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, 2009
	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 have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files).

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

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

	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, 377,068,461 shares outstanding at October 23, 2009.
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 23, 2009.

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, 2009

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
			Condensed Consolidated Statements of Equity		6
			Condensed Consolidated Statements of Comprehensive Income		7
		PPL Energy Supply, LLC and Subsidiaries
			Condensed Consolidated Statements of Income		8
			Condensed Consolidated Statements of Cash Flows		9
			Condensed Consolidated Balance Sheets		10
			Condensed Consolidated Statements of Equity		12
			Condensed Consolidated Statements of Comprehensive Income		13
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statements of Income		14
			Condensed Consolidated Statements of Cash Flows		15
			Condensed Consolidated Balance Sheets		16
		Combined Notes to Condensed Consolidated Financial Statements			18
	Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
			PPL Corporation and Subsidiaries		68
			PPL Energy Supply, LLC and Subsidiaries		83
			PPL Electric Utilities Corporation and Subsidiaries		96
	Item 3.  Quantitative and Qualitative Disclosures About Market Risk				101
	Item 4.  Controls and Procedures				101
	Item 4T.  Controls and Procedures				101
PART II.  OTHER INFORMATION
	Item 1.  Legal Proceedings				102
	Item 1A.  Risk Factors				102
	Item 6.  Exhibits				102
SIGNATURES					103
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
			PPL Corporation and Subsidiaries		104
			PPL Energy Supply, LLC and Subsidiaries		105
			PPL Electric Utilities Corporation and Subsidiaries		106
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation		107
			PPL Energy Supply, LLC		109
			PPL Electric Utilities Corporation		111
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation		113
			PPL Energy Supply, LLC		115
			PPL Electric Utilities Corporation		117

GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and its current and former subsidiaries

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).  The Hyder non-electricity delivery businesses are substantially liquidated.

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 gas, 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 that provided natural gas distribution, transmission and storage services, and the competitive sale of propane, which was a subsidiary of PPL 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 Investment Corp.- PPL Investment Corporation, a subsidiary of PPL Energy Supply.

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

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, a nuclear generating subsidiary of PPL Generation.

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.

2008 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2008.

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

AMT- alternative minimum tax.

AOCI - accumulated other comprehensive income or loss.

ARO - asset retirement obligation.

Baseload generation- includes the output provided by PPL's nuclear, coal, hydroelectric and qualifying facilities.

Basis- when used in the context of derivatives and commodity trading, the commodity price differential between two locations, products or time periods.

Bcf - billion cubic feet.

CAIR- the EPA's Clean Air Interstate Rule.

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.

DDCP - Directors Deferred Compensation Plan.

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

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

DRIP - Dividend Reinvestment Plan.

Economic Stimulus Package - The American Recovery and Reinvestment Act of 2009, generally referred to as the federal economic stimulus package, which was signed into law in February 2009.

EMF - electric and magnetic fields.

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

EPS - earnings per share.

ESOP - Employee Stock Ownership Plan.

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

FERC - Federal Energy Regulatory Commission, the federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.

Fitch- Fitch, Inc.

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.

ICP - Incentive Compensation Plan.

ICPKE - Incentive Compensation Plan for Key Employees.

Intermediate and peaking generation- includes the output provided by PPL Energy Supply's oil- and natural gas-fired units.

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

IRC Sec. 481 - the Internal Revenue Code Section that identifies the tax year in which accounting method change differences are recognized in federal taxable income.

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.

Long Island generation business - includes a 79.9 MW gas-fired plant in the Edgewood section of Brentwood, New York and a 79.9 MW oil-fired plant in Shoreham, New York.

MACT - maximum achievable control technology.

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

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

MW - megawatt, one thousand kilowatts.

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

NDT - nuclear plant decommissioning trust.

NERC - North American Electric Reliability Corporation.

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

NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules.

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.

OCI - other comprehensive income or loss.

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

PEDFA- Pennsylvania Economic Development Financing Authority.

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.

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).

RMC - Risk Management Committee.

Sarbanes-Oxley Act of 2002- sets requirements for management's assessment of internal controls for financial reporting.  It also requires an independent auditor to make its own assessment.

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.

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

Smart grid- an electricity distribution system that allows information to flow from a customer's electric meter in two directions.  The goal of a smart grid is to use technologies to increase power grid efficiency, reliability, and flexibility.

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.

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.

FORWARD-LOOKING INFORMATION

Statements contained in this Form 10-Q report concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical fact 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 are subject to many 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' 2008 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.

· fuel supply availability;

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

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

· transmission and distribution system conditions and operating costs;

· collective labor bargaining negotiations;

· the outcome of litigation against PPL and its subsidiaries;

· potential effects of threatened or actual terrorism, war or other hostilities, or natural disasters;

· the commitments and liabilities of PPL and its subsidiaries;

· market demand and prices for energy, capacity, emission allowances and delivered fuel;

· competition in retail and wholesale power markets;

· liquidity of wholesale power markets;

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

· market prices of commodity inputs for ongoing capital expenditures;

· capital market conditions, including the availability of capital or credit, 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;

· interest rates and their effect on pension, retiree medical and nuclear decommissioning liabilities;

· the impact of the current financial and economic downturn;

· 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;

· securities and credit ratings;

· foreign currency exchange rates;

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

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

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

· 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;

· the effect of any business or industry restructuring;

· development of new projects, markets and technologies;

· performance of new ventures; and

· asset acquisitions and dispositions.

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 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.

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Operating Revenues
Utility	$	955		$	1,007		$	2,901		$	3,108
Unregulated retail electric and gas		34			43			108			110
Wholesale energy marketing
Realized		999			748			2,564			1,610
Unrealized economic activity (Note 14)		(307	)		1,157			(67	)		361
Net energy trading margins		7			(132	)		2			(82	)
Energy-related businesses		117			148			321			394
Total Operating Revenues		1,805			2,971			5,829			5,501
Operating Expenses
Operation
Fuel		264			305			708			734
Energy purchases
Realized		750			500			2,049			1,126
Unrealized economic activity (Note 14)		(79	)		1,020			255			157
Other operation and maintenance		317			361			1,043			1,095
Amortization of recoverable transition costs		73			73			227			217
Depreciation		120			117			343			345
Taxes, other than income		70			77			209			224
Energy-related businesses		109			134			298			361
Total Operating Expenses		1,624			2,587			5,132			4,259
Operating Income		181			384			697			1,242
Other Income - net		9			8			38			32
Other-Than-Temporary Impairments					6			18			16
Interest Expense		106			119			294			335
Income from Continuing Operations Before Income Taxes		84			267			423			923
Income Taxes		34			57			101			277
Income from Continuing Operations After Income Taxes		50			210			322			646
Income (Loss) from Discontinued Operations (net of income taxes) (Note 8)		(24	)		(2	)		(53	)		22
Net Income		26			208			269			668
Net Income Attributable to Noncontrolling Interests		6			5			15			15
Net Income Attributable to PPL Corporation	$	20		$	203		$	254		$	653
Amounts Attributable to PPL Corporation:
Income from Continuing Operations After Income Taxes	$	44		$	205		$	307		$	631
Income (Loss) from Discontinued Operations (net of income taxes)		(24	)		(2	)		(53	)		22
Net Income	$	20		$	203		$	254		$	653
Earnings Per Share of Common Stock:
Income from Continuing Operations After Income Taxes Available to PPL Corporation Common Shareowners:
Basic	$	0.12		$	0.54		$	0.82		$	1.68
Diluted	$	0.12		$	0.54		$	0.81		$	1.67
Net Income Available to PPL Corporation Common Shareowners:
Basic	$	0.05		$	0.54		$	0.67		$	1.74
Diluted	$	0.05		$	0.54		$	0.67		$	1.73
Dividends Declared Per Share of Common Stock	$	0.345		$	0.335		$	1.035		$	1.005
Weighted-Average Shares of Common Stock Outstanding (in thousands)
Basic		376,384			374,290			375,795			373,394
Diluted		376,716			375,096			376,113			374,984

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,
	2009			2008
Cash Flows from Operating Activities
Net income	$	269		$	668
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		345			347
Amortization of recoverable transition costs and other		286			286
Defined benefits		(29	)		(55	)
Deferred income taxes and investment tax credits		20			(56	)
Gains related to the extinguishment of notes		(29	)
Impairment of assets		109			53
Unrealized (gains) losses on derivatives, and other hedging activities		256			(83	)
Other		36			52
Change in current assets and current liabilities
Accounts receivable		(69	)		127
Accounts payable		(201	)		(31	)
Unbilled revenue		98			(28	)
Counterparty collateral deposits		326			(18	)
Price risk management assets and liabilities		(216	)		(61	)
Other		28			(58	)
Other operating activities
Other assets		17			28
Other liabilities		1			(10	)
Net cash provided by operating activities		1,247			1,161
Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(821	)		(979	)
Expenditures for intangible assets		(67	)		(283	)
Proceeds from the sale of intangible assets		9			11
Purchases of nuclear plant decommissioning trust investments		(182	)		(169	)
Proceeds from the sale of nuclear plant decommissioning trust investments		163			149
Purchases of other investments					(50	)
Proceeds from the sale of other investments		150			36
Net (increase) decrease in restricted cash and cash equivalents		170			(70	)
Other investing activities		(13	)		5
Net cash used in investing activities		(591	)		(1,350	)
Cash Flows from Financing Activities
Issuance of long-term debt		298			699
Retirement of long-term debt		(916	)		(299	)
Issuance of common stock		45			19
Repurchase of common stock due to the repurchase program					(38	)
Payment of common stock dividends		(386	)		(365	)
Net increase (decrease) in short-term debt		(70	)		109
Other financing activities		(31	)		(9	)
Net cash provided by (used in) financing activities		(1,060	)		116
Effect of Exchange Rates on Cash and Cash Equivalents					(5	)
Net Decrease in Cash and Cash Equivalents		(404	)		(78	)
Cash and Cash Equivalents at Beginning of Period		1,100			430
Cash and Cash Equivalents included in Assets Held for Sale					(3	)
Cash and Cash Equivalents at End of Period	$	696		$	349

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, shares in thousands)
	September 30, 2009		December 31, 2008
Assets
Current Assets
Cash and cash equivalents	$	696	$	1,100
Short-term investments				150
Restricted cash and cash equivalents		151		320
Accounts receivable (less reserve:  2009, $38; 2008, $36)
Customer		411		456
Other		186		77
Unbilled revenues		504		599
Fuel, materials and supplies		361		337
Prepayments		97		84
Price risk management assets		1,685		1,224
Other intangibles		24		17
Assets held for sale		175
Other current assets		9		19
Total Current Assets		4,299		4,383
Investments
Equity method investments		34		47
Nuclear plant decommissioning trust funds		525		446
Other investments		23		29
Total Investments		582		522
Property, Plant and Equipment
Electric plant
Transmission and distribution		8,528		8,046
Generation		10,163		9,588
General		885		840
Electric plant in service		19,576		18,474
Construction work in progress		721		1,131
Nuclear fuel		460		428
Electric plant		20,757		20,033
Gas and oil plant		68		68
Other property		163		156
Property, plant and equipment, gross		20,988		20,257
Less:  accumulated depreciation		8,111		7,882
Property, Plant and Equipment, net		12,877		12,375
Regulatory and Other Noncurrent Assets
Regulatory assets		493		737
Goodwill		805		763
Other intangibles		622		637
Price risk management assets		1,839		1,392
Other regulatory and noncurrent assets		427		596
Total Regulatory and Other Noncurrent Assets		4,186		4,125
Total Assets	$	21,944	$	21,405

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, shares in thousands)
	September 30, 2009			December 31, 2008
Liabilities and Equity
Current Liabilities
Short-term debt	$	620		$	679
Long-term debt					696
Accounts payable		567			766
Taxes		89			77
Interest		140			130
Dividends		135			131
Price risk management liabilities		1,425			1,324
Counterparty collateral		348			22
Other current liabilities		469			477
Total Current Liabilities		3,793			4,302
Long-term Debt		7,250			7,142
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		2,203			1,764
Price risk management liabilities		927			836
Accrued pension obligations		839			899
Asset retirement obligations		398			389
Other deferred credits and noncurrent liabilities		597			677
Total Deferred Credits and Other Noncurrent Liabilities		4,964			4,565
Commitments and Contingent Liabilities (Note 10)
Equity
PPL Corporation Shareowners' Common Equity
Common stock - $0.01 par value (a)		4			4
Capital in excess of par value		2,264			2,196
Earnings reinvested		3,726			3,862
Accumulated other comprehensive loss		(376	)		(985	)
Total PPL Corporation Shareowners' Common Equity		5,618			5,077
Noncontrolling Interests		319			319
Total Equity		5,937			5,396
Total Liabilities and Equity	$	21,944		$	21,405

(a)	780,000 shares authorized; 376,639 shares issued and outstanding at September 30, 2009 and 374,581 shares issued and outstanding at December 31, 2008.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
	PPL Corporation Shareowners
	Common stock shares outstanding		Common stock		Capital in excess of par value			Earnings reinvested			Accumulated other comprehensive loss			Non-controlling interests			Total
June 30, 2009	376,144		$	4	$	2,246		$	3,837		$	(568	)	$	319		$	5,838
Common stock issued (b)	495					17												17
Stock-based compensation						1												1
Net income									20						6			26
Dividends, dividend equivalents and distributions (c)									(131	)					(6	)		(137	)
Other comprehensive income												192						192
September 30, 2009	376,639		$	4	$	2,264		$	3,726		$	(376	)	$	319		$	5,937
December 31, 2008 (a)	374,581		$	4	$	2,196		$	3,862		$	(985	)	$	319		$	5,396
Common stock issued (b)	2,092					66												66
Common stock repurchased	(34	)				(1	)											(1	)
Stock-based compensation						3												3
Net income									254						15			269
Dividends, dividend equivalents and distributions (c)									(391	)					(15	)		(406	)
Other comprehensive income												610						610
Cumulative effect adjustment (d)									1			(1	)
September 30, 2009	376,639		$	4	$	2,264		$	3,726		$	(376	)	$	319		$	5,937
June 30, 2008 (a)	374,519		$	4	$	2,193		$	3,634		$	(648	)	$	320		$	5,503
Common stock issued (b)	80					3												3
Stock-based compensation						3												3
Net income									203						5			208
Dividends, dividend equivalents and distributions (c)									(126	)					(5	)		(131	)
Other comprehensive income												318						318
September 30, 2008	374,599		$	4	$	2,199		$	3,711		$	(330	)	$	320		$	5,904
December 31, 2007 (a)	373,271		$	4	$	2,185		$	3,435		$	(68	)	$	320		$	5,876
Common stock issued (b)	2,152					28												28
Common stock repurchased (e)	(824	)				(39	)											(39	)
Stock-based compensation						25												25
Net income									653						15			668
Dividends, dividend equivalents and distributions (c)									(377	)					(15	)		(392	)
Other comprehensive loss												(262	)					(262	)
September 30, 2008	374,599		$	4	$	2,199		$	3,711		$	(330	)	$	320		$	5,904

(a)	"Capital in excess of par value" and "Earnings reinvested" have been adjusted by $13 million to reflect the adoption of new accounting guidance.  See "New Accounting Guidance Adopted - Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" in Note 2 for additional information.
(b)	The three months ended September 30, 2009, includes common stock shares issued through the ICP, ICPKE, and DRIP.  The nine months ended September 30, 2009, includes common stock shares issued through the ICP, ICPKE, DRIP, ESOP and DDCP.  The three months ended September 30, 2008, includes common stock shares issued through the ICP and ICPKE, net of forfeitures.  The nine months ended September 30, 2008, includes common stock shares issued through the ICP, ICPKE and the 2-5/8% Convertible Senior Notes, net of forfeitures.  "Capital in excess of par value" for the nine months ended September 30, 2009, includes $7 million for a company contribution to the ESOP.
(c)	"Earnings reinvested" includes dividends and dividend equivalents on PPL Corporation common stock and restricted stock units.  "Noncontrolling interests" includes dividends and distributions to noncontrolling interests.
(d)	See "New Accounting Guidance Adopted - Recognition and Presentation of Other-Than-Temporary Impairments" in Note 2 regarding this cumulative effect adjustment.
(e)	In 2007, PPL's Board of Directors authorized the repurchase by PPL of up to $750 million of its common stock.  During the nine months ended September 30, 2008, PPL purchased 802,816 shares of PPL common stock for $38 million.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009		2008
Net income	$	26	$	208		$	269	$	668
Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Foreign currency translation adjustments, net of tax of $(1), $(4), $3, $(4)		18		(145	)		88		(217	)
Available-for-sale securities, net of tax of $(24), $10, $(35), $32		20		(7	)		30		(28	)
Qualifying derivatives, net of tax of $(12), $(452), $(184), $(104)		17		665			249		166
Equity investee's other comprehensive loss									(1	)
Defined benefit plans:
Net actuarial gain, net of tax of $(3), $(3)		4					4
Reclassifications to net income - (gains) losses, net of tax expense (benefit):
Available-for-sale securities, net of tax of $(1), $(1)		2					2
Qualifying derivatives, net of tax of $(91), $137, $(158), $135		127		(203	)		224		(204	)
Defined benefit plans:
Prior service costs, net of tax of $(2), $(1), $(6), $(6)		4		5			10		12
Net actuarial loss, net of tax of $(1), $(2), $(4)				3			2		9
Transition obligation							1		1
Total other comprehensive income (loss) attributable to PPL Corporation		192		318			610		(262	)
Comprehensive income		218		526			879		406
Comprehensive income attributable to noncontrolling interests		6		5			15		15
Comprehensive income attributable to PPL Corporation	$	212	$	521		$	864	$	391

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,
	2009			2008			2009			2008
Operating Revenues
Wholesale energy marketing
Realized	$	999		$	748		$	2,564		$	1,610
Unrealized economic activity (Note 14)		(307	)		1,157			(67	)		361
Wholesale energy marketing to affiliate		445			453			1,353			1,370
Utility		165			195			496			647
Unregulated retail electric and gas		34			43			108			110
Net energy trading margins		7			(132	)		2			(82	)
Energy-related businesses		113			146			312			389
Total Operating Revenues		1,456			2,610			4,768			4,405
Operating Expenses
Operation
Fuel		264			305			708			734
Energy purchases
Realized		721			456			1,956			996
Unrealized economic activity (Note 14)		(79	)		1,020			255			157
Energy purchases from affiliate		19			29			59			87
Other operation and maintenance		228			285			778			832
Depreciation		83			79			236			237
Taxes, other than income		23			26			64			70
Energy-related businesses		106			136			292			360
Total Operating Expenses		1,365			2,336			4,348			3,473
Operating Income		91			274			420			932
Other Income - net		9			6			32			25
Other-Than-Temporary Impairments					6			18			16
Interest Income from Affiliates					4			2			11
Interest Expense		74			87			197			233
Income from Continuing Operations Before Income Taxes		26			191			239			719
Income Taxes		17			33			41			213
Income from Continuing Operations After Income Taxes		9			158			198			506
Income (Loss) from Discontinued Operations (net of income taxes) (Note 8)		(24	)		3			(53	)		17
Net Income (Loss)		(15	)		161			145			523
Net Income Attributable to Noncontrolling Interests		1						1			1
Net Income (Loss) Attributable to PPL Energy Supply	$	(16	)	$	161		$	144		$	522
Amounts Attributable to PPL Energy Supply:
Income from Continuing Operations After Income Taxes	$	8		$	158		$	197		$	505
Income (Loss) from Discontinued Operations (net of income taxes)		(24	)		3			(53	)		17
Net Income (Loss)	$	(16	)	$	161		$	144		$	522

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,
	2009			2008
Cash Flows from Operating Activities
Net income	$	145		$	523
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		237			240
Amortization		52			51
Defined benefits		(64	)		(61	)
Deferred income taxes and investment tax credits		77			31
Impairment of assets		105			49
Unrealized (gains) losses on derivatives, and other hedging activities		257			(86	)
Other		7			50
Change in current assets and current liabilities
Accounts receivable		121			164
Accounts payable		(224	)		(27	)
Unbilled revenue		49			(73	)
Fuel, materials and supplies		(26	)		(9	)
Collateral on PLR energy supply to affiliate		300
Counterparty collateral deposits		326			(18	)
Price risk management assets and liabilities		(215	)		(60	)
Other		47			50
Other operating activities
Other assets		11			14
Other liabilities		(36	)		(4	)
Net cash provided by operating activities		1,169			834
Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(619	)		(761	)
Expenditures for intangible assets		(60	)		(276	)
Proceeds from the sale of intangible assets		9			11
Purchases of nuclear plant decommissioning trust investments		(182	)		(169	)
Proceeds from the sale of nuclear plant decommissioning trust investments		163			149
Purchases of other investments					(47	)
Proceeds from the sale of other investments		150			33
Net (increase) decrease in restricted cash and cash equivalents		170			(120	)
Net increase in note receivable from affiliate		(104	)		(10	)
Other investing activities		(12	)		2
Net cash used in investing activities		(485	)		(1,188	)
Cash Flows from Financing Activities
Issuance of long-term debt					699
Retirement of long-term debt		(220	)		(57	)
Distributions to Member		(487	)		(666	)
Contributions from Member		50			125
Net increase in short-term debt		25			150
Other financing activities		(10	)		(8	)
Net cash provided by (used in) financing activities		(642	)		243
Effect of Exchange Rates on Cash and Cash Equivalents					(5	)
Net Increase (Decrease) in Cash and Cash Equivalents		42			(116	)
Cash and Cash Equivalents at Beginning of Period		464			355
Cash and Cash Equivalents at End of Period	$	506		$	239

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, 2009		December 31, 2008
Assets
Current Assets
Cash and cash equivalents	$	506	$	464
Short-term investments				150
Restricted cash and cash equivalents		146		315
Accounts receivable (less reserve:  2009, $23; 2008, $21)
Customer		172		220
Other		27		66
Unbilled revenues		362		408
Accounts receivable from affiliates		119		159
Note receivable from affiliate		104
Collateral on PLR energy supply to affiliate				300
Fuel, materials and supplies		327		301
Prepayments		35		71
Price risk management assets		1,678		1,221
Other intangibles		24		17
Assets held for sale		175
Other current assets		7		6
Total Current Assets		3,682		3,698
Investments
Equity method investments		34		47
Nuclear plant decommissioning trust funds		525		446
Other investments		17		21
Total Investments		576		514
Property, Plant and Equipment
Electric plant
Transmission and distribution		3,923		3,540
Generation		10,163		9,588
General		280		286
Electric plant in service		14,366		13,414
Construction work in progress		605		1,031
Nuclear fuel		460		428
Electric plant		15,431		14,873
Gas and oil plant		68		68
Other property		161		154
Property, plant and equipment, gross		15,660		15,095
Less:  accumulated depreciation		6,087		5,935
Property, Plant and Equipment, net		9,573		9,160
Other Noncurrent Assets
Goodwill		805		763
Other intangibles		486		507
Price risk management assets		1,802		1,346
Other noncurrent assets		319		481
Total Other Noncurrent Assets		3,412		3,097
Total Assets	$	17,243	$	16,469

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, 2009		December 31, 2008
Liabilities and Equity
Current Liabilities
Short-term debt	$	620	$	584
Accounts payable		507		684
Accounts payable to affiliates		32		62
Taxes		60		31
Interest		111		88
Deferred revenue on PLR energy supply to affiliate		3		12
Price risk management liabilities		1,423		1,313
Counterparty collateral		348		22
Other current liabilities		294		360
Total Current Liabilities		3,398		3,156
Long-term Debt		5,019		5,196
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		1,580		1,110
Price risk management liabilities		927		836
Accrued pension obligations		478		556
Asset retirement obligations		398		389
Other deferred credits and noncurrent liabilities		342		414
Total Deferred Credits and Other Noncurrent Liabilities		3,725		3,305
Commitments and Contingent Liabilities (Note 10)
Equity
Member's equity		5,083		4,794
Noncontrolling interests		18		18
Total Equity		5,101		4,812
Total Liabilities and Equity	$	17,243	$	16,469

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Member's equity			Non-controlling interests			Total
June 30, 2009	$	4,974		$	18		$	4,992
Net income (loss)		(16	)		1			(15	)
Other comprehensive income		189						189
Contributions from member		50						50
Distributions		(114	)		(1	)		(115	)
September 30, 2009	$	5,083		$	18		$	5,101
December 31, 2008	$	4,794		$	18		$	4,812
Net income		144			1			145
Other comprehensive income		582						582
Contributions from member		50						50
Distributions		(487	)		(1	)		(488	)
September 30, 2009	$	5,083		$	18		$	5,101
June 30, 2008	$	4,514		$	19		$	4,533
Net income		161						161
Other comprehensive income		316						316
Contributions from member		30						30
Distributions		(99	)					(99	)
September 30, 2008	$	4,922		$	19		$	4,941
December 31, 2007	$	5,205		$	19		$	5,224
Net income		522			1			523
Other comprehensive loss		(264	)					(264	)
Contributions from member		125						125
Distributions		(666	)		(1	)		(667	)
September 30, 2008	$	4,922		$	19		$	4,941

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009		2008
Net income (loss)	$	(15	)	$	161		$	145	$	523
Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Foreign currency translation adjustments, net of tax of $(1), $(4), $3, $(4)		18			(145	)		88		(217	)
Available-for-sale securities, net of tax of $(23), $10, $(35), $32		21			(8	)		31		(28	)
Qualifying derivatives, net of tax of $(14), $(452), $(168), $(103)		18			668			225		167
Equity investee's other comprehensive loss										(1	)
Defined benefit plans:
Net actuarial gain, net of tax of $(1), $(1)		1						1
Reclassifications to net income - (gains) losses, net of tax expense (benefit):
Available-for-sale securities, net of tax of $(1), $(1)		2						2
Qualifying derivatives, net of tax of $(90), $136, $(158), $133		127			(205	)		225		(204	)
Defined benefit plans:
Prior service costs, net of tax of $(1), $(1), $(4), $(4)		1			3			7		9
Net actuarial loss, net of tax of $(1), $(1), $(2), $(4)					3			2		9
Transition obligation, net of tax of $(1), $(1), $0		1						1		1
Total other comprehensive income (loss) attributable to PPL Energy Supply		189			316			582		(264	)
Comprehensive income		174			477			727		259
Comprehensive income attributable to noncontrolling interests		1						1		1
Comprehensive income attributable to PPL Energy Supply	$	173		$	477		$	726	$	258

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,
	2009		2008		2009		2008
Operating Revenues
Retail electric	$	790	$	813	$	2,407	$	2,463
Wholesale electric to affiliate		19		29		59		87
Total Operating Revenues		809		842		2,466		2,550
Operating Expenses
Operation
Energy purchases		30		44		93		129
Energy purchases from affiliate		445		453		1,353		1,370
Other operation and maintenance		103		102		307		306
Amortization of recoverable transition costs		73		73		227		217
Depreciation		33		32		96		97
Taxes, other than income		47		51		145		155
Total Operating Expenses		731		755		2,221		2,274
Operating Income		78		87		245		276
Other Income - net						2		4
Interest Income from Affiliate		1		1		4		5
Interest Expense		31		22		90		72
Interest Expense with Affiliate				3		1		8
Income Before Income Taxes		48		63		160		205
Income Taxes		16		22		53		72
Net Income (a)		32		41		107		133
Dividends on Preferred Securities		5		5		14		14
Net Income Available to PPL Corporation	$	27	$	36	$	93	$	119

(a) Comprehensive income approximates net income.

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,
	2009			2008
Cash Flows from Operating Activities
Net income	$	107		$	133
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		96			97
Amortization of recoverable transition costs and other		242			232
Deferred income taxes and investment tax credits		(45	)		(7	)
Other		23			8
Change in current assets and current liabilities
Accounts receivable		4			(14	)
Accounts payable		(85	)		(53	)
Prepayments		(46	)		(34	)
Unbilled revenue		50			43
Collateral on PLR energy supply from affiliate		(300	)
Other		36			(20	)
Other operating activities
Other assets		(2	)
Other liabilities		5			18
Net cash provided by operating activities		85			403
Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(186	)		(193	)
Net decrease in restricted cash and cash equivalents		1			41
Net decrease in note receivable from affiliate		300			147
Other investing activities		(4	)		(4	)
Net cash provided by (used in) investing activities		111			(9	)
Cash Flows from Financing Activities
Issuance of long-term debt		298
Retirement of long-term debt		(495	)		(232	)
Payment of common stock dividends to PPL		(206	)		(73	)
Payment of dividends on preferred securities		(14	)		(14	)
Net decrease in short-term debt		(95	)		(41	)
Other financing activities		(3	)
Net cash used in financing activities		(515	)		(360	)
Net Increase (Decrease) in Cash and Cash Equivalents		(319	)		34
Cash and Cash Equivalents at Beginning of Period		483			33
Cash and Cash Equivalents at End of Period	$	164		$	67

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, shares in thousands)
	September 30, 2009		December 31, 2008
Assets
Current Assets
Cash and cash equivalents	$	164	$	483
Restricted cash and cash equivalents		1		1
Accounts receivable (less reserve:  2009, $15; 2008, $14)
Customer		237		233
Other		4		11
Unbilled revenues		140		190
Materials and supplies		34		37
Accounts receivable from affiliates		7		8
Note receivable from affiliate				300
Prepayments		53		7
Prepayment on PLR energy supply from affiliate		3		12
Other current assets		9		13
Total Current Assets		652		1,295
Property, Plant and Equipment
Electric plant
Transmission and distribution		4,605		4,506
General		526		489
Electric plant in service		5,131		4,995
Construction work in progress		97		79
Electric plant		5,228		5,074
Other property		2		2
Property, plant and equipment, gross		5,230		5,076
Less:  accumulated depreciation		1,991		1,924
Property, Plant and Equipment, net		3,239		3,152
Regulatory and Other Noncurrent Assets
Recoverable transition costs		45		281
Intangibles		136		130
Taxes recoverable through future rates		253		250
Recoverable costs of defined benefit plans		182		192
Other regulatory and noncurrent assets		116		116
Total Regulatory and Other Noncurrent Assets		732		969
Total Assets	$	4,623	$	5,416

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, shares in thousands)
	September 30, 2009		December 31, 2008
Liabilities and Equity
Current Liabilities
Short-term debt			$	95
Long-term debt				495
Accounts payable	$	46		57
Accounts payable to affiliates		117		186
Taxes		45		65
Interest		27		29
Collateral on PLR energy supply from affiliate				300
Overcollected transmission costs		26
Customer rate mitigation prepayments		29		5
Other current liabilities		91		90
Total Current Liabilities		381		1,322
Long-term Debt		1,572		1,274
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		731		767
Accrued pension obligations		219		209
Other deferred credits and noncurrent liabilities		187		198
Total Deferred Credits and Other Noncurrent Liabilities		1,137		1,174
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		444		557
Total Shareowners' Equity		1,533		1,646
Total Liabilities and Equity	$	4,623	$	5,416

(a) 170,000 shares authorized; 66,368 shares issued and outstanding at September 30, 2009 and December 31, 2008.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

Combined Notes to Condensed Consolidated Financial Statements (Unaudited)

1.   Interim Financial Statements

(PPL, PPL Energy Supply and PPL Electric)

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.

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.  Each Registrant's Balance Sheet at December 31, 2008 is derived from that Registrant's 2008 audited Balance Sheet.  The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in PPL Electric's 2008 Form 10-K and PPL and PPL Energy Supply's Form 8-K dated September 9, 2009.  PPL and PPL Energy Supply filed the September 2009 Form 8-K to revise certain information in the financial statements and notes in their 2008 Form 10-K to reflect discontinued operations and the retrospective application of certain accounting standards.  The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year ending December 31, 2009, 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, 2009 financial statements.  For PPL and PPL Energy Supply, these changes include the impact of new accounting guidance adopted.  See Note 2 for additional information.

(PPL and PPL Energy Supply)

Discontinued Operations for the three and nine months ended September 30, 2009 and the nine months ended September 30, 2008 include activity and adjustments related to the Latin American businesses that were sold in 2007 and the remaining holding companies that were substantially dissolved in 2008.

In May 2009, PPL Generation signed a definitive agreement to sell its Long Island generation business and related tolling agreements and expects the sale to close in late 2009 or the first quarter of 2010.  In July 2009, PPL Maine signed a definitive agreement to sell the majority of its hydroelectric generation business and expects the sale to close in November 2009.  The results of operations for the three and nine months ended September 30, 2009 and 2008 are classified as Discontinued Operations.  The assets and liabilities of the Long Island generation business and the majority of the Maine hydroelectric generation business expected to be sold are classified as held for sale on the Balance Sheet at September 30, 2009.

See Note 8 for additional information on the Discontinued Operations and the anticipated sales.  The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.

(PPL)

Discontinued Operations for PPL for the three and nine months ended September 30, 2008 also include the operating activity of its natural gas distribution and propane businesses that were sold in October 2008.  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

The following accounting policy disclosures represent updates to the "Summary of Significant Accounting Policies" Note in PPL Electric's 2008 Form 10-K and PPL and PPL Energy Supply's Form 8-K dated September 9, 2009, and should be read in conjunction with that discussion.

Revenue (PPL and PPL Electric)

Revenue Recognition

Beginning November 1, 2008, PPL Electric's transmission revenues were billed in accordance with a FERC tariff that utilizes a formula-based rate recovery mechanism.  The tariff allows for recovery of actual transmission costs incurred, a return on transmission plant placed in service and an incentive return on construction work in progress for FERC-approved regional transmission expansion projects.  The tariff utilizes estimated costs for the current year billing to customers and requires a true-up to adjust for actual costs in the subsequent year's rate.  In August 2009, the FERC approved this formula-based rate recovery mechanism.  As a result, the annual update of the rate is now implemented automatically without requiring specific approval by the FERC before going into effect.

During the second quarter of 2009, a true-up was recorded for the FERC formula-based transmission revenues that had been billed for the period November 1, 2008 through May 31, 2009 based on a calculation of the amounts that will be returned to customers in future rates for the required true-up to actual costs.  This amount is reflected on the Statement of Income in "Utility" revenue for PPL and in "Retail electric" for PPL Electric, and reduced revenue by $11 million and net income by $7 million for the nine months ended September 30, 2009.  The overcollected revenue and an insignificant amount of interest are being returned to customers in monthly rates between June 1, 2009 and May 31, 2010.

The $7 million after-tax true-up recorded during the second quarter of 2009 included $5 million related to prior periods ($2 million related to 2008 and $3 million related to the first quarter of 2009).  The true-up, reflected in the Pennsylvania Delivery segment for PPL, is not considered by management as material to the financial statements of PPL and PPL Electric for the year ended December 31, 2008 or the first quarter of 2009 and it is not expected to be material to the financial statements for the full year 2009.

Investments in Debt and Equity Securities (PPL, PPL Energy Supply and PPL Electric)

Investments in debt securities are classified as held-to-maturity and measured at amortized cost when there is an intent and ability to hold the securities to maturity.  Debt and equity securities that are acquired and held principally for the purpose of selling them in the near-term are classified as trading.  Trading securities are generally held to capitalize on fluctuations in their value.  All other investments in debt and equity securities are classified as available-for-sale.  Both trading and available-for-sale securities are carried at fair value.  The specific identification method is used to calculate realized gains and losses on debt and equity securities.  Any unrealized gains and losses on trading securities are included in earnings.  Through March 31, 2009, unrealized gains and losses on all available-for-sale securities were reported, net of tax, in OCI or recognized in earnings when the decline in fair value below amortized cost was determined to be an other-than-temporary impairment.

As described in "Recognition and Presentation of Other-Than-Temporary Impairments" within "New Accounting Guidance Adopted," new accounting guidance has modified the criteria for determining whether a decline in fair value of a debt security is other than temporary and whether the other-than-temporary impairment is recognized in earnings or reported in OCI.  Beginning April 1, 2009, when a debt security is in an unrealized loss position:

· if there is an intent to sell the security or a requirement to sell the security before recovery, the other-than-temporary impairment is recognized currently in earnings; or

· if there is no intent to sell the security or requirement to sell the security before recovery, the portion of the other-than-temporary impairment that is considered a credit loss is recognized currently in earnings and the remainder of the other-than-temporary impairment is reported in OCI, net of tax; or

· if there is no intent to sell the security or requirement to sell the security before recovery and there is no credit loss, the unrealized loss is reported in OCI, net of tax.

Equity securities were not impacted by this new accounting guidance; therefore, unrealized gains and losses on available-for-sale equity securities continue to be reported, net of tax, in OCI or recognized in earnings when a decline in fair value below amortized cost is determined to be an other-than-temporary impairment.  See Notes 13 and 18 for additional information on investments in debt and equity securities.

New Accounting Guidance Adopted(PPL, PPL Energy Supply and PPL Electric)

Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)

Effective January 1, 2009, PPL and its subsidiaries retrospectively adopted accounting guidance that 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.

This guidance was 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 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.  This guidance required only retrospective application with regard to the Convertible Senior Notes, as none of these notes were outstanding at the effective date.  The retrospective application impacted PPL in periods prior to 2006.  As such, PPL reduced the opening balance of "Earnings reinvested" by $13 million with a corresponding increase to "Capital in excess of par value."

Business Combinations

Effective January 1, 2009, PPL and its subsidiaries prospectively adopted accounting guidance that changes the accounting and reporting for business combinations occurring after its adoption.  In addition, this guidance requires entities to recognize changes in unrecognized tax benefits acquired in a business combination, including business combinations that occurred prior to January 1, 2009, in income tax expense rather than in goodwill.  The January 1, 2009 adoption did not have a significant impact on PPL and its subsidiaries; however, the impact in future periods could be material.

In the first quarter of 2009, PPL and PPL Energy Supply recorded an income tax benefit of $14 million as a result of settling an income tax dispute.  Prior to the adoption of this guidance, $7 million of this income tax benefit would have been recorded as a reduction to goodwill.

Noncontrolling Interests in Consolidated Financial Statements

Effective January 1, 2009, PPL and its subsidiaries adopted accounting guidance that was issued 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 changes its ownership interest in a subsidiary.  In accordance with this guidance, ownership interests in subsidiaries held by parties other than the parent are required to be presented in the consolidated statement of financial position within equity, but separate from the parent's equity, and the amount of consolidated net income attributable to the parent and to the noncontrolling interest are required to be presented on the face of the consolidated statement of income.  Additionally, this guidance modifies the accounting for changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary and for the deconsolidation of a subsidiary.  It also requires enhanced disclosures relating to noncontrolling interests.

PPL and its subsidiaries adopted this guidance prospectively except for the presentation and disclosure requirements, which required retrospective application.

At September 30, 2009 and December 31, 2008, PPL reflected PPL Electric's preferred securities of $301 million within "Noncontrolling Interests" on the Balance Sheets.  Dividend requirements of $5 million and $14 million were included in "Net Income Attributable to Noncontrolling Interests" on PPL's Statements of Income for the three and nine months ended September 30, 2009 and 2008.  In addition, at September 30, 2009 and December 31, 2008, PPL and PPL Energy Supply reflected previously recorded minority interests of $18 million within "Noncontrolling Interests" on the Balance Sheets.

Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities

Effective January 1, 2009, PPL and its subsidiaries retrospectively adopted accounting guidance that requires unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents to be considered participating securities and to be included in the computation of EPS under the two-class method.  The two-class method treats share-based payment awards that pay nonforfeitable dividends as a separate class of stock for purposes of computing EPS.

The adoption did not have a material impact on PPL and its subsidiaries.  As a result of its application, PPL's restricted stock, restricted stock units, and stock units granted to directors are now considered participating securities; therefore, PPL is required to compute EPS under the two-class method.  The retrospective application caused PPL's basic and diluted EPS for income from continuing operations after income taxes available to PPL Corporation common shareowners to decrease by $0.01 for the nine months ended September 30, 2008, and basic EPS for net income available to PPL Corporation common shareowners to decrease by $0.01 for the same period.  See Note 4 for additional information.

Disclosures about Derivative Instruments and Hedging Activities

Effective January 1, 2009, PPL and its subsidiaries prospectively adopted accounting guidance that applies to all derivative instruments, including bifurcated derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments, as well as related hedged items.This guidance requires an entity to expand disclosures to provide greater transparency about (a) how and why it uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items affect its financial position, results of operations and cash flows.

The guidance was issued to provide greater transparency by enhancing existing disclosures; therefore, the adoption did not have a material impact on PPL and its subsidiaries' financial statements.  The enhanced disclosures are presented in Note 14.

Fair Value Measurements

Effective January 1, 2008, PPL and its subsidiaries adopted accounting guidance that provides a framework for measuring fair value, but elected to defer, until 2009, applying this guidance to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis.  Effective January 1, 2009, PPL and its subsidiaries fully applied this guidance to fair value measurement concepts used within their financial statements where applicable.

Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement

Effective January 1, 2009, PPL and its subsidiaries prospectively adopted accounting guidance that applies to liabilities issued with an inseparable third-party credit enhancement when the liability is measured or disclosed at fair value on a recurring basis.  This guidance indicates that an issuer shall disclose the existence of a third-party credit enhancement, and the fair value measurement of the liability shall not include the effect of this third-party credit enhancement.

The initial adoption did not have a material impact on PPL and its subsidiaries' financial statements, as this guidance currently only impacts the fair value disclosure of certain credit-enhanced debt instruments.  See "Financial Instruments Not Recorded at Fair Value" within Note 13 for these disclosures.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

Effective April 1, 2009, PPL and its subsidiaries prospectively adopted accounting guidance that provides additional direction for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased.  It also includes guidance on identifying circumstances that indicate a transaction is not orderly.  It emphasizes that the objective of a fair value measurement remains the same; that is, 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 under current market conditions.

Disclosures for earlier periods presented for comparative purposes are not required at initial adoption.  In periods after initial adoption, comparative disclosures are required only for periods ending after initial adoption.  The adoption did not have a material impact on PPL and its subsidiaries' financial statements.

Interim Disclosures about Fair Value of Financial Instruments

Effective April 1, 2009, PPL and its subsidiaries prospectively adopted accounting guidance that requires a publicly traded company to include disclosures about the fair value of certain financial instruments in interim reporting periods.

Disclosures for earlier periods presented for comparative purposes at initial adoption are not required.  In periods after initial adoption, comparative disclosures are required only for periods ending after initial adoption.  The adoption did not have a material impact on PPL and its subsidiaries' financial statements, as this guidance only impacts disclosures about the fair value of financial instruments.  See "Financial Instruments Not Recorded at Fair Value" within Note 13 for these disclosures.

Recognition and Presentation of Other-Than-Temporary Impairments

Effective April 1, 2009, PPL and its subsidiaries retrospectively adopted accounting guidance that modifies the existing requirement that an entity have the intent and ability to hold an impaired debt security to recovery in order to conclude an impairment was temporary.  Under this guidance, an impairment of a debt security is other than temporary if (1) an entity has the intent to sell the security, (2) it is more likely than not that an entity will be required to sell the security before recovery, or (3) an entity does not expect to recover the entire amortized cost basis of the security, referred to as a credit loss.

In addition, this guidance changes the recording of an other-than-temporary impairment on a debt security if the reason for the other-than-temporary impairment is the recognition of a credit loss.  In this situation, the other-than-temporary impairment will be separated into the credit loss component, which is recognized in earnings, and the remainder of the other-than-temporary impairment, which is recorded in OCI.

For a debt security held at the beginning of the period of adoption for which an other-than-temporary impairment was previously recognized, if an entity does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the debt security before recovery of its amortized cost basis, the cumulative effect of applying this guidance will be recognized as an adjustment to the opening balance of retained earnings with a corresponding adjustment to AOCI.

This guidance affects the accounting for PPL's and PPL Energy Supply's investments in debt securities in the NDT funds.  Prior to its application, PPL and PPL Energy Supply were unable to demonstrate the ability to hold an impaired debt security in the NDT funds until recovery; therefore, an unrealized loss on a debt security always represented an other-than-temporary impairment that required a current period charge to earnings.  Based on the application of this guidance, certain unrealized losses on investments in debt securities are no longer considered other-than-temporary impairments and will be recorded to OCI.

Related SEC guidance was also amended to no longer apply to debt securities.  As a result of the adoption, PPL and PPL Energy Supply recorded an immaterial cumulative effect adjustment to the opening balance of retained earnings with a corresponding reduction to AOCI.

Subsequent Events

Effective for the interim periods ended June 30, 2009, PPL and its subsidiaries prospectively adopted accounting guidance that sets forth the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.  This guidance also sets forth recognition and disclosure requirements for events or transactions that occur after the balance sheet date, including a requirement to disclose the date through which subsequent events have been evaluated.  This guidance shall be applied to the accounting for and disclosure of subsequent events that are not within the scope of other GAAP.

The initial adoption did not have a material impact on PPL and its subsidiaries' financial statements.  See Note 21 for the disclosures required.

The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles

Beginning with the period ended September 30, 2009, PPL and its subsidiaries adopted accounting guidance that establishes the FASB Accounting Standards CodificationTM (ASC) as the primary source of authoritative GAAP, other than guidance issued by the SEC.  This guidance eliminates the previous GAAP hierarchy of accounting and reporting guidance and replaces it with two levels of literature: authoritative and non-authoritative, and organizes GAAP pronouncements in a consistent manner by accounting topic.  The adoption did not impact PPL and its subsidiaries' results of operations, cash flows or financial positions since the ASC did not change existing GAAP.

New Accounting Guidance Pending Adoption

See Note 20 for a discussion of new accounting guidance pending adoption.

3.   Segment and Related Information

(PPL and PPL Energy Supply)

See the "Segment and Related Information" Note in each Registrant's Form 8-K dated September 9, 2009 for a discussion of reportable segments.  The Supply segment of PPL and PPL Energy Supply includes the elimination of intersegment transactions.

Financial data for the segments are:

	Three Months Ended September 30,					Nine Months Ended September 30,
PPL	2009			2008		2009			2008
Income Statement Data
Revenues from external customers
Supply (a)	$	841		$	1,954	$	2,902		$	2,364
International Delivery		174			203		520			673
Pennsylvania Delivery (b)		790			814		2,407			2,464
	$	1,805		$	2,971	$	5,829		$	5,501
Intersegment revenues (c)
Supply	$	445		$	453	$	1,353		$	1,370
Pennsylvania Delivery		19			29		59			87
Net Income (Loss) Attributable to PPL
Supply (a) (d)	$	(31	)	$	98	$	(12	)	$	297
International Delivery (e)		24			73		173			233
Pennsylvania Delivery (b) (f)		27			32		93			123
	$	20		$	203	$	254		$	653

	September 30, 2009		December 31, 2008
Balance Sheet Data
Total assets
Supply	$	12,882	$	11,790
International Delivery		4,439		4,199
Pennsylvania Delivery		4,623		5,416
	$	21,944	$	21,405

	Three Months Ended September 30,					Nine Months Ended September 30,
PPL Energy Supply	2009			2008		2009			2008
Income Statement Data
Revenues from external customers
Supply (a)	$	1,282		$	2,407	$	4,248		$	3,732
International Delivery		174			203		520			673
	$	1,456		$	2,610	$	4,768		$	4,405
Net Income (Loss) Attributable to PPL Energy Supply
Supply (a) (d)	$	(40	)	$	88	$	(29	)	$	289
International Delivery (e)		24			73		173			233
	$	(16	)	$	161	$	144		$	522

	September 30, 2009		December 31, 2008
Balance Sheet Data
Total assets
Supply	$	12,804	$	12,270
International Delivery		4,439		4,199
	$	17,243	$	16,469

(a)	Includes unrealized gains and losses from economic activity.  See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 for additional information.
(b)	The nine months ended September 30, 2009 includes an unfavorable true-up to operating revenue of $11 million and to net income (loss) of $7 million related to the FERC formula-based transmission revenues.  See Note 2 for additional information.
(c)	See "PLR Contracts" and "NUG Purchases" in Note 11 for a discussion of the basis of accounting between reportable segments.
(d)	2009 and 2008 include the results of Discontinued Operations of the Long Island generation business and the majority of the Maine hydroelectric generation business.  See Note 8 for additional information.
(e)	The three and nine months ended September 30, 2009 and the nine months ended September 30, 2008 include the results of Discontinued Operations of the Latin American businesses.  See Note 8 for additional information.
(f)	2008 includes 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)

EPS is computed using the two-class method, which is an earnings allocation method for computing EPS that treats a participating security as having rights to earnings that would otherwise have been available to common shareowners.  Share-based payment awards that provide recipients a non-forfeitable right to dividends or dividend equivalents are considered participating securities.

Basic EPS is computed by dividing income available to common shareowners by the weighted-average number of common shares outstanding during the period.  Diluted EPS is computed by dividing income available to common shareowners by the weighted-average number of shares outstanding that are increased for additional shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares.  In 2009 and 2008, these securities consisted of stock options and performance units granted under the incentive compensation plans.  In 2008, these securities also included PPL Energy Supply's 2-5/8% Convertible Senior Notes (Convertible Senior Notes).

The basic and diluted EPS computations and reconciliations of the amounts of income and shares (in thousands) of common stock used in the calculations are:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Income (Numerator)
Income from continuing operations after income taxes attributable to PPL	$	44		$	205		$	307		$	631
Less amounts allocated to participating securities					1			1			3
Income from continuing operations after income taxes available to PPL common shareowners	$	44		$	204		$	306		$	628
Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners	$	(24	)	$	(2	)	$	(53	)	$	22
Net income attributable to PPL	$	20		$	203		$	254		$	653
Less amounts allocated to participating securities					1			1			3
Net income available to PPL common shareowners	$	20		$	202		$	253		$	650
Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS		376,384			374,290			375,795			373,394
Add incremental non-participating securities:
Stock options and performance units		332			806			318			1,005
Convertible Senior Notes											585
Weighted-average shares - Diluted EPS		376,716			375,096			376,113			374,984
Basic EPS
Available to PPL common shareowners:
Income from continuing operations after income taxes	$	0.12		$	0.54		$	0.82		$	1.68
Income (loss) from discontinued operations (net of income taxes)		(0.07	)					(0.15	)		0.06
Net Income	$	0.05		$	0.54		$	0.67		$	1.74
Diluted EPS
Available to PPL common shareowners:
Income from continuing operations after income taxes	$	0.12		$	0.54		$	0.81		$	1.67
Income (loss) from discontinued operations (net of income taxes)		(0.07	)					(0.14	)		0.06
Net Income	$	0.05		$	0.54		$	0.67		$	1.73

The following stock options to purchase PPL common stock and performance units were excluded from the computations of diluted EPS because the effect would have been antidilutive.

	Three Months Ended September 30,				Nine Months Ended September 30,
(Thousands of shares)	2009		2008		2009		2008
Stock options		2,662		662		2,315		221
Performance units				3		1		1

During the nine months ended September 30, 2008, all then - outstanding 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.

During the nine months ended September 30, 2009, PPL issued 479,569 shares of common stock under its stock-based compensation plans.  In addition, PPL issued 235,013 and 1,377,340 shares of common stock related to its ESOP and its DRIP.

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	2009			2008			2009			2008
Reconciliation of Income Taxes
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35%	$	29		$	93		$	148		$	323
Increase (decrease) due to:
State income taxes (a) (c)		28			7			28			23
Amortization of investment tax credit		(3	)		(2	)		(8	)		(7	)
Difference related to income recognition of foreign affiliates (net of foreign income taxes) (b)		(56	)		(20	)		(75	)		(37	)
Enactment of U.K.'s Finance Act of 2008 (d)					(8	)					(8	)
Change in foreign tax reserves (a)		46						17			5
Foreign income tax return adjustments (c)								1			(17	)
Change in federal tax reserves (a)		2						12			6
Stranded cost securitization (a)		(2	)		(2	)		(5	)		(5	)
Domestic manufacturing deduction		(3	)		(6	)		(10	)		(13	)
Federal income tax credits (e)		(1	)		3			(1	)		16
Other (c)		(6	)		(8	)		(6	)		(9	)
		5			(36	)		(47	)		(46	)
Total income taxes from continuing operations	$	34		$	57		$	101		$	277

(a)	For the three months ended September 30, 2009, PPL recorded a $46 million expense related to federal, state and foreign income tax reserves, which consisted primarily of a $46 million expense reflected in "Change in foreign tax reserves" and a $2 million expense reflected in "Change in federal tax reserves," offset by a $2 million benefit in "Stranded cost securitization."
	For the three months ended September 30, 2008, PPL recorded an insignificant amount related to federal, state and foreign income tax reserves, which consisted primarily of a $2 million benefit reflected in "Stranded cost securitization," offset by a $2 million expense in "State income taxes."
	For the nine months ended September 30, 2009, PPL recorded a $24 million expense related to federal, state and foreign income tax reserves, which consisted primarily of a $17 million expense reflected in "Change in foreign tax reserves" and a $12 million expense reflected in "Change in federal tax reserves", offset by a $5 million benefit reflected in "Stranded cost securitization."
	For the nine months ended September 30, 2008, PPL recorded an $8 million expense related to federal, state and foreign income tax reserves, which consisted primarily of a $5 million expense reflected in "Change in foreign tax reserves," 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."
(b)	For the three and nine months ended September 30, 2009, WPD recorded a $46 million foreign tax benefit related to losses generated by restructuring.  This benefit is reflected in "Difference related to income recognition of foreign affiliates."
(c)	For the three and nine months ended September 30, 2009, PPL recorded $26 million in federal and state income tax expense from filing certain 2008 income tax returns, which consisted of a $28 million expense reflected in "State income taxes," offset by a $2 million federal benefit reflected in "Other."  In addition, for the nine months ended September 30, 2009, $1 million of expense relating to the filing of 2008 foreign income tax returns was reflected in "Foreign income tax return adjustments."
	The $26 million in federal and state income tax expense was a result of PPL receiving consent from the IRS in the third quarter of 2009 to change its method of accounting for certain expenditures for tax purposes.  PPL deducted the resulting IRC Sec. 481 amount on its 2008 federal income tax return and reduced the federal income tax benefits related to the domestic manufacturing deduction and certain state tax benefits related to state net operating losses.
	For the nine months ended September 30, 2008, PPL recorded a $17 million foreign income tax benefit as a result of filing the 2007 income tax returns, which is reflected in "Foreign income tax return adjustments."
(d)	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 for the three and nine months ended September 30, 2008 related to the reduction in its deferred tax liabilities.
(e)	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 has evaluated the impact of the change in its estimated projected annual effective tax rate for 2009.  The impact of the change in the effective tax rate for prior periods reduced income tax expense for the three months ended September 30, 2009 by $12 million ($0.03 per share, basic and diluted).

	Three Months Ended September 30,						Nine Months Ended September 30,
PPL Energy Supply	2009			2008			2009			2008
Reconciliation of Income Taxes
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35%	$	9		$	67		$	84		$	252
Increase (decrease) due to:
State income taxes (c)		23			4			21			18
Amortization of investment tax credit		(2	)		(2	)		(6	)		(6	)
Difference related to income recognition of foreign affiliates (net of foreign income taxes) (b)		(56	)		(20	)		(75	)		(37	)
Enactment of the U.K.'s Finance Act 2008 (d)					(8	)					(8	)
Change in foreign tax reserves (a)		46						17			5
Foreign income tax return adjustments (c)								1			(17	)
Change in federal tax reserves (a)		2			1			5			7
Domestic manufacturing deduction		(3	)		(6	)		(10	)		(13	)
Federal income tax credits (e)		(1	)		3			(1	)		16
Other (c)		(1	)		(6	)		5			(4	)
		8			(34	)		(43	)		(39	)
Total income taxes from continuing operations	$	17		$	33		$	41		$	213

(a)	For the three months ended September 30, 2009, PPL Energy Supply recorded a $48 million expense related to federal, state and foreign income tax reserves, which consisted primarily of a $46 million expense reflected in "Change in foreign tax reserves" and a $2 million federal expense reflected in "Change in federal tax reserves."
	For the three months ended September 30, 2008, PPL Energy Supply recorded a $1 million federal expense reflected in "Change in federal tax reserves."
	For the nine months ended September 30, 2009, PPL Energy Supply recorded a $22 million expense related to federal, state and foreign income tax reserves, which consisted primarily of a $17 million expense reflected in "Change in foreign tax reserves," and a $5 million expense reflected in "Change in federal tax reserves."
	For the nine months ended September 30, 2008, PPL Energy Supply recorded a $12 million expense related to federal, state and foreign income tax reserves, which consisted primarily of a $7 million expense reflected in "Change in federal tax reserves" and a $5 million expense reflected in "Change in foreign tax reserves."
(b)	For the three and nine months ended September 30, 2009, WPD recorded a $46 million foreign tax benefit related to losses generated by restructuring.  This benefit is reflected in "Difference related to income recognition of foreign affiliates."
(c)	For the three and nine months ended September 30, 2009, PPL Energy Supply recorded $26 million in federal and state income tax expense from filing certain 2008 income tax returns, which consisted of a $28 million expense reflected in "State income taxes," offset by a $2 million federal benefit reflected in "Other."  In addition, for the nine months ended September 30, 2009, $1 million of expense related to the filing of 2008 foreign income tax returns is reflected in "Foreign income tax return adjustments."
	The $26 million in federal and state income tax expense was a result of PPL receiving consent from the IRS in the third quarter of 2009 to change its method of accounting for certain expenditures for tax purposes.  PPL deducted the resulting IRC Sec. 481 amount on its 2008 federal income tax return and reduced the federal income tax benefits related to the domestic manufacturing deduction and certain state tax benefits related to state net operating losses.
	For the nine months ended September 30, 2008, PPL Energy Supply recorded a $17 million foreign income tax benefit as a result of filing the 2007 income tax returns, which is reflected in "Foreign income tax return adjustments."
(d)	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 for the three and nine months ended September 30, 2008 related to the reduction in its deferred tax liabilities.
(e)	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 its estimated projected annual effective tax rate for 2009.  The impact of the change in the effective tax rate for prior periods reduced income tax expense for the three months ended September 30, 2009 by $14 million.

	Three Months Ended September 30,						Nine Months Ended September 30,
PPL Electric	2009			2008			2009			2008
Reconciliation of Income Taxes
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	17		$	22		$	56		$	72
Increase (decrease) due to:
State income taxes (a) (b)		4			3			8			9
Amortization of investment tax credit					(1	)		(1	)		(2	)
Stranded cost securitization (a)		(2	)		(2	)		(5	)		(5	)
Other (a)		(3	)					(5	)		(2	)
		(1	)					(3	)
Total income taxes	$	16		$	22		$	53		$	72

(a)	For the three months ended September 30, 2009, PPL Electric recorded a $2 million benefit in state income tax reserves reflected in "Stranded cost securitization."
	For the three months ended September 30, 2008, PPL Electric recorded a $1 million benefit in federal and state income tax reserves, which consisted primarily of $2 million benefit reflected in "Stranded cost securitization," offset by $1 million expense reflected in "State income taxes."
	For the nine months ended September 30, 2009, PPL Electric recorded a $5 million benefit in state income tax reserves reflected in "Stranded cost securitization."
	For the nine months ended September 30, 2008, PPL Electric recorded a $4 million benefit in federal and state income tax reserves, which consisted primarily of a $5 million benefit reflected in "Stranded cost securitization" and a $1 million federal benefit reflected in "Other," offset by a $2 million expense reflected in "State income taxes."
(b)	For the three and nine months ended September 30, 2009, PPL Electric recorded $1 million in federal and state income tax expense from filing the 2008 income tax returns, which consisted primarily of 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,
	2009			2008			2009			2008
PPL
Beginning of period (a)	$	173		$	217		$	202		$	204
Additions based on tax positions of prior years					3			14			37
Reductions based on tax positions of prior years		(1	)		(3	)		(1	)		(13	)
Additions based on tax positions related to the current year		47			2			50			9
Settlements								(40	)		(12	)
Lapse of applicable statutes of limitations		(2	)		(2	)		(6	)		(6	)
Effects of foreign currency translation					(6	)		(2	)		(8	)
End of period	$	217		$	211		$	217		$	211
PPL Energy Supply
Beginning of period (a)	$	82		$	130		$	119		$	130
Additions based on tax positions of prior years					3			2			20
Reductions based on tax positions of prior years		(1	)		(3	)		(1	)		(10	)
Additions based on tax positions related to the current year		47			2			50			6
Settlements								(40	)		(12	)
Effects of foreign currency translation					(6	)		(2	)		(8	)
End of period	$	128		$	126		$	128		$	126
PPL Electric
Beginning of period	$	80		$	81		$	77		$	68
Additions based on tax positions of prior years								7			17
Reductions based on tax positions of prior years											(3	)
Additions based on tax positions related to the current year											3
Lapse of applicable statutes of limitations		(2	)		(2	)		(6	)		(6	)
End of period	$	78		$	79		$	78		$	79

(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, 2009, 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	$	217		$	128		$	78
Unrecognized tax benefits associated with taxable or deductible temporary differences		(35	)		2			(37	)
Total indirect effect of unrecognized tax benefits on other tax jurisdictions		(43	)		(16	)		(25	)
Total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective tax rate	$	139		$	114		$	16

At September 30, 2009, it was reasonably possible that during the next 12 months the total amount of unrecognized tax benefits could increase by as much as $11 million or decrease by up to $148 million for PPL, increase by as much as $11 million or decrease by up to $127 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, 2009, PPL, PPL Energy Supply and PPL Electric had accrued interest related to tax positions of $41 million, $31 million and $6 million.  At December 31, 2008, PPL, PPL Energy Supply and PPL Electric had accrued interest of $35 million, $28 million and $7 million.

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009			2008
PPL	$	4				$	6		$	1
PPL Energy Supply		3	$	(1	)		3			(1	)
PPL Electric				1			(1	)		2

For PPL, PPL Energy Supply and PPL Electric, the changes during the three and nine months ended September 30, 2009 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.   Workforce Reduction

(PPL, PPL Energy Supply and PPL Electric)

In February 2009, PPL announced workforce reductions that resulted in the elimination of approximately 200 management and staff positions across PPL's domestic operations, or approximately 6% of PPL's non-union, domestic workforce.  The workforce reduction was completed during the third quarter of 2009, although a majority of the affected employees were separated during the first quarter.  The charges noted below consisted primarily of enhanced pension and severance benefits under PPL's Pension Plan and Separation Policy and were recorded to "Other operation and maintenance" expense on the Statement of Income.

As a result of the workforce reductions, PPL recorded a one-time charge of $22 million ($13 million after tax) in the first quarter of 2009.

PPL Energy Supply eliminated approximately 50 management and staff positions and recorded a one-time charge of $13 million ($8 million after tax) in the first quarter of 2009.  Included in this charge was $8 million ($4 million after tax) of allocated costs associated with the elimination of employees of PPL Services.

PPL Electric eliminated approximately 50 management and staff positions and recorded a one-time charge of $9 million ($5 million after tax) in the first quarter of 2009.  Included in this charge was $3 million ($1 million after tax) of allocated costs associated with the elimination of employees of PPL Services.

7.   Credit Arrangements and Financing Activities

Credit Arrangements

(PPL and PPL Energy Supply)

PPL Energy Supply had the following credit facilities in place at September 30, 2009:

	Expiration Date		Capacity		Borrowed		Letters of Credit Issued		Unused Capacity
PPL Energy Supply Domestic Credit Facilities
364-day Syndicated Credit Facility (a)		Sept-10	$	400					$	400
364-day Bilateral Credit Facility (b)		Mar-10		200		n/a	$	4		196
5-year Structured Credit Facility (c)		Mar-11		300		n/a		230		70
5-year Syndicated Credit Facility (d)		June-12		3,225	$	285		455		2,485
Total PPL Energy Supply Domestic Credit Facilities			$	4,125	$	285	$	689	$	3,151
WPD Credit Facilities
WPDH Limited 5-year Syndicated Credit Facility (e)		Jan-13	£	150	£	127		n/a	£	23
WPD (South West) 3-year Syndicated Credit Facility (f)		July-12		210		54		n/a		156
WPD (South West) Uncommitted Credit Facilities (g)				60		21		n/a		39
WPD (South West) Letter of Credit Facility		Mar-10		3		n/a	£	3
Total WPD Credit Facilities (h)			£	423	£	202	£	3	£	218

(a)	In September 2009, PPL Energy Supply's 364-day syndicated credit facility was amended and restated.  The amendment included extending the expiration date from September 2009 to September 2010, increasing the capacity from $385 million to $400 million and limiting the amount of letters of credit that may be issued.  Under this facility, PPL Energy Supply has the ability to make cash borrowings and to request the lenders to issue up to $200 million of letters of credit.  Borrowings generally bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating.
(b)	In March 2009, PPL Energy Supply's 364-day bilateral credit facility was amended.  The amendment included extending the expiration date from March 2009 to March 2010 and reducing the capacity from $300 million to $200 million.  Under this facility, PPL Energy Supply can request the bank to issue letters of credit but cannot make cash borrowings.
(c)	Under this facility, PPL Energy Supply has the ability to request the lenders to issue letters of credit but cannot make cash borrowings.  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, but related, $300 million five-year credit agreement, also expiring in March 2011.
(d)	Under this facility, PPL Energy Supply has the ability to make cash borrowings and to request the lenders to issue letters of credit.  Borrowings generally bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating.  The borrowing outstanding at September 30, 2009 bears interest at 0.91%.
(e)	Borrowings under this facility bear interest at LIBOR-based rates plus a spread, depending on the company's public debt rating.  The cash borrowings outstanding at September 30, 2009 were comprised of a USD-denominated borrowing of $181 million, which equated to £107 million at the time of borrowing and bears interest at approximately 1.55%, and a GBP-denominated borrowing of £20 million, which bears interest at approximately 1.62%.
(f)	In July 2009, WPD (South West) terminated its £150 million five-year syndicated credit facility, which was to expire in October 2009, and replaced it with a new £210 million three-year syndicated credit facility expiring in July 2012.  Under the new facility, WPD (South West) has the ability to make cash borrowings but cannot request the lenders to issue letters of credit.  The new facility contains financial covenants that require WPD (South West) to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and total net debt not in excess of 85% of its regulatory asset base, in each case calculated in accordance with the credit facility. Borrowings under this facility bear interest at LIBOR-based rates plus a margin.  The borrowing outstanding at September 30, 2009 bears interest at approximately 3.04%.
(g)	The weighted-average interest rate on the borrowings outstanding under these facilities at September 30, 2009 was 1.28%.
(h)	At September 30, 2009, the unused capacity of the WPD credit facilities was approximately $355 million.

PPL Energy Supply closed its commercial paper program in January 2009.

(PPL and PPL Electric)

PPL Electric had the following credit facilities in place at September 30, 2009:

	Expiration Date		Capacity	Borrowed		Letters of Credit Issued		Unused Capacity
5-year Syndicated Credit Facility (a)	May-12	$	190		$	5	$	185
Asset-backed Credit Facility (b)	Jul-10		150			n/a		150
Total PPL Electric Credit Facilities		$	340		$	5	$	335

(a)	Under this facility, PPL Electric has the ability to make cash borrowings and to request the lenders to issue letters of credit.  Borrowings generally bear interest at LIBOR-based rates plus a spread, depending upon the company's public debt rating.
(b)	PPL Electric participates in an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly-owned subsidiary on an ongoing basis.  The subsidiary has pledged these assets to secure loans from a commercial paper conduit sponsored by a financial institution.  The subsidiary's borrowing costs under the credit facility vary based on the commercial paper conduit's actual cost to issue commercial paper that supports the debt.
	At September 30, 2009 and December 31, 2008, $228 million and $76 million of accounts receivable and $136 million and $170 million of unbilled revenue were pledged by the subsidiary under the credit agreement related to PPL Electric's and the subsidiary's participation in the asset-backed commercial paper program.  Based on the accounts receivable and unbilled revenue pledged, $150 million was available for borrowing at September 30, 2009.  PPL Electric's sale to its subsidiary of the accounts receivable and unbilled revenue is an absolute sale of the assets, and PPL Electric does not retain an interest in these assets.  However, for financial reporting purposes, the subsidiary's financial results are consolidated in PPL Electric's financial statements.  PPL Electric performs certain record-keeping and cash collection functions with respect to the assets in return for a servicing fee from the subsidiary.
	In July 2009, PPL Electric and the subsidiary extended the expiration date of the credit agreement to July 2010.

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 five-year syndicated credit facility that expires in May 2012 based on available capacity.  PPL Electric had no commercial paper outstanding at September 30, 2009.

(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 2009, PPL Capital Funding retired the entire $201 million of its 4.33% Notes Exchange Series A upon maturity.

(PPL and PPL Energy Supply)

In March 2009, PPL Energy Supply completed tender offers to purchase up to $250 million aggregate principal amount of certain of its outstanding senior notes in order to reduce future interest expense.  Pursuant to the offers, PPL Energy Supply purchased approximately $100 million aggregate principal amount of its 6.00% Senior Notes due 2036 for $77 million, plus accrued interest, and approximately $150 million aggregate principal amount of its 6.20% Senior Notes due 2016 for $143 million, plus accrued interest.  In connection with the extinguishment of these notes, PPL and PPL Energy Supply recorded a net gain of $25 million, which is reflected in "Other Income - net" on the Statement of Income for the nine months ended September 30, 2009.  PPL recorded an additional net gain of $4 million in "Other Income - net" as a result of reclassifying gains and losses on related cash flow hedges from AOCI into earnings.

In April 2009, the PEDFA issued $231 million aggregate principal amount of Exempt Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series 2009C due 2037 (PPL Energy Supply, LLC Project), on behalf of PPL Energy Supply.  The Series 2009A bonds, in an aggregate principal amount of $100 million, and the Series 2009B bonds, in an aggregate principal amount of $50 million, were issued by the PEDFA in order to refund $150 million aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2008A and 2008B (PPL Energy Supply, LLC Project) due 2038 that were issued by the PEDFA in December 2008 on behalf of PPL Energy Supply, and for which PPL Investment Corp. acted as initial purchaser.  The Series 2009C bonds, in an aggregate principal amount of $81 million, were issued in order to refund $81 million aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2007 (PPL Energy Supply, LLC Project) due 2037 that were issued by the PEDFA in December 2007 on behalf of PPL Energy Supply.  Among other things, the completed refundings were able to take advantage of provisions in the Economic Stimulus Package that eliminated the application of the AMT to interest payable on the refinanced indebtedness.  The refundings of the bonds were effected by the ultimate distribution of $231 million by the PEDFA to the bond holders, including PPL Investment Corp.  As a result of the refundings of the bonds, PPL Investment Corp. received proceeds of $150 million, which is reflected as a cash flow from investing activities on the Statement of Cash Flows for PPL and PPL Energy Supply for the nine months ended September 30, 2009.

The Series 2009A, 2009B and 2009C bonds are structured as variable-rate remarketable bonds.  PPL Energy Supply may convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate or a term rate of at least one year.  The bonds are subject to mandatory purchase under certain circumstances, including upon conversion to a different interest rate mode, and are subject to mandatory redemption upon a determination that the interest on the bonds would be included in the holders' gross income for federal tax purposes.  The Series 2009A bonds bore interest at an initial rate of 0.90% through June 30, 2009.  The Series 2009B bonds bore interest at an initial rate of 1.25% through September 30, 2009.  The Series 2009C bonds are in a weekly interest rate mode, bearing interest at 0.30% at September 30, 2009.

PPL Energy Supply elected to change the interest rate mode on the Series 2009A and Series 2009B bonds to a commercial paper rate mode upon expiration of the initial rate period for each series.  The Series 2009A bonds were remarketed in a commercial paper rate mode in July 2009 and bear interest at 0.90% through December 9, 2009.  The Series 2009B bonds were remarketed in a commercial paper rate mode in October 2009 and bear interest at 0.50% through March 31, 2010.  At the end of each commercial paper rate period, the bonds will be remarketed based upon an interest rate mode elected by PPL Energy Supply.

In connection with the issuance of each series of bonds by the PEDFA, PPL Energy Supply entered into separate loan agreements with the PEDFA pursuant to which the PEDFA loaned to PPL Energy Supply the proceeds of the Series 2009A, Series 2009B and Series 2009C bonds on payment terms that correspond to those of the bonds.  PPL Energy Supply issued separate promissory notes to the PEDFA to evidence its obligations under each of the loan agreements.  These loan agreements and promissory notes replaced those associated with the refunded 2007 and 2008 PEDFA bonds in a non-cash transaction that is excluded from the Statement of Cash Flows.

Separate letters of credit were issued under PPL Energy Supply's $3.2 billion five-year syndicated credit facility to the trustee in support of each series of bonds.  The letters of credit permit the trustee to draw amounts to pay principal of and interest on, and the purchase price of, the Series 2009A, Series 2009B and Series 2009C bonds when due.  PPL Energy Supply is required to reimburse any draws on the letters of credit within one business day of such draw.

(PPL and PPL Electric)

In May 2009, PPL Electric issued $300 million of 6.25% First Mortgage Bonds due 2039 (6.25% Bonds).  The 6.25% Bonds may be redeemed any time prior to maturity at PPL Electric's option at make-whole redemption prices.  PPL Electric received proceeds of $296 million, net of a discount and underwriting fees, from the issuance of the 6.25% Bonds.  Approximately $86 million of the proceeds were used in August 2009 to partially fund the repayment at maturity of $486 million aggregate principal amount of PPL Electric's Senior Secured Bonds, 6-1/4% Series.  The balance of such repayment was funded from the issuance in October 2008 of $400 million of 7.125% Senior Secured Bonds due 2013.  The balance of the proceeds from the issuance of the 6.25% Bonds was used for general corporate purposes, including capital expenditures.

In June 2009, PPL Electric repaid its $9 million obligation under a Variable Rate Pollution Control Facilities Note in connection with the early redemption in full of the underlying pollution control revenue bonds that were issued by the Indiana County Industrial Development Authority and due in June 2027.

Distributions and Capital Contributions

(PPL)

In February 2009, PPL announced an increase to its quarterly common stock dividend, effective April 1, 2009, to 34.5 cents per share (equivalent to $1.38 per annum).  Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

(PPL Energy Supply)

During the nine months ended September 30, 2009, PPL Energy Supply distributed $487 million to its parent company, PPL Energy Funding, and received cash capital contributions of $50 million.

(PPL Electric)

During the nine months ended September 30, 2009, PPL Electric paid common stock dividends of $206 million to PPL.

8.   Acquisitions, Development and Divestitures

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries continuously evaluate strategic options 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

License Renewals(PPL and PPL Energy Supply)

In 2006, PPL Susquehanna applied to the NRC for 20-year license renewals for each of the Susquehanna units to extend their expiration dates to 2042 for Unit 1 and to 2044 for Unit 2.  A final decision on the license renewal is expected to be issued in December 2009.  Through September 30, 2009, PPL and PPL Energy Supply capitalized $17 million of license renewal costs, which are included in "Other intangibles" within "Other Noncurrent Assets" on the Balance Sheets.

Development

(PPL and PPL Energy Supply)

In April 2009, PPL announced that it filed a new application with the FERC for approval to expand the capacity of its Holtwood hydroelectric plant by 125 MW.  The previous application had been withdrawn in December 2008 due to economic conditions at the time.  PPL reconsidered this project in light of the availability of tax incentives and potential federal loan guarantees under the Economic Stimulus Package.  The expansion project has an expected capital cost of approximately $440 million.  PPL could begin construction in 2009, with commercial operations scheduled to start in 2013.  PPL's ability and decision whether to proceed with the Holtwood facility expansion is subject to certain government approvals in addition to the FERC license amendment, the availability of certain federal economic stimulus incentives, as well as negotiation of acceptable construction and other related contracts.  PPL cannot predict whether the Holtwood facility expansion will ultimately proceed to completion.  A PPL subsidiary has submitted applications to the DOE for a federal loan guarantee for the Holtwood expansion project.

In March 2009, PPL Montana received FERC approval for its request to redevelop the Rainbow hydroelectric facility, near Great Falls, Montana, for a total plant capacity of approximately 60 MW (representing an increase of 28 MW).  The redevelopment project has an expected capital cost of $230 million.  Construction began in October 2009, with commercial operations scheduled to start in 2012.  A PPL subsidiary has submitted an application to the DOE for a federal loan guarantee for the Rainbow redevelopment project.

In 2008, PPL Susquehanna received NRC approval for its request to increase the generation capacity of the Susquehanna nuclear plant.  The total expected capacity increase is 159 MW, of which PPL Susquehanna's 90% ownership share is 143 MW.  The first uprate for Unit 1 totaling 50 MW was completed in 2008.  The second uprate for Unit 1 will be completed in 2010.  The first uprate for Unit 2 totaling 60 MW was completed in 2009, and the second uprate will be completed in 2011.  PPL Susquehanna's share of the remaining total increase is 44 MW.  PPL Susquehanna's share of the expected capital cost for all these uprates is $345 million.

In October 2008, PPL submitted a COLA to the NRC for the proposed Bell Bend nuclear generating unit (Bell Bend) to be built adjacent to PPL's Susquehanna plant.  The COLA was formally docketed and accepted for review by the NRC in December 2008.  The NRC is now reviewing the COLA and issuing numerous and detailed requests for additional information to which PPL must respond.  In May 2009, the NRC published its official review schedule that culminates with the issuance of Bell Bend's final safety evaluation report in March 2012, after which public hearings will be held that may take up to a year before Bell Bend's license can be issued.

In September 2008, a PPL subsidiary submitted Part I of an application to the DOE for a federal loan guarantee for Bell Bend.  The subsidiary submitted Part II of the loan guarantee application in December 2008.  There is considerable uncertainty about the likelihood of DOE financial support for the project due to the current level of appropriations available to the DOE for this purpose ($18.5 billion appropriated by the U.S. Congress at September 30, 2009) and the number of projects competing for those resources.  In June 2009, the DOE announced that it is working to finalize loan guarantees related to four projects, none of which was Bell Bend.  None of the ten applicants who submitted Part II applications has been formally eliminated by the DOE; however, the DOE noted that the currently available funds would not likely be enough for more than four applicants.

PPL's subsidiary submits quarterly application updates for Bell Bend to the DOE in order to remain active in the loan application process.  PPL cannot predict whether additional appropriations will be made for the DOE loan guarantee program, which proposed nuclear projects will ultimately be granted DOE loan guarantees, or the specific impact of these and other factors on the potential construction of the Bell Bend project.

PPL has made no decision to proceed with construction of Bell Bend 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 does not expect to proceed to construction absent a joint arrangement with other interested parties and without a federal loan guarantee or other acceptable financing structures.  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.  Through September 30, 2009, $71 million of costs associated with the licensing effort were capitalized and are included in "Other intangibles" within "Other Noncurrent Assets" on the Balance Sheets.

(PPL and PPL Electric)

In June 2007, the PJM directed the construction of a new 150-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.  The 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.  The 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, in each case by June 1, 2012.  PPL Electric's estimated share of the project costs at September 30, 2009 was $510 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 in January 2009 filed an application with the PUC to site and construct the Pennsylvania portion of the line.  Review by the PUC is anticipated to be completed by the end of January 2010.  PSE&G has filed an application with the New Jersey Board of Public Utilities for approval of the New Jersey portion of the line.  In addition, both companies are working with the National Park Service to obtain any required approvals to route the line through the Delaware Water Gap National Recreation Area.  PPL Electric cannot predict the ultimate outcome or timing of these or other approvals.  However, any significant delays in the approval process could adversely affect the PJM-directed in-service date and projected costs of the line.  PPL Electric also cannot predict what action, if any, the PJM might take in the event of a delay to its scheduled in-service date for the new line.

Discontinued Operations

(PPL and PPL Energy Supply)

Anticipated Sale of Long Island Generation Business

As a result of management's ongoing strategic review of PPL's non-core asset portfolio, in May 2009, PPL Generation signed a definitive agreement to sell its Long Island generation business, which is included in the Supply segment, for approximately $135 million in cash, adjusted for working capital at the sale date and subject to reduction monthly, effective September 1, 2009.  The Long Island Power Authority has contracted with PPL Energy Supply subsidiaries to purchase all of the Long Island generation business' capacity and ancillary services as part of tolling agreements that expire in 2017 and 2018.  Each agreement is considered to contain a lease for accounting purposes.  The Shoreham plant lease is classified as a direct-financing lease and the Edgewood plant lease is classified as an operating lease.  See Note 19 for additional information on these leases.  These tolling agreements will be transferred to the new owner upon completion of the sale.

The Long Island generation business met the held for sale criteria in the second quarter of 2009.  As a result, net assets held for sale with a carrying amount of $189 million were written down to their estimated fair value (less cost to sell) of $137 million at June 30, 2009, resulting in a pre-tax impairment charge of $52 million ($34 million after tax).  At September 30, 2009, the estimated fair value (less cost to sell) was remeasured and an additional impairment of $5 million ($3 million after tax) was recorded.  The impairment charge recognized in the third quarter of 2009 had no significant impact on earnings, as such amounts were substantially offset by tolling revenues from the Long Island generation assets.  These charges are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income for the three and nine months ended September 30, 2009.  Closing of the sale is subject to the receipt of various state and federal regulatory approvals and third-party consents, most of which have been received, and is expected to occur in late 2009 or in the first quarter of 2010.

Following are the components of the results of operations that are included in Discontinued Operations in the Statements of Income.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Operating revenues	$	7		$	8	$	18		$	21
Operating expenses (a)		7			3		62			6
Operating income (loss)					5		(44	)		15
Interest expense (b)					1		2			2
Income (loss) before income taxes					4		(46	)		13
Income taxes		1			2		(15	)		5
Income (Loss) from Discontinued Operations	$	(1	)	$	2	$	(31	)	$	8

(a)	The three and nine months ended September 30, 2009 include impairments to the carrying value of the Long Island generation business.
(b)	Represents allocated interest expense based upon debt attributable to PPL's Long Island generation business.

The major classes of assets and liabilities reported as held for sale on the Balance Sheet at September 30, 2009 were $42 million of PP&E and a $90 million net investment in a direct-financing lease (corresponding amounts at December 31, 2008, were $88 million of PP&E and a $104 million net investment in a direct-financing lease, which have not been reclassified on the Balance Sheet as of that date).

Anticipated Sale of Maine Hydroelectric Generation Business

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 received a five-year option to purchase the dams for $25 million, and if the option was exercised PPL Maine would receive rights to increase energy output at its other Maine hydroelectric dams.  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 and other regulatory agencies.  In November 2008, PPL Maine and the coalition filed a request with FERC, the U.S. Army Corps of Engineers and the Maine DEP to approve the transfer of ownership for the three dams.  Certain of these required regulatory approvals have been obtained, but PPL cannot predict whether or when all of them will be obtained.  As a result, these three Maine hydroelectric dams did not meet the held for sale criteria at September 30, 2009.

In July 2009, indirectly related to the above potential sale and as a result of management's ongoing strategic review of PPL's non-core asset portfolio, PPL Maine signed a definitive agreement to sell the majority of its hydroelectric generation business for approximately $95 million in cash.  The portion of the business being sold, which is included in the Supply segment, includes five hydroelectric facilities and PPL's 50% equity interest in the owner of a sixth hydroelectric facility, which has been accounted for as an equity investment, as well as the rights to increase energy output at these facilities if the potential sale discussed above is completed.  PPL's interest in these six facilities represents a total of 30 MW of electric generating capacity.  Of the sales price, $14 million is contingent consideration that would be realized upon completion of the potential sale of PPL Maine's three other hydroelectric facilities noted above.  The majority of the Maine hydroelectric generation business met the held for sale criteria in the second quarter of 2009.  PPL expects this sale to close in November 2009 and expects to record a gain on the transaction.

Following are the components of the results of operations that are included in Discontinued Operations in the Statements of Income.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Operating revenues	$	3	$	3	$	6	$	9
Operating expenses		1		1		3		3
Operating income		2		2		3		6
Other income-net		1				2		1
Interest expense (a)		1				1
Income before income taxes		2		2		4		7
Income taxes		1		1		2		3
Income from Discontinued Operations	$	1	$	1	$	2	$	4

(a) Represents allocated interest expense based upon debt attributable to the Maine hydroelectric generation business being sold.

The major classes of assets reported as held for sale on the Balance Sheet at September 30, 2009 were $23 million of PP&E and a $19 million equity method investment (corresponding amounts at December 31, 2008 were substantially the same, but have not been reclassified on the Balance Sheet as of that date).

Sale of Latin American Businesses

In 2007, PPL completed the sale of its regulated electricity delivery businesses in Chile, El Salvador and Bolivia, which were included in the International Delivery segment.  In 2008, PPL Global recognized income tax benefits and miscellaneous expenses in Discontinued Operations in connection with the dissolution of the remaining Latin American holding companies.  This process was substantially completed in 2008.

In 2009, PPL identified a correction to the previously computed tax bases of the Latin American businesses.  The most significant adjustment related to the sale of the El Salvadoran business and was largely due to returns of capital in certain prior years that had not been reflected in the calculated tax basis.  During the three and nine months ended September 30, 2009, PPL and PPL Energy Supply recorded $24 million of additional income tax expense, which is reflected on the Statement of Income in "Income (Loss) from Discontinued Operations (net of income taxes)."  The additional expense is not considered by management to be material to the financial statements of PPL and PPL Energy Supply for the year ended 2007 and is not expected to be material to the financial statements for the full year 2009.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009			2008	2009			2008
Operating expenses								$	2
Operating loss									(2	)
Other income - net									(1	)
Loss before income taxes									(3	)
Income taxes (a)	$	24			$	24			(8	)
Income (Loss) from Discontinued Operations	$	(24	)		$	(24	)	$	5

(a) The nine months ended September 30, 2008 include $6 million from the recognition of a previously unrecognized tax benefit associated with a prior period tax position.

(PPL)

Sale of Gas and Propane Businesses

In October 2008, PPL completed the sale of its natural gas distribution and propane businesses, which were included in the Pennsylvania Delivery segment.  In the third quarter of 2008, PPL Gas Utilities paid a $3 million ($2 million after tax) premium to prepay the entire $10 million aggregate principal amount of its 8.70% Senior Notes due December 2022.  In the first quarter of 2009, PPL recognized an insignificant charge in Discontinued Operations in connection with the settlement of a working capital adjustment.

Following are the components of the results of operations that are included in Discontinued Operations in the Statements of Income.

	Three Months Ended September 30,			Nine Months Ended September 30,
	2008			2008
Operating revenues	$	26		$	162
Operating expenses (a)		32			148
Operating income (loss)		(6	)		14
Other income - net		(3	)		(3	)
Interest expense (b)		1			4
Income (loss) before income taxes		(10	)		7
Income taxes		(5	)		2
Income (Loss) from Discontinued Operations	$	(5	)	$	5

(a)	The three and nine months ended September 30, 2008 includes $3 million and $4 million of impairment charges.
(b)	The three and nine months ended September 30, 2008 includes $1 million and $3 million of allocated interest expense based upon debt attributable to PPL's natural gas distribution and propane businesses.

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						WPD						Domestic						WPD
	2009			2008			2009			2008			2009			2008			2009			2008
PPL
Service cost	$	15		$	15		$	3		$	4		$	45		$	45		$	7		$	12
Interest cost		36			34			40			49			108			103			114			147
Expected return on plan assets		(43	)		(44	)		(49	)		(60	)		(127	)		(133	)		(139	)		(180	)
Amortization of:
Transition asset		(1	)		(1	)								(3	)		(3	)
Prior service cost		5			5			1			2			15			15			3			4
Actuarial (gain) loss					(2	)					4			2			(6	)		2			14
Net periodic defined benefit costs (credits) prior to special termination benefits		12			7			(5	)		(1	)		40			21			(13	)		(3	)
Special termination benefits (a)														9
Net periodic defined benefit costs (credits)	$	12		$	7		$	(5	)	$	(1	)	$	49		$	21		$	(13	)	$	(3)
PPL Energy Supply
Service cost	$	1		$	1		$	3		$	4		$	3		$	3		$	7		$	12
Interest cost		2			2			40			49			5			5			114			147
Expected return on plan assets		(2	)		(2	)		(49	)		(60	)		(5	)		(6	)		(139	)		(180	)
Amortization of:
Prior service cost								1			2									3			4
Actuarial loss		1									4			2						2			14
Net periodic defined benefit costs (credits)	$	2		$	1		$	(5	)	$	(1	)	$	5		$	2		$	(13	)	$	(3	)

(a) Relates to the 2009 workforce reduction.  See Note 6 for additional information.

	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
PPL
Service cost	$	2		$	2		$	5		$	6
Interest cost		7			9			21			25
Expected return on plan assets		(5	)		(5	)		(13	)		(15	)
Amortization of:
Transition obligation		3			2			7			6
Prior service cost		2			2			6			7
Actuarial loss		1			1			2			3
Net periodic defined benefit costs	$	10		$	11		$	28		$	32

Expected Cash Flows - Domestic Defined Benefit Plans

(PPL)

PPL's domestic subsidiaries now expect to contribute approximately $54 million to their pension plans in 2009, which includes $8 million contributed in the third quarter of 2009 to a pension plan primarily covering PPL Montana employees.

(PPL Energy Supply)

In the third quarter of 2009, PPL Energy Supply contributed $8 million to a pension plan primarily covering PPL Montana employees.

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 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 through 2013, and the long-term natural gas transportation contracts extend through 2032.  Additionally, PPL and PPL Energy Supply have entered into long-term contracts to purchase power that extend through 2017, excluding long-term power purchase agreements that extend through 2027 for the full output of two wind farms.

(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 were conducted, each for 850 MW of expected generation supply.  These solicitations were completed in October 2009.  Average generation supply prices (per MWh) for all six solicitations, including Pennsylvania gross receipts tax and an adjustment for line losses, were $99.48 for residential customers and $100.52 for small commercial and small industrial customers.

In October 2009, PPL Electric purchased 2010 supply for fixed-price default service to large commercial and large industrial customers who elect to take that service.  Later in 2009, PPL Electric also will purchase supply to provide hourly default service to large commercial and industrial customers in 2010.

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 January 2011 through May 2014.  In November 2008, PPL Electric proposed several amendments to its plan to reflect passage of Pennsylvania Act 129 (Act 129), including reducing the term by one year to May 2013.  In June 2009, PPL Electric received approval from the PUC on its purchase plan and in August and October 2009, PPL Electric conducted the first two of its 14 planned competitive solicitations.  The solicitations include a mixof long-term and short-term purchases for customer supply, including contracts for load-following, spot, block and alternative energy credits.  See Note 15 in PPL Electric's 2008 Form 10-K and PPL's Form 8-K dated September 9, 2009 for additional information on the original proposed plan and subsequent modifications.

(PPL Energy Supply and PPL Electric)

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

Energy Sales Commitments

(PPL and PPL Energy Supply)

In connection with its marketing activities or hedging strategyfor certain of its power plants, PPL Energy Supply has entered into long-term power sales contracts that extend through 2023.  All long-term contracts were executed at prices approximating market prices at the time of execution.  Also, PPL Energy Supply has entered into full-requirement and retail sales contracts with various counterparties.  These contracts extend through 2019.

(PPL Energy Supply and PPL Electric)

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 owns and operates 11 hydroelectric facilities and one storage reservoir licensed by the FERC under long-term licenses pursuant to the Federal Power Act.  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 (50-year term) was jointly issued by the FERC to Montana Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation in 1985, and requires Montana Power to hold and operate the project for 30 years.  The license requires Montana Power, and subsequently PPL Montana as a result of the purchase of its Kerr Dam from Montana Power, to continue to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife and their habitats.  Under this arrangement, PPL Montana has a remaining commitment to spend $12 million between 2009 and 2015, in addition to the annual rent 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 are periodically updated and renewed and require PPL Montana to implement plans to mitigate the impact of its projects on fish, wildlife and their habitats, and to increase recreational opportunities.  The MOUs were created to maximize collaboration between the parties and enhance the possibility to receive matching funds from relevant federal agencies.  Under these arrangements, PPL Montana has a remaining commitment to spend $37 million between 2009 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.

(PPL and PPL Energy Supply)

Montana Power Shareholders' Litigation

In August 2001, a purported class-action lawsuit was filed by a group of Montana Power shareholders 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 for 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 sought by the plaintiffs 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.  Settlement discussions resumed in June 2009.  A tentative settlement of this lawsuit has been reached under which plaintiffs will receive approximately $115 million.  Under the tentative settlement, PPL Montana is not required to pay any portion of this settlement amount.  The tentative settlement is scheduled to be filed with the judge in November 2009.  PPL and PPL Energy Supply cannot predict the outcome of this matter.

Montana Hydroelectric Litigation

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 hydroelectric 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.  Oral argument of the case was held before the Montana Supreme Court in September 2009.  PPL Montana cannot predict the outcome of this matter.

PPL Montana believes 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 hydroelectric litigation in future periods.

Regulatory Issues

Pennsylvania Activities(PPL and PPL Electric)

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 electricity supply costs.  The final regulations became effective in September 2007.  See "Energy Purchase Commitments" for details of PPL Electric's competitive solicitations under the PUC regulations.

For several years, 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 phase-in the impact of price increases when generation rate caps expire in 2010.  Under the phase-in plan approved by the PUC and implemented in October 2008, customers can pay additional amounts with their electric bills beginning in mid-2008 and continuing through 2009, and such additional amounts, plus accrued interest of 6%, will be applied to their 2010 and 2011 electric bills, mitigating the impact of the rate cap expiration.  The phase-in plan is available on an "opt-in" basis (i.e., customers must affirmatively enroll) and is available to customers enrolled in budget billing.  Over 140,000 customers enrolled in the program.  Customers can continue to enroll in this program through the end of 2009.  At September 30, 2009, PPL Electric has recorded a liability of $29 million related to this activity.

In February 2009, PPL Electric asked the PUC for permission to offer customers a second option for reducing the potential initial impact of higher electricity prices resulting from expiration of generation rate caps.  This option will enable eligible residential and eligible small-business customers to defer payment of any increase greater than 25% in their 2010 electric bills.  The 25% will be calculated on an average rate schedule usage basis, and will be based on a comparison of currently estimated 2009 bills to currently estimated 2010 bills.  Deferred amounts, plus interest of 6%, would be repaid by customers over a one- or two-year period, depending on their level of electricity use.  All deferrals would be repaid by the end of 2012.  Like the phase-in plan, the deferral option will be available on an "opt-in" basis.  In July 2009, the PUC approved the deferral option.  Customers may enroll in the program until December 15, 2009.

The PUC is currently reviewing a petition filed by the Office of Small Business Advocate requesting that the PUC reconsider several issues related to uncollectible expenses associated with the program.  PPL Electric cannot predict the outcome of this matter.

Also, 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 Distribution 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 and 3% by 2013, and a reduction in peak demand of 4.5% by 2013.  EDCs will be able to recover the costs of implementing an energy efficiency and conservation plan.  These costs are capped at 2% of the EDC's 2006 revenue.

Act 129 also requires 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 generally meets the definition of smart metering technology in Act 129 and does not need to be replaced.  Under Act 129, EDCs will be able to recover the 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 the costs associated with a competitive procurement plan.

Under Act 129, the DSP competitive procurement plan must ensure adequate and reliable service "at least cost to customers" 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 does not address rate mitigation.  However, several bills have been introduced to allow eligible customers to defer payment of certain increases at the time rate caps expire and allow the EDC to recover these deferred amounts following the expiration of rate caps.  The provisions of the bills differ as to the permitted level of increases in customer bills that would trigger a deferral program and the inclusion of language specifically authorizing the EDC to recover associated carrying costs.  PPL and PPL Electric have expressed strong concern regarding the potential adverse consequences of some of these measures on the financial health and credit quality of PPL Electric.

In July 2009, PPL Electric filed its proposed energy efficiency and conservation (EE&C) plan with the PUC.  PPL Electric's EE&C plan includes 14 programs.  All programs are voluntary for customers.  As required by Act 129, at least one conservation program and one peak demand reduction program will be available for each customer class.  The filing also includes a proposed rate mechanism for recovery of all costs incurred by PPL Electric to implement its EE&C plan.  In October 2009, the PUC approved PPL Electric's EE&C plan including all of the programs proposed in the plan.  The PUC slightly modified several details of the cost recovery mechanism proposed by PPL Electric.  These modifications are not expected to have any impact on PPL Electric's ability to fully recover the costs of its EE&C plan.

In August 2009, PPL Electric filed its proposed smart meter technology procurement and installation plan with the PUC.  All of PPL Electric's metered customers currently have smart meters installed at their service locations, and these smart meters are able to provide all of the minimum and many of the additional capabilities required by the PUC.  In its smart meter plan, PPL Electric proposes to study, test and pilot applications that enhance and expand upon these capabilities.  PPL Electric estimates that these studies will cost approximately $62 million over the next five years.  PPL Electric has proposed a rate mechanism for recovery of these costs.  PPL Electric's filing has been assigned to an Administrative Law Judge and hearings have been scheduled.  PPL Electric cannot predict the outcome of this matter.

Certain Pennsylvania legislators have introduced 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 were ultimately enacted, PPL Electric could experience substantial operating losses, cash flow shortfalls and other adverse financial impacts.  In addition, continuing uncertainty concerning 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.  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.

FERC Transmission Rates(PPL and PPL Electric)

In August 2008, PPL Electric asked the FERC to change the method for calculating its transmission rates to formula-based rates to support continued investment in its transmission system.  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, to reflect changes in costs.  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 a monthly increase of $0.74 for an average PPL Electric residential customer.  This request would not affect generation charges or distribution rates.  PPL Electric requested that the proposed rate take effect November 1, 2008.

In October 2008, the FERC accepted the proposed rate for filing, effective 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 to establish settlement judge procedures.  In May 2009, a settlement was reached by all of the parties to the proceeding which, among other things, reduced the return on equity to approximately 11.70%.  PPL Electric was granted approval to implement the formula-based rate as established in the settlement, effective June 1, 2009, until final resolution of the proceeding.  Rates under this element were permitted to go into effect on June 1, 2009, subject to final FERC approval.  In August 2009, the FERC issued an order approving the settlement.  See Note 2 for information on a true-up of these revenues.

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 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 California electric utilities and the California ISO, PPL cannot predict whether or when it will receive payment.  At September 30, 2009, PPL continues to be fully reserved for non-payment 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.

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 requested that the FERC reset 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.  In August 2009, the RPM Buyers appealed the FERC's decision to the U.S. Court of Appeals for the Fourth Circuit.  PPL cannot predict the outcome of this proceeding.

In December 2008, the PJM submitted amendments to certain provisions governing its RPM capacity market.  The amendments were intended to permit the compensation available to suppliers that provide capacity, like PPL Energy Supply, to increase.  The PJM sought approval of the amendments in time for them to be implemented for the May 2009 capacity auction (for service in June 2012 through May 2013).  Numerous parties, including PPL, protested the PJM's filing.  Certain of the protesting parties proposed changes to the capacity market auction that would result in a reduction in compensation to capacity suppliers.  The changes proposed by the PJM and by other parties in response to the PJM proposals could significantly affect the compensation available to suppliers of capacity participating in future RPM auctions.  In March 2009, the FERC entered an order approving in part and disapproving in part the changes proposed by the PJM.  In August 2009, the FERC issued an order granting rehearing in part, denying rehearing in part and clarifying its March 2009 order.  PPL cannot predict the outcome of this proceeding.  No request for rehearing or appeal of the August 2009 order has been timely filed.

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.  In June 2009, the U.S. Court of Appeals denied the appeal.  In September 2009, the period for seeking review of the decision of the U.S. Court of Appeals expired and the case has concluded.

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 these subsidiaries' 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 in advance to review 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, had interests in two synthetic fuel production facilities:  the Somerset facility, located in Pennsylvania, and the Tyrone facility, located in Kentucky.  PPL 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 were dismantled and retired in 2008.

In April 2008, the IRS published the domestic first purchase price (DFPP) for 2007 indicating that the DFPP reference price increased above PPL's estimated price levels for 2007 and the inflation-adjusted phase-out range decreased from PPL's estimate for 2007.  Therefore, PPL recorded an expense of $13 million ($0.04 per share, basic and diluted, for PPL) in the first quarter of 2008, to "Income Taxes" on the Statement of Income to account for this difference.

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

In August 2005, the Energy Policy Act of 2005 (the 2005 Energy Act) was signed into law.  The 2005 Energy Act is comprehensive legislation that substantially affects the regulation of energy companies, amends federal energy laws and provides the FERC with new oversight responsibilities.  Among the important changes implemented under this legislation is the appointment of the NERC to establish and enforce mandatory reliability standards (Reliability Standards) regarding the bulk power system.  The FERC oversees this process and independently enforces the Reliability Standards.

The 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 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 2007 and 2009, PPL Electric self-reported to the RFC potential violations of certain applicable reliability requirements and submitted accompanying mitigation plans, which are pending resolution.  Any RFC determination remains subject to the approval of the NERC and the FERC.  At this time, PPL Electric cannot predict the outcome of these matters.

In the course of implementing its program to ensure compliance with the Reliability Standards by those PPL affiliates subject to the standards, certain other instances of potential non-compliance will continue to be identified from time to time.  PPL cannot predict the fines or penalties that may be imposed.

U.K. Overhead Electricity Networks(PPL and PPL Energy Supply)

In 2002, for safety reasons, the U.K. Government issued guidance that low voltage overhead electricity networks within three meters horizontal clearance of a building should either be insulated or relocated.  This imposed a retroactive requirement on existing assets that were built with lower clearances.  In 2008, following extensive discussion, the U.K. Government determined that the U.K. electricity network should comply with the guidance issued.  WPD estimates that the cost of compliance will be approximately $92 million and is expected to be allowed to be recovered through rates.  The Government has determined that WPD (South Wales) should comply by 2015 and WPD (South West) by 2018.

To improve network reliability, in January 2009 the U.K. Government enforced a regulation requiring network operators to implement a risk-based program over 25 years to clear trees within falling distance of key high-voltage overhead lines. WPD estimates that the cost of compliance will be approximately $106 million over the 25-year period and is expected to be allowed to be recovered through rates.

U.K. Electricity Regulation (PPL and PPL Energy Supply)

WPD operates under distribution licenses granted, and price controls set, by the Ofgem.  The price control formula that governs WPD's allowed revenue is normally determined every five years, with the next distribution price control review (DPCR) to be completed by the end of 2009, effective April 1, 2010.  An initial proposals paper has been issued by the Ofgem.  Earnings in 2010 and beyond will be affected by the DPCR.  At this time, WPD cannot predict the ultimate outcome of the DPCR.

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 standards 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 (CAIR)

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.  To facilitate attainment of these standards, the EPA promulgated the 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.  Starting in 2015, the CAIR requires further reductions in the CAIR region, 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 U.S. Circuit Court) issued a ruling that invalidated CAIR in its entirety, including its cap-and-trade program.  The U.S. Circuit Court did not overturn the previously existing cap-and-trade program for sulfur dioxide reductions under the acid rain program or the previously existing cap-and-trade program for reductions in nitrogen oxides during the ozone season.

In December 2008, the U.S. Circuit Court remanded CAIR back to the EPA without vacating the cap-and-trade program, effectively reinstating, at least temporarily, CAIR and its requirements for annual-reduction for nitrogen oxides beginning in 2009 and for further reduction in sulfur dioxide by requiring the surrender of two acid rain allowances for every ton of sulfur dioxide emitted beginning in 2010.

To continue meeting the sulfur dioxide reduction requirements under the acid rain provisions of the Clean Air Act, and the reductions required by CAIR (remanded by the U.S. Circuit Court, but currently in place), 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.  The Unit 3 scrubber was placed in-service in the second quarter of 2009, and the scrubber for Units 1 and 2 is scheduled to be placed in-service in late fall of 2009.  In addition, with respect to compliance with annual and ozone season nitrogen oxide reduction requirements, PPL's plan is to operate the SCRs at Montour Units 1 and 2, to utilize the existing combustion controls and to purchase any needed emission allowances on the open market.

The ultimate disposition of CAIR's cap-and-trade program and the value of annual nitrogen oxide allowances, as well as sulfur dioxide allowances, remain uncertain.  If the EPA revises CAIR to require more stringent emission reductions or revises CAIR to eliminate or limit the regional cap-and-trade program, the costs of compliance are not now determinable, but could be significant.

Further reductions in sulfur dioxide and nitrogen oxide emissions, beyond those required by CAIR, could be required as a result of more stringent national ambient air quality standards for ozone, nitrogen dioxide and fine particulates.  In 2009, the D.C. Circuit Court remanded to the EPA its revised ambient air quality standard for fine particulates on the grounds that it may not be sufficiently stringent.  In 2008, the EPA tightened the ambient air quality standard for ozone and has stated that it intends to evaluate further revisions to the ozone standard.  Furthermore, the EPA is expected to finalize in early 2010 a new one hour ambient air quality standard for nitrogen dioxide.  If additional reductions were to be required, the costs are not now determinable, but could be significant.

Mercury

Citing its authority under the Clean Air Act, in May 2005, 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 U.S. Circuit 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 imposing MACT for electric generating units.  In January 2009, the EPA stated that it will proceed with developing MACT standards for mercury emissions from electric generating units.  The EPA is also looking at whether to develop MACT standards for other hazardous air pollutant emissions.  Under a recent proposed settlement, the EPA is planning to issue the final MACT standards by November 2011.  The costs of complying with such standards are not now determinable, but could be significant.

Pennsylvania adopted mercury rules 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.  However, in January 2009, the Pennsylvania Commonwealth Court overturned Pennsylvania's mercury rule.  The decision is on appeal to the Pennsylvania Supreme Court.  Pending final resolution of this matter, PPL is evaluating its mercury control plans.

If the Pennsylvania mercury rule is ultimately upheld, PPL may need to install chemical injection systems on its Brunner Island units to 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 would need to operate the SCRs (already in place) year-round along with the scrubbers to achieve compliance with Phase 1.  PPL is operating the SCRs year round as part of its compliance strategy to meet CAIR requirements.  There is, however, the possibility that these actions would not be sufficient and additional injection systems could be required at an estimated cost of approximately $32 million.

To meet Pennsylvania's 2015 mercury requirements, if the rule is upheld, and/or any similarly stringent MACT rule is adopted by the EPA, adsorption/absorption technology with fabric filters may be required at most of PPL's Pennsylvania coal-fired generating units.  Based on current analysis and industry estimates, PPL estimates that if this technology were required at each of its Pennsylvania coal-fired generating units, the aggregate capital cost of compliance would be approximately $530 million.

Montana also has finalized mercury emission 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 is installing chemical injection systems to meet these requirements.  PPL estimates that its share of the capital cost for these systems in Montana will be approximately $15 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 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.  No analysis was submitted for sulfur dioxide or nitrogen oxides because the EPA determined that meeting the requirements for CAIR also meets the BART requirements for those pollutants.  PPL's analyses have shown that because PPL had already upgraded its particulate emissions controls at Montour Units 1 and 2 and Brunner Island Unit 3, and was in the process of upgrading its particulate emissions controls on Brunner Island Unit 2 in 2009 (presently being installed), further controls are not justified as there would be little corresponding visibility improvement.  PPL has not received comments from the Pennsylvania DEP on these submissions.

Also under the BART rule, PPL submitted to the EPA 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 completed further analysis and submitted addendums to its initial reports for Colstrip and Corette.  In February 2009, PPL received an information request for additional data related to the Colstrip generating station non-BART affected emission sources.  PPL responded to this request in March 2009.  PPL has not received comments from the EPA on these submissions.

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)

The EPA has reinitiated its NSR enforcement efforts, which it began in 1999 and suspended from 2005 through early 2009.  This initiative targets older, coal-fired power plants.  The EPA has asserted that these plants have been modified in ways that increased their emissions and subjected them to more stringent NSR requirements under the Clean Air Act.  In April 2009, PPL received the EPA's information requests for its Montour and Brunner Island plants.  PPL has met with the EPA and exchanged information regarding this matter.  The requests are similar to those that PPL had received several years ago for its Colstrip, Corette and Martins Creek plants.  PPL's response to the request for Montour and Brunner Island is currently on hold pending further discussions between PPL and the EPA.  PPL cannot predict the outcome of this matter.

In January 2009, PPL received a notice of violation from the EPA for projects undertaken at the Keystone plant at which PPL is part owner.  The EPA alleges that the projects were undertaken without proper NSR compliance.  PPL cannot predict the outcome of this matter.

States and environmental groups also have brought enforcement actions alleging violations of the 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 PPL affiliates' plants.

If PPL's past activities are found to have violated the NSR regulations, then PPL must install best available control technology for emissions of any pollutant found to have significantly increased due to a major modification.  The costs to install and operate such technology are not now determinable, but could be significant.

Pursuant to the 2007 U.S. Supreme Court decision on global climate change as discussed below, the EPA is expected to regulate carbon dioxide emissions by March 2010.  Such regulation would then subject carbon dioxide emissions to NSR regulations.  As a result, in September 2009, the EPA announced that it plans to require large industrial facilities that annually emit at least 25,000 tons of greenhouse gases, including carbon dioxide, to obtain construction and operating permits covering significant increases in these emissions if the facility undergoes any major modification or during initial construction.  The implications of these developments are uncertain, as PPL is not aware of any permitting authorities having implemented the NSR regulations for carbon dioxide emissions.

Opacity

From time to time environmental concerns are raised with respect to visible opacity of emissions from our power plants.  PPL addresses these issues on a case by case basis.  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.

Global Climate Change

There is continuing 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 has resulted in increased demands for carbon dioxide emissions reduction by investors and environmental organizations, and the international community.  These demands and concerns have led to increased federal legislative proposals, actions at regional, state and local levels, as well as litigation relating to greenhouse gas emissions.  Of particular note, in April 2007, the U.S. Supreme Court held that the EPA has the authority to regulate greenhouse gas emissions from new motor vehicles under the Clean Air Act.  More recently, in September 2009, the U.S. Court of Appeals for the Second Circuit reversed a federal district court's decision and ruled that several states and public interest groups, as well as the City of New York, could sue five electric utility companies under federal common law for allegedly causing a public nuisance as a result of their emissions of greenhouse gases.  Additional litigation in federal and state courts over these issues is continuing.

As a result of the Supreme Court's decision in 2007, in 2008, the EPA issued an "Advance Notice of Proposed Rulemaking," proposing alternative approaches to regulate carbon dioxide emissions.  Upon taking office in January 2009, President Obama reaffirmed statements he made during the presidential campaign about his support for mandatory regulation of greenhouse gas emissions, including a cap-and-trade system.  The new Administrator of the EPA has indicated that the EPA is moving forward with regulation of greenhouse gas emissions under the Clean Air Act.  In 2009, the EPA has also issued a rule, effective January 1, 2010, requiring economy-wide reporting of greenhouse gas emissions and has issued a proposed finding that greenhouse gases contribute to air pollution and may endanger public health or welfare.

In June 2009, the U.S. House of Representatives passed H.R. 2454, the American Clean Energy and Security Act of 2009.  A key element affecting PPL includes a declining cap on carbon emissions beginning in 2012, which requires a three percent reduction in greenhouse gas emissions (below 2005 levels) by 2012, increasing to 17% by 2020, 42% by 2030 and 83% by 2050.  The legislation also would require that electric utilities meet a mandatory 20% renewable energy supply and energy efficiency requirement by 2020.  In September 2009, S. 1733, the Clean Energy, Jobs and American Power Act, a comprehensive climate change bill, was introduced in the U.S. Senate.  While the Senate bill mirrors much of H.R. 2454, there are significant differences.  Among the differences, S.1733 requires a greater level of greenhouse gas emission reductions by 2020 (20%) and allocates fewer emission allowances to the electric industry in 2012 through 2025.  Additionally it does not contain any of the Clean Air Act exemptions included in H.R. 2454, so that EPA Clean Air Act rulemakings would continue in addition to the cap-and-trade program.  The Senate began its hearings in late October.

Renewable electricity standards are currently included in a separate Senate bill, S.1462, the American Clean Energy Leadership Act of 2009, which passed in the Senate Energy Committee in June 2009.  Under this bill, electric utilities would be required by 2021 to meet a 15% standard through renewable sources of energy and energy efficiency.

PPL is monitoring and evaluating the aforementioned bills.  PPL believes there are financial, regulatory and logistical uncertainties related to implementing renewable energy mandates that will need to be resolved before the impact of this legislation on PPL can be meaningfully estimated.  Such uncertainties, among others, include the need to provide back-up supply to augment intermittent renewable generation, potential generation oversupply that could result from such renewable generation and back-up, impacts to the PJM capacity market and the need for substantial changes to transmission and distribution systems to accommodate renewable energy are not directly addressed by the proposed legislation.  Because of the uncertainty as to the final outcome of federal climate change and energy legislation and regulation, PPL cannot at this time predict the effect on its future competitive position, results of operation, cash flows and financial position, of any greenhouse gas emission, renewable energy mandate or other global climate change requirements that may be adopted, although the costs to implement and comply with any such requirements could be material.

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 commenced 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.

Pennsylvania has not stated an intention to join RGGI, but has enacted the Pennsylvania Climate Change Act of 2008 (PCCA).  The PCCA established a Climate Change Advisory Committee to advise the DEP on the development of a Climate Change Action Plan.  A draft of the Action Plan has been developed.  Some of the proposed actions, such as a mandatory 5% efficiency improvement at power plants, could be technically infeasible.  In addition, legislation has been introduced in the Pennsylvania House of Representatives that would, if enacted, significantly increase renewable and solar supply requirements.

In the Western U.S., 11 states, including Montana, and Canadian provinces are members of the Western Climate Initiative (WCI).  The WCI has established a goal of reducing carbon dioxide emissions 15% below the 2005 levels by 2020 and is currently developing greenhouse gas emission allocations, 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 2008, PPL estimates that its power plants emitted approximately 28 million tons of carbon dioxide (based on PPL's equity share of these assets).

PPL believes future legislation and regulations that affect carbon dioxide emissions from power plants are likely, although technology to efficiently capture, remove and sequester carbon dioxide emissions is not presently available on a commercial scale.  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.  Furthermore, PPL believes that the imposition of mandatory renewable energy and energy efficiency requirements could have a material impact on PPL.

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 determined that the problem was caused by a failure in the disposal basin's discharge structure.  PPL 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.

The Pennsylvania DEP filed a complaint in Pennsylvania 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 New Jersey and Pennsylvania regulatory agencies in June 2007.  PPL met with the agencies in January 2009 to discuss the status of their natural resource damage assessment and their review of the June 2007 report.  In March 2009, the agencies provided some limited information on their projection of damages to the Delaware River resources from this release and cleanup.  PPL and the Pennsylvania DEP met in August 2009 and PPL is awaiting a further response from the agencies.  At this point, PPL is not certain whether the agencies will require additional studies, but PPL does expect the trustees and the Delaware River Basin Commission will seek to recover their costs and/or restoration costs for damages that they can demonstrate were caused by the release.

Through September 30, 2009, PPL Energy Supply has spent $28 million for remediation and related costs and an immaterial remediation liability remained.  PPL and PPL Energy Supply cannot be certain of the outcome of the natural resource damage assessment or the associated costs, the outcome of any lawsuit brought by the citizens and businesses or 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 release.

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 seepages 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 "Other operation and maintenance" on the Statement of Income.  In July 2008, the plaintiffs and the remaining 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 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 in 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 investigations and remediation 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 are not now determinable, but could be significant.

Other Issues

In January 2006, the EPA significantly decreased the drinking water standard related to arsenic.  The revised standard, 10 parts per billion (ppb), may result in individual states taking action that could require several PPL subsidiaries to further treat wastewater and/or take abatement action at their power plants.  In Pennsylvania, this arsenic standard has been incorporated into the state's water quality standards and could result in more stringent limits to PPL's National Pollutant Discharge Elimination System permits for its Pennsylvania plants.  Recently, the EPA has developed a draft risk assessment of arsenic that increases the cancer risk exposure by more than 20 times, which would further lower the current standard of 10 ppb to 0.1 ppb.  If required, a change to this lower level would involve very expensive treatment and, at this time, there are no assurances that it could even be attained.

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 petitions for writs of certiorari filed by Utility Water Act Group, Public Service Enterprise Group, Inc. and Entergy Corporation, and subsequently ruled that the EPA has discretion to use cost-benefit analysis in determining the best technology available for minimizing adverse environmental impact.  It is expected that the EPA will incorporate this option in its revisions of the rule.  How the cost-benefit analysis will be employed, other issues raised by the Second Circuit Court (that were not reviewed by the U.S. Supreme Court), and actions the states may take on their own, could result in stricter standards for existing structures that could impose significant costs on PPL subsidiaries.

In October 2009, the EPA released its Final Detailed Study of the Steam Electric Power Generating effluent limitations guidelines and standards.  The EPA is required by section 304 of the Clean Water Act to periodically review all effluent guidelines to determine whether revisions are warranted.  The EPA first identified this industry for study during the 2005 annual review of effluent guidelines.  The EPA initiated a more detailed study of this category to determine if the effluent guidelines should be revised. During the detailed study, the EPA investigated whether current guidelines reflected best available technology for the category and any new processes not reflected in the guidelines, in particular, flue gas desulfurization wastewater.  The EPA found that the existing publicly available data was insufficient to fully evaluate the industry’s discharges.  To fill these data gaps, the EPA collected information on wastewater characteristics and treatment technologies through site visits, wastewater sampling, and data collection.  Draft regulations that would include revisions to the effluent limitations guidelines are expected to be published in September 2011, with final regulations to be effective September 2013.

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 warm water in power plant discharge channels, especially during cold weather.  In the past, fish kills have occurred at Brunner Island when debris at intake pumps resulted in a unit trip or reduction in load, causing a sudden change in water temperature in the discharge channel when fish were present.

PPL paid a nominal penalty to the DEP for fish kills at Brunner Island that occurred in October 2007 and March 2008.  In addition, PPL committed to construct a barrier to prevent debris from entering the intake area.  PPL has developed the design for this barrier and is requesting permits from certain agencies for this design.  PPL has budgeted $4 million to construct the debris barrier in 2010.  PPL has also committed to investigate alternatives to exclude fish from the discharge area.  PPL will need to implement one of these fish exclusion alternatives if a fish kill occurs after construction of the cooling towers at Brunner Island is completed in 2010.

The EPA and several states, including Montana, are considering establishing regulations under the Resource Conservation and Recovery Act (RCRA) that could impact the disposal and management of coal combustion products (CCPs), including ash and scrubber wastes and other by-products.  Following the large ash release at a Tennessee Valley Authority site in Tennessee in December 2008 and subsequent widespread media coverage, the EPA, under pressure from a variety of environmental groups and some legislators, has committed to proposing CCP regulations by the end of 2009 and has been seeking information from the power industry as it considers whether or not to regulate CCPs as hazardous waste.  As a precursor to developing regulations, the EPA issued letters in March 2009 to power plant owners, including PPL subsidiaries, requesting information on the structural integrity of their CCP disposal and associated water treatment impoundments.  PPL has responded to the requests and the EPA conducted a follow-up inspection of PPL Montana's Colstrip plant and PPL's Martins Creek plant.  PPL Montana is implementing certain actions in response to recommendations from this inspection.  In June 2009, the EPA's Office of Enforcement and Compliance Assurance issued a much broader information request to Colstrip and 18 other non-affiliated plants, seeking information under the RCRA, the Clean Water Act and the Emergency Planning and Community Right-to-Know Act.  In July and August 2009, Colstrip submitted its response to the EPA's broader information request.  Although the EPA's enforcement office issued the request, the EPA has not necessarily concluded that the plants are in violation of any EPA requirements.  The EPA conducted a multi-media inspection at Colstrip in August 2009 and has not yet issued a report from that inspection.  PPL cannot predict at this time the outcome of these matters or what the EPA's regulations may require and what impact, if any, they would have on PPL's facilities, but the costs to PPL 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, the Metal Bank site and the Ward Transformer site.  Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been significant to PPL.  However, should the EPA require different or additional measures in the future, or should PPL's share of costs at multi-party sites increase significantly more than currently expected, the costs to PPL 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 a predecessor to PPL Electric.

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.  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 steps 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, 2009, PPL Energy Supply had accrued a discounted liability of $25 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 based on risk-free rates at the time of the mine closures.  The weighted average rate used was 8.18%.  Expected undiscounted payments are estimated at $1 million for each of the years from 2009 through 2013, and the expected payments for the work after 2013 are $144 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.

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 - WPD(PPL and PPL Energy Supply)

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.

The U.K. government has implemented a project to determine the impact of flooding on the U.K. utility infrastructure, including major electricity substations.  WPD estimates a cost of $35 million to comply with the anticipated requirements and expects to be allowed to recover costs through rates.

There are no other material legal or administrative proceedings pending against or related to WPD with respect to environmental matters.  See "Environmental Matters - Domestic - Superfund and Other Remediation - 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.  The current maximum assessment is $37 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 $12.5 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 $235 million per incident, payable at $35 million per year.

At September 30, 2009, the property, replacement power and nuclear incident insurers maintained an A.M. Best financial strength rating of A ("Excellent").

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 accounting guidance on guarantees and are specifically disclosed in Note 15 to the Financial Statements contained in PPL Electric's 2008 Form 10-K and PPL and PPL Energy Supply's Form 8-K dated September 9, 2009.  Other than as noted in footnote (i), the probability of expected payment/performance under each of these guarantees is remote.

	Recorded Liability at
	September 30, 2009		December 31, 2008		Exposure at September 30,  2009 (a)			Expiration Date
PPL
Indemnifications for sale of PPL Gas Utilities					$	300	(b)
PPL Energy Supply (c)
Letters of credit issued on behalf of affiliates						16	(d)	2009 to 2011
Retroactive premiums under nuclear insurance programs						37	(e)
Nuclear claims under The Price-Anderson Act Amendments under The Energy Policy Act of 2005						235	(f)
Indemnifications for entities in liquidation and sales of assets	$	1	$	1		9	(g)	2010 to 2012
Indemnification to operators of jointly owned facilities						6	(h)
WPD guarantee of pension and other obligations of unconsolidated entities		1		2		31	(i)	2017
Tax indemnification related to unconsolidated WPD affiliates						8	(j)	2012
Guarantee of a portion of an unconsolidated entity's debt		1		1		22	(k)	2018

(a)	Represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee.
(b)	PPL has provided indemnification to the purchaser of PPL Gas Utilities and Penn Fuel Propane, LLC for damages arising out of any breach of the representations, warranties and covenants under the related transaction agreement and for damages arising out of certain other matters, including certain pre-closing unknown environmental liabilities relating to former manufactured gas plant properties or off-site disposal sites, if any, outside of Pennsylvania.  The indemnification provisions for most representations and warranties, including tax and environmental matters, are capped at 15% of the purchase price ($45 million), in the aggregate, and are triggered (i) only if the individual claim exceeds $50,000, and (ii) only if, and only to the extent that, in the aggregate, total claims exceed 1.5% of the purchase price ($4.5 million).  The indemnification provisions for most representations and warranties survive for a period of one year after the closing, which expired on September 30, 2009 without any claims having been made.  Certain representations and warranties, including those having to do with transaction authorization and title, survive indefinitely, are capped at the purchase price and are not subject to the above threshold or deductible.  The indemnification provision for the tax matters representations survives for the duration of the applicable statute of limitations, and the indemnification provision for the environmental matters representations survives for a period of three years after the transaction closing.  The indemnification relating to unknown environmental liabilities for manufactured gas plants and disposal sites outside of Pennsylvania could survive more than three years, but only with respect to applicable property or sites identified by the purchaser prior to the third anniversary of the transaction closing.  The indemnification for covenants survives until the applicable covenant is performed and is not subject to any cap.
(c)	Other than the letters of credit, all guarantees of PPL Energy Supply also apply to PPL on a consolidated basis.
(d)	Standby letter of credit arrangements under PPL Energy Supply's credit facilities for the purposes of protecting various third parties against nonperformance by PPL.  This is not a guarantee by PPL on a consolidated basis.
(e)	PPL Susquehanna is contingently obligated to pay this amount related to potential retroactive premiums that could be assessed under its nuclear insurance programs.  See "Nuclear Insurance" for additional information.
(f)	This is the maximum amount PPL Susquehanna could be assessed for each incident at any of the nuclear reactors covered by this Act.  See "Nuclear Insurance" for additional information.
(g)	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 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.  In 2009, $212 million of previously disclosed exposure expired.
	In addition to the $9 million exposure disclosed above, 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.
(h)	In December 2007, a subsidiary of 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 percentages.  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.
(i)	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, 2009, WPD has recorded an estimated discounted liability based on its current allocated percentage of the total expected costs for which the expected payment/performance is probable.  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.
(j)	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.
(k)	Reflects principal payments only.

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 indemnification or warranties related to services or equipment and vary in duration.  The 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 and the probability of payment/performance under these guarantees is remote.

11.   Related Party Transactions

PLR Contracts(PPL Energy Supply and PPL Electric)

PPL Electric has power purchase agreements with PPL EnergyPlus, effective July 2000 and January 2002, under 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 the three months ended September 30, 2009 and 2008, these purchases totaled $445 million and $453 million.  For both the nine months ended September 30, 2009 and 2008, 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, 2009 and December 31, 2008, the fair value of the contract was approximately $90 million and $917 million.  Accordingly, at September 30, 2009, no performance assurance deposit was required.  At December 31, 2008, PPL Energy Supply was required to provide PPL Electric with performance assurance of $300 million.  The deposit is shown on the Balance Sheet as "Collateral on PLR energy supply to/from affiliate," a current asset of PPL Energy Supply and a current liability of PPL Electric.  PPL Electric pays interest equal to the one-month LIBOR plus 0.5% on this deposit, which is included in "Interest Expense with Affiliate" on the 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, 2009 and 2008, interest related to required deposits was insignificant and $3 million.  For the nine months ended September 30, 2009 and 2008, interest related to required deposits was $1 million and $8 million.

PPL Electric has held competitive solicitations for generation supply in 2010 and 2011, after its existing PLR contracts expire.  PPL EnergyPlus was one of the successful bidders in the first competitive solicitation process and has 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 once 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, 2009, PPL Electric had credit exposure to PPL EnergyPlus under the PLR contracts of $90 million, excluding the effects of netting and collateral arrangements.  As a result of netting and collateral arrangements, PPL Electric's credit exposure was reduced to zero.

PPL Energy Supply has credit exposure to PPL Electric under the PLR contracts and the solicitations for generation supply in 2010.  At September 30, 2009, PPL Energy Supply's credit exposure with PPL Electric was $162 million, excluding the effects of netting arrangements.  As a result of netting arrangements, PPL Energy Supply's credit exposure was reduced to $72 million.

NUG Purchases(PPL Energy Supply and PPL Electric)

PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs.  PPL Electric purchases electricity from the NUGs at contractual rates and then sells the electricity at the same price to PPL EnergyPlus.  For the three months ended September 30, 2009 and 2008, these NUG purchases totaled $19 million and $29 million.  For the nine months ended September 30, 2009 and 2008, these NUG purchases totaled $59 million and $87 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 expenses, 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,
	2009		2008		2009 (a)		2008
PPL Energy Supply	$	44	$	47	$	152	$	152
PPL Electric		26		29		86		88

(a) Excludes allocated costs associated with the February 2009 workforce reduction.  See Note 6 for additional information.

Intercompany Borrowings

(PPL Energy Supply)

A PPL Energy Supply subsidiary has an $800 million demand note to an affiliate.  There was a $104 million balance outstanding at September 30, 2009 and no such balance outstanding at December 31, 2008.  Interest is earned quarterly at a rate equal to 1-month LIBOR plus 1%.  The 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 insignificant and $1 million for the three months ended September 30, 2009 and 2008.  Interest earned was $1 million and $3 million for the nine months ended September 30, 2009 and 2008.

(PPL Electric)

A PPL Electric subsidiary has a $300 million demand note to an affiliate.  There was no outstanding balance at September 30, 2009 and a $300 million balance outstanding at December 31, 2008.  Interest is earned quarterly at a rate equal to 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 for both the three months ended September 30, 2009 and 2008.  For the nine months ended September 30, 2009 and 2008, interest earned was $4 million and $5 million.

Intercompany Derivatives(PPL Energy Supply)

In 2009 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, 2009, the total exposure hedged was £34 million and the fair value of these positions was a net liability of $4 million, which is reflected in "Current Liabilities - Price risk management liabilities" on the Balance Sheet.  No similar hedging instruments were outstanding at December 31, 2008.  Gains and losses, both realized and unrealized, on these types of hedging instruments are included in "Other Income - net" on the Statements of Income.  PPL Energy Supply recorded a net gain of $2 million for the three months ended September 30, 2009 and a net loss of $9 million for the nine months ended September 30, 2009.  PPL Energy Supply recorded net gains of $5 million and $3 million for the three and nine months ended September 30, 2008 related to similar average rates forwards and average rate options.

PPL Energy Supply is also party to 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, 2009 was £46 million (approximately $91 million based on contracted rates).  The fair value of these positions was an asset of $17 million and $34 million at September 30, 2009 and December 31, 2008, which is included in the foreign currency translation adjustment component of AOCI on the Balance Sheets.  Additionally, $11 million and $16 million were included in "Current Assets - Price risk management assets" on the Balance Sheets at September 30, 2009 and December 31, 2008 and $6 million and $18 million were included in "Other Noncurrent Assets - Price risk management assets" on the Balance Sheets at September 30, 2009 and December 31, 2008.

Trademark Royalties(PPL Energy Supply)

A PPL subsidiary owns PPL trademarks and bills certain affiliates for their use.  PPL Energy Supply was allocated $12 million and $23 million of this license fee for the three months ended September 30, 2009 and 2008, and $34 million and $37 million for the nine months ended September 30, 2009 and 2008.  These allocations 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,
	2009			2008			2009		2008
PPL
Other Income
Gains related to the extinguishment of notes (Note 7)							$	29
Interest income	$	1		$	7			9	$	24
Earnings on securities in the NDT funds		7			(1	)		13		4
Equity earnings								1		1
Hyder liquidation distributions										3
Gain on sale of PP&E										2
Miscellaneous - Domestic					1			3		4
Miscellaneous - International								1		1
Total		8			7			56		39
Other Expense
Economic foreign currency hedges		(2	)		(4	)		9		(3	)
Charitable contributions								2		1
Miscellaneous - Domestic		1			1			6		4
Miscellaneous - International					2			1		5
Other Income - net	$	9		$	8		$	38	$	32
PPL Energy Supply
Other Income
Gains related to the extinguishment of notes (Note 7)							$	25
Earnings on securities in the NDT funds	$	7		$	(1	)		13	$	4
Interest income					5			5		18
Equity earnings		1						2		1
Hyder liquidation distributions										3
Gain on sale of PP&E										2
Miscellaneous - Domestic					1			2		3
Miscellaneous - International								1		1
Total		8			5			48		32
Other Expense
Economic foreign currency hedges		(2	)		(5	)		9		(3	)
Miscellaneous - Domestic		1			2			6		5
Miscellaneous - International					2			1		5
Other Income - net	$	9		$	6		$	32	$	25
PPL Electric
Other Income
Interest income				$	1		$	3	$	5
Other Expense					1			1		1
Other Income - net				$			$	2	$	4

13.   Fair Value Measurements and Credit Concentration

(PPL, PPL Energy Supply and PPL Electric)

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).  PPL and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models), 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.

Recurring Fair Value Measurements

	September 30, 2009								December 31, 2008
			Fair Value Measurements Using								Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL
Assets
Cash and cash equivalents	$	696	$	696					$	1,100	$	1,100
Short-term investments - municipal debt securities										150		150
Restricted cash and cash equivalents		178		178						347		347
Price risk management assets:
Energy commodities		3,448		5	$	3,303	$	140		2,460		19	$	2,143	$	298
Interest rate/foreign exchange		76				76				156				152		4
		3,524		5		3,379		140		2,616		19		2,295		302
NDT funds:
Cash and cash equivalents		8		8						7		7
Equity securities: (a)
U.S. large-cap		253		174		79				182		116		66
U.S. mid/small-cap		99		74		25				69		50		19
Debt securities:
U.S. Treasury		59		59						77		77
U.S. government agency		10				10				14				14
Municipality		66				66				61				61
Investment-grade corporate		28				28				33				33
Residential mortgage-backed securities		1				1				2				2
Other		1				1				1				1
		525		315		210				446		250		196
Auction rate securities		18						18		24						24
	$	4,941	$	1,194	$	3,589	$	158	$	4,683	$	1,866	$	2,491	$	326
Liabilities
Price risk management liabilities:
Energy commodities	$	2,342	$	3	$	2,312	$	27	$	2,133	$	15	$	2,008	$	110
Interest rate/foreign exchange		10				10				27				27
	$	2,352	$	3	$	2,322	$	27	$	2,160	$	15	$	2,035	$	110
PPL Energy Supply
Assets
Cash and cash equivalents	$	506	$	506					$	464	$	464
Short-term investments - municipal debt securities										150		150
Restricted cash and cash equivalents		160		160						328		328
Price risk management assets:
Energy commodities		3,448		5	$	3,303	$	140		2,460		19	$	2,143	$	298
Interest rate/foreign exchange		32				32				107				103		4
		3,480		5		3,335		140		2,567		19		2,246		302
NDT funds:
Cash and cash equivalents		8		8						7		7
Equity securities: (a)
U.S. large-cap		253		174		79				182		116		66
U.S. mid/small-cap		99		74		25				69		50		19
Debt securities:
U.S. Treasury		59		59						77		77
U.S. government agency		10				10				14				14
Municipality		66				66				61				61
Investment-grade corporate		28				28				33				33
Residential mortgage-backed securities		1				1				2				2
Other		1				1				1				1
		525		315		210				446		250		196
Auction rate securities		14						14		19						19
	$	4,685	$	986	$	3,545	$	154	$	3,974	$	1,211	$	2,442	$	321
Liabilities
Price risk management liabilities:
Energy commodities	$	2,342	$	3	$	2,312	$	27	$	2,133	$	15	$	2,008	$	110
Interest rate/foreign exchange		8				8				16				16
	$	2,350	$	3	$	2,320	$	27	$	2,149	$	15	$	2,024	$	110

PPL Electric
Assets
Cash and cash equivalents	$	164	$	164	$	483	$	483
Restricted cash and cash equivalents		14		14		15		15
	$	178	$	178	$	498	$	498

(a) Level 1 is comprised of securities that track the Wilshire 5000 index, which is invested in approximately 70% large-cap stocks and 30% mid/small-cap stocks.  U.S. large-cap equity securities classified as Level 2 represent investments in commingled equity funds that track the S&P 500 index.  U.S. mid/small-cap equity securities classified as Level 2 represent investments in commingled equity funds that track the Wilshire 4500 index.

A reconciliation of net assets and liabilities classified as Level 3 at September 30, 2009 is as follows.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended												Nine Months Ended
	Energy Commodities, net			Interest Rate/ Foreign Exchange			Auction Rate Securities			Total			Energy Commodities, net			Interest Rate/ Foreign Exchange			Auction Rate Securities			Total
PPL
Balance at beginning of period	$	139		$	2		$	18		$	159		$	188		$	4		$	24		$	216
Total realized/unrealized gains (losses)
Included in earnings		(48	)								(48	)		(124	)								(124	)
Included in OCI		2									2			5			(28	)		(6	)		(29	)
Purchases, sales, issuances and settlements, net		13									13			98									98
Transfers (out of) and/or into Level 3		7			(2	)					5			(54	)		24						(30	)
Balance at end of period	$	113		$			$	18		$	131		$	113		$			$	18		$	131
PPL Energy Supply
Balance at beginning of period	$	139		$	2		$	15		$	156		$	188		$	4		$	19		$	211
Total realized/unrealized gains (losses)
Included in earnings		(48	)								(48	)		(124	)								(124	)
Included in OCI		2						(1	)		1			5			(28	)		(5	)		(28	)
Purchases, sales, issuances and settlements, net		13									13			98									98
Transfers (out of) and/or into Level 3		7			(2	)					5			(54	)		24						(30	)
Balance at end of period	$	113		$			$	14		$	127		$	113		$			$	14		$	127

Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the three and nine months ended September 30, 2009 are reported in the Statement of Income as follows.

	Three Months Ended							Nine Months Ended
	Energy Commodities, net							Energy Commodities, net
	Wholesale Energy Marketing		Net Energy Trading Margins		Energy Purchases			Wholesale Energy Marketing		Net Energy Trading Margins			Energy Purchases
PPL and PPL Energy Supply
Total gains (losses) included in earnings for the period	$	17	$	2	$	(67	)	$	30	$	(16	)	$	(138	)
Change in unrealized gains (losses) relating to positions still held at the reporting date		16		2		(49	)		26		1			(85	)

A reconciliation of net assets and liabilities classified as Level 3 at September 30, 2008 is 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		2					2			1					1
Included in OCI		(97	)		5		(92	)		43	$	(3	)		40
Purchases, sales, issuances and settlements, net										1		(11	)		(10	)
Transfers into Level 3												40			40
Balance at end of period	$	179		$	26	$	205		$	179	$	26		$	205

PPL Energy Supply
Balance at beginning of period	$	274		$	17	$	291		$	134				$	134
Total realized/unrealized gains (losses)
Included in earnings		2					2			1					1
Included in OCI		(97	)		4		(93	)		43	$	(3	)		40
Purchases, sales, issuances and settlements, net										1		(11	)		(10	)
Transfers into Level 3												35			35
Balance at end of period	$	179		$	21	$	200		$	179	$	21		$	200

Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the three and nine months ended September 30, 2008 are reported in the Statement of Income as follows.

	Three Months Ended					Nine Months Ended
	Energy Commodities, net					Energy Commodities, net
	Net Energy Trading Margins			Energy Purchases		Net Energy Trading Margins			Energy Purchases
PPL and PPL Energy Supply
Total gains (losses) included in earnings for the period	$	(2	)	$	4	$	(3	)	$	4
Change in unrealized gains (losses) relating to positions still held at the reporting date		(3	)		2		(4	)		2

Cash and Cash Equivalents, Short-term Investments, and Restricted Cash and Cash Equivalents

PPL and its subsidiaries use the market approach to determine the fair value of cash and cash equivalents, short-term investments, and restricted cash and cash equivalents.  The fair value measurements of short-term investments are based on quoted prices.

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 unobservable inputs are significant to the fair value measurement, a 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 assesses all reasonably available market information and 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 or for power basis, which PPL generally values using historical prices.

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

To manage its interest rate and foreign currency exchange risk, PPL and PPL Energy Supply generally use interest rate contracts, such as forward-starting swaps and fixed-to-floating swaps; foreign currency exchange contracts, such as forwards and options; and cross-currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.  PPL and PPL Energy Supply use an income approach to measure the fair value of these contracts, utilizing both observable inputs, such as forward interest rates and forward foreign currency exchange rates, and inputs that may not be observable, such as credit valuation adjustments.  In certain cases, PPL and PPL Energy Supply cannot practicably obtain market information to value credit risk and therefore rely on their own models.  These models use projected probabilities of default based on historical observances.  When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3.

NDT Funds

PPL and PPL Energy Supply generally use the market approach to measure the fair value of the securities held in the NDT funds.  The fair value measurements of cash and cash equivalents and equity securities are based on quoted prices in active markets.  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 for identical securities or for 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 including interest rates for debt securities with credit ratings and terms to maturity similar to the debt securities being measured.

Auction Rate Securities

PPL's and PPL Energy Supply's auction rate securities are recorded in "Investments - Other" on the Balance Sheets and include Federal Family Education Loan Program guaranteed student loan revenue bonds, as well as various municipal bond issues.  Auction rate securities are classified as Level 3 because failed auctions limit the amount of observable market data that is available for measuring the fair value of these securities.

At September 30, 2009 and December 31, 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 a weighted average of approximately 27 years.  Despite failed auctions in 2008 and 2009, PPL and PPL Energy Supply continued to earn interest on these investments at contractually prescribed interest rates.  During the second and third quarters of 2009, PPL Energy Supply liquidated an insignificant amount of securities at par.

At September 30, 2009 and December 31, 2008, PPL concluded that the fair value of its auction rate securities was $18 million and $24 million.  PPL Energy Supply concluded that the fair value of its auction rate securities was $14 million and $19 million at these same periods.  At September 30, 2009 and December 31, 2008, the temporary declines from par value were $11 million and $5 million for PPL, and $10 million and $5 million for PPL Energy Supply, and have been recorded in OCI.

PPL and PPL Energy Supply estimated the fair value of auction rate securities based on the following criteria:  (i) the underlying structure and credit quality of each security; (ii) the present value of future estimated interest and principal 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.  Based upon the evaluation of available information, PPL and PPL Energy Supply believe these investments continue to be of high credit quality and they do not have significant exposure to realize losses on these securities.  The estimated fair value of these securities could change significantly based on future market conditions.

Nonrecurring Fair Value Measurements(PPL and PPL Energy Supply)

	Fair Value Measurements Using
	Total		Level 2		Level 3		Loss
Sulfur dioxide emission allowances (a):
March 31, 2009	$	15			$	15	$	(30	)
Long Island generation business (b):
June 30, 2009		138	$	138				(52	)
September 30, 2009		133		133				(5	)

(a)	Current and long-term sulfur dioxide emission allowances are included in "Other intangibles" in their respective areas on the Balance Sheet.
(b)	Assets of the Long Island generation business disposal group are included in "Assets held for sale" on the Balance Sheet.

Sulfur Dioxide Emission Allowances

Due to a significant decline in market prices at March 31, 2009, PPL Energy Supply assessed the recoverability of certain sulfur dioxide emission allowances.  As a result, sulfur dioxide emission allowances with a carrying amount of $45 million were written down to their estimated fair value of $15 million, resulting in an impairment charge of $30 million being recorded during the first quarter of 2009.  This charge, recorded in the Supply segment for PPL and PPL Energy Supply, is included in "Other operation and maintenance" on the Statement of Income.

When available, observable market prices were used to value the sulfur dioxide emission allowances.  When observable market prices were not available, fair value was modeled using prices from observable transactions and appropriate discount rates.  The modeled values were significant to the overall fair value measurement.

Long Island Generation Business

The Long Island generation business met the held for sale criteria in the second quarter of 2009.  As a result, net assets held for sale with a carrying amount of $189 million were written down to their estimated fair value (less cost to sell) of $137 million at June 30, 2009.  At September 30, 2009, the fair value (less cost to sell) was remeasured and an additional impairment of $5 million was recorded.  See Note 8 for additional information on the anticipated sale.

The fair values were modeled using valuations obtained from third parties and appropriate discount rates.  The fair values in the table above exclude $1 million of estimated costs to sell and were corroborated by the negotiated sales price adjusted for the additional anticipated cash flows from operations prior to the sale date.

Financial Instruments Not Recorded at Fair Value (PPL, PPL Energy Supply and PPL Electric)

NPNS

PPL and PPL Energy Supply enter into full-requirement sales contracts, power purchase agreements, certain retail energy and physical capacity contracts and certain contracts to purchase emission allowances expected to be consumed.  These contracts range in maturity through 2023 and qualify for NPNS.  PPL Electric has also entered into contracts that qualify for NPNS.  See "Energy Purchase Commitments" within Note 10 for information about PPL Electric's competitive solicitations.  All of these contracts are accounted for using the accrual method of accounting; therefore, there were no amounts recorded on the Balance Sheets at September 30, 2009 and December 31, 2008.  The estimated fair value of these contracts was:

	Net Asset (Liability)
	September 30, 2009			December 31, 2008
PPL	$	77		$	136
PPL Energy Supply		317			239
PPL Electric		(249	)		(103	)

Other

Financial instruments for which the carrying amount on the Balance Sheets and the estimated fair value (based on quoted market prices for the securities where available and estimates based on current rates where quoted market prices are not available) are different, are set forth below.  The carrying value of "Collateral on PLR energy supply to/from affiliate" and "Short-term debt" on the Balance Sheets represented or approximated fair value due to the liquid nature of the instruments or variable interest rates associated with the financial instruments.

	September 30, 2009 (a)				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
PPL
Long-term debt	$	7,250	$	7,321	$	7,838	$	6,785
PPL Energy Supply
Long-term debt		5,019		5,088		5,196		4,507
PPL Electric
Long-term debt		1,572		1,719		1,769		1,682

(a) The effect of third-party credit enhancements is not included in the fair value measurement.  See "New Accounting Guidance Adopted - Issuer's Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement" within Note 2 for additional information.

Credit Concentration Associated with Financial Instruments

(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)

At September 30, 2009, PPL had credit exposure of $3.7 billion to energy trading partners, excluding the effects of netting arrangements and collateral.  As a result of netting arrangements and collateral, PPL's credit exposure was reduced to $1.1 billion.  One of the counterparties accounted for 27% of this exposure, and no other individual counterparty accounted for more than 14% of the exposure.  Ten counterparties accounted for $887 million, or 79%, of the total exposure.  Nine of these counterparties had an investment grade credit rating from S&P and accounted for 96% of the top 10 exposure.  The remaining counterparty has not been rated by S&P, but is current on its obligations with PPL.

(PPL Energy Supply)

At September 30, 2009, PPL Energy Supply had credit exposure of $3.7 billion to energy trading partners, excluding the effects of netting arrangements and collateral.  As a result of netting arrangements and collateral, PPL Energy Supply's credit exposure was reduced to $1.1 billion.  One of the counterparties accounted for 26% of this exposure, and no other individual counterparty accounted for more than 14% of the exposure.  Ten counterparties accounted for $887 million, or 77%, of the total exposure.  Nine of these counterparties had an investment grade credit rating from S&P and accounted for 96% of the top 10 exposure.  The remaining counterparty has not been rated by S&P, but is current on its obligations with PPL Energy Supply.

Additionally, PPL Energy Supply has credit exposure to PPL Electric under the PLR contracts and the solicitations for generation supply in 2010.  The PLR contracts' exposure is excluded from the exposure discussed above.  See Note 11 for additional information on the related-party credit exposure.

(PPL Electric)

At September 30, 2009, PPL Electric had credit exposure of $2 million under its solicitations for the 2010 and 2011 PLR supply.  There were ten counterparties, all of which had an investment grade credit rating from S&P.  In the first competitive solicitation process, PPL EnergyPlus was awarded a significant portion of the solicitation.  In October 2009, two additional solicitations were completed.  The first related to 2010 PLR supply and the second related to 2011 PLR supply.  All counterparties had an investment grade credit rating from S&P.

PPL Electric has credit exposure to PPL Energy Supply under the current PLR contracts.  See Note 11 for additional information on the related party credit exposure.

14.   Derivative Instruments and Hedging Activities

Risk Management Objectives (PPL, PPL Energy Supply and PPL Electric)

PPL has a risk management policy approved by the Board of Directors to manage market risk and counterparty credit risk.  The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function.  Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, VaR analyses, sensitivity analyses, and daily portfolio reporting, including open positions, determinations of fair value, and other risk management metrics.

Market risk is the potential loss PPL and its subsidiaries may incur as a result of price changes associated with a particular financial or commodity instrument.

PPL and PPL Energy Supply are exposed to market risk from:

· commodity price risk for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity marketing activities and the purchase of fuel and fuel-related commodities for generating assets, as well as for proprietary trading activities;

· interest rate and price risk associated with debt used to finance operations, as well as debt and equity securities in NDT funds and defined benefit plans; and

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

PPL and PPL Energy Supply utilize forward contracts, futures contracts, options, swaps and structured deals such as tolling agreements as part of the risk management strategy to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, interest rates and foreign currency exchange rates.  All derivatives are recognized on the balance sheet at their fair value, unless they qualify for NPNS.

PPL and PPL Electric are exposed to market risk from PPL Electric's obligation as the PLR to its customers.  It has mitigated that risk with the fixed-price PLR agreement with PPL EnergyPlus, which expires at the end of 2009, and by entering into supply agreements for its customers for 2010 and 2011.

Credit risk is the potential loss PPL and its subsidiaries may incur due to a counterparty's non-performance, including defaults on payments and energy commodity deliveries.

PPL and PPL Energy Supply are exposed to credit risk from:

· commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, and financial institutions;

· interest rate derivatives with financial institutions; and

· foreign currency derivatives with financial institutions.

PPL and PPL Electric are exposed to credit risk from PPL Electric's supply agreements for its customers for 2010 and 2011.

The majority of the credit risk stems from PPL Energy Supply's and PPL Electric's commodity derivatives for multi-year contracts for energy sales and purchases.  If the counterparties fail to perform their obligations under such contracts and PPL and its subsidiaries could not replace the sales or purchases at the same prices as those under the defaulted contracts, PPL would incur financial losses.  Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts.

PPL and its subsidiaries have credit policies to manage their credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions, and the use of master netting agreements.  These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements.  PPL and its subsidiaries may request the additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade or their exposures exceed an established credit limit.  See Note 13 for credit concentration associated with financial instruments.

PPL's and PPL Energy Supply's obligation to return counterparty cash collateral under master netting arrangements was $341 million at September 30, 2009 and $22 million at December 31, 2008.

PPL Electric had no obligation to return cash collateral to PPL Energy Supply under master netting arrangements at September 30, 2009 and an obligation of $300 million at December 31, 2008.  See Note 11 for additional information.

PPL and PPL Electric have not posted any cash collateral under master netting arrangements.  See Note 17 for additional information on PPL and PPL Energy Supply's deposits for trading purposes.

Commodity Price Risk (Non-trading) (PPL and PPL Energy Supply)

Commodity price risk is one of PPL's and PPL Energy Supply's most significant risks due to the level of investment that PPL and PPL Energy Supply maintain in their generation assets, as well as the extent of their marketing and proprietary trading activities.  Several factors influence price levels and volatilities.  These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations.

To hedge the impact of market price fluctuations on PPL's and PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements discussed above, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts.  Certain contracts qualify for NPNS or are non-derivatives and are therefore not reflected in the financial statements until delivery.  See Note 13 for additional information on NPNS.  PPL and PPL Energy Supply segregate their remaining non-trading activities into two categories:  cash flow hedge activity and economic activity.

Cash Flow Hedges

PPL and PPL Energy Supply enter into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electric, gas, oil and other commodities.  Many of these contracts have qualified for hedge accounting.  These contracts range in maturity through 2014.  At September 30, 2009, the accumulated net unrealized after-tax gains on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months were $53 million for PPL and $52 million for PPL Energy Supply.  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 AOCI are reclassified to earnings.  There were no such reclassifications during the three and nine months ended September 30, 2009 and 2008.

For the three months ended September 30, 2009 and 2008, hedge ineffectiveness associated with energy derivatives was, after tax, a loss of $70 million and a gain of $177 million.  For the nine months ended September 30, 2009 and 2008, hedge ineffectiveness associated with energy derivatives was, after tax, a loss of $108 million and a gain of $179 million.  Certain power and gas cash flow hedges failed hedge effectiveness testing in the third and fourth quarters of 2008, as well as the first quarter of 2009.  Hedge accounting is not permitted for the quarter in which this occurs and, accordingly, the entire change in fair value for the periods that failed was recorded to the income statement.  These transactions were not dedesignated as hedges, since prospective regression analysis demonstrates that these hedges are expected to be highly effective over their term.  For both the three and nine months ended September 30, 2008, an after-tax gain of $162 million was recognized in earnings as a result of these hedge failures.  During the second and third quarters of 2009, fewer power and gas cash flow hedges failed hedge effectiveness testing; therefore, a portion of the previously recognized unrealized gains recorded in the second half of 2008 and the first quarter of 2009 associated with these hedges were reversed.  For the three and nine months ended September 30, 2009, after-tax losses of $74 million and $166 million were recognized in earnings.

Economic Activity

PPL Energy Supply also uses derivative contracts to economically hedge the impact of market price fluctuations on its energy-related assets, liabilities and other contractual arrangements that do not receive hedge accounting treatment.  PPL Energy Supply refers to these transactions as economic activity.  The economic activity category includes energy derivative transactions that have previously qualified or could potentially qualify for hedge accounting; however, these transactions have either been disqualified from hedge accounting or management has not elected to designate them as accounting hedges.  This category also includes transactions entered into to optimize the economic value of PPL Energy Supply's generation assets or to hedge its wholesale or retail load obligations.  These contracts range in maturity through 2017.  Additionally, the ineffective portion of qualifying cash flow hedges, including the entire change in fair value for certain cash flow hedges that failed effectiveness testing during the current period as discussed in the preceding "Cash Flow Hedges" section, is also included when PPL Energy Supply reports its economic activity.

Examples of transactions represented in this category include certain purchase contracts used to supply full-requirement sales contracts; FTRs or basis swaps used to hedge basis risk associated with the sale of generation or supplying full-requirement sales contracts; spark spreads (sale of electricity with the simultaneous purchase of fuel); retail gas activities; and fuel oil swaps used to hedge price escalation clauses in coal transportation and other fuel-related contracts.  PPL Energy Supply also uses options, which include the sale of call options and the purchase of put options tied to a particular generating unit.  Since PPL Energy Supply owns the physical generating capacity, its price exposure is limited to the cost of the particular generating unit and does not expose PPL Energy Supply to uncovered market price risk.  PPL Energy Supply also purchases call options or sells put options to create a net purchase position to cover an overall short position in its non-trading portfolio.

The unrealized gains (losses) for this activity are reflected in the Statements of Income as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Operating Revenues
Unregulated retail electric and gas				$	3		$	2		$	2
Wholesale energy marketing	$	(307	)		1,157			(67	)		361
Operating Expenses
Fuel		7			(24	)		35
Energy purchases		79			(1,020	)		(255	)		(157	)

The net unrealized gains (losses) recorded in "Wholesale energy marketing" resulted primarily from certain full-requirement sales contracts in which PPL Energy Supply did not elect NPNS and from hedge ineffectiveness as discussed in the "Cash Flow Hedges" section above.  The net unrealized gains (losses) recorded in "Energy purchases" resulted primarily from certain purchase contracts to supply the full-requirement sales contracts noted above for which PPL Energy Supply did not elect hedge treatment and from hedge ineffectiveness.

Commodity Price Risk (Trading) (PPL and PPL Energy Supply)

PPL Energy Supply also executes energy contracts to take advantage of market opportunities.  As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated.

Commodity Volumetric Activity (PPL and PPL Energy Supply)

PPL Energy Supply currently employs four primary strategies to maximize the value of its wholesale energy portfolio.  As further discussed below, these strategies include the sales of baseload generation, optimization of intermediate and peaking generation, marketing activities, and proprietary trading activities.

Sales of Baseload Generation

PPL Energy Supply has a formal hedging program for its baseload generation fleet, which includes 7,600 MW of generating capacity.  The objective of this program is to provide a reasonable level of near-term cash flow and earnings certainty for the next three years; however, in certain instances, PPL Energy Supply will sell power and purchase fuel beyond this three-year period.  PPL Energy Supply sells its expected generation output on a forward basis using both derivative and non-derivative instruments.  Both are included in the following tables.

The following table presents the expected sales, in GWh, of baseload generation based on current forecasted assumptions for 2009-2014.  These expected sales could be impacted by several factors, including plant availability.

2009 (a)		2010		2011		2012		2013 - 2014 (b)
	13,698		52,002		52,166		53,432		105,636

(a)	Represents expected sales from October 1, 2009 to December 31, 2009.
(b)	Amounts based on 2013 volumes with no assumed change in 2014.

The following table presents the percentage of expected baseload generation sales shown above that has been sold forward under fixed-price contracts and the related percentage of fuel that has been purchased or committed at September 30, 2009.

						Fuel Purchases % (c)
Year	Derivative Sales % (a)			Total Power Sales % (b)		Coal		Nuclear
2009 (d)		22%	(e)		99%		100%		100%
2010		91%			98%		98%		100%
2011		82%			89%		88%		100%
2012		50%			58%		68%		100%
2013-2014		2%			8%		52%		100%

(a)	Excludes non-derivative contracts and contracts that qualify for NPNS.  Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.  Percentages are based on fixed-price contracts only.
(b)	Amount represents derivative and non-derivative contracts.  Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.  Percentages are based on fixed-price contracts only.
(c)	Coal and nuclear contracts receive accrual accounting treatment, as they are not derivative contracts.  Percentages are based on both fixed- and variable-priced contracts.
(d)	Represents the time period from October 1, 2009 to December 31, 2009.
(e)	The majority of PPL Energy Supply's baseload generation for 2009 is allocated to supplying the PLR contract with PPL Electric.  This contract is not a derivative contract.  The PLR contract expires on December 31, 2009.

In addition to the fuel purchases above, PPL Energy Supply attempts to economically hedge the fuel price risk that is within its fuel-related contracts and coal transportation contracts, which are tied to changes in crude oil or diesel prices.  The following table presents the volumes (in thousands of barrels) of derivative contracts used in support of this strategy at September 30, 2009.

Contract Type		2009 (a)		2010		2011		2012
	Oil Swaps		135		420		408	180

(a) Represents the time period from October 1, 2009 to December 31, 2009.

Optimization of Intermediate and Peaking Generation

In addition to its baseload generation activities, PPL Energy Supply attempts to optimize the overall value of its intermediate and peaking fleet, which includes 4,402 MW of gas and oil-fired generation.  PPL Energy Supply uses both option and non-option contracts to support this strategy.  The following table presents the volumes of derivative contracts used in support of this strategy at September 30, 2009.

	Units		2009 (a)		2010
Net Power Sales:
Options (b)		GWh		199		701
Non-option contracts		GWh		256		586
Net Power/Fuel Purchases:
Non-option contracts		Bcf		2.8		5.9

(a)	Represents the time period from October 1, 2009 to December 31, 2009.
(b)	Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.

Marketing Activities

PPL Energy Supply's marketing portfolio is comprised of full-requirement sales contracts and their related supply contracts, retail gas and electricity sales contracts and other marketing activities.  The full-requirement sales contracts and their related supply contracts make up a significant component of the marketing portfolio.  The obligations under the full-requirement sales contracts include supplying a bundled product of energy, capacity, renewable energy credits (RECs), and other ancillary products.  PPL Energy Supply uses a variety of strategies to hedge its full-requirement sales contracts, including purchasing energy at a liquid trading hub or directly at the load delivery zone, purchasing capacity and RECs in the market and supplying the energy, capacity and RECs with its generation.  RECs are not derivatives and are excluded from the table below.  The following table presents the volumes of (sales)/purchase contracts, excluding FTRs, basis and capacity contracts, used in support of these activities at September 30, 2009.

	Units		2009 (a)		2010		2011		2012		2013 - 2019
Energy sales contracts (b)		GWh	(6,116	)	(28,822	)	(13,555	)	(5,253	)	(17,614	)
Related energy supply contracts
Energy purchases		GWh	5,586		26,712		11,519		4,272		11,436
Volumetric hedges (c)		GWh	(38	)	(977	)	251		59
Volumetric hedges (c)		Bcf	(0.7	)	(0.5	)
Generation supply		GWh	219		2,711		2,001		2,173		12,257

(a)	Represents the time period from October 1, 2009 to December 31, 2009.
(b)	The majority of PPL Energy Supply's full-requirement sales contracts receive accrual accounting as they qualify for NPNS or are not derivative contracts.  Also included in these volumes are the sales from PPL EnergyPlus to PPL Electric to supply PPL Electric's 2009 and 2010 PLR load obligation.
(c)	PPL Energy Supply uses power and gas options, swaps and futures to hedge the volumetric risk associated with full-requirement sales contracts since the demand for power varies hourly.  Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.

As noted above, PPL Energy Supply's marketing activities also include its retail gas and electricity portfolios.  PPL Energy Supply has sold a total of 7.0 Bcf of gas to retail customers through 2012, all of which has been hedged with gas purchases.  At September 30, 2009, retail electric volumes were insignificant.

FTRs and Other Basis Positions

PPL Energy Supply buys and sells FTRs and other basis positions to mitigate the basis risk between delivery points related to the sales of its generation, the supply of its full-requirement sales contracts and retail contracts, as well as for proprietary trading purposes.  The following table presents the volumes of derivative FTR and basis (sales)/purchase contracts at September 30, 2009.

Commodity	Units	2009 (a)		2010		2011		2012
FTRs	GWh	23,462		38,116		192
Power Basis Positions	GWh	(738	)	(9,602	)	(1,737	)	(878	)
Gas Basis Positions	Bcf	0.4		3.8		(0.5	)	(0.2	)

(a) Represents the time period from October 1, 2009 to December 31, 2009.

Capacity Positions

PPL Energy Supply buys and sells capacity related to the sales of its generation and the supply of its full-requirement sales contracts, as well as for proprietary trading purposes.  The following table presents the volumes of derivative capacity (sales)/purchase contracts (in MW-months) at September 30, 2009.

2009 (a)			2010		2011		2012		2013 - 2016	2017 - 2023
	(14,127	)	(72,722	)	(36,781	)	(10,047	)	11,618	(252	)

(a) Represents the time period from October 1, 2009 to December 31, 2009.

Proprietary Trading Activity

At September 30, 2009, PPL Energy Supply's proprietary trading positions, excluding FTRs, basis and capacity contracts, were not significant.

Interest Rate Risk (PPL and PPL Energy Supply)

PPL and its subsidiaries have issued debt to finance its operations, which results in an exposure to interest rate risk.  PPL and its subsidiaries utilize 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 benchmark interest rates 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 and its subsidiaries' debt portfolio due to changes in benchmark interest rates.

Cash Flow Hedges

Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings.  PPL and PPL Energy Supply may enter into financial interest rate swap contracts that qualify as cash flow hedges to hedge floating interest rate risk associated with both existing and anticipated debt issuances.  For PPL, these interest rate swap contracts range in maturity through 2020 and had a notional value of $100 million at September 30, 2009.  For the three and nine months ended September 30, 2009 and 2008, hedge ineffectiveness associated with these derivatives was not significant.  No contracts were outstanding at PPL Energy Supply at September 30, 2009.

WPDH Limited holds a net notional position in cross-currency swaps totaling $302 million to hedge the interest payments and principal of its U.S. dollar-denominated senior notes with maturity dates ranging from December 2017 to December 2028.  For the three and nine months ended September 30, 2009 and 2008, no amounts were recorded related to hedge ineffectiveness.

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 AOCI are reclassified to earnings.  PPL had no such reclassification for the three months ended September 30, 2009, but reclassified a net after-tax gain of $2 million for the nine months ended September 30, 2009.  PPL had no such reclassifications in 2008.  PPL Energy Supply had no such reclassifications in 2009 or 2008.

At September 30, 2009, the accumulated net unrealized after-tax gains on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months were $1 million for PPL and insignificant for PPL Energy Supply.  Amounts are reclassified as the hedged interest payments are made.

Fair Value Hedges

PPL and PPL Energy Supply are exposed to changes in the fair value of their domestic and international debt portfolios.  To manage this risk, PPL and PPL Energy Supply may enter into financial contracts to hedge fluctuations in the fair value of existing debt issuances due to changes in benchmark interest rates.  At September 30, 2009, PPL held contracts that range in maturity through 2047 and had a notional value of $850 million.  PPL Energy Supply did not hold any such contracts at September 30, 2009.  PPL and PPL Energy Supply did not recognize any gains or losses resulting from the ineffective portion of fair value hedges or from a portion of the hedging instrument being excluded from the assessment of hedge effectiveness for the three and nine months ended September 30, 2009 and 2008.  Additionally, PPL and PPL Energy Supply did not recognize any gains or losses resulting from hedges of debt issuances that no longer qualified as fair value hedges for the three and nine months ended September 30, 2009 and 2008.

Foreign Currency Risk (PPL and PPL Energy Supply)

PPL and PPL Energy Supply are exposed to foreign currency risk, primarily through investments in U.K. affiliates.  In addition, PPL's and 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.

Cash Flow Hedges

PPL and PPL Energy Supply may enter into foreign currency derivatives associated with foreign currency-denominated debt and the exchange rate associated with firm commitments denominated in foreign currencies; however, at September 30, 2009, there were no existing contracts of this nature.  Amounts previously classified in AOCI are reclassified as the hedged interest payments are made and as the related equipment is depreciated.

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 AOCI are reclassified to earnings.  There were no such reclassifications during the three and nine months ended September 30, 2009 and 2008.

Fair Value Hedges

PPL and PPL Energy Supply enter into foreign currency forward contracts to hedge the exchange rates associated with firm commitments denominated in foreign currencies; however, at September 30, 2009, there were no existing contracts of this nature.  PPL and PPL Energy Supply did not recognize any gains or losses resulting from the ineffective portion of fair value hedges or from a portion of the hedging instrument being excluded from the assessment of hedge effectiveness for the three and nine months ended September 30, 2009 and 2008.  Additionally, 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 for the three and nine months ended September 30, 2009 and 2008.

Net Investment Hedges

PPL and PPL Energy Supply may enter into foreign currency contracts to protect the value of a portion of their net investment in WPD.  The total notional amount of the contracts outstanding at September 30, 2009 was £46 million (approximately $91 million based on contracted rates).  The settlement dates of these contracts range from December 2009 through June 2011.  At September 30, 2009, the fair value of these positions was a net asset of $17 million.  For the three months ended September 30, 2009 and 2008, PPL and PPL Energy Supply recognized net investment hedge gains, after tax, of $2 million and $7 million in the foreign currency translation adjustment component of OCI.  For the nine months ended September 30, 2009 and 2008, PPL and PPL Energy Supply recognized after tax net investment hedge losses, of $5 million and gains of $8 million in the foreign currency translation adjustment component of OCI.  At September 30, 2009, PPL and PPL Energy Supply had $11 million of accumulated net investment hedge gains, after tax, that were included in the foreign currency translation adjustment component of AOCI compared with $16 million of gains at December 31, 2008.  See Note 11 for additional information.

Economic Activity

PPL and PPL Energy Supply may enter into foreign currency contracts as an economic hedge of anticipated earnings valued in British pounds sterling.  At September 30, 2009, the total exposure hedged was £34 million and the net fair value of these positions was a net liability of $4 million.  These contracts have termination dates ranging from October 2009 to December 2009.  No similar hedging instruments were outstanding at December 31, 2008.  Gains and losses, both realized and unrealized, on these contracts are included in "Other Income - net" on the Statements of Income.  For the three and nine months ended September 30, 2009, PPL and PPL Energy Supply recorded net gains of $2 million and losses of $9 million.  For the three and nine months ended September 30, 2008, PPL and PPL Energy Supply recorded net gains of $5 million and $3 million related to similar average rate forwards and average rate options.  See Note 11 for additional information.

Accounting and Reporting

(PPL, PPL Energy Supply and PPL Electric)

All derivative instruments are recorded at fair value on the balance sheet as an asset or liability (unless they qualify for NPNS), and changes in the derivatives' fair value are recognized currently in earnings unless specific hedge accounting criteria are met.  See Note 13 for additional information on NPNS.

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.

Gains and losses associated with non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points.  A major market delivery point is any delivery point with liquid pricing available.

PPL and PPL Energy Supply reflect their net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statements of Income.

The circumstances and intent existing at the time that derivative contracts are entered into are used to determine their accounting designation, which is subsequently verified by an independent internal group on a daily basis.  The following summarizes the guidelines that have been provided to the marketers who are responsible for contract designation for derivative energy contracts.

· Any wholesale and retail contracts to sell electricity and the related capacity that do not meet the definition of a derivative receive accrual accounting.

· Physical electricity-only transactions can receive cash flow hedge treatment if all of the qualifications are met.

· Physical capacity-only transactions to sell excess capacity from PPL's and PPL Energy Supply's generation qualify for NPNS.  The forward value of these transactions is not recorded in the financial statements and has no earnings impact until delivery.

· Any physical energy sale or purchase not intended to hedge an economic exposure is considered speculative, with unrealized gains or losses recorded immediately through earnings.

· Financial transactions, which can be settled in cash, do not qualify for NPNS because they do not require physical delivery.  These transactions can receive cash flow hedge treatment if they lock in the cash flows PPL and PPL Energy Supply will receive or pay for energy expected to be sold or purchased in the spot market.

· PPL and PPL Energy Supply purchase FTRs for both proprietary trading activities and hedging purposes.  FTRs, although economically effective as electricity basis hedges, do not currently qualify for hedge accounting treatment.  Unrealized and realized gains and losses from FTRs that were entered into for trading purposes are recorded in "Net energy trading margins" on the Statements of Income.  Unrealized and realized gains and losses from FTRs that were entered into for hedging purposes are recorded in "Energy purchases" on the Statements of Income.

· Physical and financial transactions for gas and oil to meet fuel and retail requirements can receive cash flow hedge treatment if they lock in the price PPL and PPL Energy Supply will pay and meet the definition of a derivative.

· Certain option contracts may receive hedge accounting treatment.  Those that are not eligible are marked to fair value through earnings.

Unrealized gains or losses on cash flow hedges are recorded in OCI, excluding ineffectiveness that is recognized immediately in earnings.  These unrealized gains and losses become realized when the contracts settle and are recognized in earnings when the hedged transactions occur.

The following is a summary of certain guidelines that have been provided to PPL's Finance Department, which is responsible for contract designation for interest rate and foreign currency derivatives.

· Transactions to lock in an interest rate prior to a debt issuance can be designated as cash flow hedges.  Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in OCI and are amortized as a component of interest expense when the hedged transactions occur.

· Transactions entered into to hedge fluctuations in the fair value of existing debt can be designated as fair value hedges.  To the extent that the change in the fair value of the derivative offsets the change in the fair value of the existing debt, there is no earnings impact, as both changes are reflected in interest expense.  Realized gains and losses over the life of the hedge are reflected in interest expense.

· Transactions entered into to hedge the value of a net investment of foreign operations can be designated as net investment hedges.  To the extent that the derivatives are highly effective at hedging the value of the net investment, gains and losses are recorded in the foreign currency translation adjustment component of OCI and will not be recorded in earnings until the investment is substantially liquidated.

· Derivative transactions that do not qualify for hedge accounting treatment are marked to fair value through earnings.  These transactions generally include hedges of earnings translation risk associated with subsidiaries that report their financial statements in a currency other than the U.S. dollar.  As such, these transactions eliminate earnings volatility due solely to changes in foreign currency exchange rates.

(PPL and PPL Energy Supply)

The following tables present the fair value and location of derivative instruments recorded on the Balance Sheets at September 30, 2009.

	PPL								PPL Energy Supply
	Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments (a)				Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments (a)
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Current:
Price Risk Management Assets/Liabilities (b)
Interest rate swaps	$	7	$	2
Cross-currency swaps contracts		1		4					$	1	$	4
Foreign exchange contracts		11					$	4		11					$	4
Commodity contracts		437		195	$	1,229		1,220		437		195	$	1,229		1,220
		456		201		1,229		1,224		449		199		1,229		1,224
Noncurrent:
Price Risk Management Assets/Liabilities (b)
Interest rate swaps		37
Cross-currency swaps contracts		14								14
Foreign exchange contracts		6								6
Commodity contracts		872		209		910		718		872		209		910		718
		929		209		910		718		892		209		910		718
Total derivatives	$	1,385	$	410	$	2,139	$	1,942	$	1,341	$	408	$	2,139	$	1,942

(a)	$298 million of net gains associated with derivatives that were no longer designated as hedging instruments are recorded in AOCI at September 30, 2009.
(b)	Represents the location on the balance sheet.

The after-tax balances of accumulated net gains (losses) (excluding net investment hedges) in AOCI were:

	September 30,					December 31,
	2009		2008			2008			2007
PPL	$	452	$	(230	)	$	(21	)	$	(192	)
PPL Energy Supply		438		(225	)		(12	)		(188	)

(PPL)

The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the three and nine months ended September 30, 2009.

			Gain (Loss) Recognized in Income on Derivative				Gain (Loss) Recognized in Income on Related Item
Derivatives in Fair Value Hedging Relationships	Hedged Items in Fair Value Hedging Relationships	Location of Gains (Losses) Recognized in Income	Three Months Ended Sept. 30, 2009		Nine Months Ended Sept. 30, 2009		Three Months Ended Sept. 30, 2009			Nine Months Ended Sept. 30, 2009
Interest rate swaps	Fixed rate debt	Interest expense	$	18	$	13	$	(7	)	$	16

								Three Months Ended Sept. 30, 2009						Nine Months Ended Sept. 30, 2009
Derivative Relationships	Derivative Gain (Loss) Recognized in OCI (Effective Portion)						Location of Gains (Losses) Recognized in Income	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)			Gain (Loss) Reclassified from AOCI into Income (Effective Portion) (a)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) (a)
	Three Months Ended Sept. 30, 2009			Nine  Months Ended Sept. 30, 2009
Cash Flow Hedges:
Interest rate swaps	$	(3	)	$	40		Interest expense	$	(1	)				$	(3	)
							Other income - net								4
Cross-currency swaps		(4	)		(43	)	Interest expense		1						2
							Other income - net		(3	)					(18	)
Commodity contracts		36			436		Wholesale energy marketing		137		$	(122	)		288		$	(183	)
							Fuel		(7	)		1			(17	)		2
							Depreciation								1
							Energy purchases		(225	)		1			(454	)		(4	)
	$	29		$	433			$	(98	)	$	(120	)	$	(197	)	$	(185	)
Net Investment Hedges:
Foreign exchange contracts	$	3		$	(8	)

(a) In the third quarter of 2009, PPL changed its presentation related to net losses (gains) on commodity contracts that failed hedge effectiveness testing but are not dedesignated as cash flow hedges.   As a result, $159 million of net losses that were previously presented in "Gain (Loss) Reclassified from AOCI to Income (Effective Portion)" are now included in "Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)."  See "Commodity Price Risk (Non-trading) - Cash Flow Hedges" for additional information.

Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivatives	Three Months Ended Sept. 30, 2009			Nine Months Ended Sept. 30, 2009
Foreign exchange contracts	Other income - net	$	2		$	(9	)
Commodity contracts	Unregulated retail electric and gas		1			7
	Wholesale energy marketing		79			579
	Net energy trading margins (a)		4
	Fuel		(2	)		3
	Energy purchases		(158	)		(800	)
		$	(74	)	$	(220	)

(a) Differs from statement of income due to intra-month transactions which PPL defines as spot activity.

(PPL Energy Supply)

The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the three and nine months ended September 30, 2009.

			Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Recognized in Income on Related Item
Derivatives in Fair Value Hedging Relationships	Hedged Items in Fair Value Hedging Relationships	Location of Gains (Losses) Recognized in Income	Three Months Ended Sept. 30, 2009	Nine Months Ended Sept. 30, 2009	Three Months Ended Sept. 30, 2009		Nine Months Ended Sept. 30, 2009
Interest rate swaps	Fixed rate debt	Interest expense			$	1	$	1

								Three Months Ended Sept. 30, 2009						Nine Months Ended Sept. 30, 2009
Derivative Relationships	Derivative Gain (Loss) Recognized in OCI (Effective Portion)						Location of Gains (Losses) Recognized in Income	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)			Gain (Loss) Reclassified from AOCI into Income (Effective Portion) (a)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) (a)
	Three Months Ended Sept. 30, 2009			Nine  Months Ended Sept. 30, 2009
Cash Flow Hedges:
Cross-currency swaps	$	(4	)	$	(43	)	Interest expense	$	1					$	2
							Other income - net		(3	)					(18	)
Commodity contracts		36			436		Wholesale energy marketing		137		$	(122	)		288		$	(183	)
							Fuel		(7	)		1			(17	)		2
							Depreciation								1
							Energy purchases		(225	)		1			(454	)		(4	)
	$	32		$	393			$	(97	)	$	(120	)	$	(198	)	$	(185	)
Net Investment Hedges:
Foreign exchange contracts	$	3		$	(8	)

(a) In the third quarter of 2009, PPL Energy Supply changed its presentation related to net losses (gains) on commodity contracts that failed hedge effectiveness testing but are not dedesignated as cash flow hedges.  As a result, $159 million of net losses that were previously presented in "Gain (Loss) Reclassified from AOCI to Income (Effective Portion)" are now included in "Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)."  See "Commodity Price Risk (Non-trading) - Cash Flow Hedges" for additional information.

Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivatives	Three Months Ended Sept. 30, 2009			Nine Months Ended Sept. 30, 2009
Foreign exchange contracts	Other income - net	$	2		$	(9	)
Commodity contracts	Unregulated retail electric and gas		1			7
	Wholesale energy marketing		79			579
	Net energy trading margins (a)		4
	Fuel		(2	)		3
	Energy purchases		(158	)		(800	)
		$	(74	)	$	(220	)

(a) Differs from statement of income due to intra-month transactions, which PPL Energy Supply defines as spot activity.

Credit Risk-Related Contingent Features (PPL and PPL Energy Supply)

Certain of PPL's and PPL Energy Supply's derivative contracts contain credit contingent provisions which would permit the counterparties with which PPL or PPL Energy Supply is in a net liability position to require the transfer of additional collateral upon a decrease in PPL's or PPL Energy Supply's credit rating.  Most of these provisions would require PPL or PPL Energy Supply to transfer additional collateral or permit the counterparty to terminate the contract if PPL's or PPL Energy Supply's credit rating were to fall below investment grade.  Some of these provisions also would allow the counterparty to require additional collateral upon each decrease in the credit rating at levels that remain above investment grade.  In either case, if PPL's or PPL Energy Supply's credit rating were to fall below investment grade (i.e., below BBB- for S&P or Fitch, or Baa3 for Moody's), and assuming no assignment to an investment grade affiliate where allowed, most of these credit contingent provisions require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization by PPL or PPL Energy Supply on derivative instruments in net liability positions.

Additionally, certain of PPL's and PPL Energy Supply's derivative contracts contain credit contingent provisions that require PPL or PPL Energy Supply to provide "adequate assurance" of performance if the other party has reasonable grounds for insecurity regarding PPL's or PPL Energy Supply's performance of its obligation under the contract.  A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity.  This would typically involve negotiations among the parties.  However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" provisions.

To determine net liability positions, PPL and PPL Energy Supply use the fair value of each agreement.  The aggregate fair value of all derivative instruments with the credit contingent provisions described above that were in a net liability position at September 30, 2009 was $220 million for PPL and $214 million for PPL Energy Supply, of which both had posted collateral of $152 million in the normal course of business.  At September 30, 2009, if the credit contingent provisions underlying these derivative instruments were triggered due to a credit downgrade below investment grade, PPL and PPL Energy Supply would have been required to post an additional $140 million of collateral to their counterparties.

15.   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, 2008	$	94	$	669	$	763
Effect of foreign currency exchange rates				42		42
Balance at September 30, 2009	$	94	$	711	$	805

16.   Asset Retirement Obligations

(PPL and PPL Energy Supply)

The change in the carrying amounts of the AROs was:

AROs at December 31, 2008	$	389
Accretion expense		22
Change in estimated cash flows and/or settlement date		1
Obligations settled		(14	)
AROs at September 30, 2009	$	398

The most significant ARO recorded by PPL and PPL Energy Supply relates to the decommissioning of the Susquehanna nuclear station.  The accrued nuclear decommissioning obligation was $342 million and $322 million at September 30, 2009 and December 31, 2008.

Assets in the NDT funds are legally restricted for purposes of settling PPL's and PPL Energy Supply's ARO related to the decommissioning of the Susquehanna station.  The aggregate fair value of these assets was $525 million and $446 million at September 30, 2009 and December 31, 2008.  See Notes 13 and 18 for additional information on the fair value of these assets.

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.

	September 30, 2009
	PPL		PPL Energy Supply		PPL Electric
Current:
Funds deposited with Trustee to defease First Mortgage Bonds (a)	$	1			$	1
Deposits for trading purposes (b)		22	$	22
Counterparty collateral (b)		121		121
Client deposits		4
Miscellaneous		3		3
Total current		151		146		1
Noncurrent:
Required deposits of WPD (c)		14		14
Funds deposited with Trustee to defease First Mortgage Bonds (a)		13				13
Total noncurrent		27		14		13
	$	178	$	160	$	14

	December 31, 2008
	PPL		PPL Energy Supply		PPL Electric
Current:
Funds deposited with Trustee to defease First Mortgage Bonds (a)	$	1			$	1
Deposits for trading purposes (b)		301	$	301
Counterparty collateral (b)		12		12
Client deposits		4
Miscellaneous		2		2
Total current		320		315		1
Noncurrent:
Required deposits of WPD (c)		13		13
Funds deposited with Trustee to defease First Mortgage Bonds (a)		14				14
Total noncurrent		27		13		14
	$	347	$	328	$	15

(a)	The carrying amount of related First Mortgage Bonds was $10 million at September 30, 2009 and December 31, 2008.
(b)	"Deposits for trading purposes" represent margin posted by PPL Energy Supply in connection with trading activities.  "Counterparty collateral" represents margin posted by counterparties to PPL Energy Supply in connection with trading activities. The decrease in deposits for trading purposes and the increase in counterparty collateral from December 31, 2008 relates primarily to decreases in market prices and/or the realization of certain transactions.
(c)	Primarily consists of insurance reserves.

18.   Available-for-Sale Securities

(PPL and PPL Energy Supply)

The following table shows the amortized cost of available-for-sale securities and the gross unrealized gains and losses recorded in AOCI.  See Note 13 for information regarding the fair value of these securities.

	September 30, 2009							December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses(a)
PPL
Short-term investments – municipal debt securities								$	150
NDT funds:
Cash and cash equivalents	$	8							7
Equity securities:
U.S. large-cap		175	$	78					160	$	22
U.S. mid/small-cap		67		32					60		9
Debt securities:
U.S. Treasury		56		3					67		10
U.S. government agency		10							13		1
Municipality		64		2					59		2
Investment-grade corporate		26		2					31		2
Residential mortgage-backed securities		1							2
Other		1							1
		408		117					400		46
Auction rate securities		29			$	(11	)		29			$	(5	)
Total PPL	$	437	$	117	$	(11	)	$	579	$	46	$	(5	)
PPL Energy Supply
Short-term investments – municipal debt securities								$	150
NDT funds:
Cash and cash equivalents	$	8							7
Equity securities:
U.S. large-cap		175	$	78					160	$	22
U.S. mid/small-cap		67		32					60		9
Debt securities:
U.S. Treasury		56		3					67		10
U.S. government agency		10							13		1
Municipality		64		2					59		2
Investment-grade corporate		26		2					31		2
Residential mortgage-backed securities		1							2
Other		1							1
		408		117					400		46
Auction rate securities		24			$	(10	)		24			$	(5	)
Total PPL Energy Supply	$	432	$	117	$	(10	)	$	574	$	46	$	(5	)

(a) Prior to the April 1, 2009 adoption of accounting guidance addressing other-than-temporary impairments, there were no unrealized losses recorded in AOCI on debt securities in the NDT funds.  See "Recognition and Presentation of Other-Than-Temporary Impairments" in Note 2 for additional information.

The following table shows the gross unrealized losses not recognized in earnings and the related fair value of auction rate securities, aggregated by length of time that individual securities have been in an unrealized loss position as of September 30, 2009.

	Less Than 12 Months					12 Months or Greater					Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
PPL	$	(8	)	$	10	$	(3	)	$	8	$	(11	)	$	18
PPL Energy Supply		(7	)		7		(3	)		7		(10	)		14

The following table shows the gross unrealized losses not recognized in earnings and the related fair value of auction rate securities, aggregated by length of time that individual securities have been in an unrealized loss position as of December 31, 2008.

	Less Than 12 Months					12 Months or Greater		Total
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses	Fair Value	Gross Unrealized Losses			Fair Value
PPL	$	(5	)	$	21			$	(5	)	$	21
PPL Energy Supply		(5	)		19				(5	)		19

The following table shows the scheduled maturity dates of debt securities held at September 30, 2009.

	Maturity Less Than 1 Year		Maturity 1-5 Years		Maturity 5-10 Years		Maturity in Excess of 10 Years		Total
PPL
Amortized Cost	$	1	$	64	$	50	$	72	$	187
Fair Value		1		66		52		64		183
PPL Energy Supply
Amortized Cost	$	1	$	64	$	50	$	67	$	182
Fair Value		1		66		52		60		179

The following table shows proceeds from and realized gains (losses) on sales of available-for-sale securities.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
PPL
Proceeds from sales in NDT funds (a)	$	22		$	67		$	163		$	149
Other proceeds from sales								150			36
Gross realized gains (b)		4			5			18			11
Gross realized losses (b)		(1	)		(9	)		(14	)		(16	)
PPL Energy Supply
Proceeds from sales in NDT funds (a)	$	22		$	67		$	163		$	149
Other proceeds from sales								150			33
Gross realized gains (b)		4			5			18			11
Gross realized losses (b)		(1	)		(9	)		(14	)		(16	)

(a)	These proceeds, along with deposits of amounts collected from customers, are used to pay income taxes and fees related to managing the trust.  Remaining proceeds are reinvested in the trust.
(b)	Excludes the impact of other-than-temporary impairment charges recognized in the Statements of Income.

NDT Funds

When the fair value of a security is less than amortized cost, PPL and PPL Energy Supply must make certain assertions to avoid recording an other-than-temporary impairment that requires a current period charge to earnings.  The NRC requires that nuclear decommissioning trusts be managed by independent investment managers, with discretion to buy and sell securities in the trusts.  As a result, PPL and PPL Energy Supply have been unable to demonstrate the ability to hold an impaired security until it recovers its value; therefore, unrealized losses on debt securities through March 31, 2009 and unrealized losses on equity securities for all periods presented, represented other-than-temporary impairments that required a current period charge to earnings.

As described in "New Accounting Guidance Adopted - Recognition and Presentation of Other-Than-Temporary Impairments" in Note 2, effective April 1, 2009, when PPL and PPL Energy Supply intend to sell a debt security or more likely than not will be required to sell a debt security before recovery, then the other-than-temporary impairment recognized in earnings will equal the entire difference between the security's amortized cost basis and its fair value.  However, if there is no intent to sell a debt security and it is not more likely than not that they will be required to sell the security before recovery, but the security has suffered a credit loss, the other-than-temporary impairment will be separated into the credit loss component, which is recognized in earnings, and the remainder of the other-than-temporary impairment, which is recorded in OCI.  Temporary impairments of debt securities and unrealized gains on both debt and equity securities are recorded to OCI.  There were no credit losses on debt securities held in the NDT funds at September 30, 2009.

Auction Rate Securities

At September 30, 2009 and December 31, 2008, the estimated fair value of the auction rate securities was $11 million and $5 million lower than par value for PPL and $10 million and $5 million lower than par value for PPL Energy Supply.  See Note 13 for additional information on these securities, including fair value.  Based upon the evaluation of available information, PPL and PPL Energy Supply believe these investments continue to be of high credit quality and they do not have significant exposure to realize losses on these securities.  PPL and PPL Energy Supply have no current plans to sell these securities until they can be liquidated at par value and do not anticipate having to sell these securities in order to fund operations or for any other purpose.  As such, the decline in fair value was deemed temporary due to general market conditions.  During the second and third quarters of 2009, PPL Energy Supply liquidated an insignificant amount of these securities at par.

Short-term Investments

In December 2008, the PEDFA issued $150 million aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2008A and 2008B due 2038 (Series 2008 Bonds) on behalf of PPL Energy Supply.  PPL Investment Corp. acted as the initial purchaser of the Series 2008 Bonds upon issuance.  At December 31, 2008, these investments were reflected in "Short-term investments" on the Balance Sheet.  In April 2009, PPL Investment Corp. received $150 million for its investment in the Series 2008 bonds when they were refunded by the PEDFA.  See "Financing Activities" in Note 7 for more information on the refundings.  No realized or unrealized gains (losses) were recorded on these securities, as the difference between carrying value and fair value was insignificant.

19.   Leases

Lessor Transactions(PPL and PPL Energy Supply)

A PPL Energy Supply subsidiary is the lessor, for accounting purposes, of each of the Shoreham and Edgewood plants (collectively with related tolling agreements, the Long Island generation business).  In May 2009, PPL Generation signed a definitive agreement to sell the Long Island generation business.  The tolling agreements related to these plants, accounted for as containing leases, will be transferred to the new owner upon completion of the sale.  The lease related to the Shoreham plant is classified as a direct-financing lease.  Future minimum lease payments on this lease are estimated to be $16 million per year for 2009 through 2013.  The lease related to the Edgewood plant is classified as an operating lease.  At December 31, 2008, total minimum future rentals under this lease were estimated to be $28 million, including $3 million per year for 2009 through 2013.  PPL Energy Supply no longer expects to receive these payments subsequent to completion of the anticipated sale.  See Note 8 for additional information on the anticipated sale.

20.   New Accounting Guidance Pending Adoption

(PPL, PPL Energy Supply and PPL Electric)

Employers' Disclosures about Pensions and Other Postretirement Benefits

Guidance on an employer's disclosures about plan assets of defined benefit plans was revised to provide users of financial statements with an understanding of:

· how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies;

· the major categories of plan assets;

· the inputs and valuation techniques used to measure the fair value of plan assets;

· the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and

· significant concentrations of risk within plan assets.

PPL and its subsidiaries will adopt this guidance prospectively effective December 31, 2009.  This guidance was issued to provide greater transparency within disclosures; therefore, the adoption is not expected to have a material impact on PPL and its subsidiaries' financial statements.

Accounting for Transfers of Financial Assets

Accounting guidance was issued to revise the accounting for transfers of financial assets.  This guidance eliminates the concept of a qualifying special-purpose entity (QSPE); therefore, QSPEs will be subject to consolidation guidance.  Further, it changes the requirements for the derecognition of financial assets, establishes new criteria for reporting the transfer of a portion of a financial asset as a sale and requires transferors to initially recognize, at fair value, assets obtained and liabilities incurred as a result of a transfer accounted for as a sale.  Additionally, it requires enhanced disclosures to improve the transparency around transfers of financial assets and a transferor's continuing involvement.

PPL and its subsidiaries will adopt this guidance effective January 1, 2010.  Early adoption is prohibited.  This guidance will be applied prospectively to new transfers of financial assets.  Disclosures will be required for all transfers, including those entered into before the effective date.  Comparative disclosures are encouraged, but not required, for periods in which these disclosures were not previously required.  The potential impact of adoption to the financial statements is not yet determinable but could be material.

Consolidation of Variable Interest Entities

Accounting guidance was issued to replace the quantitative-based risks and rewards calculation for determining which entity, if any, has a controlling financial interest in a variable interest entity (VIE) and is the primary beneficiary.  This guidance prescribes a qualitative approach focused on identifying which entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE.  It also requires ongoing assessments of whether an entity is the primary beneficiary of a VIE and enhanced disclosures to improve the transparency of an entity's involvement in a VIE.

Upon adoption of this guidance, all previous consolidation conclusions must be reconsidered.  Additionally, with the elimination of the QSPE concept in the guidance addressing accounting for transfers of financial assets, QSPEs need to be evaluated for consolidation.  If the initial application results in consolidation of a VIE, the assets, liabilities, and noncontrolling interests of the VIE will be measured at their carrying amounts as if this guidance had been applied from the point in time the entity became the primary beneficiary of the VIE (unless the fair value option is elected).  Any difference between the net amounts required to be recognized and the amount of any previously recognized interest will be reflected as a cumulative-effect adjustment to retained earnings.  If initial application results in deconsolidation of a VIE, any retained interest in the VIE will be measured at its carrying value as if this guidance had been applied from the inception of the VIE.

PPL and its subsidiaries will adopt this guidance prospectively effective January 1, 2010.  Early adoption is prohibited.  Comparative disclosures are not required for periods in which these disclosures were not previously required.  The potential impact of adoption to the financial statements is not yet determinable but could be material.

21.   Subsequent Events

(PPL, PPL Energy Supply and PPL Electric)

Subsequent events have been evaluated through the time of issuance of these financial statements on October 30, 2009, and are included in the relevant note disclosures.

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.  Refer to "Item 1. Business - Background" in PPL's 2008 Form 10-K for descriptions of its reportable segments, which are Supply, International Delivery and Pennsylvania Delivery.  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.  See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL's Form 8-K dated September 9, 2009, for a discussion of PPL's strategy and the risks and challenges that it faces in its business.  See "Forward-Looking Information," Note 10 to the Financial Statements and the remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" in PPL's 2008 Form 10-K and the rest of Item 7 in PPL's Form 8-K dated September 9, 2009 for more information concerning the material risks and uncertainties that PPL faces in its businesses and with respect to its future earnings.  PPL filed the September 2009 Form 8-K to revise certain information in Items 6, 7 and 8 in its 2008 Form 10-K to reflect discontinued operations and the retrospective application of certain accounting standards.

Market Events

Conditions in the financial markets have been disruptive to the processes of managing credit risk, responding to liquidity needs, measuring derivatives and other financial instruments at fair value, and managing market price risk.  Bank credit capacity has been reduced and the cost of renewing or establishing new credit facilities has increased significantly, thereby making less certain businesses' ability to enter into long-term energy commitments or reliably estimate the longer-term cost and availability of credit.

Commodity Price Risk

The volatility of wholesale energy prices due to conditions in the financial and commodity markets significantly impacted PPL's earnings in 2009 and the third quarter of 2008.  See "Statement of Income Analysis - Domestic Gross Energy Margins - Domestic Gross Energy Margins By Region" for further discussion.

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 to limit counterparty credit risk.  Conditions in the financial and commodity markets have generally increased PPL's exposure to credit risk.  See Notes 13 and 14 to the Financial Statements, and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL's Form 8-K dated September 9, 2009 for more information on credit risk.

Liquidity Risk

Despite conditions in the financial and capital markets, external financing activities by domestic electric utilities are being completed, although generally at higher-than-historical costs and interest rates.  PPL expects to continue to have access to adequate sources of liquidity through operating cash flows, cash and cash equivalents, credit facilities and, from time to time, the issuance of capital market securities.  See "Financial Condition - Liquidity and Capital Resources" for an expanded discussion of PPL's liquidity position and a discussion of financing transactions.

Valuations in Inactive Markets

Conditions in the financial markets have generally made it difficult 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 all of these markets were active at September 30, 2009, with the exception of the market for auction rate securities.  See Notes 13 and 18 to the Financial Statements and "Financial Condition - Liquidity and Capital Resources - Auction Rate Securities" for a discussion of these investments.

Securities Price Risk

Declines in the market price of debt and equity securities result in unrealized losses that reduce the asset values of PPL's investments in its defined benefit plans and NDT funds.  Both the defined benefit plans and the NDT funds had positive returns in the second and third quarters of 2009, thereby recovering a portion of the negative returns incurred in 2008 and the first quarter of 2009.  PPL actively monitors the performance of the investments held in its defined benefit plans and NDT funds and periodically reviews the funds' investment allocations.  See "Financial Condition - Risk Management - Energy Marketing & Trading and Other - NDT Funds - Securities Price Risk" for additional information on securities price risk.

Determination of the funded status of defined benefit plans, contribution requirements and net periodic defined benefit costs for future years are subject to changes in various assumptions, in addition to the actual performance of the assets in the plans.  See "Application of Critical Accounting Policies - Defined Benefits" in PPL's Form 8-K dated September 9, 2009 for a discussion of the assumptions and sensitivities regarding those assumptions.

The Economic Stimulus Package

The Economic Stimulus Package is intended to stimulate the U.S. economy through federal tax relief, expansion of unemployment benefits and other social stimulus provisions, domestic spending for education, health care and infrastructure, including the energy sector.  A portion of the benefits included in the Economic Stimulus Package are offered in the form of loan fee reductions, expanded loan guarantees and secondary market incentives, including delayed recognition for tax purposes of income related to the cancellation of certain types of debt.  See "Financial Condition - Liquidity and Capital Resources" for a discussion of the applicability to the purchase of notes by PPL Energy Supply.

Funds from the Economic Stimulus Package will be allocated to various federal agencies, such as the DOE, and will also be provided to state agencies through block grants.  The DOE plans to use a portion of the funds for smart grid, efficiency-related and renewable energy programs, and has initiated a process for that purpose.  The Commonwealth of Pennsylvania is accepting applications for funding of certain energy projects including solar projects.  As discussed in Note 8 to the Financial Statements, PPL has reconsidered its Holtwood expansion project in view of the tax incentives and potential loan guarantees for renewable energy projects contained in the Economic Stimulus Package.  PPL has filed DOE loan guarantee applications and grant applications for the Holtwood expansion project and for the Rainbow redevelopment project.  In addition, in July 2009, PPL Electric proposed to the DOE a $38 million project that would use smart grid technology to strengthen reliability, save energy and improve electric service for 60,000 Harrisburg, Pennsylvania area customers.  PPL Electric requested a DOE grant to provide half of the funding for this pilot program.  In October 2009, PPL Electric received notification that its grant proposal has been selected by the DOE for award negotiations.  PPL and its subsidiaries continue to review the Economic Stimulus Package's provisions to determine the impact on PPL's possible expansion plans and other business-related activities.

The following information should be read in conjunction with PPL's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL's Form 8-K dated September 9, 2009.

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.  "Results of Operations" 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 "Statement of Income Analysis," which includes explanations of significant changes in principal items on PPL's Statements of Income, comparing the three and nine months ended September 30, 2009, with the same periods in 2008.

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 attributable to PPL and the related EPS were:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Net income attributable to PPL	$	20	$	203	$	254	$	653
EPS - basic	$	0.05	$	0.54	$	0.67	$	1.74
EPS - diluted	$	0.05	$	0.54	$	0.67	$	1.73

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

Segment Results

Net income (loss) attributable to PPL by segment was:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Supply	$	(31	)	$	98	$	(12	)	$	297
International Delivery		24			73		173			233
Pennsylvania Delivery		27			32		93			123
Total	$	20		$	203	$	254		$	653

Supply Segment

The Supply segment primarily consists of the domestic energy marketing and trading, domestic generation and domestic development operations of PPL Energy Supply.  In May 2009, PPL Generation signed a definitive agreement to sell its Long Island generation business and expects the sale to close in late 2009 or in the first quarter of 2010.  In July 2009, PPL Maine signed a definitive agreement to sell the majority of its hydroelectric generation business and expects the sale to close in November 2009.  See Note 8 to the Financial Statements for additional information.

The Supply segment results reflect the classification of the revenues and expenses of the Long Island generation business and the majority of the Maine hydroelectric generation business as Discontinued Operations.

Supply segment net income (loss) attributable to PPL was:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Energy revenues
External (a)	$	733		$	1,814	$	2,605		$	1,996
Intersegment		445			453		1,353			1,370
Energy-related businesses		108			140		297			368
Total operating revenues		1,286			2,407		4,255			3,734
Fuel and energy purchases
External (a)		905			1,781		2,919			1,888
Intersegment		19			29		59			87
Other operation and maintenance		182			212		639			643
Depreciation		56			52		163			144
Taxes, other than income		7			9		22			18
Energy-related businesses		104			130		286			351
Total operating expenses		1,273			2,213		4,088			3,131
Other Income  - net		6			1		41			13
Other-Than-Temporary Impairments					6		18			16
Interest Expense		47			52		144			141
Income Taxes		2			42		28			173
Income (Loss) from Discontinued Operations					3		(29	)		12
Noncontrolling Interest		1					1			1
Net Income (Loss) Attributable to PPL	$	(31	)	$	98	$	(12	)	$	297

(a) Includes unrealized gains and losses from economic activity.  See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information.

The after-tax changes in net income (loss) attributable to PPL between these periods were due to the following factors.

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Domestic gross energy margins	$	77		$	40
Other operation and maintenance		(9	)		(5	)
Depreciation		(2	)		(11	)
Other income - net		5			10
Interest expense		3			(2	)
Income taxes and other		(6	)		(14	)
Discontinued operations, net of special item (Note 8)		(3	)		(4	)
Special items		(194	)		(323	)
	$	(129	)	$	(309	)

· See "Domestic Gross Energy Margins" for further discussion.

· Higher other operation and maintenance for the three months ended September 30, 2009, compared with the same period in 2008, was primarily due to increased payroll costs at the Susquehanna nuclear plant.

· Higher depreciation for the nine months ended September 30, 2009, compared with the same period in 2008, was primarily due to the Montour scrubbers and Susquehanna generation uprate projects that were placed in-service in the second quarter of 2008 and the Brunner Island Unit 3 scrubber placed in-service in the second quarter of 2009.

· Higher other income - net for the three and nine months ended September 30, 2009, compared with the same periods in 2008, was primarily due to higher earnings on securities in the NDT funds, partially offset by lower interest income.  The nine-month period was also higher due to gains recorded in 2009 related to the extinguishment of certain PPL Energy Supply Senior Notes.

· Higher income taxes for both periods were primarily due to a higher effective tax rate and lower domestic manufacturing deductions in 2009.

The following after-tax amounts, which management considers special items, impacted the Supply segment earnings.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Unrealized gains (losses) from energy-related economic activity (Note 14)	$	(130	)	$	67		$	(168	)	$	121
Adjustments - NDT investments (a)					(1	)		(1	)		(5	)
Impairments and other impacts - emission allowances (b)					(27	)		(15	)		(27	)
Impairments - assets held for sale and other (c)								(36	)
Workforce reduction charge (Note 6)								(6	)
Change in tax accounting method (Note 5)		(25	)					(25	)
Off-site remediation of ash basin leak (Note 10)											1
Montana basin seepage litigation (Note 10)											(5	)
Synthetic fuel tax adjustment (Note 10)											(13	)
Total	$	(155	)	$	39		$	(251	)	$	72

(a)	Represents other-than-temporary impairment charges on securities, including reversals of previous impairments when securities previously impaired were sold.
(b)	2008 includes charges related to annual nitrogen oxide allowances and put options recorded in the third quarter.  See PPL's Form 8-K dated September 9, 2009 for additional information. See "Nonrecurring Fair Value Measurements - Sulfur Dioxide Emission Allowances" in Note 13 to the Financial Statements for additional information on 2009 impairments.
(c)	Includes a $34 million charge related to the Long Island generation business recorded in the second quarter of 2009.

Earnings Outlook

Excluding special items, PPL projects lower earnings for its Supply segment in 2009 compared with 2008, driven by higher expected operation and maintenance expenses, depreciation and income taxes, partially offset by higher energy margins as a result of higher expected value from baseload generation, despite higher expected coal expense, and higher margins from marketing and trading activities.

In July 2009, PPL Maine signed a definitive agreement to sell the majority of its hydroelectric generation business.  As a result of this sale, PPL expects to record an after-tax gain of between $20 and $25 million (approximately $0.06 per share, basic and diluted) in November 2009.  In addition, PPL would record an additional after-tax gain of between $7 and $9 million ($0.02 per share, basic and diluted) from contingent consideration under this agreement, upon completion of PPL's previously announced potential sale of three other hydroelectric facilities to the Penobscot River Restoration Trust.  This additional gain may be recorded beyond 2009 or ultimately may not be realized.  These gains will be treated as special items.  See Note 8 to the Financial Statements for additional information.

International Delivery Segment

The International Delivery segment consists primarily of the electricity distribution operations in the U.K.  In the first quarter of 2008, the International Delivery segment recognized income tax benefits and miscellaneous expenses in Discontinued Operations as the dissolution of the remaining Latin American holding companies commenced.  In the third quarter of 2009, the International Delivery segment recognized $24 million of income tax expense in Discontinued Operations related to the identification of certain required corrections to the calculation of tax bases of the Latin American businesses sold in 2007.  See Note 8 to the Financial Statements for additional information.

International Delivery segment net income attributable to PPL was:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Utility revenues	$	165		$	195		$	496		$	647
Energy-related businesses		9			8			24			26
Total operating revenues		174			203			520			673
Other operation and maintenance		32			46			97			142
Depreciation		31			33			84			104
Taxes, other than income		16			17			42			51
Energy-related businesses		5			4			12			10
Total operating expenses		84			100			235			307
Other Income - net		2			6			(9	)		10
Interest Expense		28			42			59			114
Income Taxes		16			(6	)		20			34
Income (Loss) from Discontinued Operations		(24	)					(24	)		5
Net Income Attributable to PPL	$	24		$	73		$	173		$	233

The after-tax changes in net income attributable to PPL between these periods were due to the following factors.

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
U.K.
Delivery margins	$	3		$	3
Other operating expenses		(1	)		8
Interest expense		6			27
Income taxes		(6	)		25
Foreign currency exchange rates		(9	)		(69	)
Hyder liquidation distributions					(3	)
Other		(1	)		(2	)
U.S. other income - net		(5	)		(6	)
U.S. income taxes		(17	)		(11	)
Discontinued operations, net of special item (Note 8)					(5	)
Other		1			2
Special items		(20	)		(29	)
	$	(49	)	$	(60	)

· Lower other operating expenses for the nine months ended September 30, 2009, compared with the same period in 2008, were primarily due to lower pension costs, resulting from an increase in the discount rate and a lower inflation rate, and lower WPD meter operator expenses, due to the transfer of that activity to a third party in 2008.

· Lower interest expense for both periods resulted primarily from lower inflation rates on U.K. Index-linked Senior Unsecured Notes and lower debt balances.

· Lower U.K. income taxes for the nine months ended September 30, 2009, compared with the same period in 2008, were primarily due to changes in uncertain tax positions, partially offset by tax return adjustments in 2008.  See Note 5 to the Financial Statements for additional information.

· Changes in foreign currency exchange rates negatively impacted U.K. earnings for both periods.  The weighted-average exchange rate for the British pound sterling was approximately $1.64 for the three months ended September 30, 2009, versus approximately $1.95 for the same period in 2008, and approximately $1.50 for the nine months ended September 30, 2009, versus approximately $1.97 for the same period in 2008.

· Lower U.S. other income - net for both periods was primarily due to realized hedging results.

· Higher U.S. income taxes for both periods were primarily due to changes in the timing of dividends.

The following after-tax amounts, which management considers special items, impacted the International Delivery segment earnings.

	Three Months Ended September 30,			Nine Months Ended September 30,
	2009			2009
Unrealized gains (losses) from foreign currency economic activity (a)	$	4		$	(2	)
Workforce reduction charge (Note 6)					(2	)
Asset impairments					(1	)
Income taxes - Latin American businesses (Note 8)		(24	)		(24	)
Total	$	(20	)	$	(29	)

(a) These transactions are intended to hedge a portion of the net income of the International Delivery segment. This economic value in U.S. dollars is subject to changes in the British pound sterling to U.S. dollar exchange rate. See Note 14 to the Financial Statements for additional information regarding economic activity.

Earnings Outlook

Excluding special items, PPL projects lower earnings for its International Delivery segment in 2009 compared with 2008, primarily due to less favorable foreign currency exchange rates, partially offset by lower income taxes and lower financing costs.  See Note 10 to the Financial Statements for information on WPD's receipt of the Ofgem's initial five-year price review.  At this time WPD cannot predict the potential impact of this initial proposal on its revenues and earnings for 2010 and beyond.

Pennsylvania Delivery Segment

The Pennsylvania Delivery segment for both 2009 and 2008 includes the regulated electric delivery operations of PPL Electric.  The Pennsylvania Delivery segment results in 2008 also include the revenues and expenses of PPL's natural gas distribution and propane businesses, which are classified as Discontinued Operations.  In October 2008, PPL sold its natural gas distribution and propane businesses.  See Note 8 to the Financial Statements for additional information.

Pennsylvania Delivery segment net income attributable to PPL was:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009		2008
Operating revenues
External	$	790	$	814		$	2,407	$	2,464
Intersegment		19		29			59		87
Total operating revenues		809		843			2,466		2,551
Fuel and energy purchases
External		30		44			93		129
Intersegment		445		453			1,353		1,370
Other operation and maintenance		103		103			307		310
Amortization of recoverable transition costs		73		73			227		217
Depreciation		33		32			96		97
Taxes, other than income		47		51			145		155
Total operating expenses		731		756			2,221		2,278
Other Income  - net		1		1			6		9
Interest Expense		31		25			91		80
Income Taxes		16		21			53		70
Income (Loss) from Discontinued Operations				(5	)				5
Noncontrolling Interests		5		5			14		14
Net Income Attributable to PPL	$	27	$	32		$	93	$	123

The after-tax changes in net income attributable to PPL between these periods were due to the following factors.

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)	$	(4	)	$	(14	)
Other operation and maintenance		(1	)		9
Interest expense		(4	)		(13	)
Discontinued operations, net of special item (Note 8)		1			(10	)
Other		(1	)		(1	)
Special items		4			(1	)
	$	(5	)	$	(30	)

· Lower delivery revenues for the nine months ended September 30, 2009, compared with the same period in 2008, were primarily due to economic conditions including industrial customers scaling back on production, the unfavorable impact of weather on sales volumes and a true-up of the FERC formula-based transmission revenues.  See Note 2 to the Financial Statements for additional information on the true-up.

· Lower other operation and maintenance expense for the nine months ended September 30, 2009, compared with the same period in 2008, was primarily due to decreased payroll/overhead expense, decreased contractor expenses in 2009 and higher storm costs in 2008, net of insurance recoveries, partially offset by an increase in uncollectible accounts.

· Higher interest expense for the nine months ended September 30, 2009, compared with the same period in 2008, was primarily due to $400 million of debt issuances in October 2008 that prefunded a portion of August 2009 debt maturities.

The following after-tax amounts, which management considers special items, also had an impact on the Pennsylvania Delivery segment earnings.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2009	2008			2009			2008
Sale of gas and propane businesses (Note 8)		$	(4	)				$	(5	)
Asset impairments					$	(1	)
Workforce reduction charge (Note 6)						(5	)
Total		$	(4	)	$	(6	)	$	(5	)

Earnings Outlook

Excluding special items, PPL projects lower earnings in its Pennsylvania Delivery segment in 2009 compared with 2008, primarily due to higher financing costs, lower than expected electricity delivery revenues, and the divestiture of its natural gas distribution and propane businesses.

See Note 10 to the Financial Statements for a discussion of items that could impact earnings beyond 2009, including the PUC-approved plan to procure default electricity supply for 2010 through May 2013, Pennsylvania legislative updates and other regulatory activities.

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" are useful and meaningful to investors because they provide 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" are 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 "Operating Income" and "Domestic Gross Energy Margins" as defined by PPL.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Operating Income (a)	$	181		$	384		$	697		$	1,242
Adjustments:
Energy-related businesses, net (b)		(8	)		(14	)		(23	)		(33	)
Other operation and maintenance (a)		317			361			1,043			1,095
Amortization of recoverable transition costs (a)		73			73			227			217
Depreciation (a)		120			117			343			345
Taxes, other than income (a)		70			77			209			224
Revenue adjustments (c)		(168	)		(1,683	)		(1,394	)		(2,007	)
Expense adjustments (c)		(109	)		1,029			158			109
Domestic gross energy margins	$	476		$	344		$	1,260		$	1,192

(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 tables below.

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

	Three Months Ended Sept. 30,
	2009			2008			Change
Revenue
Utility (a)	$	955		$	1,007		$	(52	)
Unregulated retail electric and gas (a)		34			43			(9	)
Wholesale energy marketing (a)		692			1,905			(1,213	)
Net energy trading margins (a)		7			(132	)		139
Revenue adjustments (b)
WPD utility revenue		(165	)		(195	)		30
Domestic delivery component of utility revenue		(302	)		(325	)		23
Other utility revenue		(17	)		(12	)		(5	)
Unrealized (gains) losses from economic hedge activity (c)		307			(1,160	)		1,467
Margins from Supply segment discontinued operations		9			9
Total revenue adjustments		(168	)		(1,683	)		1,515
		1,520			1,140			380
Expense
Fuel (a)		264			305			(41	)
Energy purchases (a)		671			1,520			(849	)
Expense adjustments (b)
Unrealized gains (losses) from economic hedge activity (c)		86			(1,044	)		1,130
Domestic electric ancillaries (e)		(10	)		(15	)		5
Gross receipts tax (f)		27			28			(1	)
Other		6			2			4
Total expense adjustments		109			(1,029	)		1,138
		1,044			796			248
Domestic gross energy margins	$	476		$	344		$	132

	Nine Months Ended Sept. 30,
	2009			2008			Change
Revenue
Utility (a)	$	2,901		$	3,108		$	(207	)
Unregulated retail electric and gas (a)		108			110			(2	)
Wholesale energy marketing (a)		2,497			1,971			526
Net energy trading margins (a)		2			(82	)		84
Revenue adjustments (b)
WPD utility revenue		(496	)		(647	)		151
Domestic delivery component of utility revenue		(949	)		(989	)		40
Other utility revenue		(38	)		(38	)
Unrealized (gains) losses from economic hedge activity (c)		65			(363	)		428
Gains from sale of emission allowances (d)					1			(1	)
Margins from Supply segment discontinued operations		24			29			(5	)
Total revenue adjustments		(1,394	)		(2,007	)		613
		4,114			3,100			1,014
Expense
Fuel (a)		708			734			(26	)
Energy purchases (a)		2,304			1,283			1,021
Expense adjustments (b)
Unrealized losses from economic hedge activity (c)		(220	)		(157	)		(63	)
Domestic electric ancillaries (e)		(33	)		(41	)		8
Gross receipts tax (f)		84			85			(1	)
Other		11			4			7
Total expense adjustments		(158	)		(109	)		(49	)
		2,854			1,908			946
Domestic gross energy margins	$	1,260		$	1,192		$	68

(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 "Commodity Price Risk (Non-trading) - Economic Activity" in 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 various strategies to maximize the value of its wholesale energy portfolio.  The most significant of these strategies include the sales of baseload generation and optimization of intermediate and peaking generation, both of which are considered asset-related margins, and marketing and proprietary trading activities.  PPL also manages these activities on a geographic basis that is aligned with its generation assets.

	Three Months Ended Sept. 30,
	2009		2008			Change
Asset-related margins:
Eastern U.S.	$	360	$	325		$	35
Western U.S.		84		78			6
Marketing and trading margins:
Eastern U.S.		31		(56	)		87
Western U.S.		1		(3	)		4
Domestic gross energy margins	$	476	$	344		$	132

	Nine Months Ended Sept. 30,
	2009		2008			Change
Asset-related margins:
Eastern U.S.	$	969	$	943		$	26
Western U.S.		245		217			28
Marketing and trading margins:
Eastern U.S.		45		44			1
Western U.S.		1		(12	)		13
Domestic gross energy margins	$	1,260	$	1,192		$	68

Eastern U.S.

Eastern U.S. asset-related margins were $35 million and $26 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase during the three months ended September 30, 2009 was primarily attributable to higher baseload unit operating performance in 2009, due to unplanned major outages in 2008, higher capacity revenue, and a 2.2% increase in PLR sales prices in accordance with the PUC Final Order.  Partially offsetting these higher margins were higher average baseload generation fuel prices of 13%, primarily due to higher coal prices.  The increase during the nine months ended September 30, 2009 was primarily attributable to gains resulting from the settlement of economic positions related to portfolio rebalancing and optimization strategies, higher baseload unit operating performance in 2009 due to unplanned major outages in 2008, higher capacity revenue, and a 2.2% increase in PLR sales prices in accordance with the PUC Final Order.  Partially offsetting these higher margins were higher average baseload generation fuel prices of 7%, primarily due to higher coal prices.

Eastern U.S. marketing and trading margins were $87 million and $1 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase for both periods was primarily due to increased margins in the power, gas, and oil trading positions resulting from unrealized trading losses in 2008 due to a dramatic decline in energy prices and the lack of liquidity in the wholesale power markets.  Partially offsetting these increases were lower margins on full-requirement sales contracts, primarily due to mild weather and the economic downturn.

Western U.S.

Western U.S. asset-related margins were $6 million and $28 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase during the three months ended September 30, 2009 was primarily due to higher wholesale volumes of 11% partially offset by lower generation from the hydroelectric units of 12%.  The increase for the nine months ended September 30, 2009 was primarily due to higher wholesale volumes of 16% and increased generation from the hydroelectric units of 7%.

Western U.S. marketing and trading margins were $4 million and $13 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase for the three months ended September 30, 2009 consists of $4 million of higher realized trading margins.  The increase for the nine months ended September 30, 2009 consists primarily of $9 million of higher realized trading margins and $4 million of higher unrealized trading margins.

Utility Revenues

The decreases in utility revenues were attributable to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Domestic:
Retail electric revenue (PPL Electric)
PLR	$	(8	)	$	(16	)
Delivery		(18	)		(45	)
Other		4			5
U.K.:
Electric delivery revenue		1			(3	)
Foreign currency exchange rates		(31	)		(148	)
	$	(52	)	$	(207	)

Domestic retail electric revenues for both periods were negatively impacted by economic conditions, including industrial customers scaling back on production.  In addition, weather had an unfavorable impact on sales volumes for both periods.  Lower delivery revenues for the nine months ended September 30, 2009 were also attributable to a true-up of the FERC formula-based transmission revenues.  See Note 2 to the Financial Statements for additional information on the true-up.

Energy-related Businesses

Energy-related businesses contributed $6 million less to operating income for the three months ended September 30, 2009, compared with the same period in 2008.  The decrease related mainly to energy-related businesses, primarily due to a decline in domestic construction activity caused by the slowdown in the economy.

Energy-related businesses contributed $10 million less to operating income for the nine months ended September 30, 2009, compared with the same period in 2008.  Contributions from U.K. energy-related businesses decreased by $4 million, primarily due to changes in foreign currency exchange rates.  The remaining decrease of $6 million related to domestic energy-related businesses, primarily due to a decline in construction activity caused by the slowdown in the economy.

Other Operation and Maintenance

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

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Workforce reduction charge (Note 6)				$	22
Defined benefit costs - Domestic	$	4			14
Stock-based compensation		3			(1	)
Uncollectible accounts		5			(1	)
Storm costs					(4	)
WPD meter operator expenses (a)		(1	)		(7	)
Montana basin seepage litigation (Note 10)					(8	)
Payroll related costs		12			(8	)
Contractor expense		(3	)		(11	)
Defined benefit costs - U.K.		(4	)		(12	)
Impairments and other impacts - emission allowances (b)		(45	)		(15	)
U.K. foreign currency exchange rates		(5	)		(22	)
Other - Domestic		(8	)		6
Other - U.K.		(2	)		(5	)
	$	(44	)	$	(52	)

(a)	In July 2008, WPD transferred its meter operator services to a third party.
(b)	2008 includes charges related to annual nitrogen oxide allowances and put options recorded in the third quarter.  See PPL's Form 8-K dated September 9, 2009 for additional information. See "Nonrecurring Fair Value Measurements - Sulfur Dioxide Emission Allowances" in Note 13 to the Financial Statements for additional information on 2009 impairments.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs increased by $10 million for the nine months ended September 30, 2009, compared with the same period in 2008.  The amortization of recoverable transition costs is based on a PUC amortization schedule, adjusted for ITC and CTC recoveries in customer rates and related expenses.  Since the amortization substantially matches the revenue recorded based on recovery in customer rates, there is minimal impact on earnings.

Depreciation

The changes in depreciation expense were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Additions to generation PP&E (a)	$	5		$	18
International delivery		5			5
U.K. foreign currency exchange rates		(6	)		(24	)
Other		(1	)		(1	)
	$	3		$	(2	)

(a) Primarily attributable to the completion of the Susquehanna generation uprate and the Montour scrubber projects in the second quarter of 2008 and the Brunner Island Unit 3 scrubber in the second quarter of 2009.

Taxes, Other Than Income

The decreases in taxes, other than income were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Property tax expense (a)	$	(1	)	$	5
Pennsylvania capital stock tax (b)		(1	)		(3	)
Pennsylvania gross receipts tax (b)		(3	)		(8	)
U.K. foreign currency exchange rates		(2	)		(11	)
Other					2
	$	(7	)	$	(15	)

(a)	The increase for the nine months ended September 30, 2009 is primarily due to a $7 million property tax credit recorded by PPL Montana in the nine months ended September 30, 2008.
(b)	The decreases for both periods were primarily due to a decrease in the tax rate.

Other Income - net

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

Other-Than-Temporary Impairments

Other-than-temporary impairments decreased by $6 million for the three months ended September 30, 2009, compared with the same period in 2008, primarily due to improved market returns in 2009 compared to 2008.

Interest Expense

The decreases in interest expense were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Capitalized interest	$	5		$	9
Short-term debt interest expense		(1	)		7
Long-term debt interest expense		(3	)		5
U.K. foreign currency exchange rates		(5	)		(16	)
Hedging activities		(7	)		(21	)
Inflation adjustment on U.K. Index-linked Senior Unsecured Notes		(6	)		(31	)
Other		4			6
	$	(13	)	$	(41	)

Income Taxes

The decreases in income taxes were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Tax reserve adjustments	$	47		$	16
Tax return adjustments		26			44
Nonconventional fuel and other tax credits		(3	)		(17	)
Tax on foreign earnings		(26	)		(28	)
Lower pre-tax book income		(73	)		(199	)
Other		6			8
	$	(23	)	$	(176	)

See Note 5 to the Financial Statements for additional information on income taxes.

Discontinued Operations

See "Discontinued Operations" in Note 8 to the Financial Statements for information related to the anticipated sales of PPL's Long Island generation business and the majority of its Maine hydroelectric generation business, PPL's Latin American businesses that were sold in 2007 and the remaining holding companies that were substantially dissolved in 2008, and PPL's natural gas distribution and propane businesses that were sold in 2008.

Financial Condition

Liquidity and Capital Resources

PPL continues to focus on maintaining a strong credit profile and liquidity position during the disruptive conditions in the financial markets and historically difficult bank and capital market conditions.  PPL expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, its credit facilities and, as necessary, the issuance of capital market securities.

PPL had the following at:

	September 30, 2009		December 31, 2008
Cash and cash equivalents	$	696	$	1,100
Short-term investments (a)				150
	$	696	$	1,250
Short-term debt	$	620	$	679

(a) Represents tax-exempt bonds issued by the PEDFA in December 2008 on behalf of PPL Energy Supply and purchased by a subsidiary of PPL Energy Supply upon issuance.  Such bonds were refunded in April 2009.  See "Financing Activities" below for further discussion.

The $404 million decrease in PPL's cash and cash equivalents position was primarily the net result of:

· the payment of $916 million to retire $946 million aggregate principal amount of long-term debt;

· $821 million of capital expenditures;

· the payment of $386 million of common stock dividends;

· a net decrease in short-term debt of $70 million (excluding the impact of U.K. foreign currency exchange rates);

· $58 million in net expenditures for intangible assets;

· $1.2 billion of cash provided by operating activities;

· proceeds of $298 million from the issuance of long-term debt;

· a decrease of $170 million in restricted cash and cash equivalents; and

· proceeds of $150 million from the sale of short-term investments.

Auction Rate Securities

PPL's investment in auction rate securities continues to be impacted by auction failures and the resulting illiquidity in 2009.  PPL held auction rate securities with an aggregate par value of $29 million at September 30, 2009 and December 31, 2008.  PPL concluded that the fair value of its auction rate securities was $18 million at September 30, 2009 and $24 million at December 31, 2008, a temporary decline of $11 million and $5 million from par value.  Based upon the evaluation of available information, PPL believes these investments continue to be of high credit quality.  PPL believes it will not be required to sell these securities, including to fund operations, and does not intend to sell these securities until they can be liquidated at par value.  Therefore, PPL believes it does not have significant exposure to realize losses on these securities, and none of the decline in fair value is attributable to credit loss and therefore is deemed temporary due to general market conditions and has not been recognized in earnings.  During the second and third quarters of 2009, PPL liquidated an insignificant amount of auction rate securities at par.  See Notes 13 and 18 to the Financial Statements for further discussion of auction rate securities.

Credit Facilities

At September 30, 2009, PPL's total committed borrowing capacity under credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed		Letters of Credit Issued		Unused Capacity
PPL Energy Supply Domestic Credit Facilities (a)	$	4,125	$	285	$	689	$	3,151
PPL Electric Credit Facilities (b)		340				5		335
Total Domestic Credit Facilities (c)	$	4,465	$	285	$	694	$	3,486
WPDH Limited Credit Facility	₤	150	₤	127		n/a	₤	23
WPD (South West) Credit Facilities (d)		213		54	₤	3		156
Total WPD Credit Facilities (e)	₤	363	₤	181	₤	3	₤	179

(a)	In March 2009, PPL Energy Supply's 364-day bilateral credit facility was amended.  The amendment included extending the expiration date from March 2009 to March 2010 and reducing the capacity from $300 million to $200 million. PPL Energy Supply's 364-day syndicated credit facility was amended and restated in September 2009.  The amendment included extending the expiration date from September 2009 to September 2010, increasing the capacity from $385 million to $400 million and limiting the amount of letters of credit that may be issued under the facility to $200 million.
(b)	Committed capacity includes a $150 million credit facility related to an asset-backed commercial paper program.  At September 30, 2009, based on accounts receivable and unbilled revenue pledged, $150 million was available for borrowing under the asset-backed credit facility.  In July 2009, PPL Electric and a subsidiary extended the expiration date of the credit agreement related to the asset-backed commercial paper program to July 2010.
(c)	The commitments under PPL's domestic credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 15% of the total committed capacity.
(d)	In July 2009, WPD (South West) terminated its £150 million five-year syndicated credit facility, which was to expire in October 2009, and replaced it with a new £210 million three-year syndicated credit facility expiring in July 2012.  Under the new facility, WPD (South West) has the ability to make cash borrowings but cannot request the lenders to issue letters of credit.  Borrowings under this facility bear interest at LIBOR-based rates plus a margin.  The new facility contains financial covenants that require WPD (South West) to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and total net debt not in excess of 85% of its regulatory asset base, in each case calculated in accordance with the credit facility.
(e)	At September 30, 2009, the unused capacity of WPD's committed credit facilities was approximately $291 million.

See Note 7 to the Financial Statements for further discussion of PPL's credit facilities.

Commercial Paper

As discussed below under "Rating Agency Decisions," S&P lowered its rating on PPL Energy Supply's commercial paper to A-3 from A-2 in January 2009.  Since PPL Energy Supply did not expect to need to issue any commercial paper during 2009 and there is essentially no liquidity in commercial paper markets for paper with an A-3 rating, PPL Energy Supply closed its commercial paper program in January 2009 and requested that Moody's, S&P and Fitch each withdraw their ratings on its commercial paper program, which each rating agency subsequently did.

Market conditions to issue commercial paper with ratings of P-2, A-2 and F-2 by Moody's, S&P and Fitch have improved since 2008.  However, they continue to be impacted by the volatility experienced in the broader financial markets.  Based on its current cash position and anticipated cash flows, PPL Electric currently does not expect to need to issue any commercial paper during the remainder of 2009, but it may do so from time to time to facilitate short-term cash flow needs.

Financing Activities

In March 2009, PPL Capital Funding retired the entire $201 million of its 4.33% Notes Exchange Series A upon maturity.

In March 2009, PPL Energy Supply completed tender offers to purchase up to $250 million aggregate principal amount of certain of its outstanding senior notes in order to reduce future interest expense.  Pursuant to the offers, PPL Energy Supply purchased approximately $100 million aggregate principal amount of its 6.00% Senior Notes due 2036 for $77 million, plus accrued interest, and approximately $150 million aggregate principal amount of its 6.20% Senior Notes due 2016 for $143 million, plus accrued interest.  See Note 7 to the Financial Statements for further discussion.  Under the Economic Stimulus Package, PPL will be permitted to defer recognition of income related to the extinguishment of these notes for tax purposes.  No amounts will be included in taxable income for the first five years.  Beginning in 2014, income related to the extinguishment of these notes will be included in taxable income ratably over five years.

In April 2009, the PEDFA issued $231 million aggregate principal amount of Exempt Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series 2009C due 2037 (PPL Energy Supply, LLC Project), on behalf of PPL Energy Supply.  The Series 2009A bonds, in an aggregate principal amount of $100 million, and the Series 2009B bonds, in an aggregate principal amount of $50 million, were issued by the PEDFA in order to refund $150 million aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2008A and 2008B (PPL Energy Supply, LLC Project) due 2038 that were issued by the PEDFA in December 2008 on behalf of PPL Energy Supply, and for which PPL Investment Corp. acted as initial purchaser.  The Series 2009C bonds, in an aggregate principal amount of $81 million, were issued in order to refund $81 million aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2007 (PPL Energy Supply, LLC Project) due 2037 that were issued by the PEDFA in December 2007 on behalf of PPL Energy Supply.  Among other things, the completed refundings were able to take advantage of provisions in the Economic Stimulus Package that eliminated the application of the AMT to interest payable on the refinanced indebtedness.  The refundings of the bonds were effected by the ultimate distribution of $231 million by the PEDFA to the bond holders, including PPL Investment Corp.  As a result of the refundings of the bonds, PPL Investment Corp. received proceeds of $150 million, which is reflected as a cash flow from investing activities on the Statement of Cash Flows for PPL and PPL Energy Supply for the nine months ended September 30, 2009.

The Series 2009A, 2009B and 2009C bonds are structured as variable-rate remarketable bonds.  PPL Energy Supply may convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate or a term rate of at least one year.  The bonds are subject to mandatory purchase under certain circumstances, including upon conversion to a different interest rate mode, and are subject to mandatory redemption upon a determination that the interest on the bonds would be included in the holders' gross income for federal tax purposes.  The Series 2009A bonds bore interest at an initial rate of 0.90% through June 30, 2009.  The Series 2009B bonds bore interest at an initial rate of 1.25% through September 30, 2009.  The Series 2009C bonds are in a weekly interest rate mode, bearing interest at 0.30% at September 30, 2009.

PPL Energy Supply elected to change the interest rate mode on the Series 2009A and Series 2009B bonds to a commercial paper rate mode upon expiration of the initial rate period for each series.  The Series 2009A bonds were remarketed in a commercial paper rate mode in July 2009 and bear interest at 0.90% through December 9, 2009.  The Series 2009B bonds were remarketed in a commercial paper rate mode in October 2009 and bear interest at 0.50% through March 31, 2010.  At the end of each commercial paper rate period, the bonds will be remarketed based upon an interest rate mode elected by PPL Energy Supply.

In connection with the issuance of each series of bonds by the PEDFA, PPL Energy Supply entered into separate loan agreements with the PEDFA pursuant to which the PEDFA loaned to PPL Energy Supply the proceeds of the Series 2009A, Series 2009B and Series 2009C bonds on payment terms that correspond to those of the bonds.  PPL Energy Supply issued separate promissory notes to the PEDFA to evidence its obligations under each of the loan agreements.  These loan agreements and promissory notes replaced those associated with the refunded 2007 and 2008 PEDFA bonds in a non-cash transaction that is excluded from the Statement of Cash Flows.

Separate letters of credit were issued under PPL Energy Supply's $3.2 billion five-year syndicated credit facility to the trustee in support of each series of bonds.  The letters of credit permit the trustee to draw amounts to pay principal of and interest on, and the purchase price of, the Series 2009A, Series 2009B and Series 2009C bonds when due.  PPL Energy Supply is required to reimburse any draws on the letters of credit within one business day of such draw.

In May 2009, PPL Electric issued $300 million of 6.25% First Mortgage Bonds due 2039 (6.25% Bonds).  The 6.25% Bonds may be redeemed any time prior to maturity at PPL Electric's option at make-whole redemption prices.  PPL Electric received proceeds of $296 million, net of a discount and underwriting fees, from the issuance of the 6.25% Bonds.  Approximately $86 million of the proceeds were used in August 2009 to partially fund the repayment at maturity of $486 million aggregate principal amount of PPL Electric's Senior Secured Bonds, 6-1/4% Series.  The balance of such repayment was funded from the issuance in October 2008 of $400 million of 7.125% Senior Secured Bonds due 2013.  The balance of the proceeds from the issuance of the 6.25% Bonds was used for general corporate purposes, including capital expenditures.

In June 2009, PPL Electric repaid its $9 million obligation under a Variable Rate Pollution Control Facilities Note in connection with the early redemption in full of the underlying pollution control revenue bonds that were issued by the Indiana County Industrial Development Authority and due in June 2027.

Common Stock Dividends

In February 2009, PPL announced an increase to its quarterly common stock dividend, effective April 1, 2009, to 34.5 cents per share (equivalent to $1.38 per annum).  Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

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.

In January 2009, S&P completed a review of PPL, PPL Energy Supply and PPL Electric and revised its outlook for all three entities to negative from stable.  At that time, S&P affirmed the BBB issuer rating of PPL and PPL Energy Supply and affirmed the A- issuer rating of PPL Electric.  As a result of the negative outlook at PPL Energy Supply, S&P lowered the commercial paper rating of PPL Energy Supply to A-3 from A-2.  S&P stated in its press release regarding PPL and PPL Energy Supply that the revision in the outlook for PPL and PPL Energy Supply is based primarily on lower than expected cash flows for 2008 combined with concerns over further pressure on financial metrics in 2009.  S&P stated in its press release regarding PPL Electric that the revision in its outlook reflects the linkage with PPL along with their expectation that PPL Electric's financial metrics could weaken beginning in 2010.

At the request of PPL Energy Supply, in the first quarter of 2009, Fitch, Moody's and S&P each withdrew their commercial paper rating for PPL Energy Supply.

In February 2009, S&P revised its outlook to negative from stable for each of WPDH Limited, WPD LLP, WPD (South Wales) and WPD (South West) and affirmed the issuer and short-term debt ratings of each of the entities.  S&P stated in its press release that the revision in the outlook is a reflection of the change to PPL's outlook and is not a result from any change in WPD's stand-alone credit profile.

In May 2009, Moody's completed a review of PPL, PPL Energy Supply and PPL Electric.  As a result of that review, Moody's revised its outlook for PPL, PPL Capital Funding, and PPL Electric to negative from stable.  At the same time, Moody's affirmed the Baa2 senior unsecured rating and stable outlook of PPL Energy Supply.  Moody's stated in its press release that the revision in the outlook for PPL Electric reflects Moody's expectation that PPL Electric's financial metrics will deteriorate beyond 2009 and considers the potential for additional pressure on cash flows.  Moody's also stated that the revision in the outlook for PPL and PPL Capital Funding reflects the increasing support for corporate earnings and cash flow anticipated from PPL Energy Supply and the subordinate position of the unsecured lenders at these entities relative to the unsecured lenders at the subsidiary levels.

At WPD's request, in September 2009 S&P withdrew its ratings for WPD LLP, since it did not have any securities outstanding.

Ratings Triggers

PPL and PPL Energy Supply have various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, tolling agreements, and interest rate and foreign currency instruments, which contain provisions requiring PPL and PPL Energy Supply to post additional collateral, or permit the counterparty to terminate the contract, if PPL's or PPL Energy Supply's credit rating were to fall below investment grade.  See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at September 30, 2009.  At September 30, 2009, if PPL's and PPL Energy Supply's credit ratings had been below investment grade, PPL would have been required to post an additional $313 million of collateral to counterparties for both derivative and non-derivative commodity and commodity-related contracts used in its generation, marketing and trading operations and interest rate and foreign currency contracts.

Capital Expenditures

The schedule below shows PPL's capital expenditure projections at September 30, 2009.

	Projected
	2009		2010		2011		2012		2013
Construction expenditures
Generating facilities	$	345	$	610	$	628	$	483	$	428
Transmission and distribution facilities:
Domestic		273		539		782		643		700
WPD		251		428		448		460		477
Total		524		967		1,230		1,103		1,177
Environmental		210		68		98		114		6
Other		69		82		51		52		50
Total Construction Expenditures		1,148		1,727		2,007		1,752		1,661
Nuclear fuel		151		161		178		181		184
Total Capital Expenditures (a)	$	1,299	$	1,888		2,185	$	1,933	$	1,845

(a) Includes AFUDC and capitalized interest, which are expected to be $291 million for the 2009-2013 period.

PPL's capital expenditure projections for the years 2009-2013 total $9.2 billion.  Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions.  The above schedule has been revised from that which was presented in PPL's Form 8-K dated September 9, 2009, primarily due to PPL's April 2009 announcement that it filed a new application with the FERC for approval to expand the capacity of its Holtwood hydroelectric plant by 125 MW, and PPL Electric's asset optimization program focused on the replacement of aging transmission and distribution assets.  See Note 8 to the Financial Statements for additional information on the Holtwood project.

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 Form 8-K dated September 9, 2009.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

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.  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, 2009 and December 31, 2008 was a net liability of $85 million and $52 million.

To hedge the impact of market price fluctuations on PPL's energy-related assets, liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts.  PPL's non-trading commodity derivative contracts mature at various times through 2017.

The following table sets forth changes in the net fair value of PPL's non-trading commodity derivative contracts.  See Notes 13 and 14 to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009		2008
Fair value of contracts outstanding at the beginning of the period	$	1,065		$	(1,054	)	$	402	$	(305	)
Contracts realized or otherwise settled during the period		67			(61	)		267		(128	)
Fair value of new contracts entered into during the period		68			(55	)		124		115
Changes in fair value attributable to changes in valuation techniques (a)										55
Other changes in fair value		(82	)		1,007			325		100
Fair value of contracts outstanding at the end of the period	$	1,118		$	(163	)	$	1,118	$	(163	)

(a) Amount represents the reduction of valuation reserves related to capacity and FTR contracts upon the adoption of fair value accounting guidance.

The following table segregates the net fair value of PPL's non-trading commodity derivative contracts at September 30, 2009 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

	Net Asset (Liability)
Source of Fair Value	Maturity Less Than 1 Year			Maturity 1-3 Years		Maturity 4-5 Years		Maturity in Excess of 5 Years		Total Fair Value
Prices quoted in active markets for identical instruments
Prices based on significant other observable inputs	$	214		$	635	$	150			$	999
Prices based on significant unobservable inputs		(2	)		17		37	$	67		119
Fair value of contracts outstanding at the end of the period	$	212		$	652	$	187	$	67	$	1,118

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 2015.  The following table sets forth changes in the net fair value of PPL's trading commodity derivative contracts.  See Notes 13 and 14 to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Fair value of contracts outstanding at the beginning of the period	$	(13	)	$	16		$	(75	)	$	16
Contracts realized or otherwise settled during the period		(11	)		12			22			(19	)
Fair value of new contracts entered into during the period		(5	)		(41	)		30			(18	)
Other changes in fair value		17			(72	)		11			(64	)
Fair value of contracts outstanding at the end of the period	$	(12	)	$	(85	)	$	(12	)	$	(85	)

PPL will reverse unrealized losses of approximately $3 million over the next three months as the transactions are realized.

The following table segregates the net fair value of PPL's trading commodity derivative contracts at September 30, 2009 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

	Net Asset (Liability)
Source of Fair Value	Maturity Less Than 1 Year			Maturity 1-3 Years			Maturity 4-5 Years			Maturity in Excess of 5 Years		Total Fair Value
Prices quoted in active markets for identical instruments	$	1		$	1							$	2
Prices based on significant other observable inputs		(6	)		(4	)	$	2					(8	)
Prices based on significant unobservable inputs					(5	)		(2	)	$	1		(6	)
Fair value of contracts outstanding at the end of the period	$	(5	)	$	(8	)	$			$	1	$	(12	)

VaR Models

PPL utilizes a VaR model to measure commodity price risk in domestic gross energy margins for its non-trading and trading portfolios.  This approach is consistent with how PPL's RMC assesses the market risk of its commodity business.  VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level.  PPL calculates VaR using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level.  At September 30, 2009 and December 31, 2008, the VaR for PPL's portfolios using end-of-quarter results for the period was as follows.

	Trading VaR				Non-Trading VaR
	Sept. 30,		Dec. 31,		Sept. 30,		Dec. 31,
	2009		2008		2009		2008
95% Confidence Level, Five-Day Holding Period
Period End	$	8	$	3	$	11	$	10
Average for the Period		6		10		8		14
High		8		22		11		20
Low		4		3		7		9

The trading portfolio includes all speculative positions, regardless of delivery period.  All positions not considered speculative are considered non-trading.  PPL's non-trading portfolio includes PPL's entire portfolio, including generation, with delivery periods through the next 12 months.  Both the trading and non-trading VaR computations exclude FTRs due to the absence of liquid spot and forward markets.  The fair value of the FTR positions at September 30, 2009 was an unrealized loss of $3 million and consisted of the following.

	2009			2010			2011
Trading (a)	$	1
Non-trading		(1	)	$	(2	)	$	(1	)
Total	$			$	(2	)	$	(1	)

(a) The amount of trading gains expected to be realized in the next three months is $1 million.

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 benchmark interest rates 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, 2009, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was $1 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, 2009 would increase the fair value of its debt portfolio by $293 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, 2009, the net fair value of these instruments was not significant.  PPL estimated that a 10% adverse movement in interest rates at September 30, 2009 would increase the net liability by $3 million.

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, 2009, the fair value of these instruments, including accrued interest, was an asset of $55 million.  PPL estimated that a 10% adverse movement in interest rates at September 30, 2009 would decrease the asset by $12 million.

WPDH Limited holds a net notional position in cross-currency swaps totaling $302 million to hedge the interest payments and principal of its U.S. dollar-denominated senior notes with maturity dates ranging from December 2017 to December 2028.  While PPL is exposed to changes in the fair value of these instruments, any change in the fair value of these instruments is recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings.  The estimated fair value of this position, including accrued interest, at September 30, 2009 was a net asset of $11 million.  WPDH Limited estimated that a 10% adverse movement in foreign currency exchange rates and interest rates at September 30, 2009 would decrease the net asset by $40 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.

To protect the value of a portion of its net investment in WPD, PPL executed forward contracts to sell British pounds sterling.  The total notional amount of the contracts outstanding at September 30, 2009 was £46 million.  The settlement dates of these contracts range from December 2009 through June 2011.  At September 30, 2009, the fair value of these positions was an asset of $17 million.  PPL estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2009 would decrease the asset by $7 million.

To economically hedge the translation of 2009 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, 2009, the total exposure hedged was £34 million.  These forwards and options have termination dates ranging from October 2009 through December 2009.  At September 30, 2009, the fair value of these positions was a net liability of $4 million.  PPL estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2009 would increase the net liability by $5 million.

NDT 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, 2009, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities.  These securities 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 primarily exposed to changes in interest rates.  PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its NDT policy statement.  At September 30, 2009, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $38 million reduction in the fair value of the trusts' assets.  See Notes 13 and 18 to the Financial Statements for additional information regarding the NDT funds.

Credit Risk

See Notes 13 and 14 to the Financial Statements and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL's Form 8-K dated September 9, 2009 for information on credit risk.

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 is currently planning incremental capacity increases of 238 MW, primarily at its existing generating facilities.  Offsetting the planned capacity increases is an expected reduction of 30 MW due to the anticipated sale of the majority of PPL Maine's hydroelectric generation business, for which PPL Maine signed a definitive agreement in July 2009.

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.

See Note 8 to the Financial Statements for additional information on the more significant activities.

Environmental Matters

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

New Accounting Guidance

See Notes 2 and 20 to the Financial Statements for a discussion of new accounting guidance adopted and 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 Form 8-K dated September 9, 2009 for a discussion of each critical accounting policy.

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.  Refer to "Item 1. Business - Background" in PPL Energy Supply's 2008 Form 10-K for descriptions of its reportable segments, which are Supply and International Delivery.  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.  See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL Energy Supply's Form 8-K dated September 9, 2009, for a discussion of PPL Energy Supply's strategy and the risks and challenges that it faces in its business.  See "Forward-Looking Information," Note 10 to the Financial Statements and the remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" in PPL Energy Supply's 2008 Form 10-K and the rest of Item 7 in PPL Energy Supply's Form 8-K dated September 9, 2009 for more information concerning the material risks and uncertainties that PPL Energy Supply faces in its businesses and with respect to its future earnings.  PPL Energy Supply filed the September 2009 Form 8-K to revise certain information in Items 6, 7 and 8 in its 2008 Form 10-K to reflect discontinued operations and the retrospective application of certain accounting standards.

Market Events

Conditions in the financial markets have been disruptive to the processes of managing credit risk, responding to liquidity needs, measuring derivatives and other financial instruments at fair value, and managing market price risk.  Bank credit capacity has been reduced and the cost of renewing or establishing new credit facilities has increased significantly, thereby making less certain businesses' ability to enter into long-term energy commitments or reliably estimate the longer-term cost and availability of credit.

Commodity Price Risk

The volatility of wholesale energy prices due to conditions in the financial and commodity markets significantly impacted PPL Energy Supply's earnings in 2009 and the third quarter of 2008.  See "Statement of Income Analysis - Domestic Gross Energy Margins - Domestic Gross Energy Margins By Region" for further discussion.

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 to limit counterparty credit risk.  Conditions in the financial and commodity markets have generally increased PPL Energy Supply's exposure to credit risk.  See Notes 11, 13 and 14 to the Financial Statements, and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL Energy Supply's Form 8-K dated September 9, 2009 for more information on credit risk.

Liquidity Risk

Despite conditions in the financial and capital markets, external financing activities by domestic electric utilities are being completed, although generally at higher-than-historical costs and interest rates.  PPL Energy Supply expects to continue to have access to adequate sources of liquidity through operating cash flows, cash and cash equivalents, credit facilities and, from time to time, the issuance of capital market securities.  See "Financial Condition - Liquidity and Capital Resources" for an expanded discussion of PPL Energy Supply's liquidity position and a discussion of financing transactions.

Valuations in Inactive Markets

Conditions in the financial markets have generally made it difficult 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 all of these markets were active at September 30, 2009, with the exception of the market for auction rate securities.  See Notes 13 and 18 to the Financial Statements and "Financial Condition - Liquidity and Capital Resources - Auction Rate Securities" for a discussion of these investments.

Securities Price Risk

Declines in the market price of debt and equity securities result in unrealized losses that reduce the asset values of PPL Energy Supply's investments in its defined benefit plans and NDT funds.  Both the defined benefit plans and the NDT funds had positive returns in the second and third quarters of 2009, thereby recovering a portion of the negative returns incurred in 2008 and the first quarter of 2009.  PPL Energy Supply actively monitors the performance of the investments held in its defined benefit plans and NDT funds and periodically reviews the funds' investment allocations.  See "Financial Condition - Risk Management - Energy Marketing & Trading and Other - NDT Funds - Securities Price Risk" for additional information on securities price risk.

PPL Energy Supply's subsidiaries sponsor various defined benefit plans and participate in and are allocated costs from defined benefit plans sponsored by PPL.  Determination of the funded status of defined benefit plans, contribution requirements and net periodic defined benefit costs for future years are subject to changes in various assumptions, in addition to the actual performance of the assets in the plans.  See "Application of Critical Accounting Policies - Defined Benefits" in PPL Energy Supply's Form 8-K dated September 9, 2009 for a discussion of the assumptions and sensitivities regarding those assumptions.

The Economic Stimulus Package

The Economic Stimulus Package is intended to stimulate the U.S. economy through federal tax relief, expansion of unemployment benefits and other social stimulus provisions, domestic spending for education, health care and infrastructure, including the energy sector.  A portion of the benefits included in the Economic Stimulus Package are offered in the form of loan fee reductions, expanded loan guarantees and secondary market incentives, including delayed recognition for tax purposes of income related to the cancellation of certain types of debt.  See "Financial Condition - Liquidity and Capital Resources" for a discussion of the applicability to the purchase of notes by PPL Energy Supply.

Funds from the Economic Stimulus Package will be allocated to various federal agencies, such as the DOE, and will also be provided to state agencies through block grants.  The DOE plans to use a portion of the funds for smart grid, efficiency-related and renewable energy programs, and has initiated a process for that purpose.  The Commonwealth of Pennsylvania is accepting applications for funding of energy projects including solar projects.  As discussed in Note 8 to the Financial Statements, PPL Energy Supply has reconsidered its Holtwood expansion project in view of the tax incentives and potential loan guarantees for renewable energy projects contained in the Economic Stimulus Package.  PPL Energy Supply has filed DOE loan guarantee applications and grant applications for the Holtwood expansion project and for the Rainbow redevelopment project.  PPL Energy Supply and its subsidiaries continue to review the Economic Stimulus Package's provisions to determine the impact on PPL Energy Supply's possible expansion plans and other business-related activities.

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 Form 8-K dated September 9, 2009.

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.  "Results of Operations" 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 "Statement of Income Analysis," which includes explanations of significant changes in principal items on PPL Energy Supply's Statements of Income, comparing the three and nine months ended September 30, 2009, with the same periods in 2008.

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 (loss) attributable to PPL Energy Supply was:

Three Months Ended September 30,					Nine Months Ended September 30,
2009			2008		2009		2008
$	(16	)	$	161	$	144	$	522

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

Segment Results

Net income (loss) attributable to PPL Energy Supply by segment was:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Supply	$	(40	)	$	88	$	(29	)	$	289
International Delivery		24			73		173			233
Total	$	(16	)	$	161	$	144		$	522

Supply Segment

The Supply segment primarily consists of the domestic energy marketing and trading, domestic generation and domestic development operations of PPL Energy Supply.  In May 2009, PPL Generation signed a definitive agreement to sell its Long Island generation business and expects the sale to close in late 2009 or in the first quarter of 2010.  In July 2009, PPL Maine signed a definitive agreement to sell the majority of its hydroelectric generation business and expects the sale to close in November 2009.  See Note 8 to the Financial Statements for additional information.

The Supply segment results reflect the classification of the revenues and expenses of the Long Island generation business and the majority of the Maine hydroelectric generation business as Discontinued Operations.

Supply segment net income (loss) attributable to PPL Energy Supply was:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009			2008
Energy revenues (a)	$	1,178		$	2,269	$	3,960		$	3,369
Energy-related businesses		104			138		288			363
Total operating revenues		1,282			2,407		4,248			3,732
Fuel and energy purchases (a)		925			1,810		2,978			1,974
Other operation and maintenance		196			239		681			690
Depreciation		52			46		152			133
Taxes, other than income		7			9		22			19
Energy-related businesses		101			132		280			350
Total operating expenses		1,281			2,236		4,113			3,166
Other Income - net (b)		7			4		43			26
Other-Than-Temporary Impairments					6		18			16
Interest Expense (c)		46			45		138			119
Income Taxes		1			39		21			179
Income (Loss) from Discontinued Operations					3		(29	)		12
Noncontrolling Interest		1					1			1
Net Income (Loss) Attributable to PPL Energy Supply	$	(40	)	$	88	$	(29	)	$	289

(a)	Includes unrealized gains and losses from economic activity.  See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information.
(b)	Includes interest income from affiliates.
(c)	Includes interest expense with affiliate.

The after-tax changes in net income (loss) attributable to PPL Energy Supply between these periods were due to the following factors.

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Domestic gross energy margins	$	77		$	40
Depreciation		(3	)		(11	)
Other income - net		5			5
Interest expense					(11	)
Income taxes and other		(10	)		(14	)
Discontinued operations, net of special item (Note 8)		(3	)		(4	)
Special items		(194	)		(323	)
	$	(128	)	$	(318	)

· See "Domestic Gross Energy Margins" for further discussion.

· Higher depreciation for the nine months ended September 30, 2009, compared with the same period in 2008, was primarily due to the Montour scrubbers and Susquehanna generation uprate projects that were placed in-service in the second quarter of 2008 and the Brunner Island Unit 3 scrubber placed in-service in the second quarter of 2009.

· Higher other income - net for the three and nine months ended September 30, 2009, compared with the same periods in 2008, primarily due to higher earnings on securities in the NDT funds, partially offset by lower interest income.  The nine-month period was also higher due to gains recorded in 2009 related to the extinguishment of certain PPL Energy Supply Senior Notes, partially offset by lower interest income from affiliates.

· Higher interest expense for the nine months ended September 30, 2009, compared with the same period in 2008, was primarily due to higher capitalized interest in 2008 and higher interest on short-term debt.

· Higher income taxes for both periods were primarily due to a higher effective tax rate and lower domestic manufacturing deductions in 2009.

The following after-tax amounts, which management considers special items, impacted the Supply segment earnings.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Unrealized gains (losses) from energy-related, economic activity (Note 14)	$	(130	)	$	67		$	(168	)	$	121
Adjustments - NDT investments (a)					(1	)		(1	)		(5	)
Impairments and other impacts - emission allowances (b)					(27	)		(15	)		(27	)
Impairments - assets held for sale and other (c)								(36	)
Workforce reduction charge (Note 6)								(6	)
Change in tax accounting method (Note 5)		(25	)					(25	)
Off-site remediation of ash basin leak (Note 10)											1
Montana basin seepage litigation (Note 10)											(5	)
Synthetic fuel tax adjustment (Note 10)											(13	)
Total	$	(155	)	$	39		$	(251	)	$	72

(a)	Represents other-than-temporary impairment charges on securities, including reversals of previous impairments when securities previously impaired were sold.
(b)	2008 includes charges related to annual nitrogen oxide allowances and put options recorded in the third quarter.  See PPL Energy Supply's Form 8-K dated September 9, 2009 for additional information. See "Nonrecurring Fair Value Measurements - Sulfur Dioxide Emission Allowances" in Note 13 to the Financial Statements for additional information on 2009 impairments.
(c)	Includes a $34 million charge related to the Long Island generation business recorded in the second quarter of 2009.

Earnings Outlook

Excluding special items, PPL Energy Supply projects lower earnings for its Supply segment in 2009 compared with 2008, driven by higher expected operation and maintenance expenses, depreciation and income taxes, partially offset by higher energy margins as a result of higher expected value from baseload generation, despite higher expected coal expense, and higher margins from marketing and trading activities.

In July 2009, PPL Maine signed a definitive agreement to sell the majority of its hydroelectric generation business.  As a result of this sale, PPL Energy Supply expects to record an after-tax gain of between $20 and $25 million in November 2009.  In addition, PPL Energy Supply would record an additional after-tax gain of between $7 and $9 million from contingent consideration under this agreement, upon completion of PPL Energy Supply's previously announced potential sale of three other hydroelectric facilities to the Penobscot River Restoration Trust.  This additional gain may be recorded beyond 2009 or ultimately may not be realized.  These gains will be treated as special items.  See Note 8 to the Financial Statements for additional information.

International Delivery Segment

The International Delivery segment consists primarily of the electricity distribution operations in the U.K.  In the first quarter of 2008, the International Delivery segment recognized income tax benefits and miscellaneous expenses in Discontinued Operations as the dissolution of the remaining Latin American holding companies commenced.  In the third quarter of 2009, the International Delivery segment recognized $24 million of income tax expense in Discontinued Operations related to the identification of certain required corrections to the calculation of tax bases of the Latin American businesses sold in 2007.  See Note 8 to the Financial Statements for additional information.

International Delivery segment net income attributable to PPL Energy Supply was:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Utility revenues	$	165		$	195		$	496		$	647
Energy-related businesses		9			8			24			26
Total operating revenues		174			203			520			673
Other operation and maintenance		32			46			97			142
Depreciation		31			33			84			104
Taxes, other than income		16			17			42			51
Energy-related businesses		5			4			12			10
Total operating expenses		84			100			235			307
Other Income - net		2			6			(9	)		10
Interest Expense		28			42			59			114
Income Taxes		16			(6	)		20			34
Income (Loss) from Discontinued Operations		(24	)					(24	)		5
Net Income Attributable to PPL Energy Supply	$	24		$	73		$	173		$	233

The after-tax changes in net income attributable to PPL Energy Supply between these periods were due to the following factors.

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
U.K.
Delivery margins	$	3		$	3
Other operating expenses		(1	)		8
Interest expense		6			27
Income taxes		(6	)		25
Foreign currency exchange rates		(9	)		(69	)
Hyder liquidation distributions					(3	)
Other		(1	)		(2	)
U.S. other income - net		(5	)		(6	)
U.S. income taxes		(17	)		(11	)
Discontinued operations, net of special item (Note 8)					(5	)
Other		1			2
Special items		(20	)		(29	)
	$	(49	)	$	(60	)

· Lower other operating expenses for the nine months ended September 30, 2009, compared with the same period in 2008, were primarily due to lower pension costs, resulting from an increase in the discount rate and a lower inflation rate, and lower WPD meter operator expenses, due to the transfer of that activity to a third party in 2008.

· Lower interest expense for both periods resulted primarily from lower inflation rates on U.K. Index-linked Senior Unsecured Notes and lower debt balances.

· Lower U.K. income taxes for the nine months ended September 30, 2009, compared with the same period in 2008, were primarily due to changes in uncertain tax positions, partially offset by tax return adjustments in 2008.  See Note 5 to the Financial Statements for additional information.

· Changes in foreign currency exchange rates negatively impacted U.K. earnings for both periods.  The weighted-average exchange rate for the British pound sterling was approximately $1.64 for the three months ended September 30, 2009, versus approximately $1.95 for the same period in 2008, and approximately $1.50 for the nine months ended September 30, 2009, versus approximately $1.97 for the same period in 2008.

· Lower U.S. other income - net for both periods was primarily due to realized hedging results.

· Higher U.S. income taxes for both periods were primarily due to changes in the timing of dividends.

The following after-tax amounts, which management considers special items, impacted the International Delivery segment earnings.

	Three Months Ended September 30,			Nine Months Ended September 30,
	2009			2009
Unrealized gains (losses) from foreign currency economic activity (a)	$	4		$	(2	)
Workforce reduction charge (Note 6)					(2	)
Asset impairments					(1	)
Income taxes - Latin American businesses (Note 8)		(24	)		(24	)
Total	$	(20	)	$	(29	)

(a) These transactions are intended to hedge a portion of the net income of the International Delivery segment. This economic value in U.S. dollars is subject to changes in the British pound sterling to U.S. dollar exchange rate. See Note 14 to the Financial Statements for additional information regarding economic activity.

Earnings Outlook

Excluding special items, PPL Energy Supply projects lower earnings for its International Delivery segment in 2009 compared with 2008, primarily due to less favorable foreign currency exchange rates, partially offset by lower income taxes and lower financing costs.  See Note 10 to the Financial Statements for information on WPD's receipt of the Ofgem's initial five-year price review.  At this time WPD cannot predict the potential impact of this initial proposal on its revenues and earnings for 2010 and beyond.

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" are useful and meaningful to investors because they provide 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" are 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 "Operating Income" and "Domestic Gross Energy Margins" as defined by PPL Energy Supply.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Operating Income (a)	$	91		$	274		$	420		$	932
Adjustments:
Utility (a)		(165	)		(195	)		(496	)		(647	)
Energy-related businesses, net (b)		(7	)		(10	)		(20	)		(29	)
Other operation and maintenance (a)		228			285			778			832
Depreciation (a)		83			79			236			237
Taxes, other than income (a)		23			26			64			70
Revenue adjustments (c)		313			(1,154	)		78			(345	)
Expense adjustments (c)		(90	)		1,039			200			142
Domestic gross energy margins	$	476		$	344		$	1,260		$	1,192

(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 tables below.

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

	Three Months Ended Sept. 30,
	2009			2008			Change
Revenue
Wholesale energy marketing (a)	$	692		$	1,905		$	(1,213	)
Wholesale energy marketing to affiliate (a)		445			453			(8	)
Unregulated retail electric and gas (a)		34			43			(9	)
Net energy trading margins (a)		7			(132	)		139
Revenue adjustments (b)
Miscellaneous wholesale energy marketing to affiliate		(3	)		(3	)
Unrealized (gains) losses from economic hedge activity (c)		307			(1,160	)		1,467
Margins from Supply segment discontinued operations		9			9
Total revenue adjustments		313			(1,154	)		1,467
		1,491			1,115			376
Expense
Fuel (a)		264			305			(41	)
Energy purchases (a)		642			1,476			(834	)
Energy purchases from affiliate (a)		19			29			(10	)
Expense adjustments (b)
Unrealized gains (losses) from economic hedge activity (c)		86			(1,044	)		1,130
Other		4			5			(1	)
Total expense adjustments		90			(1,039	)		1,129
		1,015			771			244
Domestic gross energy margins	$	476		$	344		$	132

	Nine Months Ended Sept. 30,
	2009			2008			Change
Revenue
Wholesale energy marketing (a)	$	2,497		$	1,971		$	526
Wholesale energy marketing to affiliate (a)		1,353			1,370			(17	)
Unregulated retail electric and gas (a)		108			110			(2	)
Net energy trading margins (a)		2			(82	)		84
Revenue adjustments (b)
Miscellaneous wholesale energy marketing to affiliate		(9	)		(10	)		1
Miscellaneous unregulated retail electric and gas		(1	)		(1	)
Unrealized (gains) losses from economic hedge activity (c)		65			(363	)		428
Gains from sale of emission allowances (d)					1			(1	)
Margins from Supply segment discontinued operations		24			29			(5	)
Other		(1	)		(1	)
Total revenue adjustments		78			(345	)		423
		4,038			3,024			1,014
Expense
Fuel (a)		708			734			(26	)
Energy purchases (a)		2,211			1,153			1,058
Energy purchases from affiliate (a)		59			87			(28	)
Expense adjustments (b)
Unrealized losses from economic hedge activity (c)		(220	)		(157	)		(63	)
Other		20			15			5
Total expense adjustments		(200	)		(142	)		(58	)
		2,778			1,832			946
Domestic gross energy margins	$	1,260		$	1,192		$	68

(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 "Commodity Price Risk (Non-trading) - Economic Activity" in 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 various strategies to maximize the value of its wholesale energy portfolio.  The most significant of these strategies include the sales of baseload generation and optimization of intermediate and peaking generation, both of which are considered asset-related margins, and marketing and proprietary trading activities.  PPL Energy Supply also manages these activities on a geographic basis that is aligned with its generation assets.

	Three Months Ended Sept. 30,
	2009		2008			Change
Asset-related margins:
Eastern U.S.	$	360	$	325		$	35
Western U.S.		84		78			6
Marketing and trading margins:
Eastern U.S.		31		(56	)		87
Western U.S.		1		(3	)		4
Domestic gross energy margins	$	476	$	344		$	132

	Nine Months Ended Sept. 30,
	2009		2008			Change
Asset-related margins:
Eastern U.S.	$	969	$	943		$	26
Western U.S.		245		217			28
Marketing and trading margins:
Eastern U.S.		45		44			1
Western U.S.		1		(12	)		13
Domestic gross energy margins	$	1,260	$	1,192		$	68

Eastern U.S.

Eastern U.S. asset-related margins were $35 million and $26 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase during the three months ended September 30, 2009 was primarily attributable to higher baseload unit operating performance in 2009, due to unplanned major outages in 2008, higher capacity revenue, and a 2.2% increase in PLR sales prices in accordance with the PUC Final Order.  Partially offsetting these higher margins were higher average baseload generation fuel prices of 13%, primarily due to higher coal prices.  The increase during the nine months ended September 30, 2009 was primarily attributable to gains resulting from the settlement of economic positions related to portfolio rebalancing and optimization strategies, higher baseload unit operating performance in 2009 due to unplanned major outages in 2008, higher capacity revenue, and a 2.2% increase in PLR sales prices in accordance with the PUC Final Order.  Partially offsetting these higher margins were higher average baseload generation fuel prices of 7%, primarily due to higher coal prices.

Eastern U.S. marketing and trading margins were $87 million and $1 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase for both periods was primarily due to increased margins in the power, gas, and oil trading positions resulting from unrealized trading losses in 2008 due to a dramatic decline in energy prices and the lack of liquidity in the wholesale power markets.  Partially offsetting these increases were lower margins on full-requirement sales contracts, primarily due to mild weather and the economic downturn.

Western U.S.

Western U.S. asset-related margins were $6 million and $28 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase during the three months ended September 30, 2009 was primarily due to higher wholesale volumes of 11% partially offset by lower generation from the hydroelectric units of 12%.  The increase for the nine months ended September 30, 2009 was primarily due to higher wholesale volumes of 16% and increased generation from the hydroelectric units of 7%.

Western U.S. marketing and trading margins were $4 million and $13 million higher during the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The increase for the three months ended September 30, 2009 consists of $4 million of higher realized trading margins.  The increase for the nine months ended September 30, 2009 consists primarily of $9 million of higher realized trading margins and $4 million of higher unrealized trading margins.

Utility Revenues

The decreases in utility revenues were attributable to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
U.K. electric delivery revenue	$	1		$	(3	)
U.K. foreign currency exchange rates		(31	)		(148	)
	$	(30	)	$	(151	)

Energy-related Businesses

Energy-related businesses contributed $3 million less to operating income for the three months ended September 30, 2009, compared with the same period in 2008.  The decrease related mainly to domestic energy-related businesses, primarily due to a decline in construction activity caused by the slowdown in the economy.

Energy-related businesses contributed $9 million less to operating income for the nine months ended September 30, 2009, compared with the same period in 2008.  Contributions from U.K. energy-related businesses decreased by $4 million, primarily due to changes in foreign currency exchange rates.  The remaining decrease of $5 million related to domestic energy-related businesses, primarily due to a decline in construction activity caused by the slowdown in the economy.

Other Operation and Maintenance

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

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Workforce reduction charge (Note 6)				$	13
Defined benefit costs - Domestic	$	2			7
Payroll related costs		9			6
Allocation of certain corporate service costs (Note 11)		(3	)
Stock-based compensation		1			(3	)
Trademark royalty fees from a PPL subsidiary (Note 11)		(11	)		(3	)
Insurance recoveries					(4	)
Uncollectible accounts		1			(7	)
WPD meter operator expenses (a)		(1	)		(7	)
Montana basin seepage litigation (Note 10)					(8	)
Defined benefit costs - U.K.		(4	)		(12	)
Impairments and other impacts - emission allowances (b)		(45	)		(15	)
U.K. foreign currency exchange rates		(5	)		(22	)
Other - Domestic		1			6
Other - U.K.		(2	)		(5	)
	$	(57	)	$	(54	)

(a)	In July 2008, WPD transferred its meter operator services to a third party.
(b)	2008 includes charges related to annual nitrogen oxide allowances and put options recorded in the third quarter.  See PPL Energy Supply's Form 8-K dated September 9, 2009 for additional information. See "Nonrecurring Fair Value Measurements - Sulfur Dioxide Emission Allowances" in Note 13 to the Financial Statements for additional information on 2009 impairments.

Depreciation

The changes in depreciation expense were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Additions to generation PP&E (a)	$	5		$	18
International delivery		5			5
U.K. foreign currency exchange rates		(6	)		(24	)
	$	4			(1	)

(a) Primarily attributable to the completion of the Susquehanna generation uprate and the Montour scrubber projects in the second quarter of 2008 and the Brunner Island Unit 3 scrubber in the second quarter of 2009.

Taxes, Other Than Income

The decreases in taxes, other than income were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Property tax expense (a)	$	(1	)	$	5
Pennsylvania capital stock tax (b)		(1	)		(2	)
U.K. foreign currency exchange rates		(2	)		(11	)
Other		1			2
	$	(3	)	$	(6	)

(a)	The increase for the nine months ended September 30, 2009 is primarily due to a $7 million property tax credit recorded by PPL Montana in the nine months ended September 30, 2008.
(b)	The decreases for both periods were primarily due to a decrease in the tax rate.

Other Income - net

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

Other-Than-Temporary Impairments

Other-than-temporary impairments decreased by $6 million for the three months ended September 30, 2009, compared with the same period in 2008, primarily due to improved market returns in 2009 compared to 2008.

Interest Income from Affiliates

Interest income from affiliates decreased by $4 million and $9 million for the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The decreases were the result of a decline in the average balance and floating interest rate on a note receivable with an affiliate, and a decline in the average balance and floating interest rate on the collateral deposit related to the PLR contract.

Interest Expense

The decreases in interest expense were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Capitalized interest	$	4		$	8
Short-term debt interest expense		(1	)		7
Amortization of debt issuance costs		2			4
Long-term debt interest expense		(7	)		(4	)
U.K. foreign currency exchange rates		(5	)		(16	)
Inflation adjustment on U.K. Index-linked Senior Unsecured Notes		(6	)		(31	)
Other					(4	)
	$	(13	)	$	(36	)

Income Taxes

The decreases in income taxes were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Tax reserve adjustments	$	47		$	10
Tax return adjustments		26			44
Nonconventional fuel and other tax credits		(3	)		(17	)
Tax on foreign earnings		(26	)		(28	)
Lower pre-tax book income		(64	)		(189	)
Other		4			8
	$	(16	)	$	(172	)

See Note 5 to the Financial Statements for additional information on income taxes.

Discontinued Operations

See "Discontinued Operations" in Note 8 to the Financial Statements for information related to the anticipated sales of PPL Energy Supply's Long Island generation business and the majority of its Maine hydroelectric generation business and PPL Energy Supply's Latin American businesses that were sold in 2007 and the remaining holding companies that were substantially dissolved in 2008.

Financial Condition

Liquidity and Capital Resources

PPL Energy Supply continues to focus on maintaining a strong credit profile and liquidity position during the disruptive conditions in the financial markets and historically difficult bank and capital market conditions.  PPL Energy Supply expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, its credit facilities and, as necessary, the issuance of capital market securities.

PPL Energy Supply had the following at:

	September 30, 2009		December 31, 2008
Cash and cash equivalents	$	506	$	464
Short-term investments (a)				150
	$	506	$	614
Short-term debt	$	620	$	584

(a) Represents tax-exempt bonds issued by the PEDFA in December 2008 on behalf of PPL Energy Supply and purchased by a subsidiary of PPL Energy Supply upon issuance.  Such bonds were refunded in April 2009.  See "Financing Activities" below for further discussion.

The $42 million increase in PPL Energy Supply's cash and cash equivalents position was primarily the net result of:

· $1.2 billion of cash provided by operating activities;

· a decrease of $170 million in restricted cash and cash equivalents;

· proceeds of $150 million from the sale of short-term investments;

· contributions from Member of $50 million;

· $619 million of capital expenditures;

· distributions to Member of $487 million;

· the payment of $220 million to retire $250 million aggregate principal amount of long-term debt;

· a net increase of $104 million in note receivable from an affiliate; and

· $51 million in net expenditures for intangible assets.

Auction Rate Securities

PPL Energy Supply's investment in auction rate securities continues to be impacted by auction failures and the resulting illiquidity in 2009.  PPL Energy Supply held auction rate securities with an aggregate par value of $24 million at September 30, 2009 and December 31, 2008.  PPL Energy Supply concluded that the fair value of its auction rate securities was $14 million at September 30, 2009 and $19 million at December 31, 2008, a temporary decline of $10 million and $5 million from par value.  Based upon the evaluation of available information, PPL Energy Supply believes these investments continue to be of high credit quality.  PPL Energy Supply believes it will not be required to sell these securities, including to fund operations, and does not intend to sell these securities until they can be liquidated at par value.  Therefore, PPL Energy Supply believes it does not have significant exposure to realize losses on these securities, and none of the decline in fair value is attributable to credit loss and therefore is deemed temporary due to general market conditions and has not been recognized in earnings.  During the second and third quarters of 2009, PPL Energy Supply liquidated an insignificant amount of auction rate securities at par.  See Notes 13 and 18 to the Financial Statements for further discussion of auction rate securities.

Credit Facilities

At September 30, 2009, PPL Energy Supply's total committed borrowing capacity under credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed		Letters of Credit Issued		Unused Capacity
PPL Energy Supply Domestic Credit Facilities (a)	$	4,125	$	285	$	689	$	3,151
WPDH Limited Credit Facility	₤	150	₤	127		n/a	₤	23
WPD (South West) Credit Facilities (b)		213		54	₤	3		156
Total WPD Credit Facilities (c)	₤	363	₤	181	₤	3	₤	179

(a)	In March 2009, PPL Energy Supply's 364-day bilateral credit facility was amended.  The amendment included extending the expiration date from March 2009 to March 2010 and reducing the capacity from $300 million to $200 million. PPL Energy Supply's 364-day syndicated credit facility was amended and restated in September 2009.  The amendment included extending the expiration date from September 2009 to September 2010, increasing the capacity from $385 million to $400 million and limiting the amount of letters of credit that may be issued under the facility to $200 million. The commitments under PPL Energy Supply's domestic credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 16% of the total committed capacity.
(b)	In July 2009, WPD (South West) terminated its £150 million five-year syndicated credit facility, which was to expire in October 2009, and replaced it with a new £210 million three-year syndicated credit facility expiring in July 2012.  Under the new facility, WPD (South West) has the ability to make cash borrowings but cannot request the lenders to issue letters of credit.  Borrowings under this facility bear interest at LIBOR-based rates plus a margin.  The new facility contains financial covenants that require WPD (South West) to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and total net debt not in excess of 85% of its regulatory asset base, in each case calculated in accordance with the credit facility.
(c)	At September 30, 2009, the unused capacity of WPD's committed credit facilities was approximately $291 million.

See Note 7 to the Financial Statements for further discussion of PPL Energy Supply's credit facilities.

Commercial Paper

As discussed below under "Rating Agency Decisions," S&P lowered its rating on PPL Energy Supply's commercial paper to A-3 from A-2 in January 2009.  Since PPL Energy Supply did not expect to need to issue any commercial paper during 2009 and there is essentially no liquidity in commercial paper markets for paper with an A-3 rating, PPL Energy Supply closed its commercial paper program in January 2009 and requested that Moody's, S&P and Fitch each withdraw their ratings on its commercial paper program, which each rating agency subsequently did.

Financing Activities

In March 2009, PPL Energy Supply completed tender offers to purchase up to $250 million aggregate principal amount of certain of its outstanding senior notes in order to reduce future interest expense.  Pursuant to the offers, PPL Energy Supply purchased approximately $100 million aggregate principal amount of its 6.00% Senior Notes due 2036 for $77 million, plus accrued interest, and approximately $150 million aggregate principal amount of its 6.20% Senior Notes due 2016 for $143 million, plus accrued interest.  See Note 7 to the Financial Statements for further discussion.  Under the Economic Stimulus Package, PPL Energy Supply will be permitted to defer recognition of income related to the extinguishment of these notes for tax purposes.  No amounts will be included in taxable income for the first five years.  Beginning in 2014, income related to the extinguishment of these notes will be included in taxable income ratably over five years.

In April 2009, the PEDFA issued $231 million aggregate principal amount of Exempt Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series 2009C due 2037 (PPL Energy Supply, LLC Project), on behalf of PPL Energy Supply.  The Series 2009A bonds, in an aggregate principal amount of $100 million, and the Series 2009B bonds, in an aggregate principal amount of $50 million, were issued by the PEDFA in order to refund $150 million aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2008A and 2008B (PPL Energy Supply, LLC Project) due 2038 that were issued by the PEDFA in December 2008 on behalf of PPL Energy Supply, and for which PPL Investment Corp. acted as initial purchaser.  The Series 2009C bonds, in an aggregate principal amount of $81 million, were issued in order to refund $81 million aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2007 (PPL Energy Supply, LLC Project) due 2037 that were issued by the PEDFA in December 2007 on behalf of PPL Energy Supply.  Among other things, the completed refundings were able to take advantage of provisions in the Economic Stimulus Package that eliminated the application of the AMT to interest payable on the refinanced indebtedness.  The refundings of the bonds were effected by the ultimate distribution of $231 million by the PEDFA to the bond holders, including PPL Investment Corp.  As a result of the refundings of the bonds, PPL Investment Corp. received proceeds of $150 million, which is reflected as a cash flow from investing activities on the Statement of Cash Flows for PPL and PPL Energy Supply for the nine months ended September 30, 2009.

The Series 2009A, 2009B and 2009C bonds are structured as variable-rate remarketable bonds.  PPL Energy Supply may convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate or a term rate of at least one year.  The bonds are subject to mandatory purchase under certain circumstances, including upon conversion to a different interest rate mode, and are subject to mandatory redemption upon a determination that the interest on the bonds would be included in the holders' gross income for federal tax purposes.  The Series 2009A bonds bore interest at an initial rate of 0.90% through June 30, 2009.  The Series 2009B bonds bore interest at an initial rate of 1.25% through September 30, 2009.  The Series 2009C bonds are in a weekly interest rate mode, bearing interest at 0.30% at September 30, 2009.

PPL Energy Supply elected to change the interest rate mode on the Series 2009A and Series 2009B bonds to a commercial paper rate mode upon expiration of the initial rate period for each series.  The Series 2009A bonds were remarketed in a commercial paper rate mode in July 2009 and bear interest at 0.90% through December 9, 2009.  The Series 2009B bonds were remarketed in a commercial paper rate mode in October 2009 and bear interest at 0.50% through March 31, 2010.  At the end of each commercial paper rate period, the bonds will be remarketed based upon an interest rate mode elected by PPL Energy Supply.

In connection with the issuance of each series of bonds by the PEDFA, PPL Energy Supply entered into separate loan agreements with the PEDFA pursuant to which the PEDFA loaned to PPL Energy Supply the proceeds of the Series 2009A, Series 2009B and Series 2009C bonds on payment terms that correspond to those of the bonds.  PPL Energy Supply issued separate promissory notes to the PEDFA to evidence its obligations under each of the loan agreements.  These loan agreements and promissory notes replaced those associated with the refunded 2007 and 2008 PEDFA bonds in a non-cash transaction that is excluded from the Statement of Cash Flows.

Separate letters of credit were issued under PPL Energy Supply's $3.2 billion five-year syndicated credit facility to the trustee in support of each series of bonds.  The letters of credit permit the trustee to draw amounts to pay principal of and interest on, and the purchase price of, the Series 2009A, Series 2009B and Series 2009C bonds when due.  PPL Energy Supply is required to reimburse any draws on the letters of credit within one business day of such draw.

Rating Agency Decisions

Moody's, S&P and Fitch periodically review the credit ratings on the debt 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.

In January 2009, S&P completed a review of PPL Energy Supply and revised its outlook to negative from stable and affirmed its BBB issuer rating.  As a result of the negative outlook, S&P lowered PPL Energy Supply's commercial paper rating to A-3 from A-2.  S&P stated in its press release that the revision in the outlook for PPL Energy Supply is based primarily on lower than expected cash flows for 2008 combined with concerns over further pressure on financial metrics in 2009.

At the request of PPL Energy Supply, in the first quarter of 2009, Fitch, Moody's and S&P each withdrew their commercial paper rating for PPL Energy Supply.

In February 2009, S&P revised its outlook to negative from stable for each of WPDH Limited, WPD LLP, WPD (South Wales) and WPD (South West) and affirmed the issuer and short-term debt ratings of each of the entities.  S&P stated in its press release that the revision in the outlook is a reflection of the change to PPL's outlook to negative from stable and is not a result from any change in WPD's stand-alone credit profile.

In May 2009, Moody's completed a review of PPL Energy Supply and affirmed the Baa2 senior unsecured rating and stable outlook of PPL Energy Supply.

At WPD's request, in September 2009 S&P withdrew its ratings for WPD LLP, since it did not have any securities outstanding.

Ratings Triggers

PPL Energy Supply has various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, and tolling agreements, and interest rate and foreign currency instruments, which contain provisions requiring PPL Energy Supply to post additional collateral, or permit the counterparty to terminate the contract, if PPL Energy Supply's credit rating were to fall below investment grade.  See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at September 30, 2009.  At September 30, 2009, if PPL Energy Supply's credit rating had been below investment grade, PPL Energy Supply would have been required to post an additional $313 million of collateral to counterparties for both derivative and non-derivative commodity and commodity-related contracts used in its generation, marketing and trading operations and interest rate and foreign currency contracts.

Capital Expenditures

The schedule below shows PPL Energy Supply's capital expenditure projections at September 30, 2009.

	Projected
	2009		2010		2011		2012		2013
Construction expenditures
Generating facilities	$	345	$	610	$	628	$	483	$	428
Transmission and distribution facilities		251		428		448		460		477
Environmental		210		68		98		114		6
Other		14		17		6		7		6
Total Construction Expenditures		820		1,123		1,180		1,064		917
Nuclear fuel		151		161		178		181		184
Total Capital Expenditures (a)	$	971	$	1,284	$	1,358	$	1,245	$	1,101

(a) Includes capitalized interest, which is expected to be $211 million for the 2009-2013 period.

PPL Energy Supply's capital expenditure projections for the years 2009-2013 total $6 billion.  Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions.  The above schedule has been revised from that which was presented in PPL Energy Supply's Form 8-K dated September 9, 2009, primarily due to PPL's April 2009 announcement that it filed a new application with the FERC for approval to expand the capacity of its Holtwood hydroelectric plant by 125 MW.  See Note 8 to the Financial Statements for additional information.

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 Form 8-K dated September 9, 2009.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

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.  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, 2009 and December 31, 2008 was a net liability of $85 million and $52 million.

To hedge the impact of market price fluctuations on PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts.  PPL Energy Supply's non-trading commodity derivative contracts mature at various times through 2017.

The following table sets forth changes in the net fair value of PPL Energy Supply's non-trading commodity derivative contracts.  See Notes 13 and 14 to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009		2008
Fair value of contracts outstanding at the beginning of the period	$	1,065		$	(1,054	)	$	402	$	(305	)
Contracts realized or otherwise settled during the period		67			(61	)		267		(128	)
Fair value of new contracts entered into during the period		68			(55	)		124		115
Changes in fair value attributable to changes in valuation techniques (a)										55
Other changes in fair value		(82	)		1,007			325		100
Fair value of contracts outstanding at the end of the period	$	1,118		$	(163	)	$	1,118	$	(163	)

(a) Amount represents the reduction of valuation reserves related to capacity and FTR contracts upon the adoption of fair value accounting guidance.

The following table segregates the net fair value of PPL Energy Supply's non-trading commodity derivative contracts at September 30, 2009 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

	Net Asset (Liability)
Source of Fair Value	Maturity Less Than 1 Year			Maturity 1-3 Years		Maturity 4-5 Years		Maturity in Excess of 5 Years		Total Fair Value
Prices quoted in active markets for identical instruments
Prices based on significant other observable inputs	$	214		$	635	$	150			$	999
Prices based on significant unobservable inputs		(2	)		17		37	$	67		119
Fair value of contracts outstanding at the end of the period	$	212		$	652	$	187	$	67	$	1,118

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 2015.  The following table sets forth changes in the net fair value of PPL Energy Supply's trading commodity derivative contracts.  See Notes 13 and 14 to the Financial Statements for additional information.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Fair value of contracts outstanding at the beginning of the period	$	(13	)	$	16		$	(75	)	$	16
Contracts realized or otherwise settled during the period		(11	)		12			22			(19	)
Fair value of new contracts entered into during the period		(5	)		(41	)		30			(18	)
Other changes in fair value		17			(72	)		11			(64	)
Fair value of contracts outstanding at the end of the period	$	(12	)	$	(85	)	$	(12	)	$	(85	)

PPL Energy Supply will reverse unrealized losses of approximately $3 million over the next three months as the transactions are realized.

The following table segregates the net fair value of PPL Energy Supply's trading commodity derivative contracts at September 30, 2009 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

	Net Asset (Liability)
Source of Fair Value	Maturity Less Than 1 Year			Maturity 1-3 Years			Maturity 4-5 Years			Maturity in Excess of 5 Years		Total Fair Value
Prices quoted in active markets for identical instruments	$	1		$	1							$	2
Prices based on significant other observable inputs		(6	)		(4	)	$	2					(8	)
Prices based on significant unobservable inputs					(5	)		(2	)	$	1		(6	)
Fair value of contracts outstanding at the end of the period	$	(5	)	$	(8	)	$			$	1	$	(12	)

VaR Models

PPL Energy Supply utilizes a VaR model to measure commodity price risk in domestic gross energy margins for its non-trading and trading portfolios.  This approach is consistent with how PPL's RMC assesses the market risk of its commodity business.  VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level.  PPL Energy Supply calculates VaR using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level.  At September 30, 2009 and December 31, 2008, the VaR for PPL Energy Supply's portfolios using end-of-quarter results for the period was as follows.

	Trading VaR				Non-Trading VaR
	Sept. 30,		Dec. 31,		Sept. 30,		Dec. 31,
	2009		2008		2009		2008
95% Confidence Level, Five-Day Holding Period
Period End	$	8	$	3	$	11	$	10
Average for the Period		6		10		8		14
High		8		22		11		20
Low		4		3		7		9

The trading portfolio includes all speculative positions, regardless of delivery period.  All positions not considered speculative are considered non-trading.  PPL Energy Supply's non-trading portfolio includes PPL Energy Supply's entire portfolio, including generation, with delivery periods through the next 12 months.  Both the trading and non-trading VaR computations exclude FTRs due to the absence of liquid spot and forward markets.  The fair value of the FTR positions at September 30, 2009 was an unrealized loss of $3 million and consisted of the following.

	2009			2010			2011
Trading (a)	$	1
Non-trading		(1	)	$	(2	)	$	(1	)
Total	$			$	(2	)	$	(1	)

(a) The amount of trading gains expected to be realized in the next three months is $1 million.

Interest Rate Risk

PPL Energy Supply and its subsidiaries have issued debt to finance their operations, which exposes them to interest rate risk.  PPL and PPL Energy Supply utilize 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 benchmark interest rates 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, 2009, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.

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, 2009 would increase the fair value of its debt portfolio by $191 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, 2009, 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, 2009, PPL Energy Supply had none of these instruments outstanding.

WPDH Limited holds a net notional position in cross-currency swaps totaling $302 million to hedge the interest payments and principal of its U.S. dollar-denominated senior notes with maturity dates ranging from December 2017 to December 2028.  While PPL Energy Supply is exposed to changes in the fair value of these instruments, any change in the fair value of these instruments is recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings.  The estimated fair value of this position, including accrued interest, at September 30, 2009 was a net asset of $11 million.  WPDH Limited estimated that a 10% adverse movement in foreign currency exchange rates and interest rates at September 30, 2009 would decrease the net asset by $40 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 Energy Supply enters into financial instruments to protect against foreign currency translation risk of expected earnings.

To protect the value of a portion of PPL Energy Supply's net investment in WPD, PPL executed forward contracts to sell British pounds sterling.  The total notional amount of the contracts outstanding at September 30, 2009 was £46 million.  The settlement dates of these contracts range from December 2009 through June 2011.  At September 30, 2009, the fair value of these positions was an asset of $17 million.  PPL Energy Supply estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2009 would decrease the asset by $7 million.

To economically hedge the translation of 2009 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, 2009, the total exposure hedged was £34 million.  These forwards and options have termination dates ranging from October 2009 through December 2009.  At September 30, 2009, the fair value of these positions was a net liability of $4 million.  PPL Energy Supply estimated that a 10% adverse movement in foreign currency exchange rates at September 30, 2009 would increase the net liability by $5 million.

NDT 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, 2009, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities.  These securities 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 primarily exposed to changes in interest rates.  PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its NDT policy statement.  At September 30, 2009, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $38 million reduction in the fair value of the trusts' assets.  See Notes 13 and 18 to the Financial Statements for additional information regarding the NDT funds.

Credit Risk

See Notes 11, 13 and 14 to the Financial Statements and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL Energy Supply's Form 8-K dated September 9, 2009 for information on credit risk.

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 is currently planning incremental capacity increases of 238 MW, primarily at its existing generating facilities.  Offsetting the planned capacity increases is an expected reduction of 30 MW due to the anticipated sale of the majority of PPL Maine's hydroelectric generation business, for which PPL Maine signed a definitive agreement in July 2009.

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.

See Note 8 to the Financial Statements for additional information on the more significant activities.

Environmental Matters

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

New Accounting Guidance

See Notes 2 and 20 to the Financial Statements for a discussion of new accounting guidance adopted and 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 Form 8-K dated September 9, 2009 for a discussion of each critical accounting policy.

PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES

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

Overview

PPL Electric is an electricity delivery service provider in eastern and central Pennsylvania with headquarters in Allentown, Pennsylvania.  Refer to "Item 1. Business - Background" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL Electric's 2008 Form 10-K for a description of its business, discussion of its strategy, and the risks and challenges that it faces in its business.  See "Forward-Looking Information," Note 10 to the Financial Statements and the remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" and the rest of Item 7 in PPL Electric's 2008 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.

Market Events

Conditions in the financial markets have been disruptive to the processes of managing credit risk, responding to liquidity needs, measuring financial instruments at fair value, and managing market price risk.  Bank credit capacity has been reduced and the cost of renewing or establishing new credit facilities has increased significantly, thereby making less certain businesses' ability to enter into long-term energy commitments or reliably estimate the longer-term cost and availability of credit.

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 to limit counterparty credit risk.  Conditions in the financial and commodity markets have generally increased PPL Electric's exposure to credit risk.  See Notes 11, 13 and 14 to the Financial Statements, and "Risk Management - Credit Risk" in PPL Electric's 2008 Form 10-K for more information on credit risk.

Liquidity Risk

Despite conditions in the financial and capital markets, external financing activities by domestic electric utilities are being completed, although generally at higher-than-historical costs and interest rates.  PPL Electric expects to continue to have access to adequate sources of liquidity through operating cash flows, cash and cash equivalents, credit facilities and, from time to time, the issuance of capital market securities.  See "Financial Condition - Liquidity and Capital Resources" for an expanded discussion of PPL Electric's liquidity position and a discussion of financing transactions.

Securities Price Risk

PPL Electric participates in and is allocated costs from defined benefit plans sponsored by PPL.  Declines in the market price of debt and equity securities result in unrealized losses that reduce the asset values of PPL's defined benefit plans.  PPL's defined benefit plans had positive returns in the second and third quarters of 2009, thereby recovering a portion of the negative returns incurred in 2008 and the first quarter of 2009.

Determination of the funded status of defined benefit plans, contribution requirements and net periodic defined benefit costs for future years are subject to changes in various assumptions, in addition to the actual performance of the assets in the plans.  See "Application of Critical Accounting Policies - Defined Benefits" in PPL Electric's 2008 Form 10-K for a discussion of the assumptions and sensitivities regarding those assumptions.

The Economic Stimulus Package

The Economic Stimulus Package is intended to stimulate the U.S. economy through federal tax relief, expansion of unemployment benefits and other social stimulus provisions, domestic spending for education, health care and infrastructure, including the energy sector.  A portion of the benefits included in the Economic Stimulus Package are offered in the form of loan fee reductions, expanded loan guarantees and secondary market incentives.

Funds from the Economic Stimulus Package will be allocated to various federal agencies, such as the DOE, and will also be provided to state agencies through block grants.  The DOE plans to use a portion of the funds for smart grid and efficiency-related programs, and has initiated a process for that purpose.  In July 2009, PPL Electric proposed to the DOE a $38 million project that would use smart grid technology to strengthen reliability, save energy and improve electric service for 60,000 Harrisburg, Pennsylvania area customers.  PPL Electric requested a DOE grant to provide half of the funding for this pilot program.  In October 2009, PPL Electric received notification that its grant proposal has been selected by the DOE for award negotiations.

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 2008 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.  "Results of Operations" continues with a description of key factors that management expects may impact future earnings.  This section ends with "Statement of Income Analysis," which includes explanations of significant changes in principal items on PPL Electric's Statements of Income, comparing the three and nine months ended September 30, 2009, with the same periods in 2008.

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 available to PPL was:

Three Months Ended September 30,				Nine Months Ended September 30,
2009		2008		2009		2008
$	27	$	36	$	93	$	119

The after-tax changes in net income available to PPL between these periods were due to the following factors.

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Delivery revenues (net of CTC/ITC amortization, interest expense on transition bonds and ancillary charges)	$	(4	)	$	(14	)
Other operation and maintenance		(1	)		7
Interest expense		(4	)		(13	)
Special items					(6	)
	$	(9	)	$	(26	)

· Lower delivery revenues for the nine months ended September 30, 2009, compared with the same period in 2008, were primarily due to economic conditions, including industrial customers scaling back on production, the unfavorable impact of weather on sales volumes and a true-up of the FERC formula-based transmission revenues.  See Note 2 to the Financial Statements for additional information on the true-up.

· Lower other operation and maintenance expense for the nine months ended September 30, 2009, compared with the same period in 2008, was primarily due to decreased payroll/overhead expense, decreased contractor expenses in 2009 and higher storm costs in 2008, net of insurance recoveries, partially offset by an increase in uncollectible accounts.

· Higher interest expense for the nine months ended September 30, 2009, compared with the same period in 2008, was primarily due to $400 million of debt issuances in October 2008 that prefunded a portion of August 2009 debt maturities.

The following after-tax amounts, which management considers special items, also had an impact on earnings for the nine months ended September 30, 2009.

Asset impairments	$	(1	)
Workforce reduction charge (Note 6)		(5	)
Total	$	(6	)

Earnings Outlook

Excluding special items, PPL Electric projects lower earnings in 2009 compared with 2008, primarily due to higher financing costs and lower than expected electricity delivery revenues.

See Note 10 to the Financial Statements for a discussion of items that could impact earnings beyond 2009, including the PUC-approved plan to procure default electricity supply for 2010 through May 2013, Pennsylvania legislative updates and other regulatory activities.

Statement of Income Analysis --

Operating Revenues

Retail Electric

The decreases in revenues from retail electric operations were attributable to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Delivery	$	(18	)	$	(45	)
PLR		(8	)		(16	)
Other		3			5
	$	(23	)	$	(56	)

Retail electric revenues for both periods were negatively impacted by economic conditions, including industrial customers scaling back on production.  In addition, weather had an unfavorable impact on sales volumes for both periods.  Lower delivery revenues for the nine months ended September 30, 2009 were also attributable to a true-up of the FERC formula-based transmission revenues.  See Note 2 to the Financial Statements for additional information on the true-up.

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 $10 million and $28 million in wholesale electric to affiliate for the three and nine months ended September 30, 2009, compared with the same periods in 2008, were primarily due to the expiration of two NUG contracts in 2008.  Substantially all of the remaining NUG contracts will expire by 2010.

Energy Purchases

The decreases of $14 million and $36 million in energy purchases for the three and nine months ended September 30, 2009, compared with the same periods in 2008, were primarily due to the expiration of two NUG contracts in 2008 (substantially all of the remaining NUG contracts will expire by 2010), as well as lower ancillary charges, which are primarily the result of lower pricing.

Energy Purchases from Affiliate

Energy purchases from affiliate decreased by $8 million and $17 million for the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The decreases in both periods were attributable to unfavorable weather and the impact of economic conditions, primarily on industrial customers' load, partially offset by higher prices for energy purchased under the power supply contracts with PPL EnergyPlus that were needed to support PLR load.

Other Operation and Maintenance

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

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Workforce reduction charge (Note 6)				$	9
Uncollectible accounts	$	4			6
Insurance recovery of storm costs					3
Tree trimming costs		(3	)		(2	)
Customer education programs		(1	)		(2	)
Allocation of certain corporate service costs (Note 11)		(3	)		(2	)
Contractor expenses					(2	)
Storm costs					(4	)
Payroll/overhead expense		2			(4	)
Other		2			(1	)
	$	1		$	1

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs increased by $10 million for the nine months ended September 30, 2009, compared with the same period in 2008.  The amortization of recoverable transition costs is based on a PUC amortization schedule, adjusted for ITC and CTC recoveries in customer rates and related expenses.  Since the amortization substantially matches the revenue recorded based on recovery in customer rates, there is minimal impact on earnings.

Taxes, Other Than Income

Taxes, other than income decreased by $4 million and $10 million for the three and nine months ended September 30, 2009, compared with the same periods in 2008.  The decreases were primarily due to a decrease in the tax rate for the Pennsylvania gross receipts tax.

Other Income - net

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

Interest Expense

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

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Long-term debt interest expense (a)	$	6		$	14
Interest on PLR contract collateral (Note 11)		(3	)		(7	)
Other		3			4
	$	6		$	11

(a) The increases were primarily due to $400 million of debt issuances in October 2008 that prefunded a portion of August 2009 debt maturities.

Income Taxes

The decreases in income taxes were due to:

	Sept. 30, 2009 vs. Sept. 30, 2008
	Three Months Ended			Nine Months Ended
Lower pre-tax book income	$	(5	)	$	(16	)
Other		(1	)		(3	)
	$	(6	)	$	(19	)

See Note 5 to the Financial Statements for additional information on income taxes.

Financial Condition

Liquidity and Capital Resources

PPL Electric continues to focus on maintaining a strong credit profile and liquidity position during the disruptive conditions in the financial markets and historically difficult bank and capital market conditions.  PPL Electric expects to continue to have adequate liquidity available through operating cash flows, cash and cash equivalents, its credit facilities and, as necessary, the issuance of capital market securities.

PPL Electric had the following at:

	September 30, 2009		December 31, 2008
Cash and cash equivalents	$	164	$	483
Short-term debt				95

The $319 million decrease in PPL Electric's cash and cash equivalents position was primarily the net result of:

· the retirement of $495 million of long-term debt;

· the payment of $220 million of dividends on common stock and preferred securities;

· $186 million of capital expenditures;

· a net decrease in short-term debt of $95 million;

· the net receipt of $300 million under a demand loan with an affiliate;

· proceeds of $298 million from the issuance of long-term debt; and

· $85 million of cash provided by operating activities.

Credit Facilities

At September 30, 2009, PPL Electric's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed	Letters of Credit Issued		Unused Capacity
5-year Syndicated Credit Facility (a)	$	190		$	5	$	185
Asset-backed Credit Facility (b)		150			n/a		150
Total PPL Electric Credit Facilities	$	340		$	5	$	335

(a)	The commitments under this credit facility are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 18% of the total committed capacity.
(b)	At September 30, 2009, based on accounts receivable and unbilled revenue pledged, $150 million was available for borrowing under the asset-backed credit facility.  In July 2009, PPL Electric and a subsidiary extended the expiration date of the credit agreement to July 2010.

See Note 7 to the Financial Statements for further discussion of PPL Electric's credit facilities.

Commercial Paper

Market conditions to issue commercial paper with ratings of P-2, A-2 and F-2 by Moody's, S&P and Fitch have improved since 2008.  However, they continue to be impacted by the volatility experienced in the broader financial markets.  Based on its current cash position and anticipated cash flows, PPL Electric currently does not expect to need to issue any commercial paper during the remainder of 2009, but it may do so from time to time to facilitate short-term cash flow needs.

Financing Activities

In May 2009, PPL Electric issued $300 million of 6.25% First Mortgage Bonds due 2039 (6.25% Bonds).  The 6.25% Bonds may be redeemed any time prior to maturity at PPL Electric's option at make-whole redemption prices.  PPL Electric received proceeds of $296 million, net of a discount and underwriting fees, from the issuance of the 6.25% Bonds.  Approximately $86 million of the proceeds were used in August 2009 to partially fund the repayment at maturity of $486 million aggregate principal amount of PPL Electric's Senior Secured Bonds, 6-1/4% Series.  The balance of such repayment was funded from the issuance in October 2008 of $400 million of 7.125% Senior Secured Bonds due 2013.  The balance of the proceeds from the issuance of the 6.25% Bonds was used for general corporate purposes, including capital expenditures.

In June 2009, PPL Electric repaid its $9 million obligation under a Variable Rate Pollution Control Facilities Note in connection with the early redemption in full of the underlying pollution control revenue bonds that were issued by the Indiana County Industrial Development Authority and due in June 2027.

Rating Agency Decisions

Moody's, S&P and Fitch periodically review the credit ratings on the debt and preferred securities of PPL Electric.  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 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.  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 credit ratings could result in higher borrowing costs and reduced access to capital markets.

In January 2009, S&P completed a review of PPL Electric, upon which it revised its outlook to negative from stable and affirmed the A- issuer rating of PPL Electric.  S&P stated in its press release that the revision in its outlook reflects the linkage with PPL, whose outlook was also revised to negative from stable, along with their expectation that PPL Electric's financial metrics could weaken beginning in 2010.

In May 2009, Moody's completed a review of PPL Electric.  As a result of that review, Moody's revised its outlook for PPL Electric to negative from stable.  Moody's stated in its press release that the revision in the outlook for PPL Electric reflects Moody's expectation that PPL Electric's financial metrics will deteriorate beyond 2009 and considers the potential for additional pressure on cash flows.

Fitch did not take any actions related to PPL Electric during the nine months ended September 30, 2009.

Capital Expenditures

The schedule below shows PPL Electric's capital expenditure projections at September 30, 2009.

	Projected
	2009		2010		2011		2012		2013
Construction expenditures
Transmission and distribution facilities	$	273	$	539	$	782	$	643	$	700
Other		22		29		19		21		19
Total Capital Expenditures (a)	$	295	$	568	$	801	$	664	$	719

(a) Includes AFUDC, which is expected to be $80 million for the 2009-2013 period.

PPL Electric's capital expenditure projections for the years 2009-2013 total $3 billion.  Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions.  The above schedule has been revised from that which was presented in PPL Electric's 2008 Form 10-K, primarily due to an asset optimization program focused on the replacement of aging transmission and distribution assets.

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 2008 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

PPL Electric will provide PLR service beginning January 1, 2010 under a PUC-approved plan through which PPL Electric will fully recover all incurred costs including administrative costs.  The plan covers the period through December 31, 2010.  Under the plan, PPL Electric has entered into various full-requirement power purchase agreements with multiple wholesale suppliers that include fixed prices.  As a result, PPL Electric has shifted any electric price risk relating to its PLR obligation to those wholesale suppliers through 2010.  In June 2009, PPL Electric received PUC approval of a plan with a similar structure, including cost recovery, covering the period from January 1, 2011 through May 31, 2013.  See Note 10 to the Financial Statements 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, 2009, 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, 2009, would increase the fair value of its debt portfolio by $71 million.

Credit Risk

See Notes 11, 13 and 14 to the Financial Statements and "Risk Management - Credit Risk" in PPL Electric's 2008 Form 10-K for information on credit risk.

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 Guidance

See Notes 2 and 20 to the Financial Statements for a discussion of new accounting guidance adopted and 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 2008 Form 10-K for a discussion of each critical accounting policy.

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, 2009, 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, 2009, 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 2008 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 2008 Form 10-K.

Item 6.  Exhibits
4(a)	-	Amendment No. 3 to Amended and Restated Employee Stock Ownership Plan, dated August 19, 2009
10(a)	-	Amendment No. 1 to Credit and Security Agreement, dated as of July 28, 2009, by and among PPL Receivables Corporation, as Borrower, PPL Electric Utilities Corporation, as Servicer, Victory Receivables Corporation, as a Lender, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Liquidity Bank and as Agent
10(b)	-	Amended and Restated Fee Letter, dated July 28, 2009, by and among PPL Receivables Corporation, as Borrower, PPL Electric Utilities Corporation, as Servicer, Victory Receivables Corporation, as a Lender, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Liquidity Bank and as Agent
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
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2009, 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, 2009, 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
*101.INS		XBRL Instance Document for PPL Corporation
*101.SCH		XBRL Taxonomy Extension Schema for PPL Corporation
*101.CAL		XBRL Taxonomy Extension Calculation Linkbase for PPL Corporation
*101.DEF		XBRL Taxonomy Extension Definition Linkbase for PPL Corporation
*101.LAB		XBRL Taxonomy Extension Label Linkbase for PPL Corporation
*101.PRE		XBRL Taxonomy Extension Presentation Linkbase for PPL Corporation

* - XBRL information will be considered to be furnished, not filed, for the first two years of a company's submission of XBRL information.

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:  October 30, 2009	/s/  J. Matt Simmons, Jr.
	J. Matt Simmons, Jr.
	Vice President and Controller
	(Principal Accounting Officer)