision to sell its Latin American businesses, it no longer qualifies for the permanently reinvested exception to recording deferred taxes pursuant to APB Opinion No. 23.
(d)	The nine months ended September 30, 2008, includes $6 million from the recognition of a previously unrecognized tax benefit associated with a prior year tax position.

(PPL)

Sale of Gas and Propane Businesses

In July 2007, PPL completed a review of strategic options for its natural gas distribution and propane businesses and announced its intention to sell these businesses, which are included in the Pennsylvania Delivery segment.  In March 2008, PPL signed a definitive agreement to sell these businesses for $268 million in cash, adjusted for working capital at the sale date, pursuant to a stock purchase agreement.  In June 2008, PPL recorded a pre- and after-tax impairment of $1 million.  In August 2008, PPL Gas Utilities paid a $3 million ($2 million after tax) premium to prepay the entire $10 million aggregate principal of its 8.70% Senior Notes due December 2022.  In September 2008, PPL recorded an additional impairment of $3 million ($2 million after tax).  The sale was completed in October 2008.  Proceeds of the sale, $303 million after adjusting for working capital, were contributed to PPL Energy Supply through its parent, PPL Energy Funding, to be used for general corporate purposes, including capital expenditures.

In accordance with SFAS 144, the results of operations for the three and nine months ended September 30, 2008 and 2007, have been classified as Discontinued Operations on the Statements of Income.  The assets and liabilities at September 30, 2008 and December 31, 2007, are classified on the Balance Sheets as held for sale.

Following are the components of Discontinued Operations on the Statements of Income.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Operating revenues	$	26		$	23		$	162		$	161
Operating expenses (a)		32			23			148			145
Operating (loss) income		(6	)					14			16
Other income-net		(3	)					(3	)
Interest expense		1			1			4			4
(Loss) income before income taxes		(10	)		(1	)		7			12
Income tax (benefit) expense (b)		(5	)		23			2			29
(Loss) income from Discontinued Operations	$	(5	)	$	(24	)	$	5		$	(17	)

(a)

The three and nine months ended September 30, 2008, include $3 million and $4 million of impairment charges.

(b)

As a result of classifying the natural gas distribution and propane businesses as Discontinued Operations and in accordance with EITF 93-17, "Recognition of Deferred Tax Assets for a Parent Company's Excess Tax Basis in the Stock of a Subsidiary That Is Accounted for as a Discontinued Operation," in the third quarter of 2007 PPL recorded a deferred income tax charge of $23 million related to its book/tax basis difference in the investment in these assets.

The major classes of "Assets held for sale" and "Liabilities held for sale" on the Balance Sheets were as follows at:

	September 30, 2008		December 31, 2007
Current Assets
Cash and cash equivalents	$	3
Accounts receivable		9	$	18
Fuel, materials and supplies		25		18
Other		10		7
Total Current Assets		47		43
PP&E		220		213
Goodwill and other noncurrent assets		61		62
Total assets held for sale	$	328	$	318
Current Liabilities
Accounts payable	$	9	$	17
Other		7		15
Total Current Liabilities		16		32
Long-term Debt (a)				10
Deferred Credits and Other Noncurrent Liabilities		24		26
Total liabilities held for sale	$	40	$	68

(a) Under the terms of the definitive sales agreement, the purchaser is not assuming this debt.  Therefore, in 2008 this debt was reclassified from "Liabilities held for sale" to "Current Liabilities - Long-term debt" on the Balance Sheet and subsequently prepaid in August 2008.

9.   Defined Benefits

(PPL and PPL Energy Supply)

Net periodic defined benefit costs (credits) were:

	Pension Benefits
	Three Months Ended September 30,												Nine Months Ended September 30,
	Domestic						International						Domestic						International
	2008			2007			2008			2007			2008			2007			2008			2007
PPL
Service cost	$	16		$	15		$	4		$	6		$	46		$	47		$	12		$	18
Interest cost		36			33			49			42			105			99			147			126
Expected return on plan assets		(46	)		(43	)		(60	)		(57	)		(135	)		(131	)		(180	)		(169	)
Amortization of:
Transition asset		(1	)		(1	)								(3	)		(3	)
Prior service cost		5			5			2			2			15			14			4			4
Actuarial (gain) loss		(2	)					4			14			(6	)		1			14			41
Net periodic pension costs (credits) prior to settlement charge and special termination benefits		8			9			(1	)		7			22			27			(3	)		20
Settlement charge																	3
Special termination benefits					1												1
Net periodic defined benefit costs (credits)	$	8		$	10		$	(1	)	$	7		$	22		$	31		$	(3	)	$	20
PPL Energy Supply
Service cost	$	1		$	1		$	4		$	6		$	3		$	3		$	12		$	18
Interest cost		2			1			49			42			5			4			147			126
Expected return on plan assets		(2	)		(2	)		(60	)		(57	)		(6	)		(6	)		(180	)		(169	)
Amortization of:
Prior service cost								2			2									4			4
Actuarial loss								4			14									14			41
Net periodic pension costs (credits) prior to special termination benefits		1						(1	)		7			2			1			(3	)		20
Special termination benefits					1												1
Net periodic defined benefit costs (credits)	$	1		$	1		$	(1	)	$	7		$	2		$	2		$	(3	)	$	20

	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
PPL
Service cost	$	2		$	2		$	6		$	6
Interest cost		9			8			25			23
Expected return on plan assets		(5	)		(6	)		(15	)		(16	)
Amortization of:
Transition obligation		2			3			6			7
Prior service cost		2			2			7			7
Actuarial loss		1			2			3			5
Net periodic defined benefit costs	$	11		$	11		$	32		$	32

10.   Commitments and Contingencies

Energy Purchases, Energy Sales and Other Commitments

Energy Purchase Commitments

(PPL and PPL Energy Supply)

PPL and PPL Energy Supply enter into long-term purchase contracts to supply the fuel requirements for generation facilities.  These contracts include commitments to purchase coal, emission allowances, limestone, natural gas, oil and nuclear fuel and extend for terms through 2019.  PPL and PPL Energy Supply also enter into long-term contracts for the storage and transportation of natural gas.  The long-term natural gas storage contracts extend for terms through 2014 for PPL and 2011 for PPL Energy Supply.  The long-term natural gas transportation contracts extend for terms through 2032 for PPL and PPL Energy Supply.  Additionally, PPL and PPL Energy Supply have entered into long-term contracts to purchase power that extend for terms through 2017, excluding long-term power purchase agreements for full output of two wind farms.  These wind farm contracts extend for terms through 2027.

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  Under the agreement, PPL EnergyPlus has control over the plant's dispatch into the electricity grid and will supply the natural gas necessary to operate the plant.  The tolling agreement extends through 2021.  See Notes 15 and 18 for additional information.

(PPL and PPL Electric)

In 2007, PPL Electric began to conduct competitive solicitations to purchase electricity generation supply in 2010, after its existing PLR contract expires, for customers who do not choose a competitive supplier.  A total of six auctions are planned, with two occurring in each of the years 2007, 2008 and 2009.  Each solicitation is for 850 MW of expected generation supply.  Average generation supply prices (per MWh), including Pennsylvania gross receipts tax and an adjustment for line losses, for the first four solicitations were as follows:

	Residential		Small Commercial and Small Industrial
July 2007	$	101.77	$	105.11
October 2007		105.08		105.75
March 2008		108.80		108.76
October 2008		112.51		111.94
Average		107.04		107.89

The fifth competitive solicitation is scheduled for March 2009.

In August 2008, PPL Electric filed a request with the PUC to approve its plan to purchase the PLR electricity supply that PPL Electric will need for 2011 through mid-2014.  Under the plan, PPL Electric proposed to buy this electricity for January 2011 through May 2014 four times a year, beginning in the third quarter of 2009, for 12- and 24- month increments.  PPL Electric also will seek bids from other companies to manage its hourly purchases in the competitive electricity market.  For residential and small-business customers, 90 percent of the supply would be acquired through fixed-price contracts of 12 or 24 months, and 10 percent through hourly purchases in the open market.  All of the power for large commercial and industrial customers would be purchased on an hourly basis in the open market.  An independent third party would administer the process of securing power supply contracts and, with PUC oversight, select the suppliers that would provide generation supply at the lowest cost to PPL Electric's customers.

On November 3, 2008, PPL Electric proposed several amendments to its plan to reflect passage of Pennsylvania Act 129 (Act 129).  Act 129, among other things, creates an energy efficiency and conservation program.  PPL Electric added provisions to purchase 5% of its default service supply through five-year contracts and an additional 5% through ten-year contracts.  It reduced the term of its plan by one year, proposing that the plan end in May 2013, rather than in May 2014.  Finally, PPL Electric provided support for several findings that the PUC was required to make under Act 129.  PPL Electric cannot predict the outcome of this matter.

See Note 11 for additional information on PPL Electric's existing PLR contracts with PPL EnergyPlus and the bids awarded to PPL EnergyPlus under PPL Electric's Supply Master Agreement for 2010.

Energy Sales Commitments

(PPL and PPL Energy Supply)

In connection with its marketing activities or associated with certain of its power plants, PPL Energy Supply has entered into long-term power sales contracts that extend for terms through 2016, excluding an insignificant contract extending through 2023.  All long-term contracts were executed at prices that approximated market prices at the time of execution.

PPL Energy Supply has entered into load-following and retail contracts with various counterparties.  These contracts extend through 2014.  Under these contracts, if PPL Energy Supply's credit rating falls below investment grade or PPL Energy Supply's contract exposure exceeds the established credit limit for the contract, then the counterparty has the right to request collateral from PPL Energy Supply.

(PPL Energy Supply)

See Note 11 for information on the power supply agreements between PPL EnergyPlus and PPL Electric.

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

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

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 $14 million between 2008 and 2015, in addition to the annual rental it pays to the tribes.  Between 2015 and 2025, the tribes have the option to purchase, hold and operate the project for the remainder of the license term, which expires in 2035.

PPL Montana entered into two Memoranda of Understanding (MOUs) with state, federal and private entities related to the issuance in 2000 of the FERC renewal license for the nine dams for the Missouri-Madison project.  The MOUs require PPL Montana to implement plans to mitigate the impact of its projects on fish, wildlife and the habitat, and to increase recreational opportunities.  The MOUs were created to maximize collaboration between the parties and enhance the possibility for matching funds from relevant federal agencies.  Under this arrangement, PPL Montana has a remaining commitment to spend $39 million between 2008 and 2040.

Legal Matters

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries are involved in 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 failed to obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999, and that the sale "was null and void ab initio."  Among the remedies that the plaintiffs are seeking is the establishment of a "resulting and/or constructive trust" on both the generation assets and all profits earned by PPL Montana from the generation assets, plus interest on the amounts subject to the trust.  This lawsuit is pending in the U.S. District Court of Montana, Butte Division, and the judge placed this proceeding on hold pending the outcome of certain motions currently before the U.S. Bankruptcy Court for the District of Delaware, the resolution of which may impact this proceeding.  The judge in this case has not established a schedule to resume the proceeding.  In September 2007, certain plaintiffs proposed a settlement of certain claims not involving PPL and proposed a status conference to discuss their proposal.  The judge held a status conference in January 2008 and rejected the proposed settlement.  PPL and PPL Energy Supply cannot predict the outcome of this matter.

Montana Hydroelectric Litigation(PPL and PPL Energy Supply)

In November 2004, PPL Montana, Avista Corporation (Avista) 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 their hydropower facilities' use and occupancy of streambeds in Montana can be collected by the State of Montana.  This request was brought following the dismissal of the State of Montana's federal lawsuit seeking such payments or compensation in the U.S. District Court of Montana, Missoula Division, on jurisdictional grounds.  The State's federal lawsuit was founded on allegations that the beds of Montana's navigable rivers became state-owned trust property upon Montana's admission to statehood, and that the use of them for placement of dam structures, affiliated structures and reservoirs should, under a 1931 regulatory scheme enacted after all but one of the dams in question were constructed, trigger lease payments for use of land beneath.  In July 2006, the Montana state court approved a stipulation by the State of Montana that it is not seeking lease payments or other compensation from PPL Montana for the period prior to PPL Montana's acquisition of the hydroelectric facilities in December 1999.

In June and October 2007, Pacificorp and Avista, respectively, entered into settlement agreements with the State of Montana providing, in pertinent part, that each company would make prospective lease payments of $50,000 and $4 million per year for use of the State's navigable streambed (adjusted annually for inflation and subject to other future adjustments).  Under these settlement agreements, the future annual payments resolved the State's claims for both past and future compensation.

In the October 2007 trial of this matter, the State of Montana asserted that PPL Montana should make a prospective lease payment for use of the State's streambeds of $6 million per year (adjusted annually for inflation) and a retroactive payment of compensation for the 2000-2006 period (including interest) of $41 million.  PPL Montana vigorously contested both such assertions.

In June 2008, the District Court issued a decision awarding compensation of approximately $34 million for prior years and approximately $6 million for 2007 compensation.  The Court also deferred the determination of compensation for 2008 and future years to the Montana State Land Board.

PPL Montana believes that the District Court's decision and a number of its pretrial rulings are erroneous.  In October 2008, PPL Montana filed an appeal of the decision to the Montana Supreme Court and a stay of judgment, including a stay of the Land Board's authority to assess compensation against PPL Montana for 2008 and future periods.

PPL Montana believes that it is reasonably possible that a liability for prior use and occupancy of certain Montana streambeds may ultimately be incurred for the periods 2000 through 2006, and the amount awarded by the District Court represents the maximum exposure.  PPL Montana has not recorded a loss accrual for this portion of the State's claim.

For 2007 and subsequent years, PPL Montana believes it is probable that its hydroelectric projects will be subject to annual estimated compensation ranging from $300,000 to $6 million.  Given that there was no single amount within that range more likely than any other, PPL Montana is annually accruing $300,000.

PPL Montana will continue to assess the loss exposure for the Montana hydro litigation in future periods.

Holtwood Hydroelectric Project (PPL and PPL Energy Supply)

In December 2007, PPL Holtwood submitted to the FERC an application to amend PPL Holtwood's license for the Holtwood Project (Project), which is located on the Susquehanna River, in Lancaster and York Counties, Pennsylvania.  PPL's proposed amendment (Proposal) would, among other things, extend the existing license to 2030 and authorize construction to increase the generating capacity at the Project by 125 MW.  In connection with the Proposal, Exelon Generation (Exelon) raised certain questions concerning the Proposal's potential impact on Exelon's downstream hydroelectric facilities.  Subsequently, PPL Holtwood and Exelon entered into a settlement agreement which provides, among other things, that PPL Holtwood will maintain certain minimum flows of water through its Project and will forego approximately $400,000 annually in payments that Exelon otherwise would pay to PPL Holtwood through 2030 pursuant to a pre-existing agreement relating to the effects of Exelon's downstream generation facilities on PPL Holtwood.

Regulatory Issues

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

Through its subsidiaries, PPL made $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 faced by the California electric utilities and the California ISO, PPL cannot predict whether or when it will receive payment.  At September 30, 2008, PPL continues to be fully reserved for 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, but the FERC has not yet ruled on the exact amounts that the sellers, including PPL Montana, would be required to refund.  In decisions in September 2004 and August 2006, 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 February 2008, the FERC initiated proceedings to determine whether it would be appropriate to grant additional refunds.  The FERC also instituted settlement proceedings to explore whether a settlement is possible.

In June 2003, the FERC took several actions as a result of a number of related investigations.  The FERC terminated proceedings to consider 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.  In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence.  The FERC also commenced additional investigations relating to "gaming" and bidding practices during 2000 and 2001, but neither PPL EnergyPlus nor PPL Montana believes it is a subject of these investigations.

Litigation arising out of the California electricity supply situation has been filed in California courts against sellers of energy to the California ISO.  The plaintiffs and intervenors in these legal proceedings allege, among other things, abuse of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, and seek other relief, including treble damages and attorneys' fees.  While PPL's subsidiaries have not been named by the plaintiffs in these legal proceedings, one defendant in a consolidated court proceeding named PPL Montana in its cross-complaint; this defendant denied any unlawful conduct but asserted 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 July 2006, the Court dismissed this case as the result of a settlement under which PPL Montana was not required to make any payments or provide any compensation.

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, including PPL Montana, as well as other entities that may possess relevant information.  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.

While PPL and its subsidiaries believe that they have not engaged in any improper trading or marketing practices affecting the California and western markets, PPL cannot predict the outcome of the above-described investigations, lawsuits and proceedings or whether any PPL subsidiaries will be the target of any additional governmental investigations or named in other lawsuits or refund proceedings.

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

In May 2008, a group of state public utility commissions, state consumer advocates, municipal entities and electric cooperatives, industrial end-use customers and a single electric distribution company (collectively, the RPM Buyers) filed a complaint before the FERC objecting to the prices for capacity under the PJM Reliability Pricing Model (RPM) that were set in the 2008-09, 2009-10 and 2010-11 RPM base residual auctions.  The RPM Buyers request that the FERC re-set the rates paid to generators for capacity in those periods to a significantly lower level.  Thus, the complaint requests that generators be paid less for those periods through refunds and/or prospective changes in rates.  The relief requested in the complaint, if granted, could have a material effect on PPL, PPL Energy Supply and PPL Electric.  PJM, PPL and numerous other parties have responded to the complaint, strongly opposing the relief sought by the RPM Buyers.  In September 2008, the FERC entered an order denying the complaint.  PPL cannot predict the outcome of this proceeding.

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.  Market-based rate filings with the FERC were made in November 2004 by PPL EnergyPlus, PPL Electric, PPL Montana and most of PPL Generation's subsidiaries.  These filings consisted of 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, subject to PPL subsidiaries making a compliance filing providing further support that they cannot erect other non-transmission barriers to entry into the generation market.  The PPL subsidiaries made this compliance filing in October 2005, which the FERC accepted.

In May 2006, the FERC issued an order rejecting the claims of the various parties in the proceeding regarding PPL's Western market-based rate filing and granting PPL Montana market-based rate authority in NorthWestern's control area.  In July 2007, the FERC denied two outstanding requests for rehearing of its 2006 order.  Subsequently, various parties in this proceeding filed appeals of the order with the U.S. Court of Appeals for the Ninth Circuit.  In September 2007, a party also filed a complaint with the FERC seeking additional refunds in the event that the U.S. Court of Appeals overturns or reverses the FERC order.  While PPL Montana continues to believe that it does not have market power in NorthWestern's control area and that it has no obligations to make additional sales of power to NorthWestern regardless of the outcome of this proceeding, it cannot predict the outcome of these proceedings.

In January 2008, pursuant to the schedule established by FERC orders, PPL's subsidiaries made another market-based rate renewal filing for all Eastern subsidiaries in the PJM, New England and New York regions, including PPL Electric, PPL EnergyPlus and most of PPL Generation's subsidiaries.  In October 2008, the FERC renewed PPL's market-based rate authority as requested.

Currently, if a seller is granted market-based rate authority by the FERC, it may enter into power contracts during the time period for which such authority has been granted.  If the FERC determines that the market is not workably competitive or that the seller possesses market power or is not charging "just and reasonable" rates, the FERC institutes prospective action.  Any contracts entered into pursuant to the FERC's market-based rate authority remain in effect and are generally subject to a high standard of review before the FERC can order any changes.  Recent court decisions by the U.S. Court of Appeals for the Ninth Circuit have raised issues that may make it more difficult for the FERC to continue its program of promoting wholesale electricity competition through market-based rate authority.  These court decisions permit retroactive refunds and a lower standard of review by the FERC for changing power contracts, and could have the effect of requiring the FERC to review in advance most, if not all, power contracts.  In June 2008, the U.S. Supreme Court reversed one of the decisions of the U.S. Court of Appeals for the Ninth Circuit, thus upholding the higher standard of review for modifying contracts.  The FERC has not yet taken action in response to these recent court decisions.  At this time, PPL cannot predict the impact of these court decisions on the FERC's future market-based rate authority program or on PPL's business.

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

PPL, through its subsidiaries, has interests in two former synthetic fuel production facilities:  the Somerset facility, which was located in Pennsylvania and the Tyrone facility, which was located in Kentucky.  PPL has received tax credits pursuant to Section 29/45K of the Internal Revenue Code based on the sale of synthetic fuel from these facilities.  The Section 29/45K tax credit program expired at the end of 2007, and production of synthetic fuel at these facilities and all other synthetic fuel operations ceased as of December 31, 2007.  The facilities have been dismantled and PPL is in the process of disposing of its interests.

In addition, Section 29/45K provided 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), fell within a designated range and to be eliminated when the DFPP exceeds the range.  The phase-out range was adjusted annually for inflation.

PPL estimated the phase-out range for 2007 to begin at about $57 per barrel (DFPP) and the tax credits to be totally eliminated at about $71 per barrel (DFPP).  At December 31, 2007, PPL projected a phase-out of approximately 56% of the gross tax credits produced in 2007, based on its estimate of the DFPP reference price and the inflation-adjusted phase-out range applicable for 2007.  The DFPP was published by the IRS in April 2008 for the prior year indicating that the DFPP reference price increased above the previously estimated price levels for 2007 and the inflation-adjusted phase-out range decreased, resulting in a higher phase-out percentage of approximately 67%.  Therefore, PPL recorded an expense of $13 million ($0.04 per share, basic and diluted, for PPL) during the nine months ended September 30, 2008, to "Income Taxes" on the Statement of Income to account for this difference.

After considering the above adjustment, the synthetic fuel produced at the Somerset and Tyrone facilities resulted in an aggregate estimated recognition of tax credits of $314 million for Somerset and $112 million for Tyrone through September 30, 2008.

In 2007, PPL also purchased synthetic fuel from unaffiliated third parties, at prices below the market price of coal, for use at its coal-fired power plants.  The resulting fuel cost savings for the nine months ended September 30, 2007 were $18 million.

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 substantially affects the regulation of energy companies.  The Act amends federal energy laws and provides the FERC with new oversight responsibilities.  Among the important changes that have been or will be implemented as a result of this legislation are:

· The Public Utility Holding Company Act of 1935 was repealed.  PUHCA significantly restricted mergers and acquisitions in the electric utility sector.

· The FERC has appointed the NERC as the organization to establish and enforce mandatory reliability standards (Reliability Standards) regarding the bulk power system, and the FERC will oversee this process and independently enforce the Reliability Standards, as further described below.

· 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, was extended 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, some of which have not been finalized, by the FERC, the DOE and other federal agencies.  PPL cannot predict when all of these proceedings and regulations will be finalized.

The implemented Reliability Standards have the force and effect of law, and apply to certain users of the bulk power electricity system, including electric utility companies, generators and marketers.  The FERC has indicated that it intends to enforce vigorously the Reliability Standards using, among other means, civil penalty authority.  Under the Federal Power Act, the FERC may assess civil penalties of up to $1 million per day, per violation, for certain violations.  The first group of Reliability Standards approved by the FERC became effective in June 2007.

In September 2007, PPL Electric self-reported to the RFC that PPL Electric had identified a potential violation of certain reliability requirements and submitted an accompanying mitigation plan.  In February 2008, the RFC notified PPL Electric that it had completed its investigation, accepted PPL Electric's mitigation plan and issued a Notice of Alleged Violation.  In September 2008, the RFC issued its Notice of Confirmed Violation concerning this matter.  The RFC's determination is subject to review and approval by the NERC and the FERC.  At this time, PPL Electric cannot predict the outcome of these reviews.

PPL and its subsidiaries cannot predict the impact the Reliability Standards will have on PPL and its subsidiaries, including on its capital and operating expenditures; however, compliance costs could be significant.

PPL and its subsidiaries also cannot predict with certainty the impact of the other provisions of the 2005 Energy Act and any related regulations on PPL and its subsidiaries.

Environmental Matters - Domestic

(PPL, PPL Energy Supply and PPL Electric)

Due to the environmental issues discussed below or other environmental matters, PPL subsidiaries may be required to modify, curtail, 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 emissions causing acid deposition, attainment of federal ambient air quality standards and toxic air emissions and visibility in the U.S.  Amendments to the Clean Air Act requiring additional emission reductions are likely to continue to be proposed in the U.S. Congress.  The Clean Air Act allows states to develop more stringent regulations and in some instances, as discussed below, Pennsylvania and Montana have chosen to do so.

Clean Air Interstate Rule

Citing its authority under the Clean Air Act, in 1997, the EPA developed new standards for ambient levels of ozone and fine particulates in the U.S.  These standards were upheld following court challenges.  To facilitate attainment of these standards, the EPA promulgated the Clean Air Interstate Rule (CAIR) for 28 midwestern and eastern states, including Pennsylvania, to reduce sulfur dioxide emissions by about 50% by 2010 and to extend the current seasonal program for reduction in nitrogen oxides emissions to a year-round program starting in 2009.  The CAIR required further reductions in the CAIR region, starting in 2015, in sulfur dioxide of 30% from 2010 levels, and nitrogen oxides during the ozone season of 17% from 2009 levels.  The CAIR allowed these reductions to be achieved through cap-and-trade programs.

In July 2008, the United States Court of Appeals for the D.C. Circuit (the Court) invalidated CAIR.  The Court did not overturn the existing cap-and-trade program for sulfur dioxide reductions under the acid rain program or the existing cap-and-trade program for reductions in nitrogen oxides during the ozone season.

As a result of this decision, in the third quarter of 2008, PPL determined that all of the annual nitrogen oxide allowances PPL EnergyPlus had purchased are no longer required and have no value, therefore, an impairment charge of $33 million pre-tax ($20 million after tax) was recorded.  Further, PPL EnergyPlus had also sold put options for annual nitrogen oxide allowances, for which there is no longer a physical market because of the Court's decision.  PPL recorded an additional charge of $12 million pre-tax ($7 million after tax) related to these put options.  These charges, recorded in PPL and PPL Energy Supply's Supply segment, are included in "Other operation and maintenance" expense on the Statement of Income.  In addition, the market price of sulfur dioxide allowances has fallen since the Court's decision was issued.  The book value for these sulfur dioxide emission allowances was approximately $77 million at September 30, 2008, but these allowances were not impaired.  PPL will continue to evaluate its emission allowances for impairment.  The assessment considers the emission allowances PPL expects to consume in future periods and prevailing market prices among other factors.  As noted above, the Court's decision did not impact the seasonal nitrogen oxide allowances, which had a book value of $10 million at September 30, 2008, which approximated market value.  PPL has taken actions to preserve its financial position with respect to certain nitrogen oxide allowance option contracts to which it is a party, and continues to evaluate the remaining relevant contracts for the purchase of such allowances.  Finally, as a result of the Court's decision, PPL also is reviewing aspects of its previously announced program to install certain pollution control equipment to meet the CAIR requirements.

In October 2008, the Court issued an order requesting the parties to submit responses as to whether the parties would favor a stay of the Court's order pending alternative rulemaking by the EPA.  PPL cannot predict the outcome of these proceedings.  This order has created further uncertainty surrounding the allowance markets and PPL's schedule to install pollution control equipment in compliance with the CAIR requirements.

The EPA has recently tightened the ambient air quality standard for ozone.  The more stringent standard could result in requirements to reduce emissions of nitrogen oxides beyond those previously required under the CAIR.  If additional reductions were to be required, the costs are not now determinable, but could be significant.

To continue meeting the sulfur dioxide reduction requirements under the acid rain provisions of the Clean Air Act, and the reductions required by CAIR (vacated by the Court, but which is subject to uncertainty), PPL has installed scrubbers at its Montour plant that are now in service.  PPL is continuing with installation of scrubbers at its Brunner Island plant.  In addition, with respect to compliance with ozone season attainment requirements, PPL's plan has been to operate the SCRs at Montour Units 1 and 2 during the ozone season, to optimize emission reductions from the existing combustion controls and to purchase any needed emission allowances on the open market.  PPL's current installation plan for the scrubbers and other pollution control equipment (primarily aimed at sulfur dioxide, particulate and nitrogen oxides with co-benefits for mercury emissions reduction) through 2012 is included in the capital budget.  PPL expects up to a 30 MW reduction in net generation capability at each of the Brunner Island and Montour plants due to the estimated increases in station service electrical usage during the scrubber operation.

Mercury

Also citing its authority under the Clean Air Act, the EPA issued the Clean Air Mercury Regulations (CAMR) that affect coal-fired plants.  These regulations established a cap-and-trade program to take effect in two phases, with a first phase to begin in January 2010, and a second phase with more stringent requirements to begin in January 2018.  However, in February 2008, the Court overturned the EPA's rule.  Under this decision, the EPA must either properly remove mercury from regulation under the hazardous air pollutant provisions of the Clean Air Act or develop standards requiring maximum achievable control technology (MACT) for electric generating units.  The EPA has stated that it will likely proceed with developing MACT standards for all hazardous air emissions from electric generating units.  The costs of complying with such standards are not now determinable, but could be significant.

Pennsylvania has adopted its own mercury rules that are more stringent than CAMR.  Pennsylvania's rules establish mercury emission limits for each coal-fired generating facility beginning in 2010, and require that mercury emission allowances under the EPA's cap-and-trade program under CAMR be met at each unit without the benefit of an emissions trading program, and that tighter emission limits based on the second phase of the CAMR requirements be accelerated to begin in 2015.  The cost effectiveness of Pennsylvania's mercury rule and the timing of the required reductions were based on the expected scrubbers and SCRs to be installed for compliance with CAIR.  In addition, the caps in Pennsylvania's rule were based entirely on the caps in CAMR.  In light of the Court decision overturning CAMR, in September 2008, PPL filed a complaint with a Pennsylvania Commonwealth Court seeking to have the Pennsylvania mercury rule rescinded on the basis that it is unlawful, invalid and unenforceable under the provisions of the Pennsylvania Air Pollution Control Act.

If Pennsylvania's mercury rule remains unchanged, PPL may need to have all of the Brunner Island scrubbers in service by 2010 along with chemical injection systems so that it can achieve the Phase 1 mercury reduction requirements.  PPL estimates that the capital cost of such chemical injection systems at Brunner Island will be approximately $40 million.  For Montour, PPL expects that it will have to operate the SCRs (already in place) year-round along with the scrubbers to achieve compliance with Phase 1.  However, additional injection systems could be required to meet the more stringent cap. PPL estimates the cost of these systems to be $32 million.

If Pennsylvania's mercury rule remains unchanged, to meet Pennsylvania's 2015 mercury reduction requirements, adsorption/absorption technology with fabric filters may be required at most PPL Pennsylvania coal-fired generating units if required reductions cannot be achieved by the chemical injection systems.  Based on current analysis and industry estimates, PPL estimates that if this technology were required at every one of its Pennsylvania units, the aggregate capital cost of compliance would be approximately $530 million.

Montana also has finalized its own mercury rules that require, by 2010, every coal-fired generating plant in that state to achieve reduction levels more stringent than the CAMR's 2018 requirements.  PPL presently plans to install chemical injection systems to meet these requirements.  PPL estimates that its share of the capital cost for these systems in Montana would be approximately $8 million.  Because enhanced chemical injection technologies may not be sufficiently developed to meet this level of reductions by 2010, there is a risk that adsorption/absorption technology with fabric filters at both Colstrip and Corette would be required.  Based on current analysis and industry estimates, PPL estimates that if this technology were required, its share of the capital cost to achieve compliance at its Montana units would be approximately $140 million.

Regional Haze and Visibility

In addition to the above rules, the Clean Air Visibility Rule was issued by the EPA in June 2005, to address regional haze or regionally-impaired visibility caused by multiple sources over a wide area.  The rule defines Best Available Retrofit Technology (BART) requirements for electric generating units, including presumptive limits for sulfur dioxide and nitrogen oxides controls for large units.  Under the BART rule, PPL has submitted to the Pennsylvania DEP its analyses of the visibility impacts of particulate matter emissions from Martins Creek Units 3 and 4, Brunner Island Units 2 and 3 and Montour Units 1 and 2.  The EPA had determined that meeting the requirements for CAIR met the BART requirements for sulfur dioxide and nitrogen dioxide.  However, with the invalidation of CAIR, BART for sulfur dioxide and nitrogen dioxide emissions will now need to be evaluated for the Pennsylvania plants.  Also under the BART rule, PPL has submitted to the EPA Region 8, which administers the BART program for Montana, its analyses of the visibility impacts of sulfur dioxide, nitrogen oxides and particulate matter emissions for Colstrip Units 1 and 2 and Corette.  PPL's analyses have shown that further reductions are not needed.  The EPA has responded to PPL's reports for Colstrip and Corette and requested further information and analysis.  PPL has completed further analysis and submitted addendums to the initial reports for Colstrip and Corette.  PPL cannot predict whether any additional reductions will be required in Pennsylvania or Montana.  If additional reductions are required, the costs are not now determinable, but could be significant.

New Source Review (NSR)

In 1999, the EPA initiated enforcement actions against several electric generators, asserting that older, coal-fired power plants operated by those generators have, over the years, been modified in ways that subjected them to more stringent NSR requirements under the Clean Air Act.  The EPA subsequently issued notices of violation and commenced enforcement activities against other generators.

However, in recent years, the EPA has shifted its position on NSR.  In 2003, the EPA issued changes to its regulations that clarified what projects are exempt from NSR regulations as routine maintenance and repair.  However, these regulations were stayed and subsequently struck down by the Court.  Furthermore, in April 2007, the U.S. Supreme Court upheld the annual emissions test under which the EPA had found emissions increases at the plants included in its enforcement initiative.  PPL is therefore continuing to operate under the NSR 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 NSR regulations.  The EPA's proposed tests are consistent with the position of energy companies and industry groups and, if adopted, would substantially reduce the uncertainties under the current regulations.  PPL cannot predict whether these proposed new tests will be adopted.  In the interim, the EPA has not brought substantial new enforcement actions.  Accordingly, PPL believes it is unlikely the EPA will pursue the information requests issued to PPL Montana's Corette and Colstrip plants by EPA Region 8 in 2000 and 2003, and to PPL Generation's Martins Creek plant by EPA Region 3 in 2002.  However, states and environmental groups also have brought enforcement actions alleging violations of NSR regulations by coal-fired plants, and PPL is unable to predict whether such state or citizen enforcement actions will be brought with respect to any of PPL affiliates' plants.

If NSR regulations are imposed, then PPL must install best available control technology for any pollutant found to have significantly increased due to a major modification.  The costs to install such technology are not now determinable, but could be significant.

Finally, if the EPA regulates carbon dioxide emissions pursuant to the 2007 U.S. Supreme Court decision on global climate change, then carbon dioxide emissions could become subject to the NSR provisions of the Clean Air Act.  The implications are uncertain, as currently no permitting authorities have implemented the NSR regulations for carbon dioxide emissions.

Opacity

The New Jersey DEP and some New Jersey residents have raised environmental concerns with respect to the visible opacity of emissions from the oil-fired units at the Martins Creek plant.  Similar issues also are being raised by the Pennsylvania DEP.  PPL is continuing to study and negotiate the matter with the Pennsylvania DEP.  If it is determined that actions must be taken to address the visible opacity of these emissions, such actions could result in costs that are not now determinable, but could be significant.  In September 2007, in accordance with a 2003 agreement with the New Jersey DEP and the Pennsylvania DEP, PPL shut down Martins Creek's two 150 MW coal-fired generating units.  In July 2008, demolition work began to decommission these two units.  PPL may replace the units at any time so long as it complies with applicable state and federal requirements.

Global Climate Change

There is a growing concern nationally and internationally about global climate change and the contribution of greenhouse gas emissions including, most significantly, carbon dioxide from the combustion of fossil fuels.  This concern has led to increased federal legislative proposals, actions at state and local levels, as well as litigation relating to greenhouse gas emissions, including an April 2007 U.S. Supreme Court decision holding that the EPA has the authority to regulate greenhouse gas emissions from new motor vehicles under the Clean Air Act.  As a result of this decision, the EPA issued an "Advance Notice of Proposed Rulemaking," proposing various alternative approaches to regulate carbon dioxide emissions.  Also, increased pressure for carbon dioxide emissions reduction is being initiated by investor and environmental organizations and the international community.

PPL believes future legislation and regulations that cap carbon dioxide emissions from power plants are likely, although technology to efficiently capture, remove and sequester carbon dioxide emissions is not presently available.  At the federal level, such legislation has received support from the majority leadership in both the U.S. Senate and U.S. House of Representatives.  PPL supports a national program and has publicly supported the key concepts of the "Low Carbon Economy Act of 2007" introduced in the Senate in July 2007, including an economy-wide approach, a gradual phase-in of greenhouse gas emission reduction targets and timetables and cost containment measures to limit the cost to the economy.

At the regional level, ten northeastern states signed a Memorandum of Understanding (MOU) agreeing to establish a greenhouse gas emission cap-and-trade program, called the Regional Greenhouse Gas Initiative (RGGI).  The program commences in January 2009 and calls for stabilization of carbon dioxide emissions, at base levels established in 2005, from electric power plants larger than 25 MW in capacity.  The MOU also provides for a 10% reduction in carbon dioxide emissions from base levels by 2019.  A similar effort is under way in the western U.S. (the Western Regional Climate Action Initiative, or WCI), and Midwestern states have recently agreed to form another regional climate change program.

Pennsylvania and Montana have not, at this time, established mandatory programs to regulate carbon dioxide and other greenhouse gases.  Pennsylvania has not stated an intention to join RGGI, but has declared support for state action on climate change.  Montana has joined the WCI and will participate in any greenhouse gas emission control regulations that are adopted by the WCI.  The WCI currently is developing greenhouse gas emission allocation, offsets, and reporting recommendations.

PPL has conducted an inventory of its carbon dioxide emissions and is continuing to evaluate options for reducing, avoiding, off-setting or sequestering its carbon dioxide emissions.  In 2007, PPL's power plants emitted approximately 31 million tons of carbon dioxide (based on PPL's equity share of these assets).

PPL believes that the regulation of greenhouse gas emissions may have a material impact on its future capital expenditures and operations, but the costs are not now determinable.  PPL also cannot predict the impact that any pending or future federal or state climate change legislation regarding more stringent environmental standards could have on PPL or its subsidiaries.

Water/Waste (PPL and PPL Energy Supply)

Martins Creek Fly Ash Release

In August 2005, there was a release of approximately 100 million gallons of water containing fly ash from a disposal basin at the Martins Creek plant used in connection with the operation of the two 150 MW coal-fired generating units at the plant.  This resulted in ash being deposited onto adjacent roadways and fields, and into a nearby creek and the Delaware River.  The leak was stopped, and PPL has determined that the problem was caused by a failure in the disposal basin's discharge structure.  PPL has conducted extensive clean-up and completed studies, in conjunction with a group of natural resource trustees and the Delaware River Basin Commission, evaluating the effects of the release on the river's sediment, water quality and ecosystem.  These studies do not show any environmental damage attributable to the release.

The Pennsylvania DEP filed a complaint in Commonwealth Court against PPL Martins Creek and PPL Generation, alleging violations of various state laws and regulations and seeking penalties and injunctive relief.  The Delaware Riverside Conservancy and several citizens were granted the right, without objection from PPL, to intervene in the Pennsylvania DEP's action.  PPL and the Pennsylvania DEP have settled this matter.  The settlement required a payment of $1.5 million in penalties and reimbursement of the DEP's costs.  PPL made this payment in the second quarter of 2008.  The settlement also requires PPL to submit a report on the completed studies of possible natural resource damages.  PPL submitted the assessment report to the agencies in June 2007.  However, the agencies may require additional studies.  In addition, PPL expects the trustees and the Delaware River Basin Commission to seek to recover their costs and/or any damages they determine were caused by the release.

At September 30, 2008, management's best estimate of the probable loss associated with the Martins Creek ash basin leak was $35 million, of which $29 million relates to off-site costs, and the balance to on-site costs.  These estimates reflect a reduction of $2 million recorded in the second quarter of 2008.  At September 30, 2008, the remaining recorded contingency for this remediation was $5 million.  PPL and PPL Energy Supply cannot be certain of the outcome of the natural resource damage assessment, the outcome of any lawsuit brought by the citizens and businesses and the exact nature of any other regulatory or other legal actions that may be initiated against PPL, PPL Energy Supply or their subsidiaries as a result of the disposal basin leak.

Basin Seepage - Pennsylvania

Seepages have been detected at active and retired wastewater basins at various PPL plants, including the Montour, Brunner Island and Martins Creek generating facilities.  PPL has completed an assessment of some of the seepages at the Montour and Brunner Island facilities and is working with the Pennsylvania DEP to implement abatement measures for those seepages.  PPL is continuing to conduct assessments of other seepages at the Montour and Brunner Island facilities as well as seepages at the Martins Creek facility to determine the appropriate abatement actions.  PPL currently plans to spend up to $50 million to upgrade and/or replace certain wastewater facilities in response to the seepage and for other facility changes.  The potential additional cost to address the identified seepages or other seepages at all of PPL's Pennsylvania plants is not now determinable, but could be significant.

Basin Seepage - Montana

In May 2003, approximately 50 plaintiffs brought an action against PPL Montana and the other owners of the Colstrip plant alleging property damage from seepage from the freshwater and wastewater ponds at Colstrip.  In the first quarter of 2008, PPL Montana recorded an additional reserve of $7 million ($0.01 per share, basic and diluted, for PPL) to "Operation and maintenance" on the Statement of Income.  In July 2008, the plaintiffs and the owner-defendants remaining after dismissal of NorthWestern due to its bankruptcy, executed a settlement agreement.  PPL Montana and the other remaining owner-defendants funded the settlement, concluding the matter.  PPL Montana's share of the settlement was approximately $8 million.  In June 2008, PPL Montana recorded an insignificant reserve for its share of potential additional settlements with three property owners living near the original plaintiffs but who were not parties to the lawsuit.  PPL Montana may incur additional costs related to the potential claims, including additional groundwater investigations and any related remedial measures, which costs are not now determinable, but could be significant.

In February 2007, six plaintiffs filed a separate lawsuit in the Montana Sixteenth Judicial District Court against the Colstrip plant owners asserting similar property damage claims as were asserted by the plaintiffs to the May 2003 complaint.  The lawsuit is in its initial stages of discovery and investigation, and PPL Montana is unable to predict the outcome of these proceedings.  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.  PPL Montana may incur further costs based on the outcome of this lawsuit and its additional groundwater investigations and any related remedial measures, which costs are not now determinable, but could be significant.

Other Issues

The EPA significantly increased the water quality standard for arsenic in January 2006, but limited the standard to drinking water.  In Pennsylvania, the Environmental Quality Board approved the Triennial Review, in which the arsenic standard has been proposed as an in-stream water quality standard, at its September 2008 meeting.  Final regulations are expected before the end of 2008.  The revised standard may result in action by individual states that could require several PPL subsidiaries to further treat wastewater and/or take abatement action at their power plants.  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 cooling 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 rule finalized in 2004 that addressed existing structures has been withdrawn following a January 2007 decision by the U.S. Court of Appeals for the Second Circuit.  In April 2008, the U.S. Supreme Court granted the petitions for writs of certiorari filed by Utility Water Act Group (UWAG), Public Service Enterprise Group, Inc. and Entergy Corporation, limited to one issue.  The issue is whether Section 316(b) of the Clean Water Act authorizes the EPA to compare costs with benefits in determining the "best technology available for minimizing adverse environmental impact" at cooling water intake structures.  Depending on the outcome of the U.S. Supreme Court review and what changes the EPA makes to the rule in accordance with this decision and the other issues raised by the Second Circuit Court (that will not be reviewed by the U.S. Supreme Court), in addition to what actions the states may take on their own, these actions could result in stricter standards for existing structures that could impose significant costs on PPL subsidiaries.

The EPA released its 2008 Effluent Guidelines Plan and has chosen not to revise the steam electric effluent guidelines.  Instead, the EPA plans to continue to study the industry's wastewater discharges, with a focus on coal-fired plants and "particular interest" in Flue Gas Desulfurization wastewater treatment, ash sluice water management and water reuse opportunities.  The EPA plans to continue to study the industry through 2009 and 2010 annual reviews, including sampling at selected plants.  UWAG is working closely with the EPA on the sampling coordination.

PPL has signed a consent order with the Pennsylvania DEP under which it will take further actions to minimize the possibility of fish kills at its Brunner Island plant.  Fish are attracted to power plant discharge channels, especially during cold weather, because of the warm water. In the past, some fish kills have occurred at Brunner Island when debris at the intake pumps has resulted in a unit trip or reduction in load, causing a sudden change in the water temperature in the discharge channel where fish are present.

PPL will pay the DEP a nominal penalty for fish kills that occurred in October 2007 and March 2008. In addition, PPL has committed to construct a barrier to prevent debris from entering the intake area and to investigate alternatives to address how to completely exclude fish from the discharge area.  PPL will need to implement one of these alternatives if a fish kill occurs after construction of the cooling towers at Brunner Island is completed in 2010.  The cost of the debris barrier will not be significant.  However, the cost of excluding fish from the discharge channel is not now determinable but could be significant.

Superfund and Other Remediation

(PPL, PPL Energy Supply and PPL Electric)

PPL Electric is a potentially responsible party at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant Site.  Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been significant.  However, should the EPA require significantly different or additional measures in the future, the costs of such measures are not determinable, but could be significant.

PPL Electric has been remediating several sites that were not being addressed under another regulatory program such as Superfund, but for which PPL Electric may be liable for remediation.  These include a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric.  In addition, PPL Gas Utilities also was remediating various sites including coal gas manufacturing facilities and potential mercury contamination from gas meters and regulators and was engaged in a program to plug abandoned wells.  On October 1, 2008, PPL Gas Utilities was sold and, with very limited exceptions, the remediation and well-plugging liabilities were transferred.  These exceptions do not impose material retained liabilities.

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 cleanup.  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 mine water at two mine sites, and treating water at one of these sites.  Another PPL Generation subsidiary has installed a passive wetlands treatment system at a third site.  At September 30, 2008, PPL Energy Supply had accrued a discounted liability of $35 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.  PPL Energy Supply discounted this liability at a rate of 5.74%.  Expected undiscounted payments are estimated at $1 million for each of the years from 2008 through 2012, and the expected payments for the work after 2012 are $136 million.

(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.

Gas Seepage (PPL)

At September 30, 2008, PPL Gas Utilities owned and operated the Meeker gas storage field and had a partial ownership interest in the Tioga gas storage field, both located in north-central Pennsylvania.  PPL Gas Utilities had previously reported an issue with natural gas observed in several drinking water wells that the Pennsylvania DEP was working to address.  The Pennsylvania DEP raised concerns that potential leakage of natural gas from the Tioga gas storage field could be contributing to this issue.  PPL Gas Utilities was engaged in a program with the co-owner of the storage field to install water treatment systems on any residential wells in a specified program area in which natural gas exceeded 20 parts per million.  PPL Gas Utilities was also working with the co-owner on a broader study of the issue.  As a result of the sale of the natural gas distribution and propane businesses that closed on October 1, 2008, PPL will no longer be responsible for resolution of this matter.

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

Concerns have been expressed by some members of the public regarding potential health effects of power frequency EMFs, which are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment.  Government officials in the U.S. and the U.K. have reviewed this issue.  The U.S. National Institute of Environmental Health Sciences concluded in 2002 that, for most health outcomes, there is no evidence that EMFs cause adverse effects.  The agency further noted that there is some epidemiological evidence of an association with childhood leukemia, but that the evidence is difficult to interpret without supporting laboratory evidence.  The U.K. National Radiological Protection Board (part of the U.K. Health Protection Agency) 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.  In April 2007, the Stakeholder Group on Extremely Low Frequency EMF, set up by the U.K. Government, issued its interim assessment which describes a number of options for reducing public exposure to EMFs.  This assessment is being considered by the U.K. Government.  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 the U.K., and the associated cost, or what, if any, liabilities they might incur related to the EMF issue.

Environmental Matters - International (PPL and PPL Energy Supply)

U.K.

WPD's distribution businesses are subject to environmental regulatory and statutory requirements.  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.

Other

Nuclear Insurance(PPL and PPL Energy Supply)

PPL Susquehanna is a member of certain insurance programs that provide coverage for property damage to members' nuclear generating stations.  Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs.  PPL Susquehanna is also a member of an insurance program that provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.  Under the property and replacement power insurance programs, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience.  At September 30, 2008, this maximum assessment was about $38 million.

In the event of a nuclear incident at the Susquehanna station, PPL Susquehanna's public liability for claims resulting from such incident would be limited to about $10.8 billion under provisions of The Price-Anderson Act Amendments under the Energy Policy Act of 2005.  PPL Susquehanna is protected against this liability by a combination of commercial insurance and an industry assessment program.  In the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act Amendments under the Energy Policy Act of 2005, PPL Susquehanna could be assessed up to $201 million per incident, payable at $30 million per year.  Effective October 29, 2008, PPL Susquehanna's public liability for claims will increase to $12.5 billion and the maximum assessment will increase to $235 million per incident, payable at $35 million per year.

At September 30, 2008, the property, replacement power and nuclear incident insurers maintained a minimum A.M. Best rating of at least A-.

Guarantees and Other Assurances

(PPL, PPL Energy Supply and PPL Electric)

In the normal course of business, PPL, PPL Energy Supply and PPL Electric enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries.  Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies.  These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries enter.

(PPL)

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

(PPL, PPL Energy Supply and PPL Electric)

The table below provides an update to those guarantees that are within the scope of FIN 45 and are specifically disclosed in Note 15 to the Financial Statements contained in each Registrant's 2007 Form 10-K.

	Recorded Liability at				Exposure at September 30, 2008 (a)
	September 30, 2008		December 31, 2007					Expiration Date
PPL Energy Supply (b)
Letters of credit issued on behalf of affiliates					$	8	(c)	2009
Retroactive premiums under nuclear insurance programs						38
Nuclear claims under The Price-Anderson Act Amendments under The Energy Policy Act of 2005						201	(d)
Indemnifications for entities in liquidation and sales of assets	$	1	$	1		273	(e)	2009 to 2012
Indemnification to operators of jointly-owned facilities						6	(f)		(f)
Assignment of Enron claims							(g)		(g)
WPD guarantee of pension and other obligations of unconsolidated entities		2		4		35	(h)	2017
Tax indemnification related to unconsolidated WPD affiliates						9	(i)	2012
Guarantee of a portion of an unconsolidated entity's debt		1				22	(j)	2018

(a)	Represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee.
(b)	Other than the letters of credit, all guarantees of PPL Energy Supply apply to PPL on a consolidated basis.
(c)	Represents letters of credit issued at the direction of PPL Energy Supply for the benefit of third parties for assurance against nonperformance by PPL.  This is not a guarantee by PPL on a consolidated basis.
(d)	Amount is per incident.
(e)	PPL Energy Supply's maximum exposure with respect to certain 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.  The exposure noted is only for those cases in which the agreements provide for a specific limit on the amount of the indemnification. In connection with the liquidation of wholly-owned subsidiaries that have been deconsolidated upon turning the entities over to the liquidators, certain affiliates of PPL Global have agreed to indemnify the liquidators, directors and/or the entities themselves for any liabilities or expenses arising during the liquidation process, including liabilities and expenses of the entities placed into liquidation.  In some cases, the indemnifications are limited to a maximum amount that is based on distributions made from the subsidiary to its parent either prior or subsequent to being placed into liquidation.  In other cases, the maximum amount of the indemnifications is not explicitly stated in the agreements.  The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities.  The exposure noted only includes those cases in which the agreements provide for a specific limit on the amount of the indemnification, and the expiration date was based on an estimate of the dissolution date of the entities.  During the second quarter of 2008, $8 million of previously disclosed exposure expired. PPL Energy Supply has provided indemnification to the purchaser of a generating facility 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.  The indemnification other than for pre-closing environmental and tort liabilities is triggered only if the purchaser's losses reach $1 million in the aggregate, capped at 50% of the purchase price (or $95 million), and either expired in May 2007 or will expire pursuant to applicable statutes of limitations.  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 is capped at $4 million in the aggregate and survives for a maximum period of five years after the transaction closing.
(f)	In December 2007, PPL Energy Supply executed revised owners agreements for two jointly-owned facilities, the Keystone and Conemaugh generating stations.  The agreements require that in the event of any default by an owner, the other owners fund contributions for the operation of the generating stations, based upon their ownership percentage.  The maximum obligation among all owners, for each station, is currently $20 million.  The non-defaulting owners, who make up the defaulting owner's obligations, are entitled to the generation entitlement of the defaulting owner, based upon their ownership percentage.  The agreements do not have an expiration date.
(g)	In July 2006, two subsidiaries of PPL Energy Supply assigned their Enron claims to an independent third party (claims purchaser).  In connection with the assignment, the subsidiaries agreed to repay a pro rata share of the purchase price paid by the claims purchaser, plus interest, in the event that any of the assigned claims are disallowed under certain circumstances.  The bankruptcy court overseeing the Enron bankruptcy approved the assigned claims prior to their assignment to the claims purchaser.  The subsidiaries' repayment obligations will remain in effect until the claims purchaser has received all distributions with respect to the assigned claims.  During the second quarter of 2008, the exposure expired.
(h)	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, 2008, WPD has recorded an estimated discounted liability based on its current allocated percentage of the total expected costs.  Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements.  Therefore, they have been estimated based on the types of obligations.
(i)	Two WPD unconsolidated affiliates were refinanced during 2005.  Under the terms of the refinancing, WPD has indemnified the lender against certain tax and other liabilities.  At this time, WPD believes that the likelihood of such liabilities arising is remote.
(j)	Reflects principal payments only.  During June 2008, PPL Energy Supply provided a guarantee on a portion of new debt issued by an unconsolidated entity.  The debt matures on June 30, 2018.  Previously, PPL Electric provided a guarantee on this unconsolidated entity's debt that expired in June 2008, when the related debt was repaid.

PPL, PPL Energy Supply and PPL Electric and their subsidiaries provide other miscellaneous guarantees through contracts entered into in the normal course of business.  These guarantees are primarily in the form of indemnifications or warranties related to services or equipment and vary in duration.  The obligated amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated.  Historically, PPL, PPL Energy Supply and PPL Electric and their subsidiaries have not made any significant payments with respect to these types of guarantees.  At inception, the aggregate fair value of these indemnifications related to arrangements entered into subsequent to December 31, 2002, was insignificant.

11.   Related Party Transactions

Affiliate Trust (PPL and PPL Energy Supply)

In February 2007, WPD LLP redeemed all of the 8.23% Subordinated Debentures maturing in February 2027 that were held by SIUK Capital Trust I.  Interest expense on this obligation was $2 million for the nine months ended September 30, 2007.  The redemption resulted in a recorded loss of $2 million during the nine months ended September 30, 2007.  This interest expense and loss are both reflected in "Interest Expense" for PPL and "Interest Expense with Affiliate" for PPL Energy Supply on the Statement of Income.  See Note 22 in each Registrant's 2007 Form 10-K for additional information on the trust.

PLR Contracts (PPL Energy Supply and PPL Electric)

PPL Electric has power purchase agreements with PPL EnergyPlus, effective July 2000 and January 2002, in which PPL EnergyPlus will supply PPL Electric's entire PLR load through December 31, 2009.  Under these contracts, PPL EnergyPlus provides electricity at the predetermined capped prices that PPL Electric is authorized to charge its PLR customers.  For both the three months ended September 30, 2008 and 2007, these purchases totaled $453 million.  For both the nine months ended September 30, 2008 and 2007, these purchases totaled $1.4 billion.  These purchases include nuclear decommissioning recovery and amortization of an up-front contract payment and are included in the Statements of Income as "Wholesale energy marketing to affiliate" by PPL Energy Supply, and as "Energy purchases from affiliate" by PPL Electric.

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, 2008, the market price of electricity would exceed the contract price by approximately $1.8 billion.  Accordingly, at September 30, 2008, 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 both September 30, 2008 and December 31, 2007.  This deposit is shown on the Balance Sheets 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 Statements of Income.  PPL Energy Supply records the receipt of the interest as affiliated interest income, which is included in "Interest Income from Affiliates" on the Statements of Income.  For the three months ended September 30, 2008 and 2007, interest related to this deposit was $3 million and $4 million.  For the nine months ended September 30, 2008 and 2007, interest related to this deposit was $8 million and $13 million.

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 $15 million and $24 million at September 30, 2008 and December 31, 2007.  The current and noncurrent balances are reported on the Balance Sheets as "Deferred revenue on PLR energy supply to affiliate" by PPL Energy Supply, and as "Prepayment on PLR energy supply from affiliate" by PPL Electric.

Under Pennsylvania law and PUC regulations, PPL Electric is required to buy electricity generation supply for customers who do not choose a competitive supplier.  PPL Electric has conducted four of its six planned competitive solicitations for generation supply in 2010, after its existing PLR contract expires.  Competitive bids have been solicited for 3,400 MW of generation supply, or two-thirds of PPL Electric's expected supply requirements for these customers in 2010.  An independent company, NERA Economic Consulting (NERA), is managing this competitive solicitation process.  NERA compiles the results and presents them to the PUC.  See Note 10 for additional information on the results of the completed solicitations.  Additional bids will be sought twice in 2009 to secure the remainder of supply needed to serve PPL Electric's customers in 2010.

PPL EnergyPlus was one of the successful bidders in the July 2007 competitive solicitation process and entered into an agreement with PPL Electric to supply up to 671 MW of total peak load in 2010, at an average price of $91.42 per MWh.

Under the standard Supply Master Agreement for the bid solicitation process, PPL Electric requires all suppliers to post collateral if credit exposures exceed defined credit limits.  In no instance is PPL Electric required to post collateral to suppliers under these supply contracts.  PPL EnergyPlus is required to post collateral with PPL Electric:  (a) when the market price of electricity to be delivered by PPL EnergyPlus exceeds the contract price for the forecasted quantity of electricity to be delivered and; (b) this market price exposure exceeds a contractual credit limit.  Based on the current credit rating of PPL Energy Supply, as guarantor, this credit limit is $35 million.  At September 30, 2008, PPL Energy Supply provided PPL Electric with an insignificant letter of credit as performance assurance.

At September 30, 2008, PPL Electric has credit exposure to PPL EnergyPlus under the PLR contracts and the solicitation discussed above, of $1.8 billion.  As a result of netting and collateral arrangements, PPL Electric's credit exposure was reduced to $1.4 billion.

PPL Energy Supply has credit exposure to PPL Electric under the PLR contracts.  At September 30, 2008, PPL Energy Supply's credit exposure with PPL Electric was $138 million, excluding the effects of netting arrangements.  As a result of netting arrangements, PPL Energy Supply's credit exposure was reduced to zero.

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 sells the electricity at the same price to PPL EnergyPlus.  For the three months ended September 30, 2008 and 2007, NUG purchases totaled $29 million and $43 million.  For the nine months ended September 30, 2008 and 2007, NUG purchases totaled $87 million and $117 million.  These amounts are included in the Statements 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 charges 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 subsidiaries based on an average of the subsidiaries' relative invested capital, operation and maintenance expense, and number of employees.  PPL Services allocated the following amounts, which PPL management believes are reasonable, to PPL Energy Supply and PPL Electric, including amounts applied to accounts that are further distributed between capital and expense.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
PPL Energy Supply	$	47	$	52	$	152	$	166
PPL Electric		29		28		88		90

Intercompany Borrowings

(PPL Energy Supply)

PPL Energy Supply had a note receivable from affiliate of $10 million at September 30, 2008, and no such amounts outstanding at December 31, 2007.  Interest is due quarterly at a rate equal to the 1-month LIBOR plus 1%.  This note is shown on the Balance Sheet as "Note Receivable from Affiliate."  Interest earned on this note is included in "Interest Income from Affiliates" on the Statements of Income, and was $1 million and $7 million for the three months ended September 30, 2008 and 2007.  Interest earned for the nine months ended September 30, 2008 and 2007, was $3 million and $10 million.

(PPL Electric)

In August 2004, a PPL Electric subsidiary issued a $300 million demand note to an affiliate.  There was a $130 million balance on this note outstanding at September 30, 2008, and a $277 million balance outstanding at December 31, 2007.  Interest is due quarterly at a rate equal to the 3-month LIBOR plus 1%.  This note is shown on the Balance Sheet as "Note receivable from affiliate."  Interest earned on the note is included in "Interest Income from Affiliate" on the Statements of Income, and was $1 million and $5 million for the three months ended September 30, 2008 and 2007.  For the nine months ended September 30, 2008 and 2007, interest earned was $5 million and $14 million.

Intercompany Derivatives (PPL Energy Supply)

In 2007 and 2008, PPL Energy Supply entered into a combination of average rate forwards and average rate options with PPL to sell British pounds sterling.  These hedging instruments have terms identical to average rate forwards and average rate options entered into by PPL with third parties to protect the translation of expected income denominated in British pounds sterling to U.S. dollars.  At September 30, 2008, the total exposure hedged was £24 million and the net fair value of these positions was $4 million and is reflected in "Current Assets - Price risk management assets" on the Balance Sheet.  No similar hedging instruments were outstanding at December 31, 2007.  Gains and losses, both realized and unrealized, on these types of hedging instruments are included in "Other income - net" on the Statements of Income.  For the three and nine months ended September 30, 2008, PPL Energy Supply recorded net gains of $5 million and $3 million.  "Other income - net" includes net losses of $1 million and $4 million related to similar average rate forwards and average rate options for the three and nine months ended September 30, 2007.

In 2007, PPL Energy Supply entered into forward contracts with PPL to sell Chilean pesos.  These hedging instruments had terms identical to forward sales contracts entered into by PPL with third parties to protect the value of its net investment in Emel as well as a portion of the proceeds in excess of its net investment expected from the then-anticipated sale of Emel.  None of these contracts were outstanding at September 30, 2008 or December 31, 2007.  "Other income - net" on the Statements of Income includes losses of $3 million and $5 million for the three and nine months ended September 30, 2007, related to these contracts.

In 2007, PPL Energy Supply also entered into forward contracts with PPL to sell British pounds sterling to protect the value of a portion of its net investment in WPD.  These hedging instruments have terms identical to forward sales contracts entered into by PPL with third parties.  The total notional amount of the contracts outstanding at September 30, 2008 was £68 million (approximately $134 million).  The fair value of these positions was $15 million and $3 million at September 30, 2008 and December 31, 2007, and is reflected in the foreign currency translation adjustment component of accumulated other comprehensive loss on the Balance Sheets.  Additionally, $5 million is reflected in "Current Assets - Price risk management assets" on the Balance Sheet at September 30, 2008, and $10 million and $3 million is reflected in "Other Noncurrent Assets - Price risk management assets" on the Balance Sheets at September 30, 2008 and December 31, 2007.

Trademark Royalties (PPL Energy Supply)

A PPL subsidiary owns PPL trademarks and bills certain affiliates for their use.  PPL Energy Supply was allocated $23 million and $12 million of this license fee for the three months ended September 30, 2008 and 2007, and $37 million and $30 million for the nine months ended September 30, 2008 and 2007.  These allocations of the license fee are primarily included in "Other operation and maintenance" on the Statements of Income.

12.   Other Income - net

(PPL, PPL Energy Supply and PPL Electric)

The breakdown of "Other Income - net" was:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
PPL
Other Income
Interest income	$	7		$	21	$	24		$	48
Equity earnings		1			1		3			3
Hyder liquidation distributions (Note 8)							3			6
Gain on sale of property and equipment					6		2			12
Gain on transfer of international equity investment (Note 8)										5
Earnings on nuclear plant decommissioning trust investments (a)		(7	)		3		(12	)		10
Miscellaneous - International							1			3
Miscellaneous - Domestic		1			1		4			4
Total		2			32		25			91

Other Deductions
Charitable contributions					1		1			3
Hedging (gains) losses		(4	)		4		(3	)		8
Miscellaneous - International		2			1		5			2
Miscellaneous - Domestic		3			3		5			7
Other Income - net	$	1		$	23	$	17		$	71
PPL Energy Supply
Other Income
Interest income	$	5		$	17	$	18		$	37
Equity earnings		1			1		3			3
Hyder liquidation distributions (Note 8)							3			6
Gain on sale of property and equipment					7		2			8
Gain on transfer of international equity investment (Note 8)										5
Earnings on nuclear plant decommissioning trust investments (a)		(7	)		3		(12	)		10
Miscellaneous - International							1			3
Miscellaneous - Domestic		1					3			2
Total					28		18			74
Other Deductions
Hedging (gains) losses		(5	)		4		(3	)		8
Miscellaneous - International		2			1		5			2
Miscellaneous - Domestic		2			2		4			7
Other Income - net	$	1		$	21	$	12		$	57
PPL Electric
Other Income
Interest income	$	1		$	2	$	5		$	7
Gain on sale of property										4
Miscellaneous					1					2
Total		1			3		5			13
Other Deductions		1			1		1			1
Other Income - net	$			$	2	$	4		$	12

(a) The three and nine months ended September 30, 2008, include charges of $6 million and $16 million for other-than-temporary impairments of securities held in the trust funds.  The amounts for the corresponding periods of 2007 were not significant.

13.   Fair Value Measurements

(PPL, PPL Energy Supply and PPL Electric)

Adoption of SFAS 157

Effective January 1, 2008, PPL and its subsidiaries adopted SFAS 157, as amended, as discussed in Note 2.  SFAS 157 provides a definition of fair value as well as a framework for measuring fair value.  In addition, SFAS 157 expands the fair value disclosure requirements of other accounting pronouncements to require, among other things, disclosure of the methods and assumptions used to measure fair value as well as the earnings impact of certain fair value measurement techniques.

As defined by SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).  Consistent with the valuation techniques identified in SFAS 157, PPL and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques), and/or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability.  These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability.  These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.

SFAS 157 established a fair value hierarchy that prioritizes the inputs used to measure fair value into three broad levels.  The hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs.  The level in the fair value hierarchy within which the fair value measurement in its entirety is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety.  SFAS 157 recognizes that assessing the significance of a particular input requires judgment that considers factors specific to the asset or liability.  As such, PPL and its subsidiaries' assessment of the significance of a particular input may affect the placement of assets and liabilities within the fair value hierarchy.

The three levels of the fair value hierarchy as specified by SFAS 157 are:

· Level 1 - quoted prices in active markets for identical assets or liabilities.  Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

· Level 2 - inputs other than quoted prices in active markets, that are either directly or indirectly observable for substantially the full term of the asset or liability.

· Level 3 -unobservable inputs that management believes are predicated on the assumptions market participants would use to price the asset or liability.

(PPL and PPL Energy Supply)

The assets and liabilities measured at fair value in accordance with SFAS 157 at September 30, 2008, were:

			Fair Value Measurements Using
	Total			Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
PPL
Assets
Cash and cash equivalents	$	349		$	338	$	11
Restricted cash and cash equivalents		349			82		267
Price risk management assets:
Energy commodities		1,541			13		1,287	$	241
Interest rate/foreign exchange		59					59
		1,600			13		1,346		241
Nuclear plant decommissioning trust funds:
Cash and cash equivalents		15			15
Equity securities		184			184
Commingled equity index funds		111					111
Debt securities:
U.S. Treasury		81					81
Municipality		65					65
Corporate		29					29
Other		13					13
		498			199		299
Auction rate securities		26							26
	$	2,822		$	632	$	1,923	$	267
Liabilities
Price risk management liabilities:
Energy commodities	$	1,789		$	9	$	1,718	$	62
Interest rate/foreign exchange		77					77
	$	1,866		$	9	$	1,795	$	62

PPL Energy Supply
Assets
Cash and cash equivalents	$	239	$	228	$	11
Restricted cash and cash equivalents		300		33		267
Price risk management assets:
Energy commodities		1,541		13		1,287	$	241
Interest rate/foreign exchange		37				37
		1,578		13		1,324		241
Nuclear plant decommissioning trust funds:
Cash and cash equivalents		15		15
Equity securities		184		184
Commingled equity index funds		111				111
Debt securities:
U.S. Treasury		81				81
Municipality		65				65
Corporate		29				29
Other		13				13
		498		199		299

Auction rate securities		21						21
	$	2,636	$	473	$	1,901	$	262
Liabilities
Price risk management liabilities:
Energy commodities	$	1,789	$	9	$	1,718	$	62
Interest rate/foreign exchange		76				76
	$	1,865	$	9	$	1,794	$	62

PPL Electric
Assets
Cash and cash equivalents	$	67	$	67
Restricted cash and cash equivalents		43		43
	$	110	$	110

A reconciliation of assets and liabilities classified as Level 3 at September 30, 2008, was as follows:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended								Nine Months Ended
	Energy Commodities, net			Auction Rate Securities		Total			Energy Commodities, net			Auction Rate Securities			Total
PPL
Balance at beginning of period	$	274		$	21	$	295		$	134					$	134
Total realized/unrealized gains (losses)
Included in earnings (a)		2					2			1						1
Included in other comprehensive income (loss)		(97	)		5		(92	)		43		$	(3	)		40
Purchases, sales, issuances and settlements, net										1			(11	)		(10	)
Transfers in and/or out of Level 3													40			40
Balance at end of period	$	179		$	26	$	205		$	179		$	26		$	205
The amount of total (losses) for the period included in earnings attributable to the change in unrealized (losses) relating to assets or liabilities still held at end of period (a)	$	(1	)			$	(1	)	$	(2	)				$	(2	)
PPL Energy Supply
Balance at beginning of period	$	274		$	17	$	291		$	134					$	134
Total realized/unrealized gains (losses)
Included in earnings (a)		2					2			1						1
Included in other comprehensive income (loss)		(97	)		4		(93	)		43		$	(3	)		40
Purchases, sales, issuances and settlements, net										1			(11	)		(10	)
Transfers in and/or out of Level 3													35			35
Balance at end of period	$	179		$	21	$	200		$	179		$	21		$	200
The amount of total (losses) for the period included in earnings attributable to the change in unrealized (losses) relating to assets or liabilities still held at end of period (a)	$	(1	)			$	(1	)	$	(2	)				$	(2	)

(a)	The amounts included in this line for "Energy Commodities, net" are reported in "Net energy trading margins," "Wholesale energy marketing," and "Energy purchases" on the Statements of Income.
(b)	The amounts included in this line for "Energy Commodities, net" are reported in "Net energy trading margins" and "Unrealized economic activity" within "Wholesale energy marketing" and "Energy purchases" on the Statements of Income.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

PPL and its subsidiaries use the market approach to determine the fair value of cash and cash equivalents and restricted cash and cash equivalents.  The fair value measurements of money market investments are classified as Level 1.  Deposits for trading purposes with a NYMEX broker that are invested in short-duration government-backed securities are classified as Level 2.

Price Risk Management Assets/Liabilities - Energy Commodities

The only energy commodity contracts classified as Level 1 are exchange-traded derivative gas and oil contracts.  When observable inputs are used to measure all or most of the value of a contract, the contract is classified as Level 2.  Over-the-counter (OTC) contracts are valued by traders using quotes obtained from an exchange, binding and non-binding broker quotes, prices posted by ISOs or published tariff rates.  PPL's risk management group obtains quotes from the market to validate the forward price curves.  OTC contracts include forwards, swaps, options and structured deals for electricity, gas, oil, and/or emission allowances and may be offset with similar positions in exchange-traded markets.  To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs.  In certain instances, these instruments may be valued using models, including standard option valuation models and standard industry models.  For example, the fair value of a structured deal that delivers power to an illiquid delivery point may be measured by valuing the nearest liquid trading point plus the value of the basis between the two points.  The basis input may be from market quotes, FTR prices, or historical prices.  When the unobservable inputs are significant to the fair value measurement, the contract is classified as Level 3.  Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on PPL's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets).  PPL's credit department continues to assess all reasonably available market information and currently uses probabilities of default to calculate the credit adjustment.  PPL assumes that observable market prices include sufficient adjustments for liquidity and modeling risks, but for Level 3 fair value measurements, PPL also assesses the need for additional adjustments for liquidity or modeling risks.  The contracts classified as Level 3 represent contracts for which the delivery dates are beyond the dates for which independent prices are available.

Price Risk Management Assets/Liabilities - Interest Rate/Foreign Exchange

Treasury instruments include forward-starting swaps, fixed-to-floating swaps, forwards and options for foreign exchange contracts, and cross-currency swaps.  PPL and PPL Energy Supply generally use the income approach to measure the fair value of the instruments, using common inputs such as LIBOR and foreign exchange curves.  Additionally, these calculations of fair value are corroborated with the counterparty and/or PPL's risk management group.  As noted above, these fair value measurements also include adjustments for credit risk.

Nuclear Plant Decommissioning Trust Funds

PPL and PPL Energy Supply generally use the market approach to measure the fair value of the securities held in the nuclear plant decommissioning trust funds.  The fair value measurements of commingled equity index funds are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market.  The fair value measurements of debt securities are generally based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.  When this information is not available, the fair value of debt securities is measured using present value techniques, which incorporate other observable inputs.

Auction Rate Securities

At September 30, 2008, the fair values of PPL and PPL Energy Supply's auction rate securities were $26 million and $21 million.  These securities are recorded in "Investments - Other" on the Balance Sheet.  PPL's and PPL Energy Supply's auction rate securities include Federal Family Education Loan Program's guaranteed student loan revenue bonds as well as various municipal bond issues, all of which are rated investment grade.

Auction rate securities have normally been remarketed on a short-term basis with auction dates commonly set at seven-day, 28-day, 35-day or 49-day intervals.  Historically, an active market existed for such investments, and the auctions provided an opportunity for investors either to hold an investment at a periodically reset interest rate or to sell the investment at its par value for immediate liquidity.  In early 2008, investor concerns about credit and liquidity in the financial markets, generally, as well as investor concerns over specific insurers that guarantee the credit of certain of the underlying securities, created uncertainty in the auction rate securities market and these securities generally failed to be remarketed through their established auction process.  These auction failures and the resulting illiquidity continued to impact PPL's and PPL Energy Supply's auction rate securities.  Auction rate securities were transferred into Level 3 of the fair value hierarchy during the first quarter of 2008.  The failed auctions limit the amount of observable market data that is available for measuring the fair value of these securities.

At September 30, 2008, the par value of these auction rate securities totaled $29 million for PPL and $24 million for PPL Energy Supply.  Contractual maturities for these auction rate securities are approximately 28 years for both PPL and PPL Energy Supply.  Historically, the par value of auction rate securities approximated fair value due to the frequent resetting of the interest rates through the auction process.  The auctions for these outstanding securities failed in the second and third quarters of 2008, and PPL and PPL Energy Supply continued to earn interest on these investments at contractually prescribed interest rates.

PPL and PPL Energy Supply estimated the fair value of these auction rate securities based on the following criteria:  (i) the underlying structure and credit quality of each security; (ii) the present value of future principal and interest payments discounted using interest rates for bonds with a credit rating and remaining term to maturity similar to the stated maturity of the auction rate securities; and (iii) consideration of the impact of auction failures or redemption at par for each period.  These estimated fair values could change significantly based on future market conditions.

At September 30, 2008, the estimated fair value of these auction rate securities was $26 million for PPL, a decline of $3 million from par value, and $21 million for PPL Energy Supply, a decline of $3 million from par value.  PPL and PPL Energy Supply intend and have the ability to hold these securities until they can be liquidated at par value.  Based upon the evaluation of available information, PPL and PPL Energy Supply believe these investments continue to be of high credit quality.  PPL and PPL Energy Supply do not anticipate having to sell these securities in order to fund operations.  Based on this assessment, the declines in fair value were deemed temporary and are due to general market conditions.  For the three months ended September 30, 2008, unrealized gains of $5 million for PPL and $4 million for PPL Energy Supply have been recorded on these securities in other comprehensive income.  The unrealized gains resulted from interest rates resetting on several of the securities at higher levels.  For the nine months ended September 30, 2008, unrealized losses of $3 million for both PPL and PPL Energy Supply have been recorded on these securities in other comprehensive income (loss).

14.   Derivative Instruments and Hedging Activities

(PPL and PPL Energy Supply)

Fair Value Hedges

PPL and PPL Energy Supply enter into financial interest rate swap contracts to hedge fluctuations in the fair value of existing debt issuances, which range in maturity through 2047 for PPL and 2011 for PPL Energy Supply.  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; however, at September 30, 2008, there were no existing contracts of this nature.

For the three and nine months ended September 30, 2008 and 2007, PPL and PPL Energy Supply did not recognize any gains or losses resulting from hedges of firm commitments that no longer qualified as fair value hedges and did not recognize any hedge ineffectiveness on fair value hedges.

Cash Flow Hedges

PPL and PPL Energy Supply enter into financial and physical contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electric, gas, oil and other commodities.  These contracts range in maturity through 2017.  Additionally, PPL and PPL Energy Supply enter into financial interest rate swap contracts to hedge floating interest rate risk associated with anticipated debt issuances.  There were no such open contracts at September 30, 2008.  PPL and PPL Energy Supply also enter into foreign currency 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 in foreign operations.  These contracts range in maturity through 2028.

Net investment hedge activity is reported in the foreign currency translation adjustment component of other comprehensive income (loss).  These contracts range in maturity through 2011.  During the three and nine months ended September 30, 2008, PPL and PPL Energy Supply recognized $7 million and $8 million of net investment hedge gains after tax.  During the three and nine months ended September 30, 2007, PPL and PPL Energy Supply recognized $8 million and $12 million of net investment hedge losses, after tax.  At September 30, 2008, $3 million of accumulated net investment hedge gains, after tax, were included in the foreign currency translation adjustment component of accumulated other comprehensive loss, compared to $4 million of losses, after tax, at December 31, 2007.

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods.  In certain instances, amounts previously recorded in accumulated other comprehensive loss are reclassified to earnings.  There were no such reclassifications during the three and nine months ended September 30, 2008 and an insignificant amount during the same periods in 2007.

For the three months ended September 30, 2008 and 2007, hedge ineffectiveness recorded for energy derivatives was, after tax, gains of $177 million and $2 million.  The 2008 amount was primarily driven by certain power and gas cash flow hedges failing hedge effectiveness testing.  As prescribed by SFAS 133, hedge accounting is not permitted for the quarter in which this occurs and, accordingly, the entire change in fair value for the three months ended September 30, 2008, was recorded to the income statement.  The fair value of these positions increased significantly due to the sharp decline in power and gas prices during the three months ended September 30, 2008.  These transactions were not dedesignated as hedges since prospective regression analysis still supports that these hedges are expected to be highly effective.

For the nine months ended September 30, 2008 and 2007, hedge ineffectiveness associated with energy derivatives was, after tax, a gain of $179 million and a loss of $2 million.  The significant gain for the nine months ended September 30, 2008, was due to the reasons noted above for the three months ended September 30, 2008.

For the three and nine months ended September 30, 2008 and 2007, hedge ineffectiveness associated with interest rate and foreign currency derivatives was insignificant.

This table shows the accumulated net unrealized after-tax losses on qualifying derivatives (excluding net investment hedges), which are included in accumulated other comprehensive loss.

	Three Months Ended September30,						Nine Months Ended September30,
	2008			2007			2008			2007
PPL
Beginning of period	$	(692	)	$	(137	)	$	(192	)	$	(51	)
Net change associated with current period hedging activities and other		665			10			166			(92	)
Net change from reclassification into earnings		(202	)		12			(203	)		28
End of period	$	(229	)	$	(115	)	$	(229	)	$	(115	)
PPL Energy Supply
Beginning of period	$	(688	)	$	(143	)	$	(188	)	$	(52	)
Net change associated with current period hedging activities and other		668			18			167			(88	)
Net change from reclassification into earnings		(206	)		10			(205	)		25
End of period	$	(226	)	$	(115	)	$	(226	)	$	(115	)

At September 30, 2008, the accumulated net unrealized after-tax losses on qualifying derivatives that were expected to be reclassified into earnings during the next 12 months were $41 million for PPL and $39 million for PPL Energy Supply.  Amounts are reclassified as the energy contracts go to delivery and as interest payments are made.

Normal Purchase/Normal Sale Exception

PPL's and PPL Energy Supply's "normal" portfolio includes certain load-following energy contracts, power purchase agreements, certain retail energy and physical capacity contracts and certain emission allowances purchased for consumption.  These contracts range in maturity through 2023.  Due to the "normal" election permitted by SFAS 133, these contracts receive accrual accounting.  The estimated fair value of these contracts was:

	Losses
	September 30, 2008			December31, 2007
PPL	$	(123	)	$	(327	)
PPL Energy Supply		(191	)		(393	)

Economic Activity

PPL and PPL Energy Supply have entered into energy derivative transactions that economically hedge a specific risk, but do not qualify for hedge accounting under SFAS 133 or hedge accounting was not elected.  Included in these transactions are certain load-following energy contracts and related supply contracts, sold call options and spark spreads on PPL Energy Supply's generating plants, FTRs to hedge expected transmission congestion expense, crude oil swaps to hedge rail transportation charges and the mark-to-market on dedesignated cash flow hedges that are still probable of going to delivery.  Although these transactions do not receive hedge accounting treatment, they are considered non-trading activity.  In addition, the ineffective portion of cash flow hedges is included in economic activity.  The unrealized gains and (losses) on this activity is reflected in the Statements of Income as follows.

	Unrealized Gains (Losses)
	Three Months Ended September30,						Nine Months Ended September30,
	2008			2007			2008			2007
Revenues
Unregulated retail electric and gas	$	3					$	2
Wholesale energy marketing		1,157						361		$	(99	)
Expenses
Fuel		14		$	(1	)		16			(1	)
Energy purchases		(1,058	)		(7	)		(173	)		127

The net unrealized gains recorded in "Wholesale energy marketing" resulted primarily from certain load-following sales contracts in which PPL and PPL Energy Supply did not elect the normal purchase/normal sale exception and the impact of quarterly hedge ineffectiveness as discussed in the "Cash Flow Hedges" section above.  The net unrealized losses recorded in "Energy purchases" resulted primarily from certain purchase contracts to supply the load-following contracts noted above in which PPL and PPL Energy Supply did not elect hedge treatment and from hedge ineffectiveness.  Since power prices have decreased significantly during the period, these fixed-price contracts have resulted in substantial unrealized gains and losses.

Credit Concentration

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries 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 fair value of these contracts is not reflected in the financial statements.  However, the fair value of these contracts is considered when committing to new business from a credit perspective.

PPL and its subsidiaries have credit exposure to energy trading partners.  The majority of these exposures are the fair value of multi-year contracts for energy sales and purchases.  Therefore, if these counterparties fail to perform their obligations under such contracts, PPL and its subsidiaries 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.

PPL and its subsidiaries generally have the right to request collateral, in the forms of cash or letters of credit, from their counterparties in the event that the counterparties' credit ratings fall below investment grade or their exposure exceeds an established credit limit.  It is also the policy of PPL and its subsidiaries to enter into netting agreements with their counterparties to limit credit exposure.

(PPL)

At September 30, 2008, PPL had credit exposure of $1.7 billion to energy trading partners, excluding the effects of netting arrangements.  As a result of netting and collateral arrangements, PPL's credit exposure was reduced to $426 million.  One of the counterparties accounted for 21% of this exposure and no other individual counterparty accounted for more than 14% of the exposure.  The top ten counterparties accounted for $307 million, or 72%, of the total exposure.  Six of these counterparties had an investment grade credit rating from S&P and accounted for 53% of the top 10 exposure.  Two of the counterparties that are not rated investment grade have posted collateral in the form of a letter of credit as per the terms and conditions of their respective contracts, and all four non-rated counterparties are current on their obligations.

(PPL Energy Supply)

At September 30, 2008, PPL Energy Supply had credit exposure of $1.7 billion to energy trading partners, excluding the effects of netting arrangements.  As a result of netting and collateral arrangements, PPL Energy Supply's credit exposure was reduced to $408 million.  One of the counterparties accounted for 22% of this exposure, and no other individual counterparty accounted for more than 14% of the exposure.  The top ten counterparties accounted for $307 million, or 75%, of the total exposure.  Six of these counterparties had an investment grade credit rating from S&P and accounted for 53% of the top 10 exposure.  Two of the counterparties that are not rated investment grade have posted collateral in the form of a letter of credit as per the terms and conditions of their respective contracts, and all four non-rated counterparties are current on their obligations.

PPL Energy Supply has credit exposure to PPL Electric under the long-term contracts for PPL EnergyPlus to supply PPL Electric's PLR load.  This exposure is excluded from the exposure discussed above.  See Note 11 for additional information on this related party credit exposure.

(PPL Electric)

At September 30, 2008, PPL Electric had credit exposure of $18 million as a result of its two solicitation bids in 2007 and one solicitation bid in 2008 for the 2010 PLR supply.  The successful bidders were eight external suppliers, all of which had an investment grade credit rating from S&P.

PPL EnergyPlus was another successful bidder in the first competitive solicitation process.  PPL Electric has credit exposure to PPL Energy Supply under the PLR contracts that expire December 31, 2009, and the first competitive solicitation.  These exposures are excluded from the exposure discussed above.  See Note 11 for additional information on the related party credit exposure.

15.   Goodwill and Other Intangible Assets

Goodwill

(PPL and PPL Energy Supply)

The changes in the carrying amounts of goodwill by segment were:

	Supply		International Delivery			Total
Balance at December 31, 2007	$	94	$	897		$	991
Effect of foreign currency exchange rates				(102	)		(102	)
Balance at September 30, 2008	$	94	$	795		$	889

(PPL)

At September 30, 2008 and December 31, 2007, $55 million of goodwill had been classified as "Assets held for sale" on the Balance Sheets due to the planned sale of the natural gas distribution and propane businesses.  These businesses are a component of the Pennsylvania Delivery segment.  The sale was completed in October 2008.  See Note 8 for additional information.

Other Intangible Assets

(PPL)

The gross carrying amount and the accumulated amortization of other intangible assets were:

	September 30, 2008				December 31, 2007
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Subject to amortization:
Land and transmission rights	$	237	$	110	$	235	$	108
Emission allowances (a)		90				123
Lease arrangement and other (b)		349		46		109		41
Not subject to amortization due to indefinite life:
Land and transmission rights		16				15
Easements		74				78
	$	766	$	156	$	560	$	149

(a)	Removed from the Balance Sheets and expensed when consumed or sold.    During the third quarter of 2008, PPL recorded an impairment charge of $33 million to write-down annual nitrogen oxide allowances to fair value, which was determined to be zero.  See Note 10 for additional information.
(b)	"Other" includes costs for the development of licenses, the most significant of which is the COLA (see Note 8 for additional information).   These costs are expected to be amortized once the related assets are placed in service.

Current intangible assets and long-term intangible assets are included in "Other intangibles" in their respective areas on the Balance Sheets.

The increase in "Lease arrangement and other" from December 31, 2007, is primarily related to an intangible asset with an estimated amortization period of 13 years.

Amortization expense, excluding consumption of emission allowances, is estimated at $5 million for the remainder of 2008 and $22 million per year for 2009 through 2013.

(PPL Energy Supply)

The gross carrying amount and the accumulated amortization of other intangible assets were:

	September 30, 2008				December 31, 2007
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Land and transmission rights	$	42	$	22	$	43	$	22
Emission allowances (a)		90				123
Easements (b)		74				78
Lease arrangement and other (c)		344		46		109		41
	$	550	$	68	$	353	$	63

(a)	Removed from the Balance Sheets and expensed when consumed or sold.   During the third quarter of 2008, PPL Energy Supply recorded an impairment charge of $33 million to write-down annual nitrogen oxide allowances to fair value, which was determined to be zero.  See Note 10 for additional information.
(b)	Not subject to amortization due to indefinite life.
(c)	"Other" includes costs for the development of licenses, the most significant of which is the COLA (see Note 8 for additional information).  These costs are expected to be amortized once the related assets are placed in service.

Current intangible assets and long-term intangible assets are included in "Other intangibles" in their respective areas on the Balance Sheets.

The increase in "Lease arrangement and other" from December 31, 2007, is primarily related to an intangible asset with an estimated amortization period of 13 years.

Amortization expense, excluding consumption of emission allowances, is estimated at $5 million for the remainder of 2008 and $19 million per year for 2009 through 2013.

16.   Asset Retirement Obligations

(PPL and PPL Energy Supply)

The change in the carrying amounts of the AROs was:

AROs at December 31, 2007	$	376
Accretion expense		22
Liabilities incurred		11
Change in estimated cash flow on settlement date		(10	)
Liabilities settled		(14	)
Change in foreign currency exchange rates		(1	)
AROs at September 30, 2008	$	384

Changes in ARO costs and settlement dates, which affect the carrying value of various AROs, are reviewed periodically to ensure that any material changes are incorporated into the latest estimates of the obligation.  In 2008, PPL Energy Supply changed estimated settlement dates and revised estimates on several AROs, the most significant being the ash basins at the Montour and Brunner Island plants.  In addition, PPL Energy Supply incurred additional liabilities for asbestos-containing material at several plants.

Funds in the nuclear plant decommissioning trust are legally restricted for purposes of settling PPL's and PPL Energy Supply's ARO related to the decommissioning of the Susquehanna nuclear station.  PPL Electric collects authorized nuclear decommissioning costs through the CTC; the collection of such costs is scheduled to end in December 2009.  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.  Once this collection ends, nuclear decommissioning costs are expected to be recovered through the price of generation in the competitive marketplace.  The aggregate fair value of the nuclear plant decommissioning trust funds was $498 million as of September 30, 2008, and $555 million as of December 31, 2007.  See Note 13 for additional information on the September 30, 2008 fair value and Note 12 for information regarding the impairment of certain securities held by the trust.

17.   Restricted Cash and Cash Equivalents

(PPL, PPL Energy Supply and PPL Electric)

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

	September 30, 2008
	PPL		PPL Energy Supply		PPL Electric
Current:
Deposits for trading purposes with NYMEX broker (a)	$	267	$	267
PPL Transition Bond Company Indenture reserves (b)		43			$	43
Counterparty collateral		7		7
Client deposits		6
Other		3		3
Total current		326		277		43
Noncurrent:
Required deposits of WPD (c)		18		18
Escrowed funds related to Exempt Facility Revenue Bonds		5		5
Total noncurrent		23		23
	$	349	$	300	$	43

	December 31, 2007
	PPL		PPL Energy Supply		PPL Electric
Current:
Collateral for letters of credit (d)	$	41			$	41
Deposits for trading purposes with NYMEX broker (a)		119	$	119
Counterparty collateral		26		26
Client deposits		16
Other		1		1		1
Total current		203		146		42
Noncurrent:
Required deposits of WPD (c)		18		18
PPL Transition Bond Company Indenture reserves (b)		42				42
Escrowed funds related to Exempt Facility Revenue Bonds		19		19
Total noncurrent		79		37		42
	$	282	$	183	$	84

(a)	Represents margin deposits related to hedging activities.  The increase in 2008 is attributable to increases in commodity prices and transaction volume.
(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.
(c)	Primarily consists of insurance reserves.
(d)	Includes a deposit with a financial institution of funds from the asset-backed commercial paper program to fully collateralize $41 million of letters of credit at December 31, 2007.

18.   Leases

(PPL and PPL Energy Supply)

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  Under the agreement, PPL EnergyPlus has control over the plant's dispatch into the electricity grid and will supply the natural gas necessary to operate the plant.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  The fixed payments under the tolling agreement are subject to adjustment based upon changes to the facility capacity rating, which may occur up to twice per year.  Certain costs within the tolling agreement, primarily non-lease costs, are subject to escalation.

Total future minimum lease payments for all operating leases, including this agreement, are estimated to be:

Remainder of 2008	$	14
2009		98
2010		89
2011		90
2012		87
2013		99
Thereafter		478
	$	955

19.   New Accounting Standards Pending Adoption

(PPL, PPL Energy Supply and PPL Electric)

FSP APB 14-1

In May 2008, the FASB issued FSP APB 14-1.  FSP APB 14-1 requires an issuer to separately account for the liability and equity components of convertible debt instruments that may be settled in cash (or other assets) upon conversion in a manner that reflects the issuer's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.  The discount that results from separating the liability and equity components will be amortized over the life of the debt and recognized as interest expense.

PPL and its subsidiaries will adopt FSP APB 14-1 effective January 1, 2009.  Early adoption is not permitted.  Retrospective application to all prior periods presented is required.  The cumulative effect of the change in accounting principle on periods prior to those presented will be recognized as of the beginning of the first period presented as an offsetting adjustment to opening retained earnings for that period.

FSP APB 14-1 is applicable to PPL Energy Supply's 2-5/8% Convertible Senior Notes due 2023 (Convertible Senior Notes), which upon conversion required cash settlement of the principal amount and permitted settlement of any conversion premium in cash or PPL common stock.

During the nine months ended September 30, 2008, all of the Convertible Senior Notes were either converted at the election of the holders or redeemed at par as a result of PPL Energy Supply calling the notes for redemption.  See Note 7 for additional information about these Convertible Senior Notes.  Upon adoption, FSP APB 14-1 will require only retrospective application with regard to the Convertible Senior Notes since none of these notes are outstanding.  The potential impact of adoption has not yet been determined, but it could be material.

FSP EITF 03-6-1

In June 2008, the FASB issued FSP EITF 03-6-1.  FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS under the two-class method described in SFAS 128.  FSP EITF 03-6-1 requires companies to include in the computation of EPS pursuant to the two-class method, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents.

FSP EITF 03-6-1 applies to restricted stock and restricted stock units granted under PPL's stock-based compensation plans.

PPL and its subsidiaries will apply FSP EITF 03-6-1 retrospectively, effective January 1, 2009.  Early application is not permitted.  The potential impact of adoption has not yet been determined, but it could be material.

SFAS 141(R)

In December 2007, the FASB issued SFAS 141(R), which replaces SFAS 141.  PPL and its subsidiaries will adopt SFAS 141(R) prospectively, effective January 1, 2009.  The most significant changes to business combination accounting pursuant to SFAS 141(R) includes requirements or amendments to:

· recognize with certain exceptions, 100% of the fair values of assets acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100% controlling interest when the acquisition constitutes a change in control of the acquired entity;

· measure acquirer shares issued in consideration for a business combination at fair value on the acquisition date;

· recognize contingent consideration arrangements at the acquisition-date fair values, with subsequent changes in fair value generally reflected through earnings;

· recognize pre-acquisition loss and gain contingencies at their acquisition-date fair values, with certain exceptions;

· capitalize in-process research and development assets acquired;

· expense, as incurred, acquisition-related transaction costs;

· capitalize acquisition-related restructuring costs only if the criteria in SFAS 146 are met as of the acquisition date;

· recognize changes that result from a business combination transaction in an acquirer's existing income tax valuation allowances and tax uncertainty accruals as adjustments to income tax expense;

· recognize changes in unrecognized tax benefits acquired in a business combination, including business combinations that have occurred prior to January 1, 2009, in income tax expense rather than in goodwill; and

· provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use.

The adoption of SFAS 141(R) will impact the accounting for business combinations for which the acquisition date is on or after January 1, 2009.  As noted above, it will also impact all changes to tax uncertainties and income tax valuation allowances established for business combinations that have occurred prior to January 1, 2009.  Early adoption is prohibited.  The potential impact of adoption to the financial statements is not yet determinable, but it could be material.

SFAS 157, as amended

See Note 2 for information regarding PPL and its subsidiaries' election to defer the application of SFAS 157, as amended, for eligible nonfinancial assets and liabilities.

SFAS 160

In December 2007, the FASB issued SFAS 160.  The objective of SFAS 160 is to improve the relevancy, comparability, and transparency of the financial information an entity provides when it has a noncontrolling interest in a subsidiary and when it deconsolidates a subsidiary.  SFAS 160 requires that:

· The ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent's equity.

· The amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income.

· Changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently.  A parent's ownership interest in a subsidiary changes if the parent purchases additional ownership interests in its subsidiary or if the parent sells some of its ownership interests in its subsidiary.  It also changes if the subsidiary reacquires some of its ownership interests or the subsidiary issues additional ownership interests.  All of those transactions are economically similar, and SFAS 160 requires that they be accounted for similarly, as equity transactions.

· When a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value.  The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment.

· Entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.

PPL and its subsidiaries will adopt SFAS 160, prospectively, effective January 1, 2009, concurrent with the adoption of SFAS 141(R), except for the presentation and disclosure requirements, which require retrospective application.  The potential impact of adoption to the financial statements is not yet determinable, but it could be material.

SFAS 161

In March 2008, the FASB issued SFAS 161, which applies to all derivative instruments, including bifurcated derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments pursuant to SFAS 133, as well as related hedged items accounted for under SFAS 133.  SFAS 161 requires entities to expand its disclosures to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and (c) how derivative instruments and related hedged items affect an entity's financial position, results of operations and cash flows.

PPL and its subsidiaries will adopt SFAS 161, prospectively, effective January 1, 2009.  SFAS 161 permits early adoption and encourages, but does not require, comparative disclosures for earlier periods at initial adoption.  SFAS 161 was issued to provide greater transparency by enhancing existing disclosures; therefore, the adoption is not expected to have a material impact on PPL and its subsidiaries' financial statements.

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, Pennsylvania.  In PPL's 2007 Form 10-K, descriptions of its domestic and international businesses are found in "Item 1. Business - Background."  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 and the U.K.  PPL's reportable segments are Supply, International Delivery and Pennsylvania Delivery.  In 2007, PPL sold its regulated electricity delivery businesses in Latin America, which were included in the International Delivery segment.  In October, 2008, PPL completed the sale of its natural gas distribution and propane businesses, which were included in the Pennsylvania Delivery segment.  See Note 8 to the Financial Statements for information on the sales.  See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL's 2007 Form 10-K for a discussion of PPL's strategy and the risks and challenges it faces in its business.  See "Forward-Looking Information," Note 10 to the Financial Statements and the rest of Item 2 in this Form 10-Q and "Item 1A. Risk Factors" and the rest of Item 7 in PPL's 2007 Form 10-K for more information concerning the material risks and uncertainties that PPL faces in its businesses and with respect to its future earnings.

Recent Market Events

The turmoil in the financial markets has increased the complexity of maintaining credit risk within acceptable tolerances, responding to liquidity needs, measuring derivative and other financial instruments at fair value, and managing market price risk.

Credit risk

Credit risk is the risk that PPL would incur a loss as a result of nonperformance by counterparties of their contractual obligations.  PPL maintains credit policies and procedures with respect to counterparty credit (including requirements that counterparties maintain specified credit ratings) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk.  However, PPL has concentrations of suppliers and customers among electric utilities, natural gas distribution companies, financial institutions and other energy marketing and trading companies.  These concentrations may impact PPL's overall exposure to credit risk, either positively or negatively, as counterparties may be similarly affected by changes in economic, regulatory or other conditions.  The volatility and downturn in financial and commodity markets in the third quarter of 2008 have generally increased PPL's exposure to credit risk.  See Note 14 to the Financial Statements for additional information about credit concentration.

In September 2008, Lehman Brothers Holdings Inc. (Lehman), filed for protection under Chapter 11 of the Federal Bankruptcy Code.  A subsidiary of Lehman was a counterparty of PPL.  Lehman was a guarantor of the subsidiary, and because of the bankruptcy, PPL was allowed to declare an event of default under the contract with the subsidiary.  At the time of Lehman's filing, PPL's direct exposure to the subsidiary of Lehman was a net liability of $3 million, pre-tax, which was liquidated prior to September 30, 2008.  PPL believes that the Lehman bankruptcy has not had and will not have a material adverse effect on PPL or its subsidiaries.

Due to the recent market conditions, PPL has increased the amount of credit reserves related to certain counterparties other than Lehman, but the increase was not material to PPL's financial statements.  At this time, PPL has not deemed it probable that any of these counterparties will default.

Liquidity Issues

The turmoil in financial markets has generally made obtaining new sources of credit more difficult and more costly for companies.  Despite the tightening of the credit markets, PPL expects to continue to have adequate sources of liquidity through operating cash flows, cash and cash equivalents, short-term investments and its credit facilities.  PPL currently does not expect to need to access commercial paper markets or debt and equity capital markets until the fourth quarter of 2009, except to remarket certain bonds at PPL Electric as discussed in "Financial Condition - Liquidity and Capital Resources - Financing Activities," but may decide to access capital markets, subject to market conditions, to enhance its liquidity.

Lehman Brothers Bank, FSB (Lehman Bank), another subsidiary of Lehman, is no longer honoring its commitments under PPL Energy Supply's $3.4 billion five-year credit facility and PPL Electric's $200 million five-year credit facility.  Lehman Bank's commitments under these facilities total $185 million.  See "Financial Condition - Liquidity and Capital Resources" for an expanded discussion of PPL's liquidity position and a discussion of financing transactions completed in October 2008 to prefund future debt maturities.

Valuations in Inactive Markets

The turmoil in the financial markets has generally made it more difficult for companies to determine the fair value of certain assets and liabilities in inactive markets.  Management has reviewed the activity in the energy and financial markets in which PPL transacts, concluding that substantially all of these markets were active as of September 30, 2008.  However, the market for auction rate securities remains inactive.  See Note 13 to the Financial Statements and "Financial Condition - Liquidity and Capital Resources - Auction Rate Securities" for a discussion of these investments.

Commodity Price Risk

The volatility of wholesale energy prices significantly impacted PPL's earnings for the three and nine months ended September 30, 2008.  See "Statement of Income Analysis - Domestic Gross Energy Margins - Domestic Gross Energy Margins By Region" for further discussion.

Securities Price Risk

Declines in the market price of debt and equity securities resulted in unrealized losses that have impacted the asset values of PPL's investments in its nuclear decommissioning trust funds and in its defined benefit plans.  The nuclear decommissioning trust funds have experienced negative investment returns during 2008.  The assets in these funds support the costs to decommission the Susquehanna nuclear station when its licenses expire in 2022 and 2024, subject to any license extensions.  As a result, the obligation to decommission the nuclear station is long-term in nature, exposing the assets held in the funds to price risk.  PPL actively monitors the performance of the investments held in the funds and periodically reviews the funds' investment allocations.

PPL's defined benefit plans have also experienced negative investment returns in 2008.  However, significant increases in bond rates used to determine the discount rate for these plans may provide for reductions in the gross benefit obligations of these plans. This may offset some portion of the decline in asset values when determining the funded status of the plans as well as other measures at the end of 2008.  Determination of the funded status of the defined benefit plans, contribution requirements and net periodic defined benefit costs for future years are subject to changes in assumptions, including the performance of the assets in the plans, through the annual measurement dates.  See "Application of Critical Accounting Policies" for "Defined Benefits" in Part II, Item 7 of the 2007 Form 10-K for a discussion of the assumptions and sensitivities regarding those assumptions.

The following information should be read in conjunction with PPL's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL's 2007 Form 10-K.

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 summary of PPL's earnings and continues with a review of results by reportable segment and a description of key factors by segment that management expects may impact future earnings.  This section ends with explanations of significant changes in principal items on PPL's Statements of Income, comparing the three and nine months ended September 30, 2008, with the same periods in 2007.

The results for interim periods can be disproportionately influenced by various factors and developments and by seasonal variations, and as such, the results of operations for interim periods do not necessarily indicate results or trends for the year or for future operating results.

Earnings

Net income and the related EPS were:

	Three Months Ended September30,				Nine Months Ended September30,
	2008		2007		2008		2007
Net income	$	203	$	322	$	653	$	870
EPS - basic	$	0.54	$	0.85	$	1.75	$	2.27
EPS - diluted	$	0.54	$	0.84	$	1.73	$	2.25

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

The period-to-period changes in significant earnings components are explained in the "Statement of Income Analysis."

Segment Results

Net income by segment was:

	Three Months Ended September30,				Nine Months Ended September30,
	2008		2007		2008		2007
Supply	$	98	$	205	$	297	$	454
International Delivery		73		108		233		319
Pennsylvania Delivery		32		9		123		97
Total	$	203	$	322	$	653	$	870

Supply Segment

The Supply segment primarily consists of the domestic energy marketing, domestic generation and domestic development operations of PPL Energy Supply.  In August 2007, PPL completed the sale of its domestic telecommunication operations.  See Note 8 to the Financial Statements for additional information.

Supply segment net income was:

	Three Months Ended September30,					Nine Months Ended September30,
	2008			2007		2008			2007
Energy revenues
External (a)	$	1,825		$	566	$	2,027		$	1,256
Intersegment		453			453		1,370			1,356
Energy-related businesses		140			185		369			536
Total operating revenues		2,418			1,204		3,766			3,148
Fuel and energy purchases
External (a)		1,781			436		1,888			1,085
Intersegment		30			44		89			119
Other operation and maintenance		215			164		649			517
Depreciation		52			41		146			124
Taxes, other than income		9			6		18			24
Energy-related businesses		130			174		351			568
Total operating expenses		2,217			865		3,141			2,437
Other Income - net		(6	)		15		(2	)		27
Interest Expense		53			38		144			113
Income Taxes		44			110		181			169
Minority Interest					1		1			2
Net Income	$	98		$	205	$	297		$	454

(a) Includes unrealized gains and losses from economic activity.  See Note 14 to the Financial Statements for additional information.

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

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Eastern U.S. non-trading margins	$	(15	)	$	(48	)
Western U.S. non-trading margins					5
Net energy trading margins		(89	)		(70	)
Taxes, other than income		1			4
Depreciation		(5	)		(12	)
Other operating expenses		2			(10	)
Earnings from synfuel projects		(9	)		(43	)
Realized earnings on nuclear plant decommissioning trust		(4	)		(7	)
Financing costs, net of interest income		(13	)		(22	)
Income taxes		(3	)		(6	)
Other		1			(3	)
Special items		27			55
	$	(107	)	$	(157	)

· 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 depreciation expense for both periods was due to additions to PP&E.

· Higher other operating expenses for the nine months ended September 30, 2008, were attributable to higher operating costs at the fossil/hydro generating stations (including higher outage costs at the Eastern U.S. fossil/hydro stations), higher costs of nuclear development and higher operating costs in the energy marketing business.  Partially offsetting these increases were lower outage and non-outage costs at the Susquehanna nuclear station.

· Lower earnings contribution from synfuel projects for both periods was the result of the expiration of federal tax credits and closure of the synfuel facilities at the end of 2007.

· Higher net financing costs for both periods were primarily due to lower interest income and higher interest expense on long-term debt primarily due to new issuances.

The following after-tax amounts, which management considers special items, also had a significant impact on the Supply segment earnings.  See the indicated Notes to the Financial Statements for additional information.

	Three Months Ended September30,						Nine Months Ended September30,
	2008			2007			2008			2007
Mark-to-market adjustments from certain economic activity (a)	$	67		$	(6	)	$	121		$	20
Unrealized losses on certain nuclear plant decommissioning trust investments (Note 12)		(1	)					(5	)
Impairment of certain emission allowances (Note 10)		(27	)					(27	)
Impairment of certain transmission rights (b)					(12	)					(12	)
Settlement of Wallingford cost-based rates (c)					33						33
Sale of domestic telecommunication operations (Note 8)					(3	)					(23	)
Off-site remediation of ash basin leak (Note 10)								1
Colstrip groundwater litigation (Note 10)								(5	)
Synthetic fuel tax adjustment (Note 10)								(13	)
PJM billing dispute (d)											(1	)
Total	$	39		$	12		$	72		$	17

(a)	See Note 14 to the Financial Statements for additional information regarding economic activity.
(b)	See "Other Operation and Maintenance" for more information on the $21 million pre-tax impairment.
(c)	In 2003, PPL Wallingford and PPL EnergyPlus sought from the FERC cost-based payments based upon the RMR status of four units at the Wallingford, Connecticut generating facility.  As a result of a settlement agreement, during the third quarter of 2007, PPL recognized $55 million of revenue and $4 million of interest income related to the settlement agreement, of which $21 million had been previously collected.
(d)	Represents additional interest related to the settlement of this litigation in 2007.

Outlook

Excluding special items, PPL projects lower earnings for its Supply segment in 2008 compared with 2007 as a result of the loss of synfuel-related tax benefits, higher coal commodity and transportation costs, lower expected baseload generation, higher financing costs and lower expected margins from PPL's marketing and trading activities.  The decrease in wholesale energy prices and lack of liquidity in the power markets significantly impacted PPL's earnings for the three and nine months ended September 30, 2008.  PPL has taken measures to reduce its exposure to the potential effect of any further decline in market prices on future trading margins.

PPL expects 2009 earnings for its Supply segment to be lower than projected 2008 earnings as a result of higher operation and maintenance expenses; higher depreciation and higher financing costs.  PPL expects these increased costs to be partially offset by higher energy margins, despite higher expected coal expense, as a result of higher baseload generation, higher Western energy sales prices, and higher expected margins from its marketing and trading activities.

As discussed in "Item 1A. Risk Factors" in PPL's 2007 Form 10-K, activities by the FERC, other governmental authorities and other involved parties can have a significant effect on market prices for wholesale electricity, and thus on the margins that PPL EnergyPlus achieves on its future sales of energy.  In April 2008, the FERC denied PJM's request to increase the Cost of New Entry element of the PJM capacity pricing formula.  In a separate action, in connection with Duquesne Light Company's (Duquesne) decision to leave PJM, in April 2008 the FERC ruled that PJM may grant capacity resources in the Duquesne zone transmission rights that would facilitate inclusion of such capacity in PJM's Reliability Pricing Model (RPM) capacity markets, beginning with the 2011-2012 planning year auction, notwithstanding that such capacity would be treated as external generation to PJM at the time it had to be delivered.  In response, PJM has indicated that it will grant generators in the Duquesne zone of PJM the necessary transmission rights.  These FERC and PJM actions reduced capacity prices for the 2011-2012 RPM capacity auction that took place in May 2008 and could reduce capacity prices for future RPM capacity auctions.  Because a large portion of PPL's generating capacity is located in PJM, the impact of any such reduced RPM capacity prices on PPL could be material.  PPL cannot predict the ultimate outcome of these or related FERC proceedings and the impact on capacity prices in PJM or on PPL's financial results.  See Note 10 to the Financial Statements for information on recent FERC litigation related to the RPM pricing model.

International Delivery Segment

The International Delivery segment includes operations of the international energy businesses of PPL Global that are primarily focused on the distribution of electricity.  PPL Global's major remaining international business is located in the U.K.  In 2007, PPL completed the sale of its Latin American operating businesses.  In the first quarter of 2008, PPL Global recognized income tax adjustments and other expenses in Discontinued Operations as the dissolution of the remaining Latin American holding companies commenced.  PPL Global may recognize additional adjustments and/or expenses in Discontinued Operations until this process is complete.  See Note 8 to the Financial Statements for additional information.

The International Delivery segment results in 2008 and 2007 reflect the reclassification of Latin American revenues and expenses to Discontinued Operations.

International Delivery segment net income was:

	Three Months Ended September30,						Nine Months Ended September30,
	2008			2007			2008		2007
Utility revenues	$	195		$	204		$	647	$	638
Energy-related businesses		8			8			26		27
Total operating revenues		203			212			673		665
Other operation and maintenance		46			57			142		182
Depreciation		33			33			104		111
Taxes, other than income		17			17			51		49
Energy-related businesses		4			4			10		13
Total operating expenses		100			111			307		355
Other Income - net		6			2			10		19
Interest Expense		42			47			114		141
Income Tax (Benefit) Expense		(6	)		(39	)		34		(42	)
Income from Discontinued Operations					13			5		89
Net Income	$	73		$	108		$	233	$	319

The after-tax change in net income between these periods was due to the following factors, including Discontinued Operations.

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
U.K.:
Delivery margins				$	18
Depreciation	$	(1	)		4
Other operating expenses		4			15
Interest expense		(1	)		5
Interest income		(2	)		(5	)
Income taxes		9			21
Foreign currency exchange rates		(2	)
Hyder liquidation distributions (Note 8)					(3	)
Gain on transfer of equity investment (Note 8)					(5	)
Other					(2	)
Discontinued Operations, net of special item (Note 8)		(11	)		(39	)
Change in tax reserves (Note 5)		1			(30	)
Other		8			20
U.S. income taxes		17			15
Special items		(57	)		(100	)
	$	(35	)	$	(86	)

· The U.K.'s earnings for the nine months ended September 30, 2008, were favorably impacted by higher delivery margins primarily due to higher prices, which include the annual regulatory adjustment for inflation.

· Lower U.K. other operating expenses for both periods were primarily due to lower pension expense resulting from an improvement in the fair value of pension assets and an increase in the discount rate, partially offset by lower mortality rates.

· Lower U.K. income taxes for the three and nine months ended September 30, 2008, were primarily due to the enactment of the U.K.'s Finance Act 2008, which included the phase-out of tax depreciation on certain buildings.  As a result, a deferred tax benefit was recorded in the third quarter of 2008.  Also contributing to the nine-month period variance was a favorable U.K. taxing authority determination in 2008 related to the deductibility of imputed interest on a loan from Hyder.

· Lower U.S. income taxes are primarily due to changes in the estimated taxable amount of planned cash repatriation.

· Changes in foreign currency exchange rates decreased the U.K.'s portion of revenue and expense line items by 4% and 1% for the three and nine months ended September 30, 2008, compared with the same periods in 2007.

The following after-tax amounts, which management considers special items, also had a significant impact on the International Delivery segment earnings.  See the indicated Notes to the Financial Statements for additional information.

	Three Months Ended September 30,			Nine Months Ended September 30,
	2008	2007		2008	2007
Sale of Latin American businesses (Note 8)		$	3		$	46
Change in U.K. tax rate (Note 5)			54			54
		$	57		$	100

Outlook

Excluding special items, PPL projects the 2008 earnings of its International Delivery segment to approximate the results of 2007.

PPL expects 2009 earnings for its International Delivery segment to be lower than projected 2008 earnings as a result of the loss of certain U.K. income tax benefits included in 2008 that are not expected to recur in 2009 and a less favorable foreign currency exchange rate in the U.K.

Pennsylvania Delivery Segment

The Pennsylvania Delivery segment includes the regulated electric and gas delivery operations of PPL Electric and PPL Gas Utilities.  In 2007, PPL announced its intention to sell its natural gas distribution and propane businesses.  In October 2008, the sale was completed.  See Note 8 to the Financial Statements for additional information.

The Pennsylvania Delivery segment results in 2008 and 2007 reflect the reclassification of the natural gas distribution and propane businesses' revenues and expenses to Discontinued Operations.

Pennsylvania Delivery segment net income was:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008		2007
Operating revenues
External	$	813		$	811		$	2,462	$	2,436
Intersegment		30			44			89		119
Total operating revenues		843			855			2,551		2,555
Fuel and energy purchases
External		44			56			129		157
Intersegment		453			453			1,370		1,356
Other operation and maintenance		103			103			310		297
Amortization of recoverable transition costs		73			78			217		229
Depreciation		32			34			97		99
Taxes, other than income		51			50			155		150
Total operating expenses		756			774			2,278		2,288
Other Income - net		1			6			9		25
Interest Expense		25			32			80		103
Income Taxes		21			17			70		61
Dividends on Preferred Securities		5			5			14		14
(Loss) Income from Discontinued Operations		(5	)		(24	)		5		(17	)
Net Income	$	32		$	9		$	123	$	97

The after-tax change in net income between these periods was due to the following factors, including Discontinued Operations.

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)	$	5		$	21
Operating expenses					(10	)
Other		(1	)		(3	)
Special item		19			18
	$	23		$	26

· Higher delivery revenues were attributable to a PPL Electric base rate increase effective January 1, 2008 and normal load growth, partially offset by the unfavorable impact of weather on residential and commercial sales in 2008.

· Higher operating expenses for the nine months ended September 30, 2008, were primarily due to increased usage of contractors and increases in uncollectible accounts.

The following after-tax amount, which management considers a special item, also had an impact on the Pennsylvania Delivery segment earnings.  See the indicated Note to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Sale of gas and propane businesses (Note 8)	$	(4	)	$	(23	)	$	(5	)	$	(23	)

Outlook

Excluding special items, PPL projects higher 2008 earnings for its Pennsylvania Delivery segment driven by higher revenues as a result of PPL Electric's January 1, 2008 distribution rate increase, partially offset by higher operating expenses.

PPL expects 2009 earnings for its Pennsylvania Delivery segment to be comparable to 2008 due to lower delivery margins offset by lower operating costs.

In May 2007, the PUC approved final regulations regarding the obligation of Pennsylvania electric utilities to provide default electricity supply in 2011 and beyond.  The regulations provide that default service providers will acquire electricity supply at prevailing market prices pursuant to procurement and implementation plans approved by the PUC.  The regulations also address the utilities' recovery of market supply costs.  The final regulations became effective in September 2007.

In May 2007, the PUC approved PPL Electric's plan to procure default electricity supply in 2007-2009 for retail customers who do not choose an alternative competitive supplier in 2010 after PPL Electric's PLR contract with an affiliate expires.  Under the plan, PPL Electric was approved to issue a series of competitive bids for such supply in 2007, 2008 and 2009.  Each solicitation is for 850 MW of expected generation supply, or one-sixth of PPL Electric's expected PLR supply requirement in 2010.  The average generation supply prices (per MWh), including Pennsylvania gross receipts tax and an adjustment for line losses, for the first four solicitations were as follows:

	Residential		Small Commercial and Small Industrial
July 2007	$	101.77	$	105.11
October 2007		105.08		105.75
March 2008		108.80		108.76
October 2008		112.51		111.94
Average		107.04		107.89

As a result, PPL Electric has contracted for two-thirds of the electricity supply it expects to need for 2010.  If the average prices paid for the supply purchased so far were to be the same for the remaining two purchases, the average residential customer's monthly bill in 2010 would increase about 36.1% over 2009 levels, while monthly bills for small business customers would increase on average approximately 25.0% and monthly bills for mid-size business customers would increase on average approximately 44.3%.  The estimated increases include Pennsylvania gross receipts tax, an adjustment for line losses, PPL Electric's January 1, 2008 rate increase and a court-ordered rate adjustment in 2007.  Actual 2010 prices will not be known until all six supply purchases have been made.  The final two solicitations will be conducted in 2009.

In September 2007, the Pennsylvania General Assembly (General Assembly) convened a special session to address the proposals in the Energy Independence Strategy (Strategy) proposed by the Pennsylvania Governor earlier in 2007.  In June 2008, the General Assembly passed, and the Governor signed, a bill that would create a $650 million fund for clean energy projects, conservation and energy efficiency initiatives and pollution control projects that would be funded through revenue bonds and gross receipts tax revenue, which will increase as rate caps expire.

In August 2008, PPL Electric filed a request with the PUC to approve its plan to purchase the PLR electricity supply that PPL Electric will need for 2011 through mid-2014.  Under the plan, PPL Electric proposed to buy this electricity for January 2011 through May 2014 four times a year, beginning in the third quarter of 2009, for 12- and 24- month increments.  PPL Electric also will seek bids from other companies to manage its hourly purchases in the competitive electricity market.  For residential and small-business customers, 90 percent of the supply would be acquired through fixed-price contracts of 12 or 24 months, and 10 percent through hourly purchases in the open market.  All of the power for large commercial and industrial customers would be purchased on an hourly basis in the open market.  An independent third party would administer the process of securing power supply contracts and, with PUC oversight, select the suppliers that would provide generation supply at the lowest cost to PPL Electric's customers.

On November 3, 2008, PPL Electric proposed several amendments to its plan to reflect passage of Pennsylvania Act 129 (Act 129), as discussed below.  PPL Electric added provisions to purchase 5% of its default service supply through five-year contracts and an additional 5% through ten-year contracts.  It reduced the term of its plan by one year, proposing that the plan end in May 2013, rather than in May 2014.  Finally, PPL Electric provided support for several findings that the PUC was required to make under Act 129.  PPL Electric cannot predict the outcome of this matter.

In August 2008, PPL Electric also asked the FERC for a change in the way transmission rates are calculated to support continued investment in its transmission system by switching to formula-based rates.  Under formula-based rates, a fixed earnings level is set for the utility, and the utility annually adjusts its transmission rates, subject to FERC review.  The process offers an opportunity for public input.  The proposed rate design would ensure that there is no over-recovery or under-recovery of the actual costs of providing transmission delivery service.  The rate change request, if approved, would result in an increase of $0.74 to the monthly bill of an average PPL Electric residential customer.  PPL Electric is requesting that the proposed rate take effect November 1, 2008.  This request would not affect generation charges or distribution rates.  The rate change request would result in an annual revenue increase of about $20 million.

On October 29, 2008, the FERC accepted the proposed rate for filing, effective on November 1, 2008, subject to refund.  The FERC did not adjust the requested return on equity of 12.84%, which included 50 basis points for membership in PJM.  Finally, the FERC set the matter for hearing, but held the hearings in abeyance to provide time for settlement judge procedures.  PPL Electric cannot predict the outcome of this matter.

Since the introduction of the Strategy in 2007, PPL and PPL Electric have been working with Pennsylvania legislators, regulators and other stakeholders to develop constructive measures to help customers transition to market rates after 2009, including a variety of rate mitigation, educational and energy conservation programs, consistent with several initiatives being developed by the state administration and legislature.  In this regard, in November 2007, PPL Electric requested the PUC to approve a plan under which its residential and small commercial customers could smooth the impact of price increases when generation rate caps expire in 2010.  The proposed phase-in plan provided that customers could pay additional amounts on their electric bills beginning in mid-2008 and continuing through 2009, and such additional amounts, plus accrued interest, would be applied to their 2010 and 2011 electric bills, mitigating the impact of the rate cap expiration.  PPL Electric requested expedited consideration of the proposal by the PUC.  Ten parties filed responses to PPL Electric's petition, primarily because the proposal offered the program on an "opt-out" basis (i.e., customers would be enrolled automatically and affirmatively have to "opt-out" if they choose not to participate).  The parties negotiated a settlement agreement  under which PPL Electric agreed to change the "opt-out" approach to an "opt-in" approach (i.e., customers would have to affirmatively enroll) and to make the program available to customers enrolled in budget billing.  In March 2008, the Administrative Law Judge assigned to this case recommended that the PUC approve the settlement agreement.  In August 2008, the PUC approved the settlement agreement.  As a result, the program was implemented in October 2008.

As part of the Strategy, the General Assembly passed and the Governor signed into law Act 129 in October 2008.  The law creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct, and makes changes to the existing Alternative Energy Portfolio Standard.

Under Act 129, Electric Delivery Companies (EDCs) must develop and file an energy efficiency and conservation plan with the PUC.  EDCs must contract with a conservation service provider to implement all or a portion of the plan.  Act 129 requires reduction in consumption of 1% by 2011, 3% by 2013 and a reduction in peak demand of 4.5% by 2013.  EDCs will be able to recover costs of implementing a conservation plan.

Act 129 also provides for installation of smart meters under the following conditions:  for new construction, upon the request of consumers at their cost, or on a depreciation schedule not exceeding 15 years.  PPL Electric's current advanced metering technology meets the definition of smart metering technology in Act 129, but PPL Electric will eventually have to upgrade its current metering technology to comply with a provision that requires EDCs to make available to third parties direct meter access and electronic access to customer meter data.  Under Act 129, EDCs will be able to recover costs of providing smart metering technology.

Act 129 also requires the default service provider (DSP) to provide electric generation supply service to customers pursuant to a PUC-approved competitive procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP.  Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years, with long-term contracts limited to up to 25% of the load unless otherwise approved by the PUC).  The DSP will be able to recover costs associated with a competitive procurement plan.

Under Act 129, the DSP competitive procurement plan must also ensure adequate and reliable service "at least cost" over time.  Act 129 also grants the PUC authority to extend long-term power contracts up to 20 years, if necessary, to achieve the "least cost" standard.

Act 129 also provides for market misconduct corrective actions.  In the event that an EDC, its affiliate or a supplier from whom the EDC has purchased power, is found guilty of market manipulation, the PUC can direct an EDC to take any and all reasonable action to quantify the effect of the market misconduct on Pennsylvania ratepayers and seek recompense.

Act 129 makes changes to the Alternative Energy Portfolio Standards by adding Pennsylvania biomass energy and small hydroelectric plants as Tier 1 alternative energy sources and requiring the PUC to automatically increase the Tier 1 requirements to account for increases in the additional resources.

Act 129 also requires the Pennsylvania Department of Conservation and Natural Resources to complete a study to identify suitable geological formations for the location of a state carbon sequestration network.

Act 129 does not address rate mitigation.  The Governor, Pennsylvania House of Representatives and Pennsylvania Senate have committed to address rate mitigation in the next session, which begins in January 2009.

Certain Pennsylvania legislators have introduced or are contemplating the introduction of legislation to extend generation rate caps or otherwise limit cost recovery through rates for Pennsylvania utilities beyond their transition periods, which in PPL Electric's case would be December 31, 2009.  PPL and PPL Electric have expressed strong concern regarding the severe potential consequences of such legislation on customer service, system reliability, adequate future generation supply and PPL Electric's financial viability.  If such legislation or similar legislation is enacted, PPL Electric could experience substantial operating losses, cash flow shortfalls and other adverse financial impacts.  In addition, continuing uncertainty regarding PPL Electric's ability to recover its market supply and other costs of operation after 2009 could adversely impact its credit quality, financing costs and availability of credit facilities necessary to operate its business.  In addition, PPL and PPL Electric believe that such an extension of rate caps, if enacted into law, would violate federal law and the U.S. Constitution.  At this time, PPL and PPL Electric cannot predict the final outcome or impact of this legislative and regulatory process.

Statement of Income Analysis --

Domestic Gross Energy Margins

Non-GAAP Financial Measure

The following discussion includes financial information prepared in accordance with GAAP, as well as a non-GAAP financial measure, "Domestic Gross Energy Margins."  The presentation of "Domestic Gross Energy Margins" is intended to supplement the investor's understanding of PPL's domestic non-trading and trading activities by combining applicable income statement line items and related adjustments to calculate a single financial measure.  PPL believes that "Domestic Gross Energy Margins" is useful and meaningful to investors because it provides them with the results of PPL's domestic non-trading and trading activities as another criterion in making their investment decisions.  PPL's management also uses "Domestic Gross Energy Margins" in measuring certain corporate performance goals used in determining variable compensation.  Other companies may use different measures to present the results of their non-trading and trading activities.  Additionally, "Domestic Gross Energy Margins" is not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance.  The following table provides a reconciliation between "Domestic Gross Energy Margins" as defined by PPL and "Operating Income."

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Operating Income (a)	$	391		$	521		$	1,264		$	1,288
Adjustments:
Energy-related businesses, net (b)		(14	)		(15	)		(34	)		18
Other operation and maintenance (a)		364			324			1,101			996
Amortization of recoverable transition costs (a)		73			78			217			229
Depreciation (a)		117			108			347			334
Taxes, other than income (a)		77			73			224			223
Revenue adjustments (c)		(1,692	)		(562	)		(2,036	)		(1,519	)
Expense adjustments (c)		1,028			(6	)		109			(184	)
Domestic gross energy margins	$	344		$	521		$	1,192		$	1,385

(a)	As reported on the Statements of Income.
(b)	Amount represents the net of "Energy-related businesses" revenue and expense as reported on the Statements of Income.
(c)	The components of these adjustments are detailed in the table below.

The following table provides the income statement line items and other adjustments that comprise domestic gross energy margins.

	Three Months Ended Sept. 30,
	2008			2007			Change
Revenue
Utility (a)	$	1,007		$	1,016		$	(9	)
Unregulated retail electric and gas (a)		43			28			15
Wholesale energy marketing (a)		1,915			517			1,398
Net energy trading margins (a)		(132	)		20			(152	)
Revenue adjustments (b)
WPD utility revenue		(195	)		(204	)		9
Domestic delivery component of utility revenue		(325	)		(325	)
Other utility revenue		(12	)		(13	)		1
RMR revenues					(52	)		52
Mark-to-market adjustments from certain economic activity (c)		(1,160	)					(1,160	)
Gains from sale of emission allowances (d)					32			(32	)
Total revenue adjustments		(1,692	)		(562	)		(1,130	)
		1,141			1,019			122
Expense
Fuel (a)		267			257			10
Energy purchases (a)		1,558			235			1,323
Expense adjustments (b)
Mark-to-market adjustments from certain economic activity (c)		(1,046	)		(10	)		(1,036	)
Domestic electric ancillaries (e)		(15	)		(13	)		(2	)
Gross receipts tax (f)		28			28
Other		5			1			4
Total expense adjustments		(1,028	)		6			(1,034	)
		797			498			299
Domestic gross energy margins	$	344		$	521		$	(177	)

	Nine Months Ended Sept. 30,
	2008			2007			Change
Revenue
Utility (a)	$	3,108		$	3,074		$	34
Unregulated retail electric and gas (a)		110			73			37
Wholesale energy marketing (a)		2,000			1,145			855
Net energy trading margins (a)		(82	)		38			(120	)
Revenue adjustments (b)
WPD utility revenue		(647	)		(638	)		(9	)
Domestic delivery component of utility revenue		(989	)		(980	)		(9	)
Other utility revenue		(38	)		(37	)		(1	)
RMR revenues					(52	)		52
Mark-to-market adjustments from certain economic activity (c)		(363	)		99			(462	)
Gains from sale of emission allowances (d)		1			89			(88	)
Total revenue adjustments		(2,036	)		(1,519	)		(517	)
		3,100			2,811			289
Expense
Fuel (a)		718			692			26
Energy purchases (a)		1,299			550			749
Expense adjustments (b)
Mark-to-market adjustments from certain economic activity (c)		(157	)		133			(290	)
Domestic electric ancillaries (e)		(41	)		(39	)		(2	)
Gross receipts tax (f)		85			84			1
Other		4			6			(2	)
Total expense adjustments		(109	)		184			(293	)
		1,908			1,426			482
Domestic gross energy margins	$	1,192		$	1,385		$	(193	)

(a)	As reported on the Statements of Income.
(b)	To include/exclude the impact of any revenues and expenses not associated with domestic gross energy margins, consistent with the way management reviews domestic gross energy margins internally.
(c)	See Note 14 to the Financial Statements for additional information regarding economic activity.
(d)	Included in "Other operation and maintenance" on the Statements of Income.
(e)	Included in "Energy purchases" on the Statements of Income.
(f)	Included in "Taxes, other than income" on the Statements of Income.

Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL's non-trading and trading activities.  PPL manages its non-trading energy business on a geographic basis that is aligned with its generation assets.

	Three Months Ended Sept. 30,
	2008			2007		Change
Non-trading
Eastern U.S.	$	398		$	424	$	(26	)
Western U.S.		78			77		1
Net energy trading		(132	)		20		(152	)
Domestic gross energy margins	$	344		$	521	$	(177	)

	Nine Months Ended Sept. 30,
	2008			2007		Change
Non-trading
Eastern U.S.	$	1,057		$	1,138	$	(81	)
Western U.S.		217			209		8
Net energy trading		(82	)		38		(120	)
Domestic gross energy margins	$	1,192		$	1,385	$	(193	)

Eastern U.S.

Eastern U.S. non-trading margins were $26 million and $81 million lower during the three and nine months ended September 30, 2008, compared with the same periods in 2007.  The decrease for both periods was primarily due to higher average fuel prices, which were up 18% and 14%, and lower baseload generation which was down 12% and 6%, primarily due to unplanned outages at the eastern coal-fired units and the retirement of the Martins Creek coal units in September 2007.  Partially offsetting these lower margins was a 1.4% increase in PLR sales prices in accordance with the schedule established by the PUC Final Order.

Western U.S.

Western U.S. non-trading margins were $8 million higher for the nine months ended September 30, 2008, compared with the same period in 2007.  The increase is primarily due to higher margins from wholesale activity due to favorable pricing.

Net Energy Trading

PPL enters into 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 reflected in the Statements of Income as "Net energy trading margins."  These physical and financial contracts cover trading activity associated with electricity, gas and oil.

During the three months ended September 30, 2008, net energy trading margins decreased by $152 million, compared with the same period in 2007.  This decrease consists of $133 million of lower unrealized margins and $19 million of lower realized margins, both driven by significant decreases in power and gas prices.  During the nine months ended September 30, 2008, net energy trading margins decreased by $120 million, compared with the same period in 2007.  This decrease consists of $126 million of lower unrealized margins, which were driven by decreases in power and gas prices, partially offset by improved FTR results.  Realized margins were $6 million higher during the period, which were driven by improved FTR results, partially offset by decreases in power and gas prices.

The realized physical volumes for electricity and gas associated with energy trading were:

	Three Months Ended Sept. 30,				Nine Months Ended Sept. 30,
	2008		2007		2008		2007
GWh		4,076		4,034		12,943		9,381
Bcf		4.3		2.8		14.8		11.0

Utility Revenues

The changes in utility revenues were attributable to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Domestic:
Retail electric revenue (PPL Electric)
PLR	$	(1	)	$	14
Delivery		1			9
Other					2
International:
U.K. electric delivery revenue		(3	)		11
U.K. foreign currency exchange rates		(6	)		(2	)
	$	(9	)	$	34

Higher domestic delivery revenues for both periods were attributable to a base rate increase effective January 1, 2008.  Normal load growth also contributed to higher delivery revenues.  Higher PLR revenues for the nine months ended September 30, 2008, were also attributable to normal load growth.  The increases in domestic delivery and PLR revenue for both periods were partially offset by the unfavorable impact of weather on residential and commercial sales in 2008.

The decrease in U.K. electric delivery revenues for the three months ended September 30, 2008, compared with the same period in 2007, excluding foreign currency exchange rate impacts, was primarily due to a decrease in engineering recharge and metering services performed for third parties and a decrease in sales volumes, partially offset by an increase in prices effective April 1.

The increase in U.K. electric delivery revenues for the nine months ended September 30, 2008, compared with the same period in 2007, excluding foreign currency exchange rate impacts, was primarily due to an increase in prices effective April 1, partially offset by a decrease in engineering recharge and metering services performed for third parties.

Energy-related Businesses

Energy-related businesses contributed $1 million less to operating income for the three months ended September 30, 2008, compared with the same period in 2007.  The decrease was primarily attributable to:

· a $30 million net gain recorded in 2007 on options purchased to hedge the risk associated with the phase-out of the synthetic fuel tax credits.  No such options were held in 2008; partially offset by

· $19 million less in operating losses from synfuel projects as PPL's synthetic fuel operations have ceased;

· a $6 million increase in earnings in 2008 from PPL's energy services-related businesses mainly due to increased construction activity; and

· a $5 million impairment in 2007 of domestic telecommunication assets that were sold in 2007.

Energy-related businesses contributed $52 million more to operating income for the nine months ended September 30, 2008, compared with the same period in 2007.  The increase was primarily attributable to:

· $53 million less in operating losses from synfuel projects as the projects ceased operation at the end of 2007;

· a $39 million impairment in 2007 of domestic telecommunication assets that were sold in 2007; and

· a $9 million increase in earnings from PPL's energy services-related businesses mainly due to increased construction activity; partially offset by

· a $44 million net gain recorded in 2007 on options purchased to hedge the risk associated with the phase-out of the synthetic fuel tax credits.  No such options were held in 2008; and

· $6 million less in earnings from the domestic telecommunication assets that were sold in 2007.

See Note 8 to the Financial Statements for additional information on the impairment and sale of the domestic telecommunication assets.  See Note 10 to the Financial Statements for additional information on the synthetic fuel tax credits and the synfuel projects.

Other Operation and Maintenance

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

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Lower gains on sale of emission allowances	$	28		$	84
Impairment of certain emission allowances (Note 10)		45			45
Domestic salary expense		7			24
Uncollectible accounts					9
Colstrip groundwater litigation (Note 10)					8
Outage costs at Western and Eastern U.S. fossil/hydro stations					8
Contractor expense		(1	)		4
Regulatory asset amortization		1			3
Emission allowance consumption		1			2
Off-site remediation of ash basin leak (Note 10)					(2	)
Stock-based compensation		(3	)		(5	)
Outage costs at Susquehanna nuclear station		(3	)		(7	)
WPD recoverable engineering services		(2	)		(14	)
Impairment of certain transmission rights (a)		(21	)		(21	)
Defined benefit costs (Note 9)		(9	)		(29	)
Other		(3	)		(4	)
	$	40		$	105

(a) In August 2007, Maine Electric Power Company (MEPCO), ISO New England and other New England transmission owners submitted a filing to the FERC seeking to roll the revenue requirement of the MEPCO transmission facilities into the regional transmission rates in New England and to change certain rules concerning the use of the transmission line for energy and capacity.  PPL protested this proposal and recorded an impairment of the transmission rights based on their estimated fair value as determined by an internal model and other analysis.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs decreased by $5 million and $12 million during the three and nine months ended September 30, 2008, compared with the same period in 2007.  The decreases were primarily attributable to a scheduled decrease in ITC amortization, a reduction of ITC revenues, the change in unbilled revenues and the change from recovery of a CTC undercollection in 2007 to the return of a CTC overcollection in 2008.

Depreciation

The increases in depreciation expense were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended		Nine Months Ended
Additions to PP&E	$	9	$	26
Extension of useful lives of certain WPD network assets in 2007				(13	)
	$	9	$	13

Taxes, Other Than Income

Taxes, other than income increased by $4 million during the three months ended September 30, 2008, compared with the same period in 2007. The increase was primarily due to a $2 million increase in domestic sales and use tax expense and a $1 million increase in domestic gross receipts tax expense.

Taxes, other than income increased by $1 million during the nine months ended September 30, 2008, compared with the same period in 2007.The increase was primarily due to a $5 million increase in domestic gross receipts tax expense and a $2 million increase in WPD property taxes.  The increases were partially offset by a $7 million PPL Montana property tax refund received in 2008.

Other Income - net

See Note 12 to the Financial Statements for details of other income.

Financing Costs

The changes in financing costs, which include "Interest Expense" and "Dividends on Preferred Securities of a Subsidiary," were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Long-term debt interest expense primarily due to new issuances (Note 7)	$	5		$	2
Short-term debt interest expense		3			3
Amortization of debt issuance costs		1			3
Redemption of 8.23% Subordinated Debentures in 2007 (Note 11)					(4	)
Capitalized interest		2			(8	)
Hedging activities		(7	)		(15	)
Other		(1	)
	$	3		$	(19	)

Income Taxes

The changes in income taxes were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Decrease in synthetic fuel and other tax credits	$	7		$	71
U.K. Finance Act adjustments (Note 5)		46			46
Tax reserve adjustments (Note 5)		4			45
Lower pre-tax book income		(70	)		(33	)
Tax return adjustments					(17	)
Tax expense on foreign earnings		(16	)		(11	)
Domestic manufacturing deduction		(2	)		(7	)
Other		2			3
	$	(29	)	$	97

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

Discontinued Operations

Loss from Discontinued Operations decreased by $6 million during the three months ended September 30, 2008, compared with the same period in 2007.  The decrease was attributable to a $13 million decrease in income from PPL's Latin American operating businesses that were sold in 2007, offset by a $19 million increase in earnings from PPL's natural gas distribution and propane businesses, which was primarily attributable to a $23 million deferred tax charge recognized in the third quarter of 2007 in connection with the planned sale of the businesses.

Income from Discontinued Operations decreased by $62 million during the nine months ended September 30, 2008, compared with the same period in 2007.  The decrease was primarily attributable to an $84 million decrease in income from PPL's Latin American operating businesses that were sold in 2007, which included an $89 million after-tax gain from the sale of its El Salvadoran business and an after-tax impairment charge of $20 million of its Bolivian businesses.  Offsetting the decrease was a $22 million increase in earnings from PPL's natural gas distribution and propane businesses, primarily attributable to a $23 million deferred tax charge recognized in the third quarter of 2007 in connection with the planned sale of those businesses.

See "Discontinued Operations" in Note 8 to the Financial Statements for additional information on the sale of PPL's Latin American operating businesses and its natural gas distribution and propane businesses.

Financial Condition

Liquidity and Capital Resources

In general, recent turmoil in the financial markets has made obtaining new sources of credit more difficult and more costly for companies.  During this challenging period, PPL continues to be focused on maintaining a strong credit profile and liquidity position.  PPL expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, short-term investments and its credit facilities.  PPL currently does not expect to need to access commercial paper markets or debt and equity capital markets until the fourth quarter of 2009, except to remarket certain bonds at PPL Electric as discussed below, but may decide to access capital markets, subject to market conditions, to enhance its liquidity.  PPL believes that its cash and cash equivalents, short-term investments, operating cash flows, and borrowing capacity under its credit facilities, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, including liquidity requirements related to energy trading and marketing activities, as well as estimated future capital expenditures in the near term.  See "Financing Activities" below for a discussion of financing transactions completed in October 2008 to prefund future debt maturities.

PPL had the following at:

	September 30, 2008			December31, 2007
Cash and cash equivalents	$	349	(a)	$	430
Short-term investments (b)		82			108
	$	431		$	538
Short-term debt	$	200		$	92

(a)	Excludes $3 million of cash related to the natural gas distribution and propane businesses that is included in "Assets held for sale" on the Balance Sheet.
(b)	Includes $15 million of auction rate securities at December 31, 2007.  See below for further discussion.

The $81 million decrease in PPL's cash and cash equivalents position, which includes the effects of the cash flows of the Discontinued Operations, was primarily the net result of:

· $1,161 million of cash provided by operating activities;

· proceeds of $699 million from the issuance of long-term debt;

· a net increase in short-term debt of $109 million (excluding the impact of foreign currency translation adjustments);

· proceeds of $19 million from the issuance of common stock;

· $979 million of capital expenditures;

· the payment of $365 million of common stock dividends;

· the retirement of $299 million of long-term debt;

· $272 million in net expenditures for intangible assets;

· a net increase of $70 million in restricted cash and cash equivalents;

· the repurchase of PPL common stock for $38 million;

· $20 million in net purchases of nuclear plant decommissioning trust investments; and

· $14 million in net purchases of other investments.

Auction Rate Securities

PPL had auction rate securities totaling $26 million at September 30, 2008, which were classified as "Investments - Other," and $15 million at December 31, 2007, which were classified as "Short-term investments" on the Balance Sheets.  Historically, an active market existed for such investments, and the auctions provided an opportunity for investors either to hold an investment at a periodically reset interest rate or to sell the investment at its par value for immediate liquidity.  In early 2008, investor concerns about credit and liquidity in the financial markets, generally, as well as investor concerns over specific insurers that guarantee the credit of certain of the underlying securities, created uncertainty in the auction rate securities market and these securities generally failed to be remarketed through their established auction process.  These auction failures and the resulting illiquidity continue to impact PPL's auction rate securities.

At September 30, 2008, PPL concluded that the fair market value of these auction rate securities was $26 million, a decline of $3 million from par value.  Because PPL intends and has the ability to hold these auction rate securities until they can be liquidated at par value, PPL believes that it does not have significant realized loss exposure.  Based upon the evaluation of available information, PPL believes these investments continue to be of high credit quality.  Additionally, PPL does not anticipate having to sell these securities to fund operations.  As such, the decline in fair value is deemed temporary due to general market conditions.  See Note 13 to the Financial Statements for further discussion of auction rate securities.

Commercial Paper

Neither PPL Energy Supply nor PPL Electric had any commercial paper outstanding at September 30, 2008, and they do not expect to have to issue any commercial paper through the end of 2008.

Credit Facilities

In March 2008, PPL Energy Supply increased the capacity of its 364-day reimbursement agreement, under which it can cause the bank to issue letters of credit, from $200 million to $300 million and extended the expiration date of the agreement to March 2009.

PPL Energy Supply and PPL Electric currently do not expect to make any modifications through the end of 2008, including extending the expiration date, to PPL Energy Supply's $3.4 billion or PPL Electric's $200 million five-year credit facilities, both of which expire in 2012.

In September 2008, PPL Energy Supply executed a new $385 million 364-day credit agreement that expires in September 2009.  Under certain conditions, PPL Energy Supply may request that the facility's principal amount be increased by up to $150 million.  Under this facility, PPL Energy Supply has the ability to make cash borrowings and to cause the lenders to issue letters of credit.

In January 2008, WPDH Limited extended the expiration date of its £150 million five-year committed credit facility to January 2013, and it has the option to extend the expiration date by another year in January 2009.

The credit agreement related to PPL Electric's and a subsidiary's participation in a $150 million asset-backed commercial paper program expired in July 2008.  In August 2008, PPL Electric and the subsidiary entered into a new credit agreement governing a similar asset-backed commercial paper program with a different financial institution and commercial paper conduit that expires in July 2009.  The borrowing limit under such program continues to be $150 million.  Borrowings under this program are subject to customary conditions precedent, as well as the requirement that PPL Electric discharge a conditional lien that could attach to the accounts receivable upon a default under PPL Electric's 1945 First Mortgage Bond Indenture.  See discussion on the planned discharge in "Financing Activities" below.

At September 30, 2008, PPL's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed		Letters of Credit Issued		Available Capacity
PPL Energy Supply Domestic Credit Facilities	$	4,385			$	720	$	3,665
PPL Electric Credit Facilities		350				41		309
Total Domestic Credit Facilities (a)	$	4,735			$	761	$	3,974
WPDH Limited Credit Facility (b)	₤	150	₤	101			₤	49
WPD (South West) Credit Facilities		155			₤	4		151
Total International Credit Facilities (c)	₤	305	₤	101	₤	4	₤	200

(a)	The commitments under PPL's domestic credit facilities are provided by a diverse bank group consisting of 24 banks, with no one bank providing more than 13% of the total committed capacity. In October 2008, PPL Energy Supply borrowed $285 million under its $3.4 billion five-year credit facility, and PPL Electric borrowed $95 million under its $200 million five-year credit facility.  In connection with these borrowings, one of the participating banks, Lehman Brothers Bank, FSB, became a defaulting lender under both facilities, as it no longer is honoring its commitments of approximately $175 million and $10 million for PPL Energy Supply and PPL Electric.
(b)	During the third quarter of 2008, WPDH Limited made a USD-denominated borrowing of $200 million, which equated to £101 million at the time of borrowing and is reflected on the Balance Sheet in "Short-term debt."  This borrowing bears interest at approximately 3.73%.
(c)	At September 30, 2008, available capacity of the international credit facilities is approximately $365 million.

See Note 7 to the Financial Statements for additional information on PPL's credit facilities.

Financing Activities

In March 2008, PPL Energy Supply issued $400 million of 6.50% Senior Notes due 2018 (6.50% Notes).  The 6.50% Notes may be redeemed any time prior to maturity at PPL Energy Supply's option at make-whole redemption prices.  PPL Energy Supply received proceeds of $396 million, net of a discount and underwriting fees, from the issuance of the 6.50% Notes.  The proceeds have been used for general corporate purposes, including capital expenditures relating to the installation of pollution control equipment by PPL Energy Supply subsidiaries.

In April 2008, PPL Energy Supply elected to change the interest rate mode on the Exempt Facilities Revenue Bonds, Series 2007 due 2037 (Bonds) that were issued by the Pennsylvania Economic Development Financing Authority (PEDFA) on behalf of PPL Energy Supply in December 2007.  The interest rate mode was converted from a rate that was reset daily through daily remarketing of the Bonds to a term rate of 1.80% for one year.

The terms of PPL Energy Supply's 2-5/8% Convertible Senior Notes due 2023 (Convertible Senior Notes) included a market price trigger that permitted holders to convert the notes during any fiscal quarter if the closing sale price of PPL's common stock exceeded $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.  The holders of the Convertible Senior Notes also had the right to require PPL Energy Supply to purchase all or any part (equal to $1,000 principal amount or an integral multiple thereof) of the Convertible Senior Notes on May 15, 2008 at 100% of the principal amount, plus accrued and unpaid interest thereon as of such date.  In April 2008, the holders were notified that, in accordance with the terms of the Convertible Senior Notes, PPL Energy Supply was redeeming on May 20, 2008 all outstanding Convertible Senior Notes at 100% of the principal amount, plus accrued and unpaid interest thereon as of such date.

The Convertible Senior Notes were subject to conversion at the election of the holders any time prior to May 20, 2008 as a result of the market price trigger being met and the notes being called for redemption.  Upon conversion of the Convertible Senior Notes, PPL Energy Supply was required to settle the principal amount in cash and any conversion premium in cash or PPL common stock.  During the nine months ended September 30, 2008, Convertible Senior Notes in an aggregate principal amount of $57 million were presented for conversion.  The total conversion premium related to these conversions was $56 million, which was settled with 1,128,341 shares of PPL common stock, together with an insignificant amount of cash in lieu of fractional shares.  On May 20, 2008, PPL Energy Supply redeemed an insignificant amount of Convertible Senior Notes.  At September 30, 2008, no Convertible Senior Notes remain outstanding.

In July 2008, PPL Energy Supply issued $300 million of 6.30% Senior Notes due 2013 (6.30% Notes).  The 6.30% Notes may be redeemed any time prior to maturity at PPL Energy Supply's option at make-whole redemption prices.  PPL Energy Supply received proceeds of $298 million, net of a discount and underwriting fees, from the issuance of the 6.30% Notes.  The proceeds were used to repay short-term debt that was outstanding at the time of issuance.

In August 2008, PPL Gas Utilities prepaid the entire $10 million aggregate principal amount of its 8.70% Senior Notes due December 2022.  PPL Gas Utilities paid a premium of approximately $3 million in connection with the prepayment.

In October 2008, PPL Electric issued $400 million of 7.125% Senior Secured Bonds due 2013 (7.125% Bonds).  The 7.125% Bonds were issued on the basis of an equal principal amount of first mortgage bonds issued under the 1945 First Mortgage Bond Indenture pledged to the Senior Secured Bond Indenture Trustee.  The 7.125% Bonds may be redeemed any time prior to maturity at PPL Electric's option at make-whole redemption prices.  PPL Electric received proceeds of $397 million, net of a discount and underwriting fees, from the issuance of the 7.125% Bonds.  The proceeds will be used to partially fund the repayment at maturity of approximately $486 million outstanding aggregate principal amount of PPL Electric's Senior Secured Bonds, 6-1⁄4% Series, due August 2009.  Prior to such use, the proceeds will be invested in short-term investments and used for general corporate purposes.

In October 2008, PEDFA issued $90 million aggregate principal amount of Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023 (Series 2008 Bonds) on behalf of PPL Electric in order to refund $90 million aggregate principal amount of Pollution Control Revenue Refunding Bonds, Series 2003, which were previously issued by the Lehigh County Industrial Development Authority on behalf of PPL Electric and matured on November 1, 2008.  The Series 2008 Bonds are structured as variable-rate remarketable bonds.  The Series 2008 Bonds bear interest for the first week at an initial rate of 2.50% and will be remarketed on a weekly basis until such time that PPL Electric elects to change the interest rate mode.  PPL Electric may convert the interest rate on the Series 2008 Bonds from time to time to a commercial paper rate, daily rate, weekly rate or a term rate of at least one year.  The Series 2008 Bonds are subject to mandatory purchase under certain circumstances, including upon conversion to a different interest rate mode.  PPL Electric acted as initial purchaser of the Series 2008 Bonds upon issuance and expects that they will be remarketed to unaffiliated investors subject to market conditions.

In connection with the issuance of the Series 2008 Bonds by PEDFA, PPL Electric entered into a loan agreement with PEDFA pursuant to which it loaned PPL Electric the proceeds of the Series 2008 Bonds on payment terms that correspond to the Series 2008 Bonds.  PPL Electric issued a note to PEDFA to evidence its obligations under the loan agreement.

Concurrent with, and as a condition to, the issuance of the Series 2008 Bonds, PPL Electric issued to the Trustee of the Series 2008 Bonds, its Senior Secured Bonds, Variable Rate Pollution Control Series 2008, which contain payment and redemption provisions that correspond to the Series 2008 Bonds.  Such senior secured bonds were issued on the basis of an equal principal amount of first mortgage bonds issued under the 1945 First Mortgage Bond Indenture and pledged to the Senior Secured Bond Indenture Trustee.

PPL Electric's senior secured bonds are secured by first mortgage bonds held by the Senior Secured Bond Indenture Trustee and the lien of the 2001 Senior Secured Bond Indenture, which is junior to the lien of the 1945 First Mortgage Bond Indenture.  The 1945 First Mortgage Bond Indenture and the 2001 Senior Secured Bond Indenture create liens on substantially all of PPL Electric's distribution properties and certain of its transmission properties, which liens may be released subject to certain circumstances and conditions, and subject to certain exceptions and exclusions.

Other than first mortgage bonds delivered to the Senior Secured Bond Indenture Trustee as the basis for issuance of senior secured bonds, there were $10 million of first mortgage bonds outstanding at September 30, 2008.  PPL Electric intends to defease such bonds and to discharge the lien of the 1945 First Mortgage Bond Indenture later in 2008, and to cancel the related first mortgage bonds in accordance with the terms of the 2001 Senior Secured Bond Indenture, at which time such Indenture would become a first mortgage lien, subject to certain permitted liens and exceptions, on substantially all of PPL Electric's tangible electric distribution properties and certain of its transmission properties.

Leases

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  Under the agreement, PPL EnergyPlus has control over the plant's dispatch into the electricity grid and will supply the natural gas necessary to operate the plant.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  See Note 18 to the Financial Statements for additional information.

Common Stock Dividends

In February 2008, PPL announced an increase to its quarterly common stock dividend, effective April 1, 2008, to 33.5 cents per share (equivalent to $1.34 annually).  Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

Sale of Gas and Propane Businesses

In March 2008, PPL signed a definitive agreement to sell its natural gas distribution and propane businesses for $268 million in cash, adjusted for working capital at the sale date, pursuant to a stock purchase agreement.  The sale was completed in October 2008.  Proceeds of the sale, $303 million after adjusting for working capital, were contributed to PPL Energy Supply through its parent, PPL Energy Funding, to be used for general corporate purposes, including capital expenditures.  See Note 8 to the Financial Statements for additional information.

Rating Agency Decisions

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

A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues.  The credit ratings of PPL and its subsidiaries are based on information provided by PPL and other sources.  The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL or its subsidiaries.  Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.  A downgrade in PPL's or its subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets.

Moody's and S&P did not take any actions related to PPL and its rated subsidiaries during the nine months ended September 30, 2008.  In March 2008, Fitch completed a review of its credit ratings for PPL, PPL Capital Funding, PPL Energy Supply and PPL Electric and affirmed all ratings related to these entities, with the exception that it lowered the preferred stock rating of PPL Electric to BBB from BBB+.  Fitch stated in the related press release that the lower preferred stock rating reflects its junior position in the capital structure and does not reflect any change in credit quality.  In May 2008, Fitch changed its outlook for WPDH Limited, WPD LLP, WPD (South Wales) and WPD (South West) to positive from stable.  In August 2008, Fitch affirmed its BBB rating of PPL Montana's 8.903% Pass-Through Certificates due 2020.

Capital Expenditures

The schedule below shows PPL's capital expenditure projections as of September 30, 2008, for the years 2008 through 2010.  Capital expenditure projections for the years 2011 and 2012 are still being reviewed as part of the 5-year planning process.  These capital expenditure projections are preliminary and subject to approval by PPL's Board of Directors, which is expected to occur prior to year-end.

	Projected
	2008		2009		2010
Construction expenditures (a)
Generating facilities	$	376	$	276	$	454
Transmission and distribution facilities		554		558		975
Environmental		461		199		67
Other		116		62		68
Total Construction Expenditures		1,507		1,095		1,564
Nuclear fuel		102		151		161
Total Capital Expenditures	$	1,609	$	1,246	$	1,725

(a) Construction expenditures include AFUDC and capitalized interest, which are expected to be $191 million for the 2008 through 2010 period.

PPL's capital expenditure projections for the years 2008 through 2010 total $4.6 billion.  Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions.

For additional information on PPL's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's 2007 Form 10-K.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

PPL's non-trading commodity derivative contracts mature at various times through 2017.  PPL segregates its non-trading activities into two categories:  hedge activity and economic activity.  Transactions that are accounted for as hedge activity qualify for hedge accounting treatment under SFAS 133.  The majority of PPL's energy transactions qualify for accrual or hedge accounting.  The economic activity category includes transactions that address a specific risk, but were not eligible for hedge accounting or for which hedge accounting was not elected.  Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity.  The net fair value of economic positions at September 30, 2008 and December 31, 2007, including net premiums on options, was a loss of $36 million and a gain of $67 million.

The following chart sets forth the net fair value of PPL's non-trading commodity derivative contracts.  For the periods ended September 30, 2008, these amounts reflect fair value as defined by SFAS 157, as amended.  See Notes 13 and 14 to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Fair value of contracts outstanding at the beginning of the period	$	(1,054	)	$	(244	)	$	(305	)	$	(111	)
Contracts realized or otherwise settled during the period		(86	)		(28	)		(173	)		(42	)
Fair value of new contracts entered into during the period		(55	)		13			115			57
Changes in fair value attributable to changes in valuation techniques (a)								55
Other changes in fair value		1,032			84			145			(79	)
Fair value of contracts outstanding at the end of the period	$	(163	)	$	(175	)	$	(163	)	$	(175	)

(a) Amount represents the reduction of valuation reserves related to capacity and FTR contracts upon the adoption of SFAS 157.

The following chart segregates fair values of PPL's non-trading commodity derivative contracts at September 30, 2008, based on whether the fair values are determined by quoted market prices for identical instruments 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 quoted in active markets for identical instruments	$	2									$	2
Prices based on significant other observable inputs		(61	)	$	(370	)	$	77	$	8		(346	)
Prices based on significant unobservable inputs		3			1			44		133		181
Fair value of contracts outstanding at the end of the period	$	(56	)	$	(369	)	$	121	$	141	$	(163	)

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

Commodity Price Risk (Trading)

PPL's trading contracts mature at various times through 2014.  The following chart sets forth PPL's net fair value of trading contracts.  See Note 13 for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Fair value of contracts outstanding at the beginning of the period	$	16		$	48		$	16		$	41
Contracts realized or otherwise settled during the period		1			(7	)		(40	)		(34	)
Fair value of new contracts entered into during the period		(41	)		14			(18	)		35
Other changes in fair value		(61	)		11			(43	)		24
Fair value of contracts outstanding at the end of the period	$	(85	)	$	66		$	(85	)	$	66

PPL will reverse unrealized losses of approximately $11 million over the next three months as the transactions are realized.

The following chart segregates fair values of PPL's trading portfolio at September 30, 2008, based on whether the fair values are determined by quoted market prices for identical instruments 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 quoted in active markets for identical instruments				$	2						$	2
Prices based on significant other observable inputs	$	(34	)		(37	)	$	(14	)			(85	)
Prices based on significant unobservable inputs		(2	)									(2	)
Fair value of contracts outstanding at the end of the period	$	(36	)	$	(35	)	$	(14	)		$	(85	)

Commodity Price Risk Summary

In accordance with its marketing strategy, PPL often elects not to completely hedge its generation output or fuel requirements.  PPL estimates that for its entire portfolio, including all generation, emissions and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2008 gross margins by $45 million.  Similarly, a 10% adverse movement in all fossil fuel prices would decrease expected 2008 gross margins by $2 million.

VaR Models

PPL utilizes a VaR model to measure commodity price risk in its non-trading and trading portfolios.  This approach is consistent with how PPL's Risk Management Committee assesses the market risk of its commodity business.  VaR is a statistical model that attempts to predict the value of potential loss, under normal market conditions, based on historical market price volatility.  PPL calculates VaR using a Monte Carlo simulation technique, which uses historical data from the past 12-month period.  The VaR is the estimated nominal loss of earnings based on a one-day holding period at a 95% confidence interval.  At September 30, 2008, the VaR for PPL's portfolio was as follows:

	Trading VaR		Non-Trading MTM VaR
95% Confidence Level, One-Day Holding Period
Period End	$	10	$	41
Average for the Period		8		38
High		10		41
Low		7		33

Interest Rate Risk

PPL and its subsidiaries have issued debt to finance their operations, which exposes them to interest rate risk.  PPL utilizes various financial derivative instruments to adjust the mix of fixed and floating interest rates in its debt portfolio, adjust the duration of its debt portfolio and lock in 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, 2008, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was $7 million.

PPL is also exposed to changes in the fair value of its domestic and international debt portfolios.  PPL estimated that a 10% decrease in interest rates at September 30, 2008, would increase the fair value of its debt portfolio by $326 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, 2008, PPL had none of these instruments outstanding.

PPL also utilizes various risk management instruments to adjust the mix of fixed and floating interest rates in its debt portfolio.  The change in fair value of these instruments, as well as the offsetting change in the value of the hedged exposure of the debt, is reflected in earnings.  At September 30, 2008, the fair value of these instruments was a net asset of $27 million.  PPL estimated that a 10% adverse movement in interest rates at September 30, 2008, would decrease the net asset by $15 million.

WPDH Limited holds a net position in cross-currency swaps totaling $527 million to hedge the interest payments and principal of its U.S. dollar-denominated bonds with maturity dates ranging from December 2008 to December 2028.  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.  The estimated fair value of this position at September 30, 2008, was a net liability of $60 million.  WPDH Limited estimated that a 10% adverse movement in foreign currency exchange rates and interest rates at September 30, 2008, would increase the net liability by $64 million.

Foreign Currency Risk

PPL is exposed to foreign currency risk, primarily through investments in U.K. affiliates.  In addition, PPL's domestic operations 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, anticipated transactions and net investments.  In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected earnings.

In 2007, PPL executed forward contracts to sell British pounds sterling to protect the value of a portion of its net investment in WPD.  The total notional amount of the contracts outstanding at September 30, 2008 was £68 million.  The settlement dates of these contracts range from March 2009 through June 2011.  At September 30, 2008, the fair value of these positions was an asset of $15 million.  PPL estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2008 would decrease the asset by $11 million.

To economically hedge the translation of 2008 expected income denominated in British pounds sterling to U.S. dollars, PPL entered into a combination of average rate forwards and average rate options to sell British pounds sterling.  At September 30, 2008, the total exposure hedged was £24 million.  These forwards and options have termination dates ranging from October 2008 to December 2008.  At September 30, 2008, the fair value of these positions was a net asset of $4 million.  PPL estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2008 would decrease the net asset position by $4 million.

Nuclear Plant Decommissioning Trust Funds - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna nuclear station.  At September 30, 2008, 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 sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs.  However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are exposed to changes in interest rates.  PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear plant decommissioning trust policy statement.  At September 30, 2008, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $33 million reduction in the fair value of the trust assets.  See Note 21 in PPL's 2007 Form 10-K for additional information regarding the nuclear plant decommissioning trust funds.

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 11 to the Financial Statements.

Acquisitions, Development and Divestitures

PPL continuously evaluates strategic options for its business segments and, from time to time, PPL and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets, joint ventures and development projects, which may or may not result in definitive agreements.  Any such transactions may impact future financial results.  See Note 8 to the Financial Statements for information regarding recent transactions.

During the second quarter of 2008, PPL increased the capacity of several existing generating facilities.  The aggregate capacity increase was 66 MW.  PPL is currently planning additional incremental capacity increases of 265 MW at its existing generating facilities.  See Note 8 to the Financial Statements for additional information on the progress of the PPL Susquehanna nuclear plant uprate project.  Offsetting this increase is an expected reduction of up to 30 MW in net generation capability at each of the Brunner Island and Montour plants, due to the estimated increases in station service usage during the scrubber operation.  See Note 10 to the Financial Statements for additional information.

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  As a result of this agreement, PPL EnergyPlus recognized an intangible asset.  See Notes 15 and 18 to the Financial Statements for additional information.

PPL continuously reexamines development projects based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options.

Environmental Matters

See Note 10 to the Financial Statements for a discussion of environmental matters.

New Accounting Standards

See Note 2 to the Financial Statements for a discussion of new accounting standards adopted and Note 19 to the Financial Statements for a discussion of 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, defined benefits, asset impairment, leasing, loss accruals, AROs and income tax uncertainties.

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's 2007 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.

Following are updates to the critical accounting policies disclosed in PPL's 2007 Form 10-K.

Leasing

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  See Notes 15 and 18 to the Financial Statements for additional information.

In accounting for leases, management makes various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in determining whether a lease should be classified as operating or capital.  Changes in these assumptions could result in the difference between whether a lease is determined to be an operating lease or a capital lease.  If this transaction were to be accounted for as a capital lease, PPL would have recorded approximately $279 million of additional assets and $278 million of additional liabilities on the Balance Sheet at September 30, 2008.

Loss Accruals

In June 2008, PPL Montana's management assessed the loss exposure related to the Montana hydroelectric litigation, given the June 2008 decision by the Montana First Judicial District Court (District Court).  The District Court awarded compensation of approximately $34 million for the years 2000 through 2006, and approximately $6 million for 2007 compensation as rent for the use of the State of Montana's streambeds by PPL Montana's hydroelectric facilities.  The District Court also deferred the determination of compensation for 2008 and subsequent years to the Montana State Land Board (Land Board).  PPL Montana intends to appeal the decision of the District Court to the Montana Supreme Court and will continue to vigorously defend its position.  It also intends to seek a stay of judgment, including a stay of the Land Board's authority to assess compensation against PPL Montana for 2008 and future periods.  See Note 10 to the Financial Statements for additional information on this litigation.

PPL Montana's management concluded, based on its assessment and after consultations with its trial counsel, that it has meritorious arguments on appeal for the years 2000 through 2006.  PPL Montana assessed the likelihood of a loss for these years as reasonably possible.  However, PPL Montana has not recorded a loss accrual for these years, as the likelihood of a loss was not deemed probable.

For 2007 and subsequent years, PPL Montana's management believes that while it also has meritorious arguments, it is probable that its hydroelectric projects will be subject to annual estimated compensation ranging from $300,000 to $6 million.  Given that there was no single amount within that range more likely than any other, PPL Montana is annually accruing $300,000.

PPL Montana will continue to assess the loss exposure for the Montana hydro litigation in future periods.

SFAS 157

In 2006, the FASB issued SFAS 157.  Among other things, SFAS 157 provides a definition of fair value as well as a framework for measuring fair value.  In February 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-1 and FSP FAS 157-2.  FSP FAS 157-1 amends SFAS 157 to exclude from its scope, certain accounting pronouncements that address fair value measurements associated with leases.  FSP FAS 157-2 delays the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  In October 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-3, which was effective upon issuance, including prior periods for which financial statements have not been issued.  FSP FAS 157-3 amends SFAS 157 to clarify its application in a market that is not active.

As permitted by this guidance, PPL partially applied SFAS 157, as amended by FSP FAS 157-1 and FSP FAS 157-2, prospectively, effective January 1, 2008.  PPL adopted FSP FAS 157-3, prospectively, effective July 1, 2008.  In the current year, the partial application of  SFAS 157, as amended, affected, or will affect, fair value measurement concepts used or embedded in PPL's critical accounting policies related to "Price Risk Management" and "Defined Benefits."  PPL's election to defer the application of SFAS 157, as amended, for eligible assets and liabilities will primarily affect the fair value component of PPL's critical accounting policies related to "Asset Impairment" and "Asset Retirement Obligations" in 2009.  See Notes 2 and 13 to the Financial Statements for additional information regarding SFAS 157, as amended.

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, Pennsylvania.  In PPL Energy Supply's 2007 Form 10-K, descriptions of its domestic and international businesses are found in "Item 1. Business - Background."  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.  PPL Energy Supply's reportable segments are Supply and International Delivery.  In 2007, PPL Energy Supply sold its regulated electricity delivery businesses in Latin America, which were included in the International Delivery segment.  See Note 8 to the Financial Statements for information on the sales.  See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL Energy Supply's 2007 Form 10-K for a discussion of PPL Energy Supply's strategy and the risks and challenges it faces in its business.  See "Forward-Looking Information," Note 10 to the Financial Statements and the rest of Item 2 in this Form 10-Q and "Item 1A. Risk Factors" and the rest of Item 7 in PPL Energy Supply's 2007 Form 10-K for more information concerning the material risks and uncertainties that PPL Energy Supply faces in its businesses and with respect to its future earnings.

Recent Market Events

The turmoil in the financial markets has increased the complexity of maintaining credit risk within acceptable tolerances, responding to liquidity needs, measuring derivative and other financial instruments at fair value, and managing market price risk.

Credit Risk

Credit risk is the risk that PPL Energy Supply would incur a loss as a result of nonperformance by counterparties of their contractual obligations.  PPL Energy Supply maintains credit policies and procedures with respect to counterparty credit (including requirements that counterparties maintain specified credit ratings) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk.  However, PPL Energy Supply has concentrations of suppliers and customers among electric utilities, natural gas distribution companies, financial institutions and other energy marketing and trading companies.  These concentrations may impact PPL Energy Supply's overall exposure to credit risk, either positively or negatively, as counterparties may be similarly affected by changes in economic, regulatory or other conditions.  The volatility and downturn in financial and commodity markets in the third quarter of 2008 have generally increased PPL Energy Supply's exposure to credit risk.  See Notes 11 and 14 to the Financial Statements for additional information about credit concentration.

In September 2008, Lehman Brothers Holdings Inc. (Lehman), filed for protection under Chapter 11 of the Federal Bankruptcy Code.  A subsidiary of Lehman was a counterparty of PPL Energy Supply.  Lehman was a guarantor of the subsidiary, and because of the bankruptcy, PPL Energy Supply was allowed to declare an event of default under the contract with the subsidiary.  At the time of Lehman's filing, PPL Energy Supply's direct exposure to the subsidiary of Lehman was a net liability of $3 million, pre-tax, which was liquidated prior to September 30, 2008.  PPL Energy Supply believes that the Lehman bankruptcy has not had and will not have a material adverse effect on PPL Energy Supply or its subsidiaries.

Due to the recent market conditions, PPL Energy Supply has increased the amount of credit reserves related to certain counterparties other than Lehman, but the increase was not material to PPL Energy Supply's financial statements.  At this time, PPL Energy Supply has not deemed it probable that any of these counterparties will default.

Liquidity Issues

The turmoil in financial markets has generally made obtaining new sources of credit more difficult and more costly for companies.  Despite the tightening of the credit markets, PPL Energy Supply expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, short-term investments and its credit facilities.  PPL Energy Supply currently does not expect to need to access commercial paper markets or capital markets during the remainder of 2008 and 2009, but may decide to access capital markets, subject to market conditions, to enhance its liquidity.

Lehman Brothers Bank, FSB (Lehman Bank), another subsidiary of Lehman, is no longer honoring its commitments under PPL Energy Supply's $3.4 billion five-year credit facility. Lehman Bank's total commitment under this facility is approximately $175 million.  See "Financial Condition - Liquidity and Capital Resources" for an expanded discussion of PPL Energy Supply's liquidity position.

Valuations in Inactive Markets

The turmoil in the financial markets has generally made it more difficult for companies to determine the fair value of certain assets and liabilities in inactive markets.  Management has reviewed the activity in the energy and financial markets in which PPL Energy Supply transacts, concluding that substantially all of these markets were active as of September 30, 2008.  However, the market for auction rate securities remains inactive.  See Note 13 to the Financial Statements and "Financial Condition - Liquidity and Capital Resources - Auction Rate Securities" for a discussion of these investments.

CommodityPrice Risk

The volatility of wholesale energy prices significantly impacted PPL Energy Supply's earnings for the three and nine months ended September 30, 2008.  See "Statement of Income Analysis -Domestic Gross Energy Margins -Domestic Gross Energy Margins By Region" for further discussion.

SecuritiesPrice Risk

Declines in the market price of debt and equity securities resulted in recent unrealized losses that have impacted the asset values of PPL Energy Supply's investments in its nuclear decommissioning trust funds and in its defined benefit plans.  The nuclear decommissioning trust funds have experienced negative investment returns during 2008.  The assets in these funds support the cost to decommission the Susquehanna nuclear station when its licenses expire in 2022 and 2024, subject to any license extensions.  As a result, the obligation to decommission the nuclear station is long-term in nature, exposing the assets held in the funds to price risk.  PPL Energy Supply actively monitors the performance of the investments held in the funds and periodically reviews the funds' investment allocations.

PPL Energy Supply's subsidiaries sponsor various defined benefit plans and participate in and are allocated defined benefit costs from plans sponsored by PPL.  These defined benefit plans have also experienced negative investment returns in 2008.  However, significant increases in bond rates used to determine the discount rate for these plans may provide for reductions in the gross benefit obligations of these plans. This may offset some portion of the decline in asset values when determining the funded status of the plans as well as other measures at the end of 2008.  Determination of the funded status of the defined benefit plans, contribution requirements and net periodic defined benefit costs in future years are subject to changes in assumptions, including the performance of the assets in the plans, through the annual measurement dates.  See "Application of Critical Accounting Policies" for "Defined Benefits" in Part II, Item 7 of the 2007 Form 10-K for a discussion of the assumptions and sensitivities regarding those assumptions.

The following information should be read in conjunction with PPL Energy Supply's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL Energy Supply's 2007 Form 10-K.

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

Results of Operations

The following discussion begins with a summary of PPL Energy Supply's earnings and continues with a review of results by reportable segment and a description of key factors by segment that management expects may impact future earnings.  This section ends with explanations of significant changes in principal items on PPL Energy Supply's Statements of Income, comparing the three and nine months ended September 30, 2008, with the same periods in 2007.

The results for interim periods can be disproportionately influenced by various factors and developments and by seasonal variations, and as such, the results of operations for interim periods do not necessarily indicate results or trends for the year or for future operating results.

Earnings

Net income was:

Three Months Ended September 30,				Nine Months Ended September 30,
2008		2007		2008		2007
$	161	$	323	$	522	$	790

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

The period-to-period changes in significant earnings components are explained in the "Statement of Income Analysis."

Segment Results

Net income by segment was:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Supply	$	88	$	215	$	289	$	471
International Delivery		73		108		233		319
Total	$	161	$	323	$	522	$	790

Supply Segment

The Supply segment primarily consists of the domestic energy marketing, domestic generation and domestic development operations of PPL Energy Supply.  In August 2007, PPL Energy Supply completed the sale of its domestic telecommunication operations.  See Note 8 to the Financial Statements for additional information.

Supply segment net income was:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008		2007
Energy revenues (a)	$	2,279		$	1,018	$	3,398	$	2,612
Energy-related businesses		138			183		363		530
Total operating revenues		2,417			1,201		3,761		3,142
Fuel and energy purchases (a)		1,810			478		1,974		1,202
Other operation and maintenance		241			181		695		561
Depreciation		48			39		136		116
Taxes, other than income		8			7		19		25
Energy-related businesses		132			173		350		565
Total operating expenses		2,239			878		3,174		2,469
Other Income - net		(1	)		30		13		61
Interest Expense		47			26		122		80
Income Taxes		42			111		188		181
Minority Interest					1		1		2
Net Income	$	88		$	215	$	289	$	471

(a) Includes unrealized gains and losses from economic activity.  See Note 14 to the Financial Statements for additional information.

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

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Eastern U.S. non-trading margins	$	(15	)	$	(48	)
Western U.S. non-trading margins					5
Net energy trading margins		(89	)		(70	)
Taxes, other than income					4
Depreciation		(6	)		(12	)
Other operating expenses		(3	)		(14	)
Other income - net (Note 12)		(14	)		(21	)
Interest expense		(13	)		(25	)
Earnings from synfuel projects		(9	)		(43	)
Realized earnings on nuclear plant decommissioning trust		(4	)		(7	)
Other		(1	)		(6	)
Special items		27			55
	$	(127	)	$	(182	)

· 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 other operating expenses for the nine months ended September 30, 2008, were attributable to higher operating costs at the fossil/hydro generating stations (including higher outage costs at the Eastern U.S. fossil/hydro stations), higher costs of nuclear development and higher operating costs in the energy marketing business.  Partially offsetting these increases were lower outage and nonoutage costs at the Susquehanna nuclear station.

· Interest expense was higher for both periods primarily due to higher interest expense on long-term debt primarily due to new issuances.

· Lower earnings contribution from synfuel projects for both periods was the result of the expiration of federal tax credits and closure of the synfuel facilities at the end of 2007.

The following after-tax amounts, which management considers special items, also had a significant impact on the Supply segment earnings.  See the indicated Notes to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Mark-to-market adjustments from certain economic activity (a)	$	67		$	(6	)	$	121		$	20
Unrealized losses on certain nuclear plant decommissioning trust investments (Note 12)		(1	)					(5	)
Impairment of certain emission allowances (Note 10)		(27	)					(27	)
Impairment of certain transmission rights (b)					(12	)					(12	)
Settlement of Wallingford cost-based rates (c)					33						33
Sale of domestic telecommunication operations (Note 8)					(3	)					(23	)
Off-site remediation of ash basin leak (Note 10)								1
Colstrip ground water litigation (Note 10)								(5	)
Synthetic fuel tax adjustment (Note 10)								(13	)
PJM billing dispute (d)											(1	)
Total	$	39		$	12		$	72		$	17

(a)	See Note 14 to the Financial Statements for additional information regarding economic activity.
(b)	See "Other Operation and Maintenance" for more information on the $21 million pre-tax impairment.
(c)	In 2003, PPL Wallingford and PPL EnergyPlus sought from the FERC cost-based payments based upon the RMR status of four units at the Wallingford, Connecticut generating facility.  As a result of a settlement agreement, during the third quarter of 2007, PPL Energy Supply recognized $55 million of revenue and $4 million of interest income related to the settlement agreement, of which $21 million had been previously collected.
(d)	Represents additional interest related to the settlement of this litigation in 2007.

Outlook

Excluding special items, PPL Energy Supply projects lower earnings for its Supply segment in 2008 compared with 2007 as a result of the loss of synfuel-related tax benefits, higher coal commodity and transportation costs, lower expected baseload generation, higher financing costs and lower expected margins from PPL Energy Supply's marketing and trading activities.  The decrease in wholesale energy prices and lack of liquidity in the power markets significantly impacted PPL Energy Supply's earnings for the three and nine months ended September 30, 2008.  PPL Energy Supply has taken measures to reduce its exposure to the potential effect of any further decline in market prices on future trading margins.

PPL Energy Supply expects 2009 earnings for its Supply segment to be lower than projected 2008 earnings as a result of higher operation and maintenance expenses; higher depreciation and higher financing costs.  PPL Energy Supply expects these increased costs to be partially offset by higher energy margins, despite higher expected coal expense, as a result of higher baseload generation, higher Western energy sales prices, and higher expected margins from its marketing and trading activities.

As discussed in "Item 1A. Risk Factors" in PPL Energy Supply's 2007 Form 10-K, activities by the FERC, other governmental authorities and other involved parties can have a significant effect on market prices for wholesale electricity, and thus on the margins that PPL EnergyPlus achieves on its future sales of energy.  In April 2008, the FERC denied PJM's request to increase the Cost of New Entry element of the PJM capacity pricing formula.  In a separate action, in connection with Duquesne Light Company's (Duquesne) decision to leave PJM, in April 2008 the FERC ruled that PJM may grant capacity resources in the Duquesne zone transmission rights that would facilitate inclusion of such capacity in PJM's Reliability Pricing Model (RPM) capacity markets, beginning with the 2011-2012 planning year auction, notwithstanding that such capacity would be treated as external generation to PJM at the time it had to be delivered.  In response, PJM has indicated that it will grant generators in the Duquesne zone of PJM the necessary transmission rights.  These FERC and PJM actions reduced capacity prices for the 2011-2012 RPM capacity auction that took place in May 2008 and could reduce capacity prices for future RPM capacity auctions.  Because a large portion of PPL Energy Supply's generating capacity is located in PJM, the impact of any such reduced RPM capacity prices on PPL Energy Supply could be material.  PPL Energy Supply cannot predict the ultimate outcome of these or related FERC proceedings and the impact on capacity prices in PJM or on PPL Energy Supply's financial results.  See Note 10 to the Financial Statements for information on recent FERC litigation related to the RPM pricing model.

International Delivery Segment

The International Delivery segment includes operations of the international energy businesses of PPL Global that are primarily focused on the distribution of electricity.  PPL Global's major remaining international business is located in the U.K.  In 2007, PPL completed the sale of its Latin American operating businesses.  In the first quarter of 2008, PPL Global recognized income tax adjustments and other expenses in Discontinued Operations as the dissolution of the remaining Latin American holding companies commenced.  PPL Global may recognize additional adjustments and/or expenses in Discontinued Operations until this process is complete.  See Note 8 to the Financial Statements for additional information.

The International Delivery segment results in 2008 and 2007 reflect the reclassification of Latin American revenues and expenses to Discontinued Operations.

International Delivery segment net income was:

	Three Months Ended September30,						Nine Months Ended September30,
	2008			2007			2008		2007
Utility revenues	$	195		$	204		$	647	$	638
Energy-related businesses		8			8			26		27
Total operating revenues		203			212			673		665
Other operation and maintenance		46			57			142		182
Depreciation		33			33			104		111
Taxes, other than income		17			17			51		49
Energy-related businesses		4			4			10		13
Total operating expenses		100			111			307		355
Other Income - net		6			2			10		19
Interest Expense		42			47			114		141
Income  Tax (Benefit) Expense		(6	)		(39	)		34		(42	)
Income from Discontinued Operations					13			5		89
Net Income	$	73		$	108		$	233	$	319

The after-tax change in net income between these periods was due to the following factors, including Discontinued Operations.

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
U.K.:
Delivery margins				$	18
Depreciation	$	(1	)		4
Other operating expenses		4			15
Interest expense		(1	)		5
Interest income		(2	)		(5	)
Income taxes		9			21
Foreign currency exchange rates		(2	)
Hyder liquidation distributions (Note 8)					(3	)
Gain on transfer of equity investment (Note 8)					(5	)
Other					(2	)
Discontinued Operations, net of special item (Note 8)		(11	)		(39	)
Change in tax reserves (Note 5)		1			(30	)
Other		8			20
U.S. income taxes		17			15
Special items		(57	)		(100	)
	$	(35	)	$	(86	)

· The U.K.'s earnings for the nine months ended September 30, 2008, were favorably impacted by higher delivery margins primarily due to higher prices, which include the annual regulatory adjustment for inflation.

· Lower U.K. other operating expenses for both periods were primarily due to lower pension expense resulting from an improvement in the fair value of pension assets and an increase in the discount rate, partially offset by lower mortality rates.

· Lower U.K. income taxes for the three and nine months ended September 30, 2008, were primarily due to the enactment of the U.K.'s Finance Act 2008, which included the phase-out of tax depreciation on industrial buildings over a four year period.  As a result, a deferred tax benefit was recorded in the third quarter of 2008.  Also contributing to the nine-month period variance was a favorable U.K. taxing authority determination in 2008 related to the deductibility of imputed interest on a loan from Hyder.

· Lower U.S. income taxes are primarily due to changes in the estimated taxable amount of planned cash repatriation.

· Changes in foreign currency exchange rates decreased the U.K.'s portion of revenue and expense line items by 4% and 1% for the three and nine months ended September 30, 2008, compared with the same periods in 2007.

The following after-tax amounts, which management considers special items, also had a significant impact on the International Delivery segment earnings.  See the indicated Notes to the Financial Statements for additional information.

	Three Months Ended September30,			Nine Months Ended September30,
	2008	2007		2008	2007
Sale of Latin American businesses (Note 8)		$	3		$	46
Change in U.K. tax rate (Note 5)			54			54
Total		$	57		$	100

Outlook

Excluding special items, PPL Energy Supply projects the 2008 earnings of its International Delivery segment to approximate the results of 2007.

PPL Energy Supply expects 2009 earnings for its International segment to be lower than projected 2008 earnings as a result of the loss of certain U.K. income tax benefits included in 2008 that are not expected to recur in 2009 and a less favorable foreign currency exchange rate in the U.K.

Statement of Income Analysis --

Domestic Gross Energy Margins

Non-GAAP Financial Measure

The following discussion includes financial information prepared in accordance with GAAP, as well as a non-GAAP financial measure, "Domestic Gross Energy Margins."  The presentation of "Domestic Gross Energy Margins" is intended to supplement the investor's understanding of PPL Energy Supply's domestic non-trading and trading activities by combining applicable income statement line items and related adjustments to calculate a single financial measure.  PPL Energy Supply believes that "Domestic Gross Energy Margins" is useful and meaningful to investors because it provides them with the results of PPL Energy Supply's domestic non-trading and trading activities as another criterion in making their investment decisions.  PPL Energy Supply's management also uses "Domestic Gross Energy Margins" in measuring certain corporate performance goals used in determining variable compensation.  Other companies may use different measures to present the results of their non-trading and trading activities.  Additionally, "Domestic Gross Energy Margins" is not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance.  The following table provides a reconciliation between "Domestic Gross Energy Margins" as defined by PPL Energy Supply and "Operating Income."

	Three Months Ended September30,						Nine Months Ended September30,
	2008			2007			2008			2007
Operating Income (a)	$	281		$	424		$	953		$	983
Adjustments:
Utility (a)		(195	)		(204	)		(647	)		(638	)
Energy-related businesses, net (b)		(10	)		(14	)		(29	)		21
Other operation and maintenance (a)		287			238			837			743
Depreciation (a)		81			72			240			227
Taxes, other than income (a)		25			24			70			74
Revenue adjustments (c)		(1,163	)		(24	)		(374	)		123
Expense adjustments (c)		1,038			5			142			(148	)
Domestic gross energy margins	$	344		$	521		$	1,192		$	1,385

(a)	As reported on the Statements of Income.
(b)	Amount represents the net of "Energy-related businesses" revenue and expense as reported on the Statements of Income.
(c)	The components of these adjustments are detailed in the table below.

The following table provides the income statement line items and other adjustments that comprise domestic gross energy margins.

	Three Months Ended Sept. 30,
	2008			2007			Change
Revenue
Wholesale energy marketing (a)	$	1,915		$	517		$	1,398
Wholesale energy marketing to affiliate (a)		453			453
Unregulated retail electric and gas (a)		43			28			15
Net energy trading margins (a)		(132	)		20			(152	)
Revenue adjustments (b)
Miscellaneous wholesale energy marketing to affiliate		(3	)		(3	)
Miscellaneous unregulated retail electric and gas					(1	)		1
Mark-to-market adjustments from certain economic activity (c)		(1,160	)					(1,160	)
Gains from sale of emission allowances (d)					32			(32	)
RMR revenues					(52	)		52
Total revenue adjustments		(1,163	)		(24	)		(1,139	)
		1,116			994			122
Expense
Fuel (a)		267			257			10
Energy purchases (a)		1,514			178			1,336
Energy purchases from affiliate (a)		29			43			(14	)
Expense adjustments (b)
Mark-to-market adjustments from certain economic activity (c)		(1,046	)		(10	)		(1,036	)
Other		8			5			3
Total expense adjustments		(1,038	)		(5	)		(1,033	)
		772			473			299
Domestic gross energy margins	$	344		$	521		$	(177	)

	Nine Months Ended Sept. 30,
	2008			2007			Change
Revenue
Wholesale energy marketing (a)	$	2,000		$	1,145		$	855
Wholesale energy marketing to affiliate (a)		1,370			1,356			14
Unregulated retail electric and gas (a)		110			73			37
Net energy trading margins (a)		(82	)		38			(120	)
Revenue adjustments (b)
Miscellaneous wholesale energy marketing to affiliate		(10	)		(11	)		1
Miscellaneous unregulated retail electric and gas		(1	)		(1	)
Miscellaneous generation revenues		(1	)		(1	)
Mark-to-market adjustments from certain economic activity (c)		(363	)		99			(462	)
Gains from sale of emission allowances (d)		1			89			(88	)
RMR revenues					(52	)		52
Total revenue adjustments		(374	)		123			(497	)
		3,024			2,735			289
Expense
Fuel (a)		718			692			26
Energy purchases (a)		1,169			393			776
Energy purchases from affiliate (a)		87			117			(30	)
Expense adjustments (b)
Mark-to-market adjustments from certain economic activity (c)		(157	)		133			(290	)
Other		15			15
Total expense adjustments		(142	)		148			(290	)
		1,832			1,350			482
Domestic gross energy margins	$	1,192		$	1,385		$	(193	)

(a)	As reported on the Statements of Income.
(b)	To include/exclude the impact of any revenues and expenses not associated with domestic gross energy margins, consistent with the way management reviews domestic gross energy margins internally.
(c)	See Note 14 to the Financial Statements for additional information regarding economic activity.
(d)	Included in "Other operation and maintenance" on the Statements of Income.

Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL Energy Supply's non-trading and trading activities.  PPL Energy Supply manages its non-trading energy business on a geographic basis that is aligned with its generation assets.

	Three Months Ended Sept. 30,
	2008			2007		Change
Non-trading
Eastern U.S.	$	398		$	424	$	(26	)
Western U.S.		78			77		1
Net energy trading		(132	)		20		(152	)
Domestic gross energy margins	$	344		$	521	$	(177	)

	Nine Months Ended Sept. 30,
	2008			2007		Change
Non-trading
Eastern U.S.	$	1,057		$	1,138	$	(81	)
Western U.S.		217			209		8
Net energy trading		(82	)		38		(120	)
Domestic gross energy margins	$	1,192		$	1,385	$	(193	)

Eastern U.S.

Eastern U.S. non-trading margins were $26 million and $81 million lower during the three and nine months ended September 30, 2008, compared with the same periods in 2007.  The decrease for both periods was primarily due to higher average fuel prices, which were up 18% and 14%, and lower baseload generation which was down 12% and 6%, primarily due to unplanned outages at the eastern coal-fired units and the retirement of the Martins Creek coal units in September 2007.  Partially offsetting these lower margins was a 1.4% increase in PLR sales prices in accordance with the schedule established by the PUC Final Order.

Western U.S.

Western U.S. non-trading margins were $8 million higher for the nine months ended September 30, 2008, compared with the same period in 2007.  The increase is primarily due to higher margins from wholesale activity due to favorable pricing.

Net Energy Trading

PPL Energy Supply enters into 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 reflected in the Statements of Income as "Net energy trading margins."  These physical and financial contracts cover trading activity associated with electricity, gas and oil.

During the three months ended September 30, 2008, net energy trading margins decreased by $152 million, compared with the same period in 2007.  This decrease consists of $133 million of lower unrealized margins and $19 million of lower realized margins, both driven by significant decreases in power and gas prices.  During the nine months ended September 30, 2008, net energy trading margins decreased by $120 million, compared with the same period in 2007.  This decrease consists of $126 million of lower unrealized margins, which were driven by decreases in power and gas prices, partially offset by improved FTR results.  Realized margins were $6 million higher during the period, which were driven by improved FTR results, partially offset by decreases in power and gas prices.

The realized physical volumes for electricity and gas associated with energy trading were:

	Three Months Ended Sept. 30,				Nine Months Ended Sept. 30,
	2008		2007		2008		2007
GWh		4,076		4,034		12,943		9,381
Bcf		4.3		2.8		14.8		11.0

Utility Revenues

The changes in utility revenues were attributable to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
U.K. electric delivery revenue	$	(3	)	$	11
U.K. foreign currency exchange rates		(6	)		(2	)
	$	(9	)	$	9

The decrease in U.K. electric delivery revenues for the three months ended September 30, 2008, compared with the same period in 2007, excluding foreign currency exchange rate impacts, was primarily due to a decrease in engineering recharge and metering services performed for third parties and a decrease in sales volume, partially offset by an increase in prices effective April 1.

The increase in U.K. electric delivery revenues for the nine months ended September 30, 2008, compared with the same period in 2007, excluding foreign currency exchange rate impacts, was primarily due to an increase in prices effective April 1, partially offset by a decrease in engineering recharge and metering services performed for third parties.

Energy-related Businesses

Energy-related businesses contributed $4 million less to operating income for the three months ended September 30, 2008, compared with the same period in 2007.  The decrease was primarily attributable to:

· a $30 million net gain recorded in 2007 on options purchased to hedge the risk associated with the phase-out of the synthetic fuel tax credits.  No such options were held in 2008; partially offset by

· $19 million less in operating losses from synfuel projects.  PPL Energy Supply's synthetic fuel operations have ceased;

· a $6 million increase in earnings in 2008 from PPL Energy Supply's energy services-related businesses mainly due to increased construction activity; and

· a $5 million impairment in 2007 of domestic telecommunication assets that were sold in 2007.

Energy-related businesses contributed $50 million more to operating income for the nine months ended September 30, 2008, compared with the same period in 2007.  The increase was primarily attributable to:

· $53 million less in operating losses from synfuel projects as the projects ceased operation at the end of 2007;

· a $39 million impairment in 2007 of domestic telecommunication assets that were subsequently sold in 2007; and

· a $9 million increase in earnings from PPL Energy Supply's energy services-related businesses mainly due to increased construction activity; partially offset by

· a $44 million net gain recorded in 2007 on options purchased to hedge the risk associated with the phase-out of the synthetic fuel tax credits.  No such options were held in 2008; and

· $6 million less in earnings from the domestic telecommunication assets that were sold in 2007.

See Note 8 to the Financial Statements for additional information on the impairment and sale of the domestic telecommunication assets.  See Note 10 to the Financial Statements for additional information on the synthetic fuel tax credits and the synfuel projects.

Other Operation and Maintenance

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

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Lower gains on sale of emission allowances	$	28		$	84
Impairment of certain emission allowances (Note 10)		45			45
Royalty fees to affiliate		11			7
Domestic salary expense		(6	)		11
Colstrip groundwater litigation (Note 10)					8
Outage costs at Western and Eastern U.S. fossil/hydro stations					8
Uncollectible accounts		(2	)		3
Emission allowance consumption		1			2
Off-site remediation of ash basin leak (Note 10)					(2	)
Outage costs at Susquehanna nuclear station		(3	)		(7	)
Allocation of corporate service costs (Note 11)		(5	)		(14	)
WPD recoverable engineering services		(2	)		(14	)
Impairment of certain transmission rights (a)		(21	)		(21	)
Defined benefit costs (Note 9)		(8	)		(23	)
Other		11			7
	$	49		$	94

(a) In August 2007, Maine Electric Power Company (MEPCO), ISO New England and other New England transmission owners submitted a filing to the FERC seeking to roll the revenue requirement of the MEPCO transmission facilities into the regional transmission rates in New England and to change certain rules concerning the use of the transmission line for energy and capacity.  PPL Energy Supply protested this proposal and recorded an impairment of the transmission rights based on their estimated fair value as determined by an internal model and other analysis.

Depreciation

The increases in depreciation expense were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended		Nine Months Ended
Additions to PP&E	$	9	$	26
Extension of useful lives of certain WPD network assets in 2007				(13	)
	$	9	$	13

Taxes, Other Than Income

Taxes, other than income decreased by $4 million during the nine months ended September 30, 2008, compared with the same period in 2007.The decrease was primarily due to a $7 million PPL Montana property tax refund received in 2008.

Other Income - net

See Note 12 to the Financial Statements for details of other income.

Interest Income from Affiliates

Interest income from affiliates decreased by $7 million and $12 million for the three and nine months ended September 30, 2008, compared with the same periods in 2007.  The decreases were the result of reduced average balances outstanding on a note receivable with an affiliate and lower average rates on this note and the $300 million collateral deposit related to the PLR contract due to the floating interest rate.

Interest Expense

The changes in interest expense, which includes "Interest Expense with Affiliate," were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended		Nine Months Ended
Long-term debt interest expense primarily due to new issuances (Note 7)	$	10	$	17
Short-term debt interest expense		3		5
Amortization of debt issuance costs		2		4
Redemption of 8.23% Subordinated Debentures in 2007 (Note 11)				(4	)
Capitalized interest		1		(8	)
Other				1
	$	16	$	15

Income Taxes

The changes in income taxes were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Decrease in synthetic fuel and other tax credits	$	9		$	73
Tax reserve adjustments (Note 5)		3			43
U.K. Finance Act adjustments (Note 5)		46			46
Lower pre-tax book income		(79	)		(45	)
Tax return adjustments					(17	)
Tax expense on foreign earnings		(16	)		(11	)
Domestic manufacturing deduction		(2	)		(7	)
Other		3			1
	$	(36	)	$	83

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

Discontinued Operations

Income from Discontinued Operations decreased by $13 million during the three months ended September 30, 2008, compared with the same period in 2007.  The decrease was attributable to a $13 million decrease in income from PPL Energy Supply's Latin American operating businesses that were sold in 2007.

Income from Discontinued Operations decreased by $84 million during the nine months ended September 30, 2008, compared with the same period in 2007.  The decrease was attributable to an $84 million decrease in income from PPL Energy Supply's Latin American operating businesses that were sold in 2007, which included an $89 million after-tax gain from the sale of its El Salvadoran business and an after-tax impairment charge of $20 million of its Bolivian businesses.

See "Discontinued Operations" in Note 8 to the Financial Statements for additional information on the sale of PPL Energy Supply's Latin American operating businesses.

Financial Condition

Liquidity and Capital Resources

In general, recent turmoil in the financial markets has made obtaining new sources of credit more difficult and more costly for companies.  During this challenging period, PPL Energy Supply continues to be focused on maintaining a strong credit profile and liquidity position.  PPL Energy Supply expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, short-term investments and its credit facilities.  PPL Energy Supply currently does not expect to need to access commercial paper markets or capital markets during the remainder of 2008 and 2009, but may decide to access capital markets, subject to market conditions, to enhance its liquidity.  PPL Energy Supply believes that its cash and cash equivalents, short-term investments, operating cash flows, and borrowing capacity under its credit facilities, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, including liquidity requirements related to energy trading and marketing activities, as well as estimated future capital expenditures in the near term.

PPL Energy Supply had the following at:

	September 30, 2008		December 31, 2007
Cash and cash equivalents	$	239	$	355
Short-term investments (a)		82		102
	$	321	$	457
Short-term debt	$	200	$	51

(a) Includes $10 million of auction rate securities at December 31, 2007.  See below for further discussion.

The $116 million decrease in PPL Energy Supply's cash and cash equivalents position was primarily the net result of:

· $834 million of cash provided by operating activities;

· proceeds of $699 million from the issuance of long-term debt;

· a net increase in short-term debt of $150 million (excluding the impact of foreign currency translation adjustments);

· $125 million of contributions from Member;

· $761 million of capital expenditures;

· distributions to Member of $666 million;

· $265 million in net expenditures for intangible assets;

· a net increase of $120 million in restricted cash and cash equivalents;

· the retirement of $57 million of long-term debt;

· $20 million in net purchases of nuclear plant decommissioning trust investments; and

· $14 million in net purchases of other investments.

Auction Rate Securities

PPL Energy Supply had auction rate securities totaling $21 million at September 30, 2008, which were classified as "Investments - Other," and $10 million at December 31, 2007, which were classified as "Short-term investments" on the Balance Sheets.  Historically, an active market existed for such investments, and the auctions provided an opportunity for investors either to hold an investment at a periodically reset interest rate or to sell the investment at its par value for immediate liquidity.  In early 2008, investor concerns about credit and liquidity in the financial markets, generally, as well as investor concerns over specific insurers that guarantee the credit of certain of the underlying securities, created uncertainty in the auction rate securities market and these securities generally failed to be remarketed through their established auction process.  These auction failures and the resulting illiquidity continue to impact PPL Energy Supply's auction rate securities.

At September 30, 2008, PPL Energy Supply concluded that the fair market value of these auction rate securities was $21 million, a decline of $3 million from par value.  Because PPL Energy Supply intends and has the ability to hold these auction rate securities until they can be liquidated at par value, PPL Energy Supply believes that it does not have significant realized loss exposure.  Based upon the evaluation of available information, PPL Energy Supply believes these investments continue to be of high credit quality.  Additionally, PPL Energy Supply does not anticipate having to sell these securities to fund operations.  As such, the decline in fair value is deemed temporary due to general market conditions.  See Note 13 to the Financial Statements for further discussion of auction rate securities.

Commercial Paper

PPL Energy Supply did not have any commercial paper outstanding at September 30, 2008, and it does not expect to have to issue any commercial paper through the end of 2008.

Credit Facilities

In March 2008, PPL Energy Supply increased the capacity of its 364-day reimbursement agreement, under which it can cause the bank to issue letters of credit, from $200 million to $300 million and extended the expiration date of the agreement to March 2009.

PPL Energy Supply currently does not expect to make any modifications through the end of 2008, including extending the expiration date, to its $3.4 billion five-year credit facility that expires in June 2012.

In September 2008, PPL Energy Supply executed a new $385 million 364-day credit agreement that expires in September 2009.  Under certain conditions, PPL Energy Supply may request that the facility's principal amount be increased by up to $150 million.  Under this facility, PPL Energy Supply has the ability to make cash borrowings and to cause the lenders to issue letters of credit.

In January 2008, WPDH Limited extended the expiration date of its £150 million five-year committed credit facility to January 2013, and it has the option to extend the expiration date by another year in January 2009.

At September 30, 2008, PPL Energy Supply's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed		Letters of Credit Issued		Available Capacity
PPL Energy Supply Domestic Credit Facilities (a)	$	4,385			$	720	$	3,665
WPDH Limited Credit Facility (b)	₤	150	₤	101			₤	49
WPD (South West) Credit Facility		155			₤	4		151
Total International Credit Facilities (c)	₤	305	₤	101	₤	4	₤	200

(a)	The commitments under PPL Energy Supply's domestic credit facilities are provided by a diverse bank group consisting of 24 banks, with no one bank providing more than 14% of the total committed capacity. In October 2008, PPL Energy Supply borrowed $285 million under its $3.4 billion five-year credit facility.  In connection with this borrowing, one of the participating banks, Lehman Brothers Bank, FSB, became a defaulting lender under the facility, as it no longer is honoring its commitment of approximately $175 million.
(b)	During the third quarter of 2008, WPDH Limited made a USD-denominated borrowing of $200 million, which equated to £101 million at the time of borrowing and is reflected on the Balance Sheet in "Short-term debt."  This borrowing bears interest at approximately 3.73%.
(c)	At September 30, 2008, available capacity of the international credit facilities is approximately $365 million.

See Note 7 to the Financial Statements for additional information on PPL Energy Supply's credit facilities.

Financing Activities

In March 2008, PPL Energy Supply issued $400 million of 6.50% Senior Notes due 2018 (6.50% Notes).  The 6.50% Notes may be redeemed any time prior to maturity at PPL Energy Supply's option at make-whole redemption prices.  PPL Energy Supply received proceeds of $396 million, net of a discount and underwriting fees, from the issuance of the 6.50% Notes.  The proceeds have been used for general corporate purposes, including capital expenditures relating to the installation of pollution control equipment by PPL Energy Supply subsidiaries.

In April 2008, PPL Energy Supply elected to change the interest rate mode on the Exempt Facilities Revenue Bonds, Series 2007 due 2037 (Bonds) that were issued by the Pennsylvania Economic Development Financing Authority on behalf of PPL Energy Supply in December 2007.  The interest rate mode was converted from a rate that was reset daily through daily remarketing of the Bonds to a term rate of 1.80% for one year.

The terms of PPL Energy Supply's 2-5/8% Convertible Senior Notes due 2023 (Convertible Senior Notes) included a market price trigger that permitted holders to convert the notes during any fiscal quarter if the closing sale price of PPL's common stock exceeded $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.  The holders of the Convertible Senior Notes also had the right to require PPL Energy Supply to purchase all or any part (equal to $1,000 principal amount or an integral multiple thereof) of the Convertible Senior Notes on May 15, 2008 at 100% of the principal amount, plus accrued and unpaid interest thereon as of such date.  In April 2008, the holders were notified that, in accordance with the terms of the Convertible Senior Notes, PPL Energy Supply was redeeming on May 20, 2008 all outstanding Convertible Senior Notes at 100% of the principal amount, plus accrued and unpaid interest thereon as of such date.

The Convertible Senior Notes were subject to conversion at the election of the holders any time prior to May 20, 2008 as a result of the market price trigger being met and the notes being called for redemption.  Upon conversion of the Convertible Senior Notes, PPL Energy Supply was required to settle the principal amount in cash and any conversion premium in cash or PPL common stock.  During the nine months ended September 30, 2008, Convertible Senior Notes in an aggregate principal amount of $57 million were presented for conversion.  The total conversion premium related to these conversions was $56 million, which was settled with 1,128,341 shares of PPL common stock, together with an insignificant amount of cash in lieu of fractional shares.  On May 20, 2008, PPL Energy Supply redeemed an insignificant amount of Convertible Senior Notes.  At September 30, 2008, no Convertible Senior Notes remain outstanding.

In July 2008, PPL Energy Supply issued $300 million of 6.30% Senior Notes due 2013 (6.30% Notes).  The 6.30% Notes may be redeemed any time prior to maturity at PPL Energy Supply's option at make-whole redemption prices.  PPL Energy Supply received proceeds of $298 million, net of a discount and underwriting fees, from the issuance of the 6.30% Notes.  The proceeds were used to repay short-term debt that was outstanding at the time of issuance.

Leases

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  Under the agreement, PPL EnergyPlus has control over the plant's dispatch into the electricity grid and will supply the natural gas necessary to operate the plant.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  See Note 18 to the Financial Statements for additional information.

Rating Agency Decisions

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

A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues.  The credit ratings of PPL Energy Supply and its subsidiaries are based on information provided by PPL Energy Supply and other sources.  The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL Energy Supply or its subsidiaries.  Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.  A downgrade in PPL Energy Supply's or its subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets.

Moody's and S&P did not take any actions related to PPL Energy Supply and its rated subsidiaries during the nine months ended September 30, 2008.  In March 2008, Fitch completed a review of its credit ratings for PPL Energy Supply and affirmed all of its ratings.  In May 2008, Fitch changed its outlook for WPDH Limited, WPD LLP, WPD (South Wales) and WPD (South West) to positive from stable.  In August 2008, Fitch affirmed its BBB rating of PPL Montana's 8.903% Pass-Through Certificates due 2020.

Capital Expenditures

The schedule below shows PPL Energy Supply's capital expenditure projections as of September 30, 2008, for the years 2008 through 2010.  Capital expenditure projections for the years 2011 and 2012 are still being reviewed as part of the 5-year planning process.  These capital expenditure projections are preliminary and subject to approval by PPL's Board of Directors, which is expected to occur prior to year-end.

	Projected
	2008		2009		2010
Construction expenditures (a)
Generating facilities	$	376	$	276	$	454
Transmission and distribution facilities		298		293		427
Environmental		461		199		67
Other		68		6		1
Total Construction Expenditures		1,203		774		949
Nuclear fuel		102		151		161
Total Capital Expenditures	$	1,305	$	925	$	1,110

(a) Construction expenditures include AFUDC and capitalized interest, which are expected to be $173 million for the 2008 through 2010 period.

PPL Energy Supply 's capital expenditure projections for the years 2008 through 2010 total $3.3 billion.  Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions.

For additional information on PPL Energy Supply's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's 2007 Form 10-K.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

PPL Energy Supply's non-trading commodity derivative contracts mature at various times through 2017.  PPL Energy Supply segregates its non-trading activities into two categories:  hedge activity and economic activity.  Transactions that are accounted for as hedge activity qualify for hedge accounting treatment under SFAS 133.  The majority of PPL Energy Supply's energy transactions qualify for accrual or hedge accounting.  The economic activity category includes transactions that address a specific risk, but were not eligible for hedge accounting or for which hedge accounting was not elected.  Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity.  The net fair value of economic positions at September 30, 2008 and December 31, 2007, including net premiums on options, was a loss of $36 million and a gain of $67 million.

The following chart sets forth the net fair value of PPL Energy Supply's non-trading commodity derivative contracts.  For the periods ended September 30, 2008, these amounts reflect fair value as defined by SFAS 157, as amended.  See Notes 13 and 14 to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Fair value of contracts outstanding at the beginning of the period	$	(1,054	)	$	(245	)	$	(305	)	$	(111	)
Contracts realized or otherwise settled during the period		(86	)		(30	)		(173	)		(50	)
Fair value of new contracts entered into during the period		(55	)		13			115			57
Changes in fair value attributable to changes in valuation techniques (a)								55
Other changes in fair value		1,032			87			145			(71	)
Fair value of contracts outstanding at the end of the period	$	(163	)	$	(175	)	$	(163	)	$	(175	)

(a) Amount represents the reduction of valuation reserves related to capacity and FTR contracts upon the adoption of SFAS 157.

The following chart segregates fair values of PPL Energy Supply's non-trading commodity derivative contracts at September 30, 2008, based on whether the fair values are determined by quoted market prices for identical instruments 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 quoted in active markets for identical instruments	$	2									$	2
Prices based on significant other observable inputs		(61	)	$	(370	)	$	77	$	8		(346	)
Prices based on significant unobservable inputs		3			1			44		133		181
Fair value of contracts outstanding at the end of the period	$	(56	)	$	(369	)	$	121	$	141	$	(163	)

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

Commodity Price Risk (Trading)

PPL Energy Supply's trading contracts mature at various times through 2014.  The following chart sets forth PPL Energy Supply's net fair value of trading contracts.  See Note 13 for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Fair value of contracts outstanding at the beginning of the period	$	16		$	48		$	16		$	41
Contracts realized or otherwise settled during the period		1			(7	)		(40	)		(34	)
Fair value of new contracts entered into during the period		(41	)		14			(18	)		35
Other changes in fair value		(61	)		11			(43	)		24
Fair value of contracts outstanding at the end of the period	$	(85	)	$	66		$	(85	)	$	66

PPL Energy Supply will reverse unrealized losses of approximately $11 million over the next three months as the transactions are realized.

The following chart segregates fair values of PPL Energy Supply's trading portfolio at September 30, 2008, based on whether the fair values are determined by quoted market prices for identical instruments 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 quoted in active markets for identical instruments				$	2						$	2
Prices based on significant other observable inputs	$	(34	)		(37	)	$	(14	)			(85	)
Prices based on significant unobservable inputs		(2	)									(2	)
Fair value of contracts outstanding at the end of the period	$	(36	)	$	(35	)	$	(14	)		$	(85	)

Commodity Price Risk Summary

In accordance with its marketing strategy, PPL Energy Supply often elects not to completely hedge its generation output or fuel requirements.  PPL Energy Supply estimates that for its entire portfolio, including all generation, emissions and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2008 gross margins by $45 million.  Similarly, a 10% adverse movement in all fossil fuel prices would decrease expected 2008 gross margins by $2 million.

VaR Models

PPL Energy Supply utilizes a VaR model to measure commodity price risk in its non-trading and trading portfolios.  This approach is consistent with how PPL's Risk Management Committee assesses the market risk of its commodity business.  VaR is a statistical model that attempts to predict the value of potential loss, under normal market conditions, based on historical market price volatility.  PPL Energy Supply calculates VaR using a Monte Carlo simulation technique, which uses historical data from the past 12-month period.  The VaR is the estimated nominal loss of earnings based on a one-day holding period at a 95% confidence interval.  At September 30, 2008, the VaR for PPL Energy Supply's portfolio was as follows:

	Trading VaR		Non-Trading MTM VaR
95% Confidence Level, One-Day Holding Period
Period End	$	10	$	41
Average for the Period		8		38
High		10		41
Low		7		33

Interest Rate Risk

PPL Energy Supply and its subsidiaries have issued debt to finance their operations, which exposes them to interest rate risk.  Both PPL and PPL Energy Supply manage the interest rate risk of PPL Energy Supply by using various financial derivative instruments to adjust the mix of fixed and floating interest rates in PPL Energy Supply's debt portfolio, adjust the duration of its debt portfolio and lock in 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, 2008, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was $3 million.

PPL Energy Supply is also exposed to changes in the fair value of its domestic and international debt portfolios.  PPL Energy Supply estimated that a 10% decrease in interest rates at September 30, 2008, would increase the fair value of its debt portfolio by $238 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, 2008, PPL Energy Supply had none of these instruments outstanding.

PPL and PPL Energy Supply also utilize various risk management instruments to adjust the mix of fixed and floating interest rates in PPL Energy Supply's debt portfolio.  The change in fair value of these instruments, as well as the offsetting change in the value of the hedged exposure of the debt, is reflected in earnings.  At September 30, 2008, the fair value of these instruments was an asset of $2 million.  PPL Energy Supply estimated that a 10% adverse movement in interest rates at September 30, 2008, would decrease the asset by $1 million.

WPDH Limited holds a net position in cross-currency swaps totaling $527 million to hedge the interest payments and principal of its U.S. dollar-denominated bonds with maturity dates ranging from December 2008 to December 2028.  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.  The estimated fair value of this position at September 30, 2008, was a net liability of $60 million.  WPDH Limited estimated that a 10% adverse movement in foreign currency exchange rates and interest rates at September 30, 2008, would increase the net liability by $64 million.

Foreign Currency Risk

PPL Energy Supply is exposed to foreign currency risk, primarily through investments in U.K. affiliates.  In addition, PPL Energy Supply's domestic operations may make purchases of equipment in currencies other than U.S. dollars.

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

In 2007, PPL executed forward contracts to sell British pounds sterling to protect the value of a portion of PPL Energy Supply's net investment in WPD.  In connection with these transactions, PPL Energy Supply entered into forward contracts with PPL that have terms identical to those executed by PPL.  The total notional amount of the contracts outstanding at September 30, 2008 was £68 million.  The settlement dates of these contracts range from March 2009 through June 2011.  At September 30, 2008, the fair value of these positions was an net asset of $15 million.  PPL Energy Supply estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2008 would decrease the asset by $11 million.

To economically hedge the translation of 2008 expected income denominated in British pounds sterling to U.S. dollars, PPL entered into a combination of average rate forwards and average rate options to sell British pounds sterling.  In connection with these transactions, PPL Energy Supply entered into average rate forwards and average rate options with PPL that have terms identical to those executed by PPL.  At September 30, 2008, the total exposure hedged was £24 million.  These forwards and options have termination dates ranging from October 2008 to December 2008.  At September 30, 2008, the fair value of these positions was a net asset of $4 million.  PPL Energy Supply estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2008 would decrease the net asset position by $4 million.

Nuclear Plant Decommissioning Trust Funds - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna nuclear station.  At September 30, 2008, 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 sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs.  However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are exposed to changes in interest rates.  PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear plant decommissioning trust policy statement.  At September 30, 2008, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $33 million reduction in the fair value of the trust assets.  See Note 21 in PPL Energy Supply's 2007 Form 10-K for additional information regarding the nuclear plant decommissioning trust funds.

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 11 to the Financial Statements.

Acquisitions, Development and Divestitures

PPL Energy Supply continuously evaluates strategic options for its business segments and, from time to time, PPL Energy Supply and its subsidiaries are involved in negotiations with third parties regarding acquisitions and dispositions of businesses and assets, joint ventures and development projects, which may or may not result in definitive agreements.  Any such transactions may impact future financial results.  See Note 8 to the Financial Statements for information regarding recent transactions.

During the second quarter of 2008, PPL Energy Supply increased the capacity of several existing generating facilities.  The aggregate capacity increase was 66 MW.  PPL Energy Supply is currently planning additional incremental capacity increases of 265 MW at its existing generating facilities.  See Note 8 to the Financial Statements for additional information on the progress of the PPL Susquehanna nuclear plant uprate project.  Offsetting this increase is an expected reduction of up to 30 MW in net generation capability at each of the Brunner Island and Montour plants, due to the estimated increases in station service usage during the scrubber operation.  See Note 10 to the Financial Statements for additional information.

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  As a result of this agreement, PPL EnergyPlus recognized an intangible asset.  See Notes 15 and 18 to the Financial Statements for additional information.

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

Environmental Matters

See Note 10 to the Financial Statements for a discussion of environmental matters.

New Accounting Standards

See Note 2 to the Financial Statements for a discussion of new accounting standards adopted and Note 19 to the Financial Statements for a discussion of 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, defined benefits, asset impairment, leasing, loss accruals, AROs and income tax uncertainties.

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's 2007 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.

Following are updates to the critical accounting policies disclosed in PPL Energy Supply's 2007 Form 10-K.

Leasing

In June 2008, PPL EnergyPlus executed an agreement to acquire the rights to an existing long-term tolling agreement associated with the capacity and energy of a 664 MW natural gas-fired power plant in Lebanon, Pennsylvania.  The tolling agreement extends through 2021 and contains a lease that is being accounted for as an operating lease.  See Notes 15 and 18 to the Financial Statements for additional information.

In accounting for leases, management makes various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in determining whether a lease should be classified as operating or capital.  Changes in these assumptions could result in the difference between whether a lease is determined to be an operating lease or a capital lease.  If this transaction were to be accounted for as a capital lease, PPL Energy Supply would have recorded approximately $279 million of additional assets and $278 million of additional liabilities on the Balance Sheet at September 30, 2008.

Loss Accruals

In June 2008, PPL Montana's management assessed the loss exposure related to the Montana hydroelectric litigation, given the June 2008 decision by the Montana First Judicial District Court (District Court).  The District Court awarded compensation of approximately $34 million for the years 2000 through 2006, and approximately $6 million for 2007 compensation as rent for the use of the State of Montana's streambeds by PPL Montana's hydroelectric facilities.  The District Court also deferred the determination of compensation for 2008 and subsequent years to the Montana State Land Board (Land Board).  PPL Montana intends to appeal the decision of the District Court to the Montana Supreme Court and will continue to vigorously defend its position.  It also intends to seek a stay of judgment, including a stay of the Land Board's authority to assess compensation against PPL Montana for 2008 and future periods.  See Note 10 to the Financial Statements for additional information on this litigation.

PPL Montana's management concluded, based on its assessment and after consultations with its trial counsel, that it has meritorious arguments on appeal for the years 2000 through 2006.  PPL Montana assessed the likelihood of a loss for these years as reasonably possible.  However, PPL Montana has not recorded a loss accrual for these years, as the likelihood of a loss was not deemed probable.

For 2007 and subsequent years, PPL Montana's management believes that while it also has meritorious arguments, it is probable that its hydroelectric projects will be subject to annual estimated compensation ranging from $300,000 to $6 million.  Given that there was no single amount within that range more likely than any other, PPL Montana is annually accruing $300,000.

PPL Montana will continue to assess the loss exposure for the Montana hydro litigation in future periods.

SFAS 157

In 2006, the FASB issued SFAS 157.  Among other things, SFAS 157 provides a definition of fair value as well as a framework for measuring fair value.  In February 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-1 and FSP FAS 157-2.  FSP FAS 157-1 amends SFAS 157 to exclude from its scope, certain accounting pronouncements that address fair value measurements associated with leases.  FSP FAS 157-2 delays the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  In October 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-3, which was effective upon issuance, including prior periods for which financial statements have not been issued.  FSP FAS 157-3 amends SFAS 157 to clarify its application in a market that is not active.

As permitted by this guidance, PPL Energy Supply partially applied SFAS 157, as amended by FSP FAS 157-1 and FSP FAS 157-2, prospectively, effective January 1, 2008.  PPL Energy Supply adopted FSP FAS 157-3, prospectively, effective July 1, 2008.  In the current year, the partial application of this standard affected, or will affect, fair value measurement concepts used or embedded in PPL Energy Supply's critical accounting policies related to "Price Risk Management" and "Defined Benefits."  PPL Energy Supply's election to defer the application of SFAS 157, as amended, for eligible assets and liabilities will primarily affect the fair value component of PPL Energy Supply's critical accounting policies related to "Asset Impairment" and "Asset Retirement Obligations" in 2009.  See Notes 2 and 13 to the Financial Statements for additional information regarding SFAS 157, as amended.

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, Pennsylvania.  In PPL Electric's 2007 Form 10-K, see "Item 1. Business - Background" for a description of its business and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" for a discussion of its strategy and the risks and the challenges that it faces in its business.  See "Forward-Looking Information," Note 10 to the Financial Statements and the rest of Item 2 in this Form 10-Q and "Item 1A. Risk Factors" and the rest of Item 7 in PPL Electric's 2007 Form 10-K for more information concerning the material risks and uncertainties that PPL Electric faces in its business and with respect to its future earnings.

Recent Market Events

The turmoil in the financial markets has increased the complexity of maintaining credit risk within acceptable tolerances, responding to liquidity needs, measuring financial instruments at fair value, and managing market price risk.

Credit Risk

Credit risk is the risk that PPL Electric would incur a loss as a result of nonperformance by counterparties of their contractual obligations.  PPL Electric maintains credit policies and procedures with respect to counterparty credit (including requirements that counterparties maintain specified credit ratings) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk.  However, PPL Electric has concentrations of suppliers, financial institutions and customers.  These concentrations may impact PPL Electric's overall exposure to credit risk, either positively or negatively, as counterparties may be similarly affected by changes in economic, regulatory or other conditions.  The volatility and downturn in financial and commodity markets in the third quarter of 2008 have generally increased PPL Electric's exposure to credit risk.  See Notes 11 and 14 to the Financial Statements for additional information about credit concentration.

Liquidity Issues

The turmoil in financial markets has generally made obtaining new sources of credit more difficult and more costly for companies.  Despite the tightening of the credit markets, PPL Electric expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents and its credit facilities.  PPL Electric does not expect to need to access commercial paper markets or debt and equity capital markets until the fourth quarter of 2009, except to remarket certain bonds as discussed in "Financial Condition - Liquidity and Capital Resources - Financing Activities," but may decide to access capital markets, subject to market conditions, to enhance its liquidity.

Lehman Brothers Bank, FSB (Lehman Bank) is no longer honoring its commitment under PPL Electric's $200 million five-year credit facility. Lehman Bank's total commitment under this facility is approximately $10 million.  See "Financial Condition - Liquidity and Capital Resources" for an expanded discussion of PPL Electric's liquidity position and a discussion of financing transactions completed in October 2008 to prefund future debt maturities.

SecuritiesPrice Risk

PPL Electric participates in and is allocated defined benefit costs from plans sponsored by PPL.  Declines in the market price of debt and equity securities resulted in unrealized losses that have impacted the asset values of PPL's investments in its defined benefit plans.  As a result, PPL's defined benefit plans have experienced negative investment returns in 2008.  However, significant increases in bond rates used to determine the discount rate for these plans may provide for reductions in the gross benefit obligations of these plans. This may offset some portion of the decline in asset values when determining the funded status of the plans as well as other measures at the end of 2008.  Determination of the funded status of the defined benefit plans, contribution requirements and net periodic defined benefit costs for future years are subject to changes in assumptions, including the performance of the assets in the plans, through the annual measurement date.  See "Application of Critical Accounting Policies" for "Defined Benefits" in Part II, Item 7 of the 2007 Form 10-K for a discussion of the assumptions and sensitivities regarding those assumptions.

The following information should be read in conjunction with PPL Electric's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL Electric's 2007 Form 10-K.

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

Results of Operations

The following discussion begins with a summary of PPL Electric's earnings and continues with a description of key factors that management expects may impact future earnings.  This section ends with explanations of significant changes in principal items on PPL Electric's Statements of Income, comparing the three and nine months ended September 30, 2008, with the same periods in 2007.

The results for interim periods can be disproportionately influenced by various factors and developments and by seasonal variations, and as such, the results of operations for interim periods do not necessarily indicate results or trends for the year or for future operating results.

Earnings

Income available to PPL was:

Three Months Ended September30,				Nine Months Ended September30,
2008		2007		2008		2007
$	36	$	35	$	119	$	117

The after-tax change in income available to PPL between these periods was due to the following factors.

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)	$	5		$	21
Other operation and maintenance expense		1			(6	)
Interest income from affiliate		(2	)		(5	)
Taxes, other than income		(1	)		(4	)
Other income - net		(1	)		(5	)
Other		(1	)		1
	$	1		$	2

The period-to-period changes in significant earnings components are explained in the "Statement of Income Analysis."

PPL Electric's period-to-period earnings were affected by:

· higher delivery revenues attributable to a base rate increase effective January 1, 2008 and normal load growth, partially offset by the unfavorable impact of weather on residential and commercial sales in 2008;

· higher other operation and maintenance expense during the nine months ended September 30, 2008, primarily due to increased usage of contractors and increases in uncollectible accounts;

· lower interest income from affiliate due to reduced average balances outstanding on a note receivable with an affiliate and lower average rates on this note due to the floating interest rate;

· higher taxes, other than income, due to increases in gross receipts tax expense and sales and use tax expense; and

· lower other income primarily due to lower interest income in 2008 and lower gains on property sales during the nine months ended September 30, 2008.

Outlook

PPL Electric projects higher 2008 earnings driven by higher revenues as a result of the January 1, 2008 distribution rate increase, partially offset by higher operating expenses.

PPL Electric expects 2009 earnings to be comparable to 2008 due to lower delivery margins offset by lower operating costs.

In May 2007, the PUC approved final regulations regarding the obligation of Pennsylvania electric utilities to provide default electricity supply in 2011 and beyond.  The regulations provide that default service providers will acquire electricity supply at prevailing market prices pursuant to procurement and implementation plans approved by the PUC.  The regulations also address the utilities' recovery of market supply costs.  The final regulations became effective in September 2007.

In May 2007, the PUC approved PPL Electric's plan to procure default electricity supply in 2007-2009 for retail customers who do not choose an alternative competitive supplier in 2010 after PPL Electric's PLR contract with an affiliate expires.  Under the plan, PPL Electric was approved to issue a series of competitive bids for such supply in 2007, 2008 and 2009.  Each solicitation is for 850 MW of expected generation supply, or one-sixth of PPL Electric's expected PLR supply requirement in 2010.  The average generation supply prices (per MWh), including Pennsylvania gross receipts tax and an adjustment for line losses, for the first four solicitations were as follows:

	Residential		Small Commercial and Small Industrial
July 2007	$	101.77	$	105.11
October 2007		105.08		105.75
March 2008		108.80		108.76
October 2008		112.51		111.94
Average		107.04		107.89

As a result, PPL Electric has contracted for two-thirds of the electricity supply it expects to need for 2010.  If the average prices paid for the supply purchased so far were to be the same for the remaining two purchases, the average residential customer's monthly bill in 2010 would increase about 36.1% over 2009 levels, while monthly bills for small business customers would increase on average approximately 25.0% and monthly bills for mid-size business customers would increase on average approximately 44.3%.  The estimated increases include Pennsylvania gross receipts tax, an adjustment for line losses, PPL Electric's January 1, 2008 rate increase and a court-ordered rate adjustment in 2007.  Actual 2010 prices will not be known until all six supply purchases have been made.  The final two solicitations will be conducted in 2009.

In September 2007, the Pennsylvania General Assembly (General Assembly) convened a special session to address the proposals in the Energy Independence Strategy (Strategy) proposed by the Pennsylvania Governor earlier in 2007.  In June 2008, the General Assembly passed, and the Governor signed, a bill that would create a $650 million fund for clean energy projects, conservation and energy efficiency initiatives and pollution control projects that would be funded through revenue bonds and gross receipts tax revenue, which will increase as rate caps expire.

In August 2008, PPL Electric filed a request with the PUC to approve its plan to purchase the PLR electricity supply that PPL Electric will need for 2011 through mid-2014.  Under the plan, PPL Electric proposed to buy this electricity for January 2011 through May 2014 four times a year, beginning in the third quarter of 2009, for 12- and 24- month increments.  PPL Electric also will seek bids from other companies to manage its hourly purchases in the competitive electricity market.  For residential and small-business customers, 90 percent of the supply would be acquired through fixed-price contracts of 12 or 24 months, and 10 percent through hourly purchases in the open market.  All of the power for large commercial and industrial customers would be purchased on an hourly basis in the open market.  An independent third party would administer the process of securing power supply contracts and, with PUC oversight, select the suppliers that would provide generation supply at the lowest cost to PPL Electric's customers.

On November 3, 2008, PPL Electric proposed several amendments to its plan to reflect passage of Pennsylvania Act 129 (Act 129), as discussed below.  PPL Electric added provisions to purchase 5% of its default service supply through five-year contracts and an additional 5% through ten-year contracts.  It reduced the term of its plan by one year, proposing that the plan end in May 2013, rather than in May 2014.  Finally, PPL Electric provided support for several findings that the PUC was required to make under Act 129.  PPL Electric cannot predict the outcome of this matter.

In August 2008, PPL Electric also asked the FERC for a change in the way transmission rates are calculated to support continued investment in its transmission system by switching to formula-based rates.  Under formula-based rates, a fixed earnings level is set for the utility, and the utility annually adjusts its transmission rates, subject to FERC review.  The process offers an opportunity for public input.  The proposed rate design would ensure that there is no over-recovery or under-recovery of the actual costs of providing transmission delivery service.  The rate change request, if approved, would result in an increase of $0.74 to the monthly bill of an average PPL Electric residential customer.  PPL Electric is requesting that the proposed rate take effect November 1, 2008.  This request would not affect generation charges or distribution rates.  The rate change request would result in an annual revenue increase of about $20 million.

On October 29, 2008, the FERC accepted the proposed rate for filing, effective on November 1, 2008, subject to refund.  The FERC did not adjust the requested return on equity of 12.84%, which included 50 basis points for membership in PJM.  Finally, the FERC set the matter for hearing, but held the hearings in abeyance to provide time for settlement judge procedures.  PPL Electric cannot predict the outcome of this matter.

Since the introduction of the Strategy in 2007, PPL and PPL Electric have been working with Pennsylvania legislators, regulators and other stakeholders to develop constructive measures to help customers transition to market rates after 2009, including a variety of rate mitigation, educational and energy conservation programs, consistent with several initiatives being developed by the state administration and legislature.  In this regard, in November 2007, PPL Electric requested the PUC to approve a plan under which its residential and small commercial customers could smooth the impact of price increases when generation rate caps expire in 2010.  The proposed phase-in plan provided that customers could pay additional amounts on their electric bills beginning in mid-2008 and continuing through 2009, and such additional amounts, plus accrued interest, would be applied to their 2010 and 2011 electric bills, mitigating the impact of the rate cap expiration.  PPL Electric requested expedited consideration of the proposal by the PUC.  Ten parties filed responses to PPL Electric's petition, primarily because the proposal offered the program on an "opt-out" basis (i.e., customers would be enrolled automatically and affirmatively have to "opt-out" if they choose not to participate).  The parties negotiated a settlement agreement  under which PPL Electric agreed to change the "opt-out" approach to an "opt-in" approach (i.e., customers would have to affirmatively enroll) and to make the program available to customers enrolled in budget billing.  In March 2008, the Administrative Law Judge assigned to this case recommended that the PUC approve the settlement agreement.  In August 2008, the PUC approved the settlement agreement.  As a result, the program was implemented in October 2008.

As part of the Strategy, the General Assembly passed and the Governor signed into law Act 129 in October 2008.  The law creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct, and makes changes to the existing Alternative Energy Portfolio Standard.

Under Act 129, Electric Delivery Companies (EDCs) must develop and file an energy efficiency and conservation plan with the PUC.  EDCs must contract with a conservation service provider to implement all or a portion of the plan.  Act 129 requires reduction in consumption of 1% by 2011, 3% by 2013 and a reduction in peak demand of 4.5% by 2013.  EDCs will be able to recover costs of implementing a conservation plan.

Act 129 also provides for installation of smart meters under the following conditions:  for new construction, upon the request of consumers at their cost, or on a depreciation schedule not exceeding 15 years.  PPL Electric's current advanced metering technology meets the definition of smart metering technology in Act 129, but PPL Electric will eventually have to upgrade its current metering technology to comply with a provision that requires EDCs to make available to third parties direct meter access and electronic access to customer meter data.  Under Act 129, EDCs will be able to recover costs of providing smart metering technology.

Act 129 also requires the default service provider (DSP) to provide electric generation supply service to customers pursuant to a PUC-approved competitive procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP.  Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years, with long-term contracts limited to up to 25% of the load unless otherwise approved by the PUC).  The DSP will be able to recover costs associated with a competitive procurement plan.

Under Act 129, the DSP competitive procurement plan must also ensure adequate and reliable service "at least cost" over time.  Act 129 also grants the PUC authority to extend long-term power contracts up to 20 years, if necessary, to achieve the "least cost" standard.

Act 129 also provides for market misconduct corrective actions.  In the event that an EDC, its affiliate or a supplier from whom the EDC has purchased power, is found guilty of market manipulation, the PUC can direct an EDC to take any and all reasonable action to quantify the effect of the market misconduct on Pennsylvania ratepayers and seek recompense.

Act 129 makes changes to the Alternative Energy Portfolio Standards by adding Pennsylvania biomass energy and small hydroelectric plants as Tier 1 alternative energy sources and requiring the PUC to automatically increase the Tier 1 requirements to account for increases in the additional resources.

Act 129 also requires the Pennsylvania Department of Conservation and Natural Resources to complete a study to identify suitable geological formations for the location of a state carbon sequestration network.

Act 129 does not address rate mitigation.  The Governor, Pennsylvania House of Representatives and Pennsylvania Senate have committed to address rate mitigation in the next session, which begins in January 2009.

Certain Pennsylvania legislators have introduced or are contemplating the introduction of legislation to extend generation rate caps or otherwise limit cost recovery through rates for Pennsylvania utilities beyond their transition periods, which in PPL Electric's case would be December 31, 2009.  PPL and PPL Electric have expressed strong concern regarding the severe potential consequences of such legislation on customer service, system reliability, adequate future generation supply and PPL Electric's financial viability.  If such legislation or similar legislation is enacted, PPL Electric could experience substantial operating losses, cash flow shortfalls and other adverse financial impacts.  In addition, continuing uncertainty regarding PPL Electric's ability to recover its market supply and other costs of operation after 2009 could adversely impact its credit quality, financing costs and availability of credit facilities necessary to operate its business.  In addition, PPL and PPL Electric believe that such an extension of rate caps, if enacted into law, would violate federal law and the U.S. Constitution.  At this time, PPL and PPL Electric cannot predict the final outcome or impact of this legislative and regulatory process.

Statement of Income Analysis --

Operating Revenues

Retail Electric

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

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
PLR	$	(1	)	$	14
Delivery		1			9
Other		1			2
	$	1		$	25

Higher delivery revenues for both periods were attributable to a base rate increase effective January 1, 2008.  Normal load growth also contributed to higher delivery revenues.  Higher PLR revenues for the nine months ended September 30, 2008, were also attributable to normal load growth.  The increases in delivery and PLR revenues for both periods were partially offset by the unfavorable impact of weather on residential and commercial sales in 2008.

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 decreases of $14 million and $30 million in wholesale electric to affiliate for the three and nine months ended September 30, 2008, compared with the same periods in 2007, were primarily due to the expiration of a NUG contract at the end of 2007.  The nine-month period decrease was partially offset by higher prices on certain NUG contracts.  Substantially all of the remaining NUG contracts will expire by 2010.

Energy Purchases

The decrease of $11 million in energy purchases for the three months ended September 30, 2008, compared with the same period in 2007, was primarily due to the expiration of a NUG contract at the end of 2007.

The decrease of $27 million in energy purchases for the nine months ended September 30, 2008, compared with the same period in 2007, was primarily due to the expiration of a NUG contract as mentioned above, partially offset by higher prices on certain NUG contracts.  Substantially all of the remaining NUG contracts will expire by 2010.

Energy Purchases from Affiliate

There were offsetting changes of $3 million in energy purchases from affiliate for the three months ended September 30, 2008, compared with the same period in 2007.  The increase was primarily attributable to higher prices for energy purchased under the power supply contracts with PPL EnergyPlus that were needed to support the PLR load, offset by a decrease in that load.

The increase in energy purchases from affiliate of $14 million for the nine months ended September 30, 2008, compared with the same period in 2007, was attributable to increases in PLR load, as well as higher prices for energy purchased under the power supply contracts with PPL EnergyPlus that were needed to support that load.

Other Operation and Maintenance

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

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Uncollectible accounts				$	6
Contractor expense	$	(1	)		4
Regulatory asset amortization		1			3
Salary expense		(3	)		1
Customer service expense		3			1
Allocation of certain corporate service costs (Note 11)					(2	)
Insurance recovery of storm costs					(5	)
Other		(2	)		3
	$	(2	)	$	11

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs decreased by $5 million and $12 million during the three and nine months ended September 30, 2008, compared with the same period in 2007.  The decreases were primarily attributable to a scheduled decrease in ITC amortization, a reduction of ITC revenues, the change in unbilled revenues and the change from recovery of a CTC undercollection in 2007 to the return of a CTC overcollection in 2008.

Taxes, Other Than Income

Taxes, other than income increased by $2 million during the three months ended September 30, 2008, compared with the same period in 2007.The increase was primarily due to a $1 million increase in gross receipts tax expense and a $1 million increase in sales and use tax expense.

Taxes, other than income increased by $6 million during the nine months ended September 30, 2008, compared with the same period in 2007.The increase was primarily due to a $4 million increase in gross receipts tax expense and a $1 million increase in sales and use tax expense.

Other Income - net

See Note 12 to the Financial Statements for details of other income.

Interest Income from Affiliate

Interest income from affiliate decreased by $4 million and $9 million for the three and nine months ended September 30, 2008, compared with the same periods in 2007.  The decreases were the result of reduced average balances outstanding on a note receivable with an affiliate and lower average rates on this note due to the floating interest rate.

Financing Costs

The decreases in financing costs, which include "Interest Expense," "Interest Expense with Affiliate" and "Dividends on Preferred Securities," were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended			Nine Months Ended
Long-term debt interest expense primarily due to the repayment of transition bonds	$	(6	)	$	(16	)
Interest on PLR contract collateral (Note 11)		(1	)		(5	)
Other		(1	)		(3	)
	$	(8	)	$	(24	)

Income Taxes

The increases in income taxes were due to:

	Sept. 30, 2008 vs. Sept. 30, 2007
	Three Months Ended		Nine Months Ended
Higher pre-tax book income	$	5	$	8
Tax reserve adjustments (Note 5)		1		2
	$	6	$	10

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

Financial Condition

Liquidity and Capital Resources

In general, recent turmoil in the financial markets has made obtaining new sources of credit more difficult and more costly for companies.  During this challenging period, PPL Electric continues to be focused on maintaining a strong credit profile and liquidity position.  PPL Electric expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, and its credit facilities.  PPL Electric currently does not expect to need to access commercial paper markets or debt and equity capital markets until the fourth quarter of 2009, except to remarket certain bonds as discussed below, but may decide to access capital markets, subject to market conditions, to enhance its liquidity.  PPL Electric believes that its cash and cash equivalents, operating cash flows, and borrowing capacity under its credit facilities, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, as well as estimated future capital expenditures in the near term.  See "Financing Activities" below for a discussion of financing transactions completed in October 2008 to prefund future debt maturities.

PPL Electric had the following at:

	September 30, 2008		December31, 2007
Cash and cash equivalents	$	67	$	33
Short-term debt				41

The $34 million increase in PPL Electric's cash and cash equivalents position was primarily the net result of:

· $403 million of cash provided by operating activities;

· the net receipt of $147 million under a demand loan with an affiliate;

· a net decrease of $41 million in restricted cash and cash equivalents;

· the retirement of $232 million of long-term debt;

· $193 million of capital expenditures;

· the payment of $73 million of common stock dividends to PPL;

· a net decrease of $41 million of short-term debt;

·  the payment of $14 million of dividends on preferred securities; and

· $7 million in expenditures for intangible assets.

Commercial Paper

PPL Electric did not have any commercial paper outstanding at September 30, 2008, and it does not expect to have to issue any commercial paper through the end of 2008.

Credit Facilities

The commitments under PPL Electric's $200 million five-year credit facility that expires in May 2012 are provided by a diverse bank group consisting of 21 banks, with no one bank providing more than 17% of the total committed capacity.  PPL Electric had no cash borrowings and $41 million of letters of credit outstanding under this facility at September 30, 2008.  In October 2008, PPL Electric borrowed $95 million under the credit facility.  In connection with this borrowing, one of the participating banks, Lehman Brothers Bank, FSB, became a defaulting lender under the facility, as it no longer is honoring its commitment of approximately $10 million.  PPL Electric currently does not expect to make any modifications in 2008, including extending the expiration date, to this credit facility.

The credit agreement related to PPL Electric's and a subsidiary's participation in a $150 million asset-backed commercial paper program expired in July 2008.  In August 2008, PPL Electric and the subsidiary entered into a new credit agreement governing a similar asset-backed commercial paper program with a different financial institution and commercial paper conduit that expires in July 2009.  The borrowing limit under such program continues to be $150 million.  Borrowings under this program are subject to customary conditions precedent, as well as the requirement that PPL Electric discharge a conditional lien that could attach to the accounts receivable upon a default under PPL Electric's 1945 First Mortgage Bond Indenture.  See discussion on the planned discharge in "Financing Activities" below.

Financing Activities

In October 2008, PPL Electric issued $400 million of 7.125% Senior Secured Bonds due 2013 (7.125% Bonds).  The 7.125% Bonds were issued on the basis of an equal principal amount of first mortgage bonds issued under the 1945 First Mortgage Bond Indenture pledged to the Senior Secured Bond Indenture Trustee.  The 7.125% Bonds may be redeemed any time prior to maturity at PPL Electric's option at make-whole redemption prices.  PPL Electric received proceeds of $397 million, net of a discount and underwriting fees, from the issuance of the 7.125% Bonds.  The proceeds will be used to partially fund the repayment at maturity of approximately $486 million outstanding aggregate principal amount of PPL Electric's Senior Secured Bonds, 6-1⁄4% Series, due August 2009.  Prior to such use, the proceeds will be invested in short-term investments and used for general corporate purposes.

In October 2008, the Pennsylvania Economic Development Financing Authority (PEDFA) issued $90 million aggregate principal amount of Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023 (Series 2008 Bonds) on behalf of PPL Electric in order to refund $90 million aggregate principal amount of Pollution Control Revenue Refunding Bonds, Series 2003, which were previously issued by the Lehigh County Industrial Development Authority on behalf of PPL Electric and matured on November 1, 2008.  The Series 2008 Bonds are structured as variable-rate remarketable bonds.  The Series 2008 Bonds bear interest for the first week at an initial rate of 2.50% and will be remarketed on a weekly basis until such time that PPL Electric elects to change the interest rate mode.  PPL Electric may convert the interest rate on the Series 2008 Bonds from time to time to a commercial paper rate, daily rate, weekly rate or a term rate of at least one year.  The Series 2008 Bonds are subject to mandatory purchase under certain circumstances, including upon conversion to a different interest rate mode.  PPL Electric acted as initial purchaser of the Series 2008 Bonds upon issuance and expects that they will be remarketed to unaffiliated investors subject to market conditions.

In connection with the issuance of the Series 2008 Bonds by PEDFA, PPL Electric entered into a loan agreement with PEDFA pursuant to which it loaned PPL Electric the proceeds of the Series 2008 Bonds on payment terms that correspond to the Series 2008 Bonds.  PPL Electric issued a note to PEDFA to evidence its obligations under the loan agreement.

Concurrent with, and as a condition to, the issuance of the Series 2008 Bonds, PPL Electric issued to the Trustee of the Series 2008 Bonds, its Senior Secured Bonds, Variable Rate Pollution Control Series 2008, which contain payment and redemption provisions that correspond to the Series 2008 Bonds.  Such senior secured bonds were issued on the basis of an equal principal amount of first mortgage bonds issued under the 1945 First Mortgage Bond Indenture and pledged to the Senior Secured Bond Indenture Trustee.

PPL Electric's senior secured bonds are secured by first mortgage bonds held by the Senior Secured Bond Indenture Trustee and the lien of the 2001 Senior Secured Bond Indenture, which is junior to the lien of the 1945 First Mortgage Bond Indenture.  The 1945 First Mortgage Bond Indenture and the 2001 Senior Secured Bond Indenture create liens on substantially all of PPL Electric's distribution properties and certain of its transmission properties, which liens may be released subject to certain circumstances and conditions, and subject to certain exceptions and exclusions.

Other than first mortgage bonds delivered to the Senior Secured Bond Indenture Trustee as the basis for issuance of senior secured bonds, there were $10 million of first mortgage bonds outstanding at September 30, 2008.  PPL Electric intends to defease such bonds and to discharge the lien of the 1945 First Mortgage Bond Indenture later in 2008, and to cancel the related first mortgage bonds in accordance with the terms of the 2001 Senior Secured Bond Indenture, at which time such Indenture would become a first mortgage lien, subject to certain permitted liens and exceptions, on substantially all of PPL Electric's tangible electric distribution properties and certain of its transmission properties.

Rating Agency Decisions

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

A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues.  The credit ratings of PPL Electric and PPL Transition Bond Company are based on information provided by PPL Electric and other sources.  The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL Electric or PPL Transition Bond Company.  Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.  A downgrade in PPL Electric's or PPL Transition Bond Company's credit ratings could result in higher borrowing costs and reduced access to capital markets.

Moody's and S&P did not take any actions related to PPL Electric or PPL Transition Bond Company during the nine months ended September 30, 2008.  In March 2008, Fitch completed a review of its credit ratings for PPL Electric and affirmed all of the ratings for PPL Electric, with the exception that it lowered the preferred stock rating to BBB from BBB+.  Fitch stated in the related press release that the lower preferred stock rating reflects its junior position in the capital structure and does not reflect any change in credit quality.

Capital Expenditures

The schedule below shows PPL Electric's capital expenditure projections as of September 30, 2008, for the years 2008 through 2010.  Capital expenditure projections for the years 2011 and 2012 are still being reviewed as part of the 5-year planning process.  These capital expenditure projections are preliminary and subject to approval by PPL's Board of Directors, which is expected to occur prior to year-end.

		Projected
		2008		2009		2010
Construction expenditures (a)
	Transmission and distribution facilities	$	239	$	265	$	549
Other			25		24		31
	Total Capital Expenditures	$	264	$	289	$	580

(a) Construction expenditures include AFUDC, which is expected to be $18 million for the 2008 through 2010 period.

PPL Electric 's capital expenditure projections for the years 2008 through 2010 total $1.1 billion.  Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions.

For additional information on PPL Electric's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's 2007 Form 10-K.

Risk Management

Market Risk

Commodity Price Risk - PLR Contracts through 2009

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 11 to the Financial Statements for information regarding credit risk associated with the PLR contracts with PPL EnergyPlus.

Commodity Price Risk - PLR Contracts subsequent to 2009

In order to mitigate the risk that PPL Electric will not be able to obtain adequate energy supply subsequent to 2009, when the full requirements energy supply agreements with PPL EnergyPlus expire, PPL Electric has entered into power purchase agreements that include fixed prices.  PPL Electric's future financial performance will be affected by its ability to enter into other new supply contracts, the duration and pricing of such contracts relative to prevailing market conditions, and the regulatory treatment for such contracts and the associated recovery of its supply costs.  Depending on these factors, PPL Electric's financial results may be materially adversely affected.  See "Results of Operations - Earnings - Outlook" for information on the PUC-approved procurement plan and other ongoing Pennsylvania regulatory and legislative activities.

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which exposes it to interest rate risk.  At September 30, 2008, PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.

PPL Electric is also exposed to changes in the fair value of its debt portfolio.  PPL Electric estimated that a 10% decrease in interest rates at September 30, 2008, would increase the fair value of its debt portfolio by $44 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 11 to the Financial Statements.

Environmental Matters

See Note 10 to the Financial Statements for a discussion of environmental matters.

New Accounting Standards

See Note 2 to the Financial Statements for a discussion of new accounting standards adopted and Note 19 to the Financial Statements for a discussion of 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: defined benefits, loss accruals, income tax uncertainties and regulation.

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's 2007 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.

In 2006, the FASB issued SFAS 157.  Among other things, SFAS 157 provides a definition of fair value as well as a framework for measuring fair value.  In February 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-1 and FSP FAS 157-2.  FSP FAS 157-1 amends SFAS 157 to exclude from its scope, certain accounting pronouncements that address fair value measurements associated with leases.  FSP FAS 157-2 delays the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).  In October 2008, the FASB amended SFAS 157 through the issuance of FSP FAS 157-3, which was effective upon issuance, including prior periods for which financial statements have not been issued.  FSP FAS 157-3 amends SFAS 157 to clarify its application in a market that is not active.

As permitted by this guidance, PPL Electric partially applied SFAS 157, as amended, by FSP FAS 157-1 and FSP FAS 157-2, prospectively, effective January 1, 2008.  PPL Electric adopted FSP FAS 157-3, prospectively, effective July 1, 2008.  In the current year, the partial application of this standard will affect fair value measurement concepts embedded in PPL Electric's critical accounting policy related to "Defined Benefits."  See Notes 2 and 13 to the Financial Statements for additional information regarding SFAS 157, as amended.

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

Item 4.  Controls and Procedures

PPL Corporation
(a)	Evaluation of disclosure controls and procedures.
	The registrant's principal executive officer and principal financial officer, based on their evaluation of the registrant's 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, 2008, the registrant's disclosure controls and procedures are effective to ensure that material information relating to the registrant and its 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 principal executive and principal financial officer, to allow for timely decisions regarding required disclosure.
(b)	Change in internal controls over financial reporting.
	The registrant's principal executive officer and principal financial officer have concluded that there were no changes in the registrant's internal control over financial reporting during the registrant's third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

Item 4(T).  Controls and Procedures

PPL Energy Supply, LLC and PPL Electric Utilities Corporation
(a)	Evaluation of disclosure controls and procedures.
	The registrants' principal executive officers and principal financial officers, based on their evaluation of the registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of September 30, 2008, the registrants' disclosure controls and procedures are effective to ensure that material information relating to the registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this 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 principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.
(b)	Change in internal controls over financial reporting.
	The registrants' principal executive officers and principal financial officers have concluded that there were no changes in the registrants' internal control over financial reporting during the registrants' 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 2007 Form 10-K; and
·	Note 10 of the registrants' "Combined Notes to Condensed Consolidated Financial Statements" in Part I of this report.

Item 1A.  Risk Factors

There have been no material changes in PPL's, PPL Energy Supply's and PPL Electric's risk factors from those disclosed in "Item 1A. Risk Factors" of the 2007 Form 10-K.

Item 6.  Exhibits
[_]10(a)	-	Amendment No. 4 to Amended and Restated Incentive Compensation Plan, dated as of August 26, 2008
12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
12(b)	-	PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
12(c)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
[_] - Filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2008, filed by the following officers for the following companies:
31(a)	-	James H. Miller for PPL Corporation
31(b)	-	Paul A. Farr for PPL Corporation
31(c)	-	James H. Miller for PPL Energy Supply, LLC
31(d)	-	Paul A. Farr for PPL Energy Supply, LLC
31(e)	-	David G. DeCampli for PPL Electric Utilities Corporation
31(f)	-	J. Matt Simmons, Jr. for PPL Electric Utilities Corporation
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2008, furnished by the following officers for the following companies:
32(a)	-	James H. Miller for PPL Corporation
32(b)	-	Paul A. Farr for PPL Corporation
32(c)	-	James H. Miller for PPL Energy Supply, LLC
32(d)	-	Paul A. Farr for PPL Energy Supply, LLC
32(e)	-	David G. DeCampli for PPL Electric Utilities Corporation
32(f)	-	J. Matt Simmons, Jr. 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 4, 2008	/s/  J. Matt Simmons, Jr.
	J. Matt Simmons, Jr.
	Vice President and Controller
	(Principal Accounting Officer)