Filing Compare · TALEN ENERGY SUPPLY, LLC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2015
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

Form 10-Q



Commission File Number	Registrant; State of Incorporation; Address and Telephone Number	IRS Employer Identification No.

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

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2004
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

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



PPL Energy Supply, LLC	Yes X	No

Indicate by check mark whether the ~~Registrants~~registrant ~~(1)~~has ~~have~~submitted ~~filed~~electronically ~~all~~and ~~reports~~posted on its corporate Web site, if any, every Interactive Data File required to be ~~filed~~submitted byand ~~Section~~posted 13pursuant orto ~~15(d)~~Rule 405 of ~~the~~Regulation ~~Securities~~S-T ~~Exchange~~(§232.405 ~~Act~~ of ~~1934~~this chapter) during the preceding 12 months (or for such shorter period that the ~~Registrants~~registrant ~~were~~ was required to ~~file~~submit ~~such reports),~~ and ~~(2)~~post ~~have been subject to~~ such ~~filing requirements for the past 90 days~~files).

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~~registrant ~~are~~is a large accelerated ~~filers~~filer, ~~(as~~accelerated ~~defined~~ filer, non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act).

~~PPL~~Large ~~Corporation~~acceleratedfiler ~~Yes~~Acceleratedfiler XNon-acceleratedfiler NoSmaller reportingcompany PPL Energy Supply, LLC ~~Yes~~[ No] X[ ~~PPL~~] ~~Electric~~[ ~~Utilities~~X ~~Corporation~~] ~~Yes~~[ ~~No X~~]

Indicate ~~the~~by ~~number~~check ofmark ~~shares~~whether ~~outstanding~~the ofregistrant ~~each~~is ofa ~~the~~shell ~~issuer's~~company ~~classes~~(as ~~of common~~defined ~~stock,~~in asRule 12b-2 of the ~~latest~~Exchange ~~practicable date:~~Act).

	PPL Corporation	Common stock, $.01 par value, 188,908,802 shares outstanding at July 30, 2004, excluding 31,034,493 shares held as treasury stock
	PPL Energy Supply, LLC	PPL Corporation indirectly holds all of the member interests in PPL Energy Supply, LLC.
	PPL Electric Utilities Corporation	Common stock, no par value, 78,029,863 shares outstanding and all held by PPL Corporation at July 30, 2004, excluding 79,270,519 shares held as treasury stock



PPL Energy Supply, LLC	Yes	No X

~~This~~Indicate ~~document~~the isnumber ~~available~~of ~~free~~shares outstanding of ~~charge~~each atof the ~~Investor Center on PPL~~issuer's ~~website~~ atclasses ~~www.pplweb.com.~~of ~~However~~common stock, ~~information~~as ~~on this website does not constitute a part~~ of ~~this~~the ~~Form~~latest ~~10-Q~~practicable date.

PPL ~~CORPORATION PPL~~Energy ~~ENERGY SUPPLY~~Supply, LLC PPL ~~ELECTRIC~~Corporation ~~UTILITIES~~indirectly ~~CORPORATION~~ holds all of the membership interests in PPL Energy Supply, LLC.

~~FORM~~This ~~10-Q FOR~~document ~~THE~~is ~~QUARTER~~available ~~ENDED~~free ~~JUNE~~of 30charge at the Investor Center on PPL Corporation's website at www.pplweb.com. However, ~~2004~~information on this website does not constitute a part of this Form 10-Q.

Table of Contents

				Page
GLOSSARY OF TERMS AND ABBREVIATIONS
FORWARD-LOOKING INFORMATION				1
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		PPL Corporation and Subsidiaries
			Condensed Consolidated Statement of Income	2
			Condensed Consolidated Statement of Cash Flows	3
			Condensed Consolidated Balance Sheet	4
		PPL Energy Supply, LLC and Subsidiaries
			Condensed Consolidated Statement of Income	6
			Condensed Consolidated Statement of Cash Flows	7
			Condensed Consolidated Balance Sheet	8
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statement of Income	10
			Condensed Consolidated Statement of Cash Flows	11
			Condensed Consolidated Balance Sheet	12
		Combined Notes to Condensed Consolidated Financial Statements		14
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
			PPL Corporation and Subsidiaries	39
			PPL Energy Supply, LLC and Subsidiaries	49
			PPL Electric Utilities Corporation and Subsidiaries	58
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			61
	Item 4. Controls and Procedures			61
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			61
	Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities			61
	Item 4. Submission of Matters to a Vote of Security Holders			62
	Item 6. Exhibits and Reports on Form 8-K			63
SIGNATURES				65
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
			PPL Corporation and Subsidiaries	66
			PPL Energy Supply, LLC and Subsidiaries	67
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation	68
			PPL Energy Supply, LLC	70
			PPL Electric Utilities Corporation	72
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation	74
			PPL Energy Supply, LLC	76
			PPL Electric Utilities Corporation	78

PPL ENERGY SUPPLY, LLC

£FORM 10- ~~British pounds sterling.~~Q

~~1945~~FOR ~~First~~THE ~~Mortgage~~QUARTER ~~Bond~~ENDED ~~Indenture - PPL Electric's Mortgage and Deed of Trust~~MARCH 31, ~~dated~~2015 ~~as of October 1, 1945, to Deutsche Bank Trust Company Americas, as trustee, as supplemented.~~

~~ANEEL~~Unless -otherwise ~~National~~specified, ~~Electric~~references in this Report to PPL Energy ~~Agency~~Supply, ~~Brazil~~LLC are references to PPL Energy Supply, LLC directly or to one or more of its subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into PPL Energy Supply, LLC's ~~agency~~financial ~~that~~ statements in accordance with GAAP. ~~regulates~~This presentation has been applied where identification of particular subsidiaries is not material to the ~~transmission~~matter being disclosed, and ~~distribution~~to conform narrative disclosures to the presentation of ~~electricity~~financial information on a consolidated basis.

~~APA~~Table -of ~~Asset Purchase Agreement.~~Contents

ARB - Accounting Research Bulletin.



GLOSSARY OF TERMS AND ABBREVIATIONS		i
FORWARD-LOOKING INFORMATION		1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Equity	8
Notes to Condensed Consolidated Financial Statements (Unaudited)
	1. Business and Basis of Presentation	9
	2. Summary of Significant Accounting Policies	10
	3. Income Taxes	11
	4. Financing Activities	11
	5. Acquisitions, Development and Divestitures	12
	6. Defined Benefits	12
	7. Commitments and Contingencies	13
	8. Related Party Transactions	22
	9. Other Income (Expense) - net	23
	10. Fair Value Measurements and Credit Concentration	23
	11. Derivative Instruments and Hedging Activities	27
	12. Asset Retirement Obligations	33
	13. Available-for-Sale Securities	33
	14. Accumulated Other Comprehensive Income (Loss)	35
	15. New Accounting Guidance Pending Adoption	35
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
	Overview	38
	Introduction	38
	Business Strategy	38
	Financial and Operational Developments	39
	Net Income	39
	Other Financial and Operational Developments	39
	2015 Outlook	41
	Results of Operations	41
	Earnings, Margins and Statement of Income Analysis	41
	Financial Condition	45

Table of Contents



	Liquidity and Capital Resources	45
	Risk Management	47
	Related Party Transactions	49
	Acquisitions, Development and Divestitures	50
	Environmental Matters	50
	New Accounting Guidance	53
	Application of Critical Accounting Policies	53
Item 3. Quantitative and Qualitative Disclosures About Market Risk		54
Item 4. Controls and Procedures		54
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		54
Item 1A. Risk Factors		54
Item 4. Mine Safety Disclosures		54
Item 6. Exhibits		55
SIGNATURES		56
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES		57
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002		58
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002		60

Table of Contents

GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Energy Supply, its subsidiaries and affiliates

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

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

PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL and affiliate of PPL Energy Supply, engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricity supply to its retail customers in this area as a PLR.

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

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 competitive markets.

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

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

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

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

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

PPL Susquehanna - PPL Susquehanna, LLC, a subsidiary of PPL Generation that owns a nuclear-powered generating station.

Other terms and abbreviations

2014 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2014.

AOCI - accumulated other comprehensive income or loss.

ARO - asset retirement obligation.

~~Bcf~~Baseload generation - ~~billion~~includes ~~cubic~~the ~~feet~~output provided by PPL's nuclear, coal, hydroelectric and qualifying facilities.

~~CEMAR~~Basis - ~~Companhia~~when ~~Energética~~used doin ~~Maranhão,~~the acontext ~~Brazilian electric~~of ~~distribution~~derivatives ~~company~~and incommodity ~~which~~trading, ~~PPL~~the ~~Global~~commodity ~~had~~price adifferential ~~majority~~between ~~ownership~~two ~~interest until~~locations, ~~the~~products ~~transfer~~or oftime ~~this interest in April 2004~~periods.

~~CGE~~CCR(s) - ~~Compañia~~Coal ~~General~~Combustion ~~de Electricidad, S~~Residual(s).~~A., a~~ ~~distributor~~CCRs ofinclude ~~electricity~~fly ~~and~~ash, ~~natural~~bottom ~~gas~~ash ~~with other industrial segments in Chile~~ and ~~Argentina~~sulfur indioxide ~~which~~scrubber ~~PPL Global had an 8~~wastes.~~7% direct and indirect minority ownership interest until the sale of this interest in March 2004.~~

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

~~CTC~~COBRA - ~~competitive~~Consolidated ~~transition~~Omnibus ~~charge~~Budget onReconciliation ~~customer~~Act, ~~bills~~which provides individuals the option to ~~recover allowable~~temporarily ~~transition~~continue ~~costs~~employer ~~under~~group ~~the~~health ~~Customer~~insurance ~~Choice~~coverage ~~Act~~after termination of employment.

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.i

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

~~DEP~~CSAPR - ~~Department~~Cross-State ofAir ~~Environmental~~Pollution ~~Protection, a state government agency~~Rule.

~~Derivative~~DOJ - aU.S. ~~financial~~Department ~~instrument or other contract with all three~~ of ~~the following characteristics:~~Justice.

ItDR ~~has~~- ~~(1)~~demand ~~one~~response, oris ~~more~~a ~~underlyings~~program ~~and~~designed ~~(2)~~to ~~one~~induce, orthrough ~~more~~the ~~notional~~use ~~amounts or~~of ~~payment~~incentive ~~provisions~~payments, orretail ~~both.~~electricity ~~Those~~consumers ~~terms~~to ~~determine~~lower ~~the~~electricity ~~amount~~use ofat ~~the~~times ~~settlement or~~of ~~settlements,~~high ~~and,~~wholesale inmarket ~~some~~prices ~~cases, whether~~ or ~~not~~when asystem ~~settlement~~reliability is ~~required~~jeopardized.

ItEEI ~~requires~~- noEdison ~~initial~~Electric ~~net~~Institute, ~~investment~~the orassociation ~~an initial net investment~~ that is ~~smaller~~represents ~~than~~U.S. ~~would~~investor-owned beelectric ~~required for other types of contracts that would be expected to have a similar response to changes in market factors~~companies.

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

DIG - Derivatives Implementation Group.

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

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

EMF - electric and magnetic fields.

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

EPS - earnings per share.

~~FASB~~ERCOT - ~~Financial~~the ~~Accounting~~Electric ~~Standards~~Reliability ~~Board~~Council of Texas, aoperator ~~rulemaking~~of ~~organization that~~the ~~establishes~~electricity ~~financial~~transmission ~~accounting~~network and ~~reporting~~electricity ~~standards~~energy market in most of Texas.

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

~~FIN~~Fitch - ~~FASB~~Fitch, ~~Interpretation~~Inc., a credit rating agency.

~~FSP~~FTRs - ~~FASB~~financial ~~Staff~~transmission ~~Position~~rights, which are financial instruments established to manage price risk related to electricity transmission congestion that entitle the holder to receive compensation or require the holder to remit payment for certain congestion-related transmission charges based on the level of congestion between two pricing locations, known as source and sink.

GAAP - ~~generally~~Generally ~~accepted~~Accepted ~~accounting~~Accounting ~~principles~~Principles in the U.S.

~~GWh~~GHG - ~~gigawatt-hour,~~greenhouse ~~one million kilowatt-hours~~gas(es).

~~Hyder~~Holdco - ~~Hyder~~Talen ~~Limited~~Energy Holdings, ~~a subsidiary of WPDL that was the previous owner of South Wales Electricity plc~~Inc., Ina ~~March~~Delaware ~~2001~~Corporation, ~~South~~which ~~Wales Electricity plc~~ was ~~acquired~~formed byfor ~~WPDH~~the ~~Limited~~purposes ~~and~~of ~~renamed~~the ~~WPD~~spinoff ~~(South Wales)~~transaction.

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

Ironwood Facility - a natural gas combined-cycle unit in Lebanon, Pennsylvania with a summer rating of 660 MW.

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

ISO - Independent System Operator.

LIBOR - London Interbank Offered Rate.

~~Mirant~~MATS - ~~Mirant~~Mercury ~~Corporation, a diversified energy company based in Atlanta. PPL Global~~ and ~~Mirant~~Air ~~jointly~~Toxics ~~owned WPD from 1996 until September 6, 2002~~Standards.

MDEQ - Montana Department of Environmental Quality.

MEIC - Montana Environmental Information Center.

MMBtu - One million British Thermal Units.

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., a credit rating agency.

MW - megawatt, one thousand kilowatts.

Table of Contents

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

~~NorthWestern~~NDT - ~~NorthWestern~~PPL ~~Energy Division, a Delaware corporation and a division of NorthWestern Corporation and successor in interest to Montana Power~~Susquehanna's ~~electricity~~nuclear ~~delivery~~plant ~~business,~~decommissioning ~~including Montana Power's rights and obligations under contracts with PPL Montana~~trust.

~~NPDES~~NERC - ~~National~~North ~~Pollutant~~American ~~Discharge~~Electric ~~Elimination~~Reliability ~~System~~Corporation.

~~NRC~~NorthWestern - ~~Nuclear~~NorthWestern ~~Regulatory~~Corporation, ~~Commission~~a Delaware corporation, ~~the~~and ~~federal~~successor ~~agency~~in ~~that regulates~~interest ~~operation~~to ofMontana ~~nuclear~~Power's ~~power~~electricity ~~facilities~~delivery business, including Montana Power's rights and obligations under contracts with PPL Montana.

~~NUGs~~NPNS ~~(Non~~-~~Utility~~ ~~Generators)~~the -normal ~~generating~~purchases ~~plants~~and ~~not~~normal ~~owned~~sales ~~by public~~exception ~~utilities,~~as ~~whose~~permitted ~~electrical~~by ~~output~~derivative ~~must~~accounting berules. Derivatives ~~purchased~~that byqualify ~~utilities~~for ~~under the~~this ~~PURPA~~exception ifmay ~~the~~receive ~~plant~~accrual ~~meets~~accounting ~~certain criteria~~treatment.

~~PCB~~NRC - ~~polychlorinated~~Nuclear ~~biphenyl~~Regulatory Commission, ~~an additive to oil used in certain electrical equipment up to~~ the ~~late-1970s~~U.S. ~~Now~~federal ~~classified~~agency asthat aregulates ~~hazardous~~nuclear ~~chemical~~power facilities.

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

~~PEPS~~Opacity ~~Units,~~- ~~Series~~the Bdegree ~~(Premium~~to ~~Equity~~which ~~Participating~~emissions ~~Security~~reduce ~~Units, or~~the ~~PEPSSM~~transmission ~~Units,~~of ~~Series~~light ~~B) - securities issued by PPL~~ and ~~PPL~~obscure ~~Capital Funding,~~the ~~that~~view ~~consisted~~ of an ~~undivided~~object ~~interest~~ in athe ~~debt security issued by~~ background. ~~PPL~~There ~~Capital~~are ~~Funding~~emission ~~and~~regulations ~~guaranteed~~that bylimit ~~PPL,~~the ~~and~~opacity aof ~~forward~~power ~~contract~~plant tostack ~~purchase PPL~~gas ~~common stock~~emissions.

~~PJM~~Order ~~(PJM~~745 ~~Interconnection, L.L.C.)~~ - ~~operates~~FERC ~~the~~Order ~~electric~~No. ~~transmission network~~745, ~~and~~Demand ~~electric~~Response ~~energy~~Compensation ~~market~~ in ~~the~~Organized ~~mid-Atlantic~~Wholesale ~~region~~Energy ofMarkets, ~~the~~issued UMarch 15, 2011.S.

~~PLR~~PADEP ~~(Provider of Last Resort)~~ - ~~PPL~~the ~~Electric~~Pennsylvania ~~providing~~Department ~~electricity to~~of ~~retail~~Environmental ~~customers~~Protection, ~~within~~a ~~its~~state ~~delivery~~government ~~territory who have chosen not to shop for electricity under the Customer Choice Act~~agency.

PJM - PJM Interconnection, L.L.C., operator of the electricity transmission network and electricity 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 within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.

PP&E - property, plant and equipment.

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

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

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

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

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

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

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

PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Supply, which acquires and develops domestic generation projects and acquires and holds international energy projects that are primarily focused on the distribution of electricity.

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

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

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

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

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

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

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

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

~~PUC~~RCRA ~~Final Order~~ - ~~final~~Resource ~~order~~Conservation ~~issued~~and byRecovery ~~the~~Act ~~PUC on August 27, 1998, approving the settlement~~ of ~~PPL Electric's restructuring proceeding~~1976.

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

~~PURTA~~Regulation S-X - SEC regulation governing the ~~Pennsylvania~~form ~~Public~~and ~~Utility~~content ~~Realty~~of ~~Tax~~and ~~Act~~requirements for financial statements required to be filed pursuant to the federal securities laws.

~~SCR~~RFC - ~~selective~~ReliabilityFirst ~~catalytic reduction~~Corporation, aone ~~pollution~~of ~~control~~eight ~~process~~regional entities with delegated authority from NERC that work to safeguard the reliability of the bulk power systems throughout North America.

~~SEC~~Riverstone - ~~Securities~~Riverstone Holdings LLC, a Delaware limited liability company and ~~Exchange~~ultimate ~~Commission,~~parent company of the entities that own the competitive power generation business to be contributed to Talen Energy other than the competitive power generation business to be contributed by virtue of the spinoff of a ~~U.S.~~newly ~~government~~formed ~~agency~~parent of PPL Energy Supply.

~~SFAS~~RJS Power - ~~Statement~~RJS ofGeneration ~~Financial~~Holdings ~~Accounting~~LLC, ~~Standards~~a Delaware limited liability company controlled by Riverstone, that owns the ~~accounting and~~competitive ~~financial~~power ~~reporting~~generation ~~rules~~business ~~issued~~to be contributed by its owners to Talen Energy other than the ~~FASB~~competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.

~~SIUK~~RMC ~~Capital Trust I~~ - aRisk ~~business~~Management ~~trust created to issue preferred securities, whose common securities are held by WPD LLP~~Committee.

~~Superfund~~RTO - ~~federal~~Regional ~~environmental~~Transmission ~~legislation that addresses remediation of contaminated sites; states also have similar statutes~~Organization.

~~Synfuel~~S&P ~~projects~~ - ~~production~~Standard ~~facilities~~& ~~that~~Poor's ~~manufacture~~Ratings ~~synthetic fuel~~Services, ~~from~~a ~~coal~~credit orrating ~~coal byproducts~~agency. ~~Favorable federal tax credits are available on qualified synthetic fuel products.~~

WPD - refers collectively to WPDH Limited and WPDL. PPL Global purchased Mirant's 49% ownership interest in these entities on September 6, 2002, thereby achieving 100% ownership and operational control.iii

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

~~WPD~~Sarbanes-Oxley ~~(South~~- ~~Wales)~~ Sarbanes-Oxley ~~Western~~Act ~~Power~~of ~~Distribution~~ 2002, which sets requirements for management's assessment of internal controls for financial reporting. ~~(South~~It ~~Wales)~~also ~~plc,~~requires aan ~~British~~independent ~~regional~~auditor ~~electric~~to ~~utility~~make ~~company~~its own assessment.

~~WPD~~Scrubber ~~(South~~- ~~West)~~an -air ~~Western~~pollution ~~Power~~control ~~Distribution~~device ~~(South West)~~that ~~plc,~~can aremove ~~British~~particulates ~~regional~~and/or ~~electric~~gases ~~utility~~(primarily ~~company~~sulfur dioxide) from exhaust gases.

~~WPDH~~SEC ~~Limited~~ - ~~Western~~the ~~Power~~U.S. ~~Distribution~~Securities ~~Holdings~~and ~~Limited~~Exchange Commission, ~~an indirect~~a ~~wholly-owned~~U.S. ~~subsidiary~~government ofagency ~~PPL~~primarily ~~Global.~~responsible ~~WPDH~~to ~~Limited~~protect ~~owns~~investors ~~WPD~~and ~~LLP~~maintain the integrity of the securities markets.

~~WPDL~~SERC - ~~WPD~~SERC ~~Investment~~Reliability ~~Holdings Limited~~Corporation, anone ~~indirect~~of ~~wholly-owned subsidiary~~eight ofregional ~~PPL~~entities ~~Global.~~with ~~WPDL~~delegated ~~owns~~authority ~~100%~~from NERC that work to safeguard the reliability of the ~~common~~bulk ~~shares~~power ofsystems ~~Hyder~~throughout North America.

~~Forward~~SIFMA Index -~~looking~~ ~~Information~~the Securities Industry and Financial Markets Association Municipal Swap Index.

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

~~market~~Spark ~~demand~~Spread ~~and~~- ~~prices~~a ~~for~~measure ~~energy,~~of ~~capacity~~gross margin representing the price of power on a per MWh basis less the equivalent measure of the natural gas cost to produce that power. This measure is used to describe the gross margin of PPL and ~~fuel;~~ its subsidiaries' competitive natural gas-fired generating fleet. This term is also used to describe a derivative contract in which PPL and its subsidiaries sell power and buy natural gas on a forward basis in the same contract.

~~weather~~Superfund ~~conditions~~- ~~affecting~~federal ~~customer~~environmental ~~energy~~statute ~~usage~~that ~~and~~addresses ~~operating~~remediation ~~costs~~of contaminated sites; states also have similar statutes.

~~competition~~Talen inEnergy ~~retail~~- Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and ~~wholesale~~future ~~power~~owner ~~markets;~~ of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone.

Tolling agreement - agreement whereby the ~~outcome~~owner of ~~pending~~an ~~rate~~electricity ~~cases~~generating infacility ~~Pennsylvania~~agrees ~~and~~to inuse that facility to convert fuel provided by a third party into electricity for delivery back to the Uthird party.~~K.;~~

VaR - value-at-risk, a statistical model that attempts to estimate the ~~effect~~value of ~~any~~potential ~~business~~loss orover ~~industry~~a ~~restructuring;~~ given holding period under normal market conditions at a given confidence level.

Volumetric risk - the ~~profitability~~risk ~~and~~that ~~liquidity~~the ofactual ~~PPL~~load ~~and~~volumes ~~its~~provided ~~subsidiaries;~~ under full-requirement sales contracts could vary significantly from forecasted volumes.

~~new accounting requirements or new interpretations or applications of existing requirements;~~ iv

~~operation~~Table of ~~existing facilities and operating costs;~~ Contents

~~environmental~~(THIS ~~conditions~~PAGE ~~and~~LEFT ~~requirements;~~ BLANK INTENTIONALLY)

~~transmission and distribution system conditions and operating costs;~~ v

~~development~~Table of ~~new projects, markets and technologies;~~ Contents

~~performance~~FORWARD-LOOKING ~~of new ventures;~~ INFORMATION

~~asset~~Statements ~~acquisitions~~contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and ~~dispositions;~~ underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although PPL Energy Supply believes 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 PPL Energy Supply's 2014 Form 10-K and in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements.

~~political,~~• ~~regulatory~~fuel orsupply ~~economic~~cost ~~conditions~~and ~~in states, regions or countries where PPL or its subsidiaries conduct business~~availability;

~~receipt~~• ofweather ~~necessary~~conditions ~~governmental~~affecting ~~permits~~generation, ~~approvals~~customer energy use and ~~rate~~operating ~~relief~~costs and revenues;

~~impact~~• ofoperation, ~~state~~availability ~~or federal investigations applicable to PPL~~ and ~~its~~operating ~~subsidiaries and~~costs ~~the~~of ~~energy~~existing ~~industry~~generation facilities;

• the ~~outcome~~duration of ~~litigation~~and ~~against~~cost, ~~PPL~~including lost revenue, associated with scheduled and ~~its~~unscheduled ~~subsidiaries~~outages at our generating facilities;

~~capital~~• ~~market~~expansion ~~conditions~~of ~~and~~alternative ~~decisions~~sources ~~regarding~~of ~~capital~~electricity ~~structure~~generation;

~~stock~~• ~~price~~laws ~~performance~~or regulations to reduce emissions of "greenhouse" gases or the physical effects of climate change;

~~the~~• ~~market~~collective ~~prices~~labor ofbargaining ~~equity securities and resultant cash funding requirements for defined benefit pension plans~~negotiations;

~~securities~~• the outcome of litigation against PPL Energy Supply and ~~credit~~its ~~ratings~~subsidiaries;

~~state~~• ~~and~~potential ~~federal~~effects ~~regulatory~~of ~~developments~~threatened or actual terrorism, war or other hostilities, cyber-based intrusions or natural disasters;

~~foreign~~• ~~exchange~~the ~~rates~~commitments and liabilities of PPL Energy Supply and its subsidiaries;

~~new~~• ~~state~~volatility orin ~~federal~~market ~~legislation~~demand and prices for energy, ~~including~~capacity, ~~new~~transmission ~~tax~~services, ~~legislation~~emission allowances and RECs;

~~national~~• orcompetition ~~regional economic conditions, including any potential effects arising from terrorist attacks~~ in ~~the~~retail ~~U.S.,~~and ~~the~~wholesale ~~situation~~power ~~in Iraq~~ and ~~any consequential~~natural ~~hostilities~~gas ~~or other hostilities~~markets; ~~and~~

~~the~~• ~~commitments~~sufficient ~~and~~liquidity ~~liabilities~~in wholesale power markets to hedge our portfolio of ~~PPL~~assets efficiently and ~~its subsidiaries.~~ effectively;

~~Any~~• ~~such~~defaults ~~forward-looking~~by ~~statements~~counterparties ~~should~~under beenergy, ~~considered~~fuel inor ~~light of such important factors and in conjunction with~~ other ~~documents~~power ofproduct ~~PPL, PPL Energy Supply and PPL Electric on file with the SEC.~~contracts;

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

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except per share data)
				Three Months Ended June 30,				Six Months Ended June 30,
				2004		2003		2004		2003
Operating Revenues
	Utility			$	907	$	862	$	1,992	$	1,881
	Unregulated retail electric and gas				29		33		60		84
	Wholesale energy marketing				294		303		572		601
	Net energy trading margins				5		12		12		5
	Energy related businesses				127		129		246		256
	Total				1,362		1,339		2,882		2,827
Operating Expenses
	Operation
		Fuel			172		135		375		332
		Energy purchases			217		251		487		553
		Other operation and maintenance			320		324		636		601
		Amortization of recoverable transition costs			57		56		128		127
	Depreciation				102		92		201		188
	Taxes, other than income				64		60		121		125
	Energy related businesses				132		135		270		256
	Total				1,064		1,053		2,218		2,182
Operating Income					298		286		664		645
Other Income - net					19		23		31		31
Interest Expense					140		128		265		236
Income from Continuing Operations Before Income Taxes, Minority Interest and Distributions on Preferred Securities					177		181		430		440
Income Taxes					26		49		98		118
Minority Interest					2		1		4		2
Distributions on Preferred Securities							14		1		27
Income from Continuing Operations					149		117		327		293
Loss from Discontinued Operations (net of income taxes)					1		1		2		1
Income Before Cumulative Effect of a Change in Accounting Principle					148		116		325		292
Cumulative Effect of a Change in Accounting Principle (net of income taxes)											63
Net Income				$	148	$	116	$	325	$	355
Earnings Per Share of Common Stock:
	Income from Continuing Operations:
			Basic	$	0.82	$	0.68	$	1.81	$	1.73
			Diluted		0.82		0.67		1.81		1.72
	Net income:
			Basic	$	0.81	$	0.68	$	1.80	$	2.10
			Diluted		0.81		0.67		1.80		2.09
Dividends Declared per Share of Common Stock				$	0.41	$	0.385	$	0.82	$	0.77
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure;

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2004			2003
Net Cash Provided by Operating Activities			$	628		$	498
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment			(345	)		(358	)
	Investment in generating assets and electric energy projects			(30	)
	Proceeds from the sale of CGE			123
	Other investing activities - net			(15	)		6
		Net cash used in investing activities		(267	)		(352	)
Cash Flows from Financing Activities
	Issuance of common stock			589			411
	Issuance of long-term debt			15			986
	Retirement of long-term debt			(938	)		(404	)
	Retirement of preferred stock						(10	)
	Payment of common dividends			(141	)		(122	)
	Payment of preferred distributions			(1	)		(23	)
	Net increase (decrease) in short-term debt			4			(834	)
	Other financing activities - net			(7	)		(25	)
		Net cash used in financing activities		(479	)		(21	)
Net Increase (Decrease) In Cash and Cash Equivalents				(118	)		125
Cash and Cash Equivalents at Beginning of Period				476			245
Cash and Cash Equivalents at End of Period			$	358		$	370
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	volatility in the fair value of debt and equity securities and its impact on the value of assets in the NDT funds and in defined benefit plans, and the potential cash funding requirements if fair value declines;

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			June 30, 2004		December 31, 2003
Assets
Current Assets
	Cash and cash equivalents		$	358	$	476
	Accounts receivable (less reserve: 2004, $93; 2003, $93)			523		555
	Unbilled revenues			353		341
	Fuel, materials and supplies - at average cost			270		256
	Prepayments			124		54
	Deferred income taxes			109		105
	Price risk management assets			148		90
	Other			100		143
				1,985		2,020
Investments
	Investment in unconsolidated affiliates - at equity			204		230
	Investment in unconsolidated affiliates - at cost					126
	Nuclear plant decommissioning trust fund			373		357
	Other			18		29
				595		742
Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		5,729		5,456
		Generation		3,893		3,362
		General		458		435
				10,080		9,253
	Construction work in progress			149		614
	Nuclear fuel			138		144
		Electric plant		10,367		10,011
	Gas and oil plant			209		205
	Other property			213		221
				10,789		10,437
Regulatory and Other Noncurrent Assets
	Recoverable transition costs			1,559		1,687
	Goodwill			1,079		1,068
	Other intangibles			245		243
	Other			982		926
				3,865		3,924
			$	17,234	$	17,123
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	interest rates and their effect on pension, retiree medical, nuclear decommissioning liabilities and interest payable on certain debt securities;

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2004			December 31, 2003
Liabilities and Equity
Current Liabilities
	Short-term debt	$	65		$	56
	Long-term debt		939			395
	Accounts payable		433			456
	Above market NUG contracts		73			74
	Taxes		139			178
	Interest		123			121
	Dividends		79			70
	Price risk management liabilities		160			82
	Other		334			337
			2,345			1,769
Long-term Debt (Note 6)			6,582			7,464
Long-term Debt with Affiliate Trusts (Note 6)			89			681
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		2,286			2,205
	Above market NUG contracts		242			278
	Other		1,530			1,362
			4,058			3,845
Commitments and Contingent Liabilities
Minority Interest			53			54
Preferred Stock without Sinking Fund Requirements			51			51
Shareowners' Common Equity
	Common stock		2			2
	Capital in excess of par value		3,564			2,973
	Treasury stock		(837	)		(837	)
	Earnings reinvested		1,653			1,478
	Accumulated other comprehensive loss		(274	)		(297	)
	Capital stock expense and other		(52	)		(60	)
			4,056			3,259
		$	17,234		$	17,123
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	volatility in or the impact of other changes in financial or commodity markets and economic conditions;

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Three Months Ended June 30,				Six Months Ended June 30,
			2004		2003		2004		2003
Operating Revenues
	Wholesale energy marketing		$	294	$	303	$	572	$	601
	Wholesale energy marketing to affiliates			346		328		756		717
	Utility			255		236		534		477
	Unregulated retail electric and gas			29		33		60		84
	Net energy trading margins			5		12		12		5
	Energy related businesses			122		126		236		251
	Total			1,051		1,038		2,170		2,135
Operating Expenses
	Operation
		Fuel		154		120		312		273
		Energy purchases		163		199		378		448
		Energy purchases from affiliates		39		38		77		83
		Other operation and maintenance		232		242		468		450
	Depreciation			73		64		142		133
	Taxes, other than income			24		22		50		43
	Energy related businesses			124		128		255		247
	Total			809		813		1,682		1,677
Operating Income				242		225		488		458
Other Income - net				28		26		39		42
Interest Expense				77		60		133		102
Income from Continuing Operations Before Income Taxes, Minority Interest and Distributions on Preferred Securities				193		191		394		398
Income Taxes				33		55		85		106
Minority Interest				2		1		4		2
Distributions on Preferred Securities						2				4
Income from Continuing Operations				158		133		305		286
Loss from Discontinued Operations (net of income taxes)				1		1		2		1
Income Before Cumulative Effect of a Change in Accounting Principle				157		132		303		285
Cumulative Effect of a Change in Accounting Principle (net of income taxes)										63
Net Income			$	157	$	132	$	303	$	348
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	our risk management policy and programs relating to electricity and fuel prices, interest rates and counterparty credit and non-performance risks may not work as planned, and we may suffer economic losses despite such programs. Additionally, we do not always hedge against such risks;

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2004			2003
Net Cash Provided by Operating Activities			$	438		$	322
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment			(234	)		(234	)
	Investment in generating assets and electric energy projects			(30	)
	Proceeds from the sale of CGE			123
	Net decrease in notes receivable from affiliates						428
	Other investing activities - net			(23	)		17
		Net cash provided by (used in) investing activities		(164	)		211
Cash Flows from Financing Activities
	Issuance of long-term debt			15			797
	Retirement of long-term debt			(663	)		(53	)
	Distributions to Member			(124	)		(650	)
	Contributions from Member			58			262
	Net decrease in short-term debt			(61	)		(819	)
	Net increase in note payable to affiliate			495
	Other financing activities - net			1			(12	)
		Net cash used in financing activities		(279	)		(475	)
Net Increase (Decrease) In Cash and Cash Equivalents				(5	)		58
Cash and Cash Equivalents at Beginning of Period				227			149
Cash and Cash Equivalents at End of Period			$	222		$	207
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	the effect on our operations and ability to comply with new statutory and regulatory requirements related to derivative financial instruments;

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			June 30, 2004		December 31, 2003
Assets
Current Assets
	Cash and cash equivalents		$	222	$	227
	Accounts receivable (less reserve: 2004, $67; 2003, $68)			298		320
	Unbilled revenues			227		215
	Accounts receivable from affiliates			129		71
	Fuel, materials and supplies - at average cost			212		198
	Price risk management assets			145		88
	Other			132		158
				1,365		1,277
Investments
	Investment in unconsolidated affiliates - at equity			204		212
	Investment in unconsolidated affiliates - at cost					126
	Nuclear plant decommissioning trust fund			373		357
	Other			5		5
				582		700
Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		3,355		3,129
		Generation		3,893		3,362
		General		229		204
				7,477		6,695
	Construction work in progress			117		580
	Nuclear fuel			138		144
		Electric plant		7,732		7,419
	Gas and oil plant			21		21
	Other property			152		163
				7,905		7,603
Other Noncurrent Assets
	Goodwill			1,024		1,013
	Other intangibles			111		109
	Other			610		548
				1,745		1,670
			$	11,597	$	11,250
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	our ability to attract and retain qualified employees;

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2004		December 31, 2003
Liabilities and Equity
Current Liabilities
	Short-term debt			$	56
	Long-term debt	$	184		6
	Accounts payable		374		381
	Accounts payable to affiliates		41		53
	Above market NUG contracts		73		74
	Taxes		104		110
	Interest		78		74
	Deferred revenue on PLR energy supply to affiliate		12		12
	Price risk management liabilities		154		76
	Other		227		222
			1,247		1,064
Long-term Debt			3,348		4,140
Note Payable to Affiliate			495
Long-term Debt with Affiliate Trust			89		89
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		1,119		1,012
	Above market NUG contracts		242		278
	Deferred revenue on PLR energy supply to affiliate		52		58
	Other		1,221		1,077
			2,634		2,425
Commitments and Contingent Liabilities
Minority Interest			53		54
Member's Equity			3,731		3,478
		$	11,597	$	11,250
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


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

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Three Months Ended June 30,				Six Months Ended June 30,
			2004		2003		2004		2003
Operating Revenues
	Retail electric		$	622	$	593	$	1,354	$	1,299
	Wholesale electric					7		4		15
	Wholesale electric to affiliate			39		37		76		76
	Total			661		637		1,434		1,390
Operating Expenses
	Operation
		Energy purchases		55		51		110		104
		Energy purchases from affiliate		346		327		756		714
		Other operation and maintenance		87		86		165		161
		Amortization of recoverable transition costs		57		56		128		127
	Depreciation			27		26		53		50
	Taxes, other than income			38		37		69		81
	Total			610		583		1,281		1,237
Operating Income				51		54		153		153
Other Income - net						1		1		4
Interest Expense				47		53		96		109
Income Before Income Taxes				4		2		58		48
Income Taxes				1		1		21		17
Income Before Distributions on Preferred Securities				3		1		37		31
Distributions on Preferred Securities						1		1		2
Income Available to PPL Corporation			$	3	$		$	36	$	29
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	changes in securities and credit ratings;

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2004			2003
Net Cash Provided by Operating Activities			$	185		$	233
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment			(98	)		(113	)
	Net increase in notes receivable from affiliates						(10	)
	Other investing activities - net			7			1
		Net cash used in investing activities		(91	)		(122	)
Cash Flows from Financing Activities
	Issuance of long-term debt						190
	Retirement of long-term debt			(271	)		(291	)
	Contribution from parent						75
	Retirement of preferred stock						(10	)
	Payment of preferred distributions			(1	)		(2	)
	Payment of common dividends to PPL Corporation			(2	)		(19	)
	Net increase (decrease) in short-term debt			65			(15	)
	Other financing activities - net			(8	)		(8	)
		Net cash used in financing activities		(217	)		(80	)
Net Increase (Decrease) in Cash and Cash Equivalents				(123	)		31
Cash and Cash Equivalents at Beginning of Period				162			29
Cash and Cash Equivalents at End of Period			$	39		$	60
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


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

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			June 30, 2004		December 31, 2003
Assets
Current Assets
	Cash and cash equivalents		$	39	$	162
	Accounts receivable (less reserve: 2004, $25; 2003, $24)			203		212
	Unbilled revenues			124		123
	Accounts receivable from affiliates			13		27
	Income tax receivable			35		35
	Materials and supplies - at average cost			32		30
	Prepayments			75		5
	Prepayment on PLR energy supply from affiliate			12		12
	Deferred income taxes			40		45
	Other			17		24
				590		675
Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		2,374		2,327
		General		225		226
				2,599		2,553
	Construction work in progress			29		31
		Electric plant		2,628		2,584
	Other property			4		5
				2,632		2,589
Regulatory and Other Noncurrent Assets
	Recoverable transition costs			1,559		1,687
	Intangibles			116		116
	Prepayment on PLR energy supply from affiliate			52		58
	Other			343		344
				2,070		2,205
			$	5,292	$	5,469
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	legal, regulatory, political, market or other reactions to the 2011 incident at the nuclear generating facility at Fukushima, Japan, including additional NRC requirements;

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2004			December 31, 2003
Liabilities and Equity
Current Liabilities
	Short-term debt	$	65
	Long-term debt		334		$	289
	Accounts payable		34			44
	Accounts payable to affiliates		125			92
	Taxes		56			86
	Interest		29			32
	Other		73			83
			716			626
Long-term Debt			2,333			2,648
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		746			728
	Other		191			194
			937			922
Commitments and Contingent Liabilities
Preferred Stock without Sinking Fund Requirements			51			51
Shareowner's Common Equity
	Common stock		1,476			1,476
	Additional paid-in capital		361			361
	Treasury stock		(912	)		(912	)
	Earnings reinvested		337			304
	Capital stock expense and other		(7	)		(7	)
			1,255			1,222
		$	5,292		$	5,469
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.


•	changes in political, regulatory or economic conditions in states, regions or countries where PPL Energy Supply or its subsidiaries conduct business;

~~Combined~~• ~~Notes~~receipt toof ~~Condensed Consolidated~~necessary ~~Financial~~governmental ~~Statements~~permits, and approvals;

~~Terms~~• ~~and~~new ~~abbreviations appearing in Combined Notes to Condensed Consolidated Financial Statements are explained in the glossary. Dollars are in millions~~state, ~~except~~ ~~per~~federal ~~share~~or ~~data,~~foreign ~~unless~~legislation ~~otherwise~~or ~~noted.~~regulatory developments;

~~(PPL,~~• the impact of any state or federal investigations applicable to PPL Energy Supply and ~~PPL~~its ~~Electric)~~subsidiaries and the energy industry;

~~The~~• ~~accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in~~ the ~~U.S.~~effect ~~for interim financial information and with the instructions to Form 10-Q and Article 10~~ of ~~Regulation~~any ~~S-X~~business and, therefore, do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (including normal, recurring accruals) considered necessary for a fair presentation in accordance with accounting principles generally accepted in the U.S. are reflected in the condensed consolidated financial statements. The Balance Sheet as of December 31, 2003, is derived from each Registrant's 2003 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003. The results of operations for the three and six months ended June 30, 2004, are not necessarily indicative of the results to be expected for the full year ending December 31, 2004, or ~~other~~industry ~~future periods, because results for interim periods can be disproportionately influenced by various factors and developments and seasonal variations.~~restructuring;

~~Certain~~• ~~amounts~~development inof ~~the~~new ~~June 30~~projects, ~~2003,~~markets and ~~December 31, 2003, financial statements have been reclassified to conform to the presentation in the June 30, 2004, financial statements.~~technologies;

~~The~~• ~~following~~performance ~~accounting policy disclosures represent updates to the "Summary~~ of ~~Significant~~new ~~Accounting Policies" Note in each Registrant's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003.~~ventures;

~~Stock-Based~~• ~~Compensation~~delays ~~(PPL,~~in ~~PPL~~or ~~Energy~~additional ~~Supply~~costs ~~and~~related to the completion of the spinoff from PPL; ~~Electric)~~and

~~Stock-based~~• ~~compensation~~business ~~expense,~~dispositions ~~including~~or ~~awards granted to employees and an allocation of costs of awards granted to employees of PPL Services~~acquisitions, ~~was~~ ~~insignificant~~including ~~to net income and EPS under both~~ the ~~intrinsic~~anticipated ~~value~~formation ~~and fair value methods~~ of ~~accounting~~Talen ~~for~~Energy ~~stock-based~~via ~~compensation for~~ the ~~three and~~spinoff ~~six~~from ~~months~~PPL ~~ended June 30, 2004~~ and ~~2003.~~subsequent ~~Also,~~combination ~~there~~with ~~would~~Riverstone's ~~not~~competitive ~~have been~~generation abusiness, ~~material impact on reported net income~~ and ~~EPS~~our ~~had~~ability ~~the fair value method been used~~ to ~~account~~realize ~~for~~expected ~~all~~benefits ~~outstanding stock-based compensation awards in all periods.~~from

~~New Accounting Standards (PPL, PPL Energy Supply and PPL Electric)~~1

~~See~~Table ~~Note 16 for a discussion~~ of ~~new accounting standards adopted in 2004 or pending adoption.~~Contents

~~Income~~such ~~Taxes~~business transactions. The completion of the formation of Talen Energy is contingent upon the satisfaction of a number of conditions and may present difficulties that could have an adverse effect on us.

~~Reconciliations~~Any ofsuch ~~effective~~forward-looking ~~income~~statements ~~tax~~should ~~rates~~be ~~for~~considered ~~PPL~~in light of such important factors and in conjunction with other documents of PPL Energy Supply ~~are~~ ason ~~follows:~~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) Energy Supply 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 Energy Supply undertakes no obligation to update the information contained in such statement to reflect subsequent developments or information.

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
Reconciliation of Income Tax Expense
	Indicated federal income tax on pre-tax income before extraordinary item at statutory tax rate - 35%	$	62		$	63		$	151		$	154
Increase/(decrease) due to:
	State income taxes		(4	)		3						10
	Amortization of investment tax credit		(2	)		(2	)		(5	)		(5	)
	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(15	)		3			(18	)		(5	)
	Federal income tax credits		(15	)		(14	)		(29	)		(26	)
	Other					(4	)		(1	)		(10	)
			(36	)		(14	)		(53	)		(36	)
Total income tax expense		$	26		$	49		$	98		$	118
Effective income tax rate			14.7%			27.1%			22.8%			26.8%

~~(PPL~~Table ~~Energy~~of ~~Supply)~~Contents

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
Reconciliation of Income Tax Expense
	Indicated federal income tax on pre-tax income before extraordinary item at statutory tax rate - 35%	$	68		$	66		$	138		$	139
Increase/(decrease) due to:
	State income taxes		(2	)		2			(1	)		3
	Amortization of investment tax credit		(2	)		(2	)		(4	)		(4	)
	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(15	)		3			(18	)		(5	)
	Federal income tax credits		(15	)		(14	)		(29	)		(26	)
	Other		(1	)					(1	)		(1	)
			(35	)		(11	)		(53	)		(33	)
Total income tax expense		$	33		$	55		$	85		$	106
Effective income tax rate			17.1%			28.8%			21.6%			26.6%

PART I. FINANCIAL INFORMATION

~~(PPL~~ITEM ~~and~~1. ~~PPL~~Financial ~~Energy Supply)~~Statements

See the "Segment and Related Information" Note in each Registrant's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a discussion of reportable segments.



CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended
	March 31,
	2015		2014
Operating Revenues
Unregulated wholesale energy	$	522	$	(1,457	)
Unregulated wholesale energy to affiliate	9		27
Unregulated retail energy	311		350
Energy-related businesses	104		125
Total Operating Revenues	946		(955		)
Operating Expenses
Operation
Fuel	351		482
Energy purchases	1		(1,804		)
Other operation and maintenance	226		229
Depreciation	77		75
Taxes, other than income	15		18
Energy-related businesses	98		124
Total Operating Expenses	768		(876		)
Operating Income (Loss)	178		(79		)
Other Income (Expense) - net	7		6
Interest Expense	36		32
Income (Loss) from Continuing Operations Before Income Taxes	149		(105		)
Income Taxes	53		(47		)
Income (Loss) from Continuing Operations After Income Taxes	96		(58		)
Income (Loss) from Discontinued Operations (net of income taxes)	—		(8		)
Net Income (Loss)	$	96	$	(66	)

~~Financial~~The ~~data~~accompanying ~~for~~Notes ~~the~~to ~~segments~~Condensed Consolidated Financial Statements are asan ~~follows:~~integral part of the financial statements.

~~(PPL)~~3

		Three Months Ended June 30,				Six Months Ended June 30,
		2004		2003		2004		2003
Income Statement Data
Revenues from external customers
	Supply	$	438	$	453	$	857	$	903
	International		271		259		565		519
	Delivery		653		627		1,460		1,405
			1,362		1,339		2,882		2,827
Intersegment revenues
	Supply		346		328		756		717
	Delivery		39		40		78		88
Net Income
	Supply (a)		80		90		169		241
	International		66		26		114		77
	Delivery		2				42		37
		$	148	$	116	$	325	$	355

Table of Contents

				June 30, 2004				December 31, 2003
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Balance Sheet Data
PPL Energy Supply, LLC and Subsidiaries
Total assets
(Unaudited)
	Supply			$	6,667			$	6,491
(Millions of Dollars)
	International				5,093				4,942
	Three Months Ended
	Delivery				5,474				5,690
	March 31,
				$	17,234			$	17,123
	2015				2014
Net income (loss)	$	96			$	(66	)
Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Available-for-sale securities, net of tax of $(6), $(6)	5				5
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):
Available-for-sale securities, net of tax of $1, $1	(1		)		(1		)
Qualifying derivatives, net of tax of $3, $4	(4		)		(5		)
Defined benefit plans:
Prior service costs, net of tax of $0, $(1)	—				1
Net actuarial loss, net of tax of $(3), $(1)	4				1
Total other comprehensive income (loss)	4				1
Comprehensive income (loss)	$	100			$	(65	)

~~(PPL~~The ~~Energy~~accompanying ~~Supply)~~Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

		Three Months Ended June 30,				Six Months Ended June 30,
		2004		2003		2004		2003
Income Statement Data
Revenues from external customers
	Supply	$	780	$	779	$	1,605	$	1,616
	International		271		259		565		519
			1,051		1,038		2,170		2,135
Net Income
	Supply (a)		91		106		189		271
	International		66		26		114		77
		$	157	$	132	$	303	$	348

		June 30, 2004		December 31, 2003
Balance Sheet Data
Total assets
	Supply	$	6,504	$	6,308
	International		5,093		4,942
		$	11,597	$	11,250

Table of Contents

(a) The six months ended June 30, 2003, includes the "Cumulative Effect of a Change in Accounting Principle" recorded in January 2003. See Note 14 for additional information.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended
	March 31,
	2015			2014
Cash Flows from Operating Activities
Net income (loss)	$	96		$	(66	)
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	77			80
Amortization	46			44
Defined benefit plans - expense	12			8
Deferred income taxes and investment tax credits	13			(121		)
Impairment of assets	2			18
Unrealized (gains) losses on derivatives, and other hedging activities	(38		)	229
Other	5			5
Change in current assets and current liabilities
Accounts receivable	(16		)	(15		)
Accounts payable	(94		)	153
Unbilled revenues	77			(92		)
Fuel, materials and supplies	73			43
Prepayments	34			(10		)
Taxes payable	30			53
Other	(25		)	(20		)
Other operating activities
Defined benefit plans - funding	(74		)	(30		)
Other assets	5			(5		)
Other liabilities	(2		)	2
Net cash provided by operating activities	221			276
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(109		)	(88		)
Purchases of nuclear plant decommissioning trust investments	(43		)	(32		)
Proceeds from the sale of nuclear plant decommissioning trust investments	38			27
Proceeds from the receipt of grants	—			56
Net (increase) decrease in restricted cash and cash equivalents	(7		)	(344		)
Other investing activities	(9		)	(8		)
Net cash provided by (used in) investing activities	(130		)	(389		)
Cash Flows from Financing Activities
Distributions to member	(191		)	(654		)
Net increase (decrease) in short-term debt	(30		)	970
Other financing activities	(1		)	(1		)
Net cash provided by (used in) financing activities	(222		)	315
Net Increase (Decrease) in Cash and Cash Equivalents	(131		)	202
Cash and Cash Equivalents at Beginning of Period	352			239
Cash and Cash Equivalents at End of Period	$	221		$	441

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

Basic EPS is calculated using the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated using weighted average shares outstanding that are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock. Potentially dilutive securities consist of:5

•Table stock options, restricted stock and restricted stock units granted under the incentive compensation plans; • stock units representing common stock granted under the directors compensation programs; • common stock purchase contracts that were a component of ~~the PEPS Units and PEPS Units, Series B; and • convertible senior notes.~~Contents

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



CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	March 31,		December 31,
	2015		2014
Assets
Current Assets
Cash and cash equivalents	$	221	$	352
Restricted cash and cash equivalents	183		176
Accounts receivable (less reserve: 2015, $2; 2014, $2)
Customer	212		186
Other	38		103
Accounts receivable from affiliates	68		36
Unbilled revenues	141		218
Fuel, materials and supplies	382		455
Prepayments	36		70
Price risk management assets	988		1,079
Other current assets	18		26
Total Current Assets	2,287		2,701
Investments
Nuclear plant decommissioning trust funds	965		950
Other investments	30		30
Total Investments	995		980
Property, Plant and Equipment
Generation	11,318		11,318
Nuclear fuel	749		624
Other	293		293
Less: accumulated depreciation	6,340		6,242
Property, plant and equipment, net	6,020		5,993
Construction work in progress	351		443
Total Property, Plant and Equipment, net	6,371		6,436
Other Noncurrent Assets
Goodwill	72		72
Other intangibles	259		257
Price risk management assets	310		239
Other noncurrent assets	72		75
Total Other Noncurrent Assets	713		643
Total Assets	$	10,366	$	10,760

		Three Months Ended June 30,				Six Months Ended June 30,
		2004		2003		2004		2003
Income (Numerator)
Income from continuing operations		$	149	$	117	$	327	$	293
	Loss from discontinued operations (net of tax)		1		1		2		1
	Cumulative effect of a change in accounting principle (net of tax)								63
Net Income		$	148	$	116	$	325	$	355
Shares (Denominator)
Shares for Basic EPS			182,962		171,892		180,437		169,482
Add: Incremental shares:
	Stock options and other share-based awards		562		649		585		579
Shares for Diluted EPS			183,524		172,541		181,022		170,061
Basic EPS
Income from continuing operations		$	0.82	$	0.68	$	1.81	$	1.73
	Loss from discontinued operations (net of tax)		0.01				0.01
	Cumulative effect of a change in accounting principle (net of tax)								0.37
Net Income		$	0.81	$	0.68	$	1.80	$	2.10
Diluted EPS
Income from continuing operations		$	0.82	$	0.67	$	1.81	$	1.72
	Loss from discontinued operations (net of tax)		0.01				0.01
	Cumulative effect of a change in accounting principle (net of tax)								0.37
Net Income		$	0.81	$	0.67	$	1.80	$	2.09

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

In May 2001, PPL and PPL Capital Funding Trust I issued 23 million PEPS Units that contained a purchase contract component for PPL's common stock. The purchase contracts were only dilutive if the average price of PPL's common stock exceeded a threshold appreciation price, which was adjusted for cash distributions on PPL common stock. The threshold appreciation price was initially set at $65.03 and was adjusted to $63.38 as of April 1, 2004, based on dividends paid on PPL's common stock since issuance. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculations.6

InTable ~~January 2004, PPL completed an exchange offer resulting in the exchange~~ of approximately four million PEPS Units for PEPS Units, Series B. The primary difference in the units related to the debt component. The purchase contract components of both units, which were potentially dilutive, were identical. The threshold appreciation price for the purchase contract component of the PEPS Units, Series B was adjusted in the same manner as that of the PEPS Units and was $63.38 as a result of the adjustment as of April 1, 2004. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculations. See Note 6 for a more detailed discussion of the exchange offer.Contents

In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible Senior Notes due 2023. The notes are guaranteed by PPL and can be converted into shares of PPL common stock if:



CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	March 31,		December 31,
	2015		2014
Liabilities and Equity
Current Liabilities
Short-term debt	$	600	$	630
Long-term debt due within one year	535		535
Accounts payable	225		361
Accounts payable to affiliates	34		50
Taxes	58		28
Interest	41		16
Price risk management liabilities	904		1,024
Other current liabilities	179		246
Total Current Liabilities	2,576		2,890
Long-term Debt	1,682		1,683
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	1,226		1,223
Investment tax credits	26		27
Price risk management liabilities	259		193
Accrued pension obligations	230		299
Asset retirement obligations	423		415
Other deferred credits and noncurrent liabilities	128		123
Total Deferred Credits and Other Noncurrent Liabilities	2,292		2,280
Commitments and Contingent Liabilities (Note 7)
Member's Equity	3,816		3,907
Total Liabilities and Equity	$	10,366	$	10,760

•The ~~during~~accompanying ~~any~~Notes fiscal quarter starting after June 30, 2003, the market price of PPL's common stock trades at or above $59.67 per share over a certain period during the preceding fiscal quarter; • PPL calls the debt for redemption; • the holder exercises its right to ~~put~~Condensed ~~the~~Consolidated ~~debt~~Financial onStatements any five-year anniversary of the offering; • the long-term credit rating assigned to the notes by Moody's Investors Service, Inc. and Standard & Poor's Ratings Services falls below Ba2 and BB or the notes are ~~not~~an ~~rated;~~integral orpart •of ~~certain specified corporate transactions occur, e.g., change in control and certain distributions to~~ the ~~holders~~financial ~~of PPL common stock~~statements.

The initial conversion rate is 20.1106 shares per $1,000 principal amount of notes. It will be adjusted if certain specified distributions, whether in the form of cash, stock, other equity interests, evidence of indebtedness or assets, are made to holders of PPL common stock. Additionally, the conversion rate can be increased by PPL if its Board of Directors has made a determination that to do so would be in the best interests of either PPL or holders of PPL common stock.7

~~Depending~~Table ~~upon which~~ of the conversion events identified above occurs, the Convertible Senior Notes can be settled in cash or shares. As none of these events has occurred, the Convertible Senior Notes were excluded from the diluted EPS calculations.Contents

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



CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Member's equity
	Member's equity
December 31, 2014	$	3,907
Net income (loss)	96
Other comprehensive income (loss)	4
Distributions	(191		)
March 31, 2015	$	3,816

December 31, 2013	$	4,798
Net income (loss)	(66		)
Other comprehensive income (loss)	1
Contributions from member	(654		)
March 31, 2014	$	4,079

	Three Months Ended June 30,		Six Months Ended June 30,
(Thousands of Shares)	2004	2003	2004	2003
Antidilutive stock options	1,153	1,673	1,526	1,694

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

~~See Note 16 for a discussion of EITF Issue 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, 'Earnings Per Share'."~~8

~~(PPL~~Table ~~and~~of ~~Energy Supply)~~Contents

~~The~~Notes ~~following~~to ~~tables~~Condensed ~~show~~Consolidated ~~the~~Financial ~~after-tax~~Statements ~~components of comprehensive income:~~(Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
PPL
Net Income		$	148		$	116		$	325		$	355
Other comprehensive income (loss):
	Foreign currency translation adjustments		(28	)		32			50			17
	Sale of CEMAR - currency translation adjustment		(4	)					(4	)
	Sale of CGE - currency translation adjustment								10
	Unrealized gain (loss) on available-for-sale securities		(1	)		13			(4	)		10
	Unrealized gain (loss) on qualifying derivatives		6			(13	)		(29	)		14
	Total other comprehensive income (loss)		(27	)		32			23			41
Comprehensive Income		$	121		$	148		$	348		$	396

1. Business and Basis of Presentation

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
PPL Energy Supply
Net Income		$	157		$	132		$	303		$	348
Other comprehensive income (loss):
	Foreign currency translation adjustments		(28	)		32			50			17
	Sale of CEMAR - currency translation adjustment		(4	)					(4	)
	Sale of CGE - currency translation adjustment								10
	Unrealized gain (loss) on available-for-sale securities		(1	)		11			(4	)		8
	Unrealized gain (loss) on qualifying derivatives		(5	)		(5	)		(37	)		24
	Total other comprehensive income (loss)		(38	)		38			15			49
Comprehensive Income		$	119		$	170		$	318		$	397

Capitalized terms and abbreviations appearing in the unaudited notes to condensed consolidated financial statements are defined in the glossary. Dollars are in millions, unless otherwise noted.

~~(PPL~~Business-Anticipated ~~Electric)~~Spinoff from PPL

PPL ~~Electric's~~Energy ~~comprehensive~~Supply, ~~income~~headquartered ~~approximates~~in ~~net~~Allentown, ~~income~~Pennsylvania, is an indirect wholly owned subsidiary of PPL and is an energy company that, through its principal subsidiaries, is primarily engaged in the competitive generation and marketing of electricity in two key markets - the northeastern and northwestern U.S.

~~Credit~~In ~~Arrangements~~June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Holdco, which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy. The transaction is subject to customary closing conditions, including receipt of required regulatory approvals from the NRC, FERC, DOJ and PUC, all of which were received by mid-April 2015. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn credit capacity under a revolving credit or similar facility of Talen Energy or one or more of its subsidiaries. Any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions at the time of the spinoff are excluded from this calculation.

(In connection with the FERC approval, PPL and RJS Power agreed that within 12 months after closing of the transaction, Talen Energy will divest approximately 1,300 MW of generating assets in one of two groups of assets (from PPL Energy Supply's existing portfolio, this includes either the Holtwood and ~~PPL~~Wallenpaupack ~~Electric~~hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.

InOn ~~February~~April ~~2004~~29, 2015, PPL's ~~Energy~~Board ~~Supply~~of ~~reduced~~Directors declared the ~~size~~distribution of ~~its~~Holdco ~~$500 million three-year credit facility expiring in June 2004~~ to ~~$200 million. In June 2004,~~ PPL's ~~Energy~~shareowners ~~Supply~~of ~~replaced~~record ~~this~~on ~~facility~~May ~~and~~20, ~~its $300 million three-year facility expiring in June 2005 with an $800 million five-year facility expiring in June 2009. Also in June 2004~~2015, ~~PPL Electric replaced its $200 million 364-day facility expiring in June 2004~~ with a $200 million five-year facility expiring in June 2009. At June 30, 2004, no cash borrowings were outstanding under any credit facilities of PPL Electric or PPL Energy Supply. Both PPL Electric and PPL Energy Supply have the ~~ability~~spinoff to ~~cause~~occur ~~the~~on ~~lenders under their respective facilities to issue letters of credit. At~~ June 301, ~~2004,~~ PPL Electric had $42 million of letters of credit outstanding under its $100 million three-year facility expiring in June 2006, and PPL Energy Supply had $442 million of letters of credit outstanding under its $800 million five-year facility expiring in June 2009 and $84 million of letters of credit outstanding under its $300 million three-year facility expiring in June 20062015. The letters of credit outstanding under PPL Energy Supply's $800 million five-year facility expiring in June 2009 include a $300 million letter of credit provided to PPL Electric to satisfy the performance assurance provisions under one of the PLR contracts. See Note 9 for additional information.

(Following the announcement of the transaction to form Talen Energy, efforts were initiated to identify the appropriate staffing for Talen Energy following completion of the spinoff. Organizational plans were substantially completed in 2014. The new organizational plans identified the need to resize and restructure the PPL Energy Supply organization and as a result, in 2014, estimated charges for employee separation benefits were recorded. See Note 8 in PPL Energy Supply)'s 2014 Form 10-K for additional information. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to be completed by the end of 2015. At March 31, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $3 million and $9 million, which are included in "Other current liabilities" on the Balance Sheets.

AtAdditional ~~June~~employee-related ~~30,~~costs ~~2004,~~to ~~WPD~~be ~~(South~~incurred ~~West)~~primarily ~~had~~include noaccelerated ~~outstanding~~stock-based ~~borrowings~~compensation ~~under its~~and ~~£100~~pro-rated ~~million~~performance-based ~~364~~cash incentive and stock-~~day~~based ~~credit~~compensation ~~facility~~awards, ~~expiring~~primarily for PPL Energy Supply employees and for PPL employees who have become PPL Energy Supply employees in ~~October~~connection ~~2004 or~~with ~~under~~the ~~its~~transaction. These ~~£150~~costs ~~million~~will ~~five-year~~be ~~credit~~recognized ~~facility~~at ~~expiring~~the spinoff closing date. PPL Energy Supply estimates these additional costs will be in ~~October 2008~~the range of $30 million to $40 million.

~~(PPL~~In accordance with business combination accounting guidance, PPL Energy Supply will treat the combination with RJS Power as an acquisition and PPL ~~Electric)~~Energy Supply will be considered the acquirer of RJS Power.

~~The~~Interim ~~subsidiaries~~Financial 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.Statements

~~Similarly,~~The ~~the~~accompanying ~~subsidiaries~~unaudited ofcondensed ~~PPL~~consolidated ~~Energy~~financial ~~Supply~~statements ~~and~~have ~~PPL~~been ~~Electric~~prepared ~~are~~in ~~separate legal~~accordance ~~entities.~~with ~~These~~GAAP ~~subsidiaries~~for ~~are~~interim ~~not~~financial ~~liable~~information ~~for~~and with the ~~debts~~instructions ofto ~~PPL~~Form ~~Energy Supply~~10-Q and ~~PPL~~Article 10 ~~Electric. Accordingly, creditors~~ of ~~PPL~~Regulation ~~Energy~~S-X ~~Supply~~ and ~~PPL~~, ~~Electric~~therefore, ~~may~~do not ~~satisfy~~include ~~their~~all ~~debts from the assets~~ of ~~their subsidiaries absent a specific contractual undertaking by a subsidiary to pay~~ the ~~creditors or~~information asand ~~required~~footnotes ~~by applicable law or regulation. In addition, absent a specific contractual undertaking or as~~ required by ~~applicable~~GAAP ~~law or regulation, PPL Energy Supply and PPL Electric are not liable~~ for ~~the~~complete ~~debts~~financial ~~of their subsidiaries~~statements. In ~~Accordingly, creditors of these subsidiaries may not satisfy their debts from~~ the ~~assets~~opinion 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~~9

~~PEPS~~Table ~~Units~~of ~~Transactions~~Contents

(management, all adjustments considered necessary for a fair presentation in accordance with GAAP are reflected in the condensed consolidated financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. PPL) Energy Supply's Balance Sheet at December 31, 2014 is derived from PPL Energy Supply's 2014 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in PPL Energy Supply's 2014 Form 10-K. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2015 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

InThe ~~November~~classification ~~2003,~~of ~~PPL~~certain ~~initiated~~prior anperiod ~~offer~~amounts tohas ~~exchange~~been upchanged to ~~$573~~conform ~~million of its outstanding PEPS Units for up~~ to ~~$573~~the ~~million~~presentation ~~of its PEPS Units, Series B and a cash payment by PPL of $0.375 for each validly tendered and accepted outstanding PEPS Unit. The exchange offer, which closed~~ in ~~January 2004,~~the ~~resulted in $99 million~~March 31, or2015 ~~17.28%,~~financial ~~of the outstanding PEPS Units, being exchanged~~statements.

In"Income ~~February~~(Loss) ~~2004,~~from ~~pursuant~~Discontinued toOperations ~~the~~(net ~~terms~~ of ~~the~~income ~~PEPS~~taxes)" ~~Units,~~for ~~PPL remarketed $257 million of~~ the ~~PPL~~three ~~Capital~~months ~~Funding~~ended Trust I trust preferred securities that were a component of the PEPS Units. The trust preferred securities were remarketed at a price of 107.284% of their aggregate stated liquidation amountMarch 31, ~~resulting~~2014 ~~in a yield to maturity of 3.912% based~~ on the ~~reset~~Statement ~~distribution rate~~ of ~~7.29%~~Income ~~per~~includes ~~annum. Under~~ the ~~terms~~activities of ~~the~~PPL ~~PEPS~~Montana's ~~Units,~~hydroelectric ~~holders~~generating ~~were entitled~~facilities tosold ~~surrender their trust preferred securities for remarketing~~ in ~~order~~ ~~to settle~~ the ~~purchase~~fourth ~~contract~~quarter ~~component~~ of ~~the PEPS Units in May 2004~~2014. See ~~Holders~~Note of5 anfor ~~aggregate~~additional ofinformation. The ~~$218~~Statements ~~million~~ of ~~the~~Cash ~~trust~~Flows ~~preferred~~do ~~securities elected~~ not toseparately ~~participate~~report in the ~~remarketing.~~cash ~~Those~~flows ~~holders retained their trust preferred securities at a distribution rate~~ of ~~7.29%~~the ~~per~~Discontinued ~~annum~~Operations.

Additionally, in February 2004, PPL Capital Funding issued $201 million of senior unsecured notes guaranteed by PPL in exchange for $185 million of the trust preferred securities of PPL Capital Funding Trust I and a payment of $400,000 in cash2. Summary ~~The senior notes bear interest at a rate~~ of ~~4.33%~~Significant ~~per year~~Accounting that is payable semi-annually on March 1 and September 1 of each year, from September 1, 2004, through the maturity date of March 1, 2009. The senior notes are not redeemable by PPL or PPL Capital Funding, and the holders will not be entitled to require PPL or PPL Capital Funding to repurchase the senior notes before maturity. The senior notes were issued in an SEC Rule 144A private offering to qualified institutional buyers and were exchanged in full for senior notes registered with the SEC pursuant to an exchange offer completed by PPL and PPL Capital Funding in July 2004. The registered senior notes issued pursuant to the exchange offer have the same terms as the senior notes issued in the 144A private offering.Policies

The ~~January~~following ~~and~~accounting ~~February~~policy ~~2004~~disclosures ~~exchanges~~represent ~~resulted~~updates into ~~the~~Note ~~cancellation~~1 ~~of an~~in ~~aggregate of $284 million of the trust preferred securities and an aggregate of $9 million of~~ PPL ~~Capital~~Energy ~~Funding Trust I~~Supply's ~~common~~2014 ~~securities~~Form ~~held~~10-K ~~by PPL~~and ~~Capital~~should ~~Funding,~~be asread well as a corresponding cancellation of the $293 million of PPL Capital Funding 7.29% subordinated notes due 2006 underlying these trust securities. The cancellation of the underlying PPL Capital Funding subordinate notes together with the issuance of the new PPL Capital Funding debt, as a result of the exchanges, resulted in aconjunction ~~net decrease of $9 million of long-term debt, including "Long-term Debt~~ with ~~Affiliate~~those ~~Trusts," as reflected in the Balance Sheet~~disclosures. Following these exchanges, there remained outstanding $290 million of trust preferred securities and $9 million of trust common securities, as well as $299 million of underlying PPL Capital Funding 7.29% subordinated notes due 2006.

InAccounts March 2004, PPL liquidated PPL Capital Funding Trust I, resulting in the cancellation of all of the outstanding trust preferred securities and the trust common securities. In exchange for the cancellation of the trust securities, PPL Capital Funding Trust I caused $290 million of underlying PPL Capital Funding 7.29% subordinated notes due 2006 to be distributed to the holders of the trust preferred securities and $9 million of PPL Capital Funding 7.29% subordinated notes due 2006, held by the trust, to be cancelled. The impact to PPL Capital Funding as a result of these cancellations was an additional net decrease of $9 million of long-term debt, including "Long-term Debt with Affiliate Trusts," as reflected in the Balance Sheet.Receivable

In ~~May~~accordance ~~2004,~~with ~~pursuant~~a toPUC-approved ~~the~~purchase ~~terms~~ of ~~the~~accounts ~~PEPS~~receivable ~~Units~~program, ~~Series B,~~ PPL ~~remarketed approximately~~Electric ~~$99~~purchases ~~million~~certain ofaccounts ~~the~~receivable ~~PPL~~from ~~Capital~~alternative ~~Funding~~electricity ~~notes~~suppliers ~~due~~(including ~~2006~~PPL ~~that were~~EnergyPlus) ~~a component of the PEPS Units, Series B. The notes were remarketed~~ at a ~~price of 100.5% of their aggregate principal amount with a floating reset interest rate initially equal to 2.31%~~discount, which isreflects ~~three-month LIBOR plus~~ a ~~spread~~provision offor ~~105~~uncollectible ~~basis points, or 1~~accounts.~~05%.~~ PPL ~~Interest~~EnergyPlus onhas ~~the~~no ~~notes~~continuing ~~resets quarterly~~involvement ator ~~three-month~~interest ~~LIBOR~~in ~~plus~~its aaccounts ~~spread~~receivable ofpurchased ~~105~~by ~~basis~~PPL ~~points,~~Electric. During ~~and is payable quarterly from May 18, 2004, through, but excluding,~~ the ~~maturity date~~three ofmonths ~~May~~ended 18March 31, ~~2006.~~2015 ~~Under~~and ~~the terms of the PEPS Units~~2014, ~~Series B, holders were entitled to surrender their~~ PPL ~~Capital~~Electric ~~Funding~~purchased ~~notes~~$93 ~~for~~million ~~remarketing in~~and ~~order~~$105 tomillion ~~settle the purchase contract component~~ of ~~the~~accounts ~~PEPS~~receivable ~~Units,~~from ~~Series B~~PPL ~~in May 2004~~EnergyPlus.

~~(PPL~~New ~~and~~Accounting ~~PPL~~Guidance ~~Energy Supply)~~Adopted

~~The~~Reporting ~~purchase contract component~~ of ~~the~~Discontinued PEPS Units and the PEPS Units, Series B settled in May 2004. Pursuant to the settlement of the purchase contracts, PPL issued an aggregate of approximately 11 million shares of its common stock and received aggregate proceeds of approximately $575 million. In June 2004, a subsidiary of PPL Energy Supply used these proceeds and cash on hand to purchase, for approximately $660 million, the Sundance and University Park generation assets that it had been leasing, through a synthetic lease arrangement, from a trust consolidated by PPL Energy Supply. Under the terms of the synthetic lease arrangement, the PPL Energy Supply subsidiary had the right at any time to purchase these assets for an amount sufficient to pay off the consolidated trust's related financing, including accrued and unpaid interest. Repayment of the consolidated trust's debt resulted in a loss of approximately $9 million pre-tax, which is reflected in "Interest Expense."Operations

~~Other~~Effective ~~Financing~~January ~~Activities~~1, 2015, PPL Energy Supply prospectively adopted accounting guidance that changes the criteria for determining what should be classified as a discontinued operation and the related presentation and disclosure requirements. A discontinued operation may include a component of an entity or a group of components of an entity, or a business activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results when any of the following occurs: (1) The components of an entity or a group of components of an entity meets the criteria to be classified as held for sale, (2) The component of an entity or a group of components of an entity is disposed of by sale, or (3) The component of an entity or a group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).

(The initial adoption of this guidance did not have a significant impact on PPL) Energy Supply but will impact the amounts presented as discontinued operations and will enhance the related disclosure requirements related to future disposals or held for sale classifications.

In April 2004, PPL Capital Funding repurchased $4 million of its 8-3/8% Medium-term Notes due 2007 at a market value of approximately $5 million. This repurchase resulted in a loss of approximately $1 million pre-tax, which is reflected in "Interest Expense."10

~~(PPL~~Table ~~and~~of ~~PPL Energy Supply)~~Contents

During the six months ended June 30, 2004, a Bolivian subsidiary of PPL Global issued $13 million of bonds with interest rates varying from 6.8% to 7.4% and serial maturities from December 2005 to December 2008. In addition, the PPL Global subsidiary issued bonds denominated in UFVs (inflation-indexed bolivianos) totaling 13.5 million bolivianos (approximately $2 million at current exchange rates) maturing in December 2007. The proceeds of both issuances were used to repay intercompany loans, short-term bank borrowings, and $3.1 Income ~~million of its multicurrency denominated Inter-American Development Bank note maturing in November 2009.~~Taxes

AtReconciliation ~~June~~of ~~30,~~income ~~2004,~~taxes ~~PPL~~for ~~Energy~~the ~~Supply~~periods ~~had~~ended noMarch ~~commercial~~31 ~~paper outstanding.~~are:

During the six months ended June 30, 2004, PPL Energy Supply distributed approximately $124 million to its parent company, PPL Energy Funding, and received capital contributions of $58 million.



	Three Months
	2015			2014
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35%	$	52		$	(37	)
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	5			(12		)
Federal income tax credits	(3		)	(1		)
Other	(1		)	3
Total increase (decrease)	1			(10		)
Total income taxes	$	53		$	(47	)

~~In May 2004, PPL Energy Supply issued a $495 million note payable to an affiliate. The note matures in May 2006 with interest payable monthly in arrears at LIBOR plus 1%.~~Other

(In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's ~~Electric~~refund from its open audits for the years 1998 - 2011. The settlement was required to be reviewed and approved by the Joint Committee on Taxation (JCT) before it is considered final. In April 2015, PPL was notified that the JCT approved PPL's settlement. Subject to a final determination of interest on the refund, PPL Energy Supply expects to record a tax benefit in the range of $7 million to $15 million in the second quarter of 2015 related to the settlement of previously unrecognized tax benefits.

~~In March 2004, PPL Electric retired approximately $25 million of its outstanding First Mortgage Bonds, 6~~4.~~875%~~ Financing Series due March 2004, at par value. Also in March, PPL Electric redeemed approximately $6 million aggregate principal amount of its First Mortgage Bonds, 7.30% Series due 2024, at par value, through the application of cash deposited with the trustee to release certain transmission lines and other equipment from the lien of the 1945 First Mortgage Bond Indenture.Activities

InCredit ~~April~~Arrangements 2004, PPL Electric completed an offer to repurchase its outstanding First Mortgage Bonds, 6-1/2% Series due 2005. Pursuant to the offer, PPL Electric repurchased approximately $41 million of the bonds at a market value of $43 million. PPL Electric also repurchased in the open market $45 million of 5-7/8% Senior Secured Bonds and ~~$14 million of 6~~Short-~~1/4%~~term Senior Secured Bonds at market values of $48 million and $16 million, respectively. These repurchases resulted in a loss of approximately $7 million pre-tax, which is reflected in other noncurrent assets as an unamortized loss on reacquired debt. The purpose of the repurchases was to reduce future interest expense.Debt

~~In August 2004,~~ PPL ~~Electric~~Energy ~~began~~Supply ~~participating~~maintains incredit anfacilities ~~asset-backed commercial paper (ABCP) program through which PPL Electric obtains financing by selling and contributing~~ to aenhance ~~special~~liquidity purpose, wholly-owned subsidiary its accounts receivable, with certain exceptions, on an ongoing basis. PPL Electric's sale of the accounts receivable is an absolute transfer of the receivables and ~~PPL~~provide ~~Electric~~credit ~~does not retain an interest in the receivables~~support. The ~~subsidiary, in~~following ~~turn,~~syndicated has pledged the receivables to secure loans to be made to it from time to time by a commercial paper conduit sponsored by a financial institution. PPL Electric will continue to perform certain record-keeping and cash collection functions with respect to the receivables in return for a servicing fee from the subsidiary. The subsidiary's borrowing limit under this program is $150 million. PPL Electric expects to use the proceeds from the ABCP program for general corporate purposes and to cash collateralize letters of credit. ~~The~~facility ~~subsidiary~~was ~~is a separate legal entity and its assets are not available for PPL Electric's creditors. However, for financial reporting purposes, the subsidiary's financial results will be consolidated~~ in ~~PPL Electric's~~place ~~financial statements.~~at:

During the six months ended June 30, 2004, PPL Transition Bond Company made principal payments on transition bonds totaling $140 million.



	March 31, 2015									December 31, 2014
	Expiration Date	Capacity		Borrowed		Letters of Credit Issued		Unused Capacity		Borrowed		Letters of Credit Issued
Syndicated Credit Facility (a)	Nov 2017	$	3,000	$	600	$	267	$	2,133	$	630	$	121

(a) At ~~June~~March 3031, ~~2004~~2015 and December 31, ~~PPL~~2014, ~~Electric~~interest ~~had~~rates ~~$65~~on ~~million~~outstanding ofborrowings ~~commercial~~were ~~paper~~2.12% ~~outstanding~~and 2. 05%. The amounts borrowed are recorded as "Short-term debt" on the Balance Sheets.

~~Dividends~~The ~~(PPL)~~Letter of Credit Facility and Uncommitted Credit Facilities that existed at December 31, 2014 have either expired or matured during the first quarter of 2015. Any previously issued letters of credit under these facilities were either terminated or reissued under the Syndicated Credit Facility at March 31, 2015.

InPPL ~~February~~Energy ~~2004,~~Supply ~~PPL~~maintains ~~announced~~a an$500 ~~increase~~million toFacility ~~its~~Agreement ~~quarterly~~expiring ~~common~~June ~~stock dividend~~2017, ~~effective~~which ~~April~~provides 1,PPL ~~2004,~~Energy ~~from~~Supply ~~38.5~~the ~~cents~~ability ~~per~~to ~~share~~request up to 41$500 ~~cents per~~million ~~share~~of ~~(equivalent~~committed toletter ~~$1.64~~of ~~per~~credit ~~annum).~~capacity ~~Future~~at ~~dividends,~~fees ~~declared~~to ~~at the~~be ~~discretion~~agreed ofupon at the ~~Board~~time of ~~Directors~~each request, ~~will~~based beon ~~dependent~~certain ~~upon~~market ~~future earnings~~conditions. At March 31, ~~cash flows~~2015, ~~financial~~PPL ~~requirements~~Energy ~~and~~Supply ~~other~~had ~~factors~~not requested any capacity for the issuance of letters of credit under this arrangement.

~~Domestic~~PPL ~~Generation~~Energy ~~Projects~~Supply, (PPL EnergyPlus, PPL Montour and PPL Brunner Island maintain an $800 million secured energy marketing and trading facility, whereby PPL EnergyPlus will receive credit to be applied to satisfy collateral posting obligations related to its energy marketing and trading activities with counterparties participating in the facility. The credit amount is guaranteed by PPL Energy Supply), PPL Montour and PPL Brunner Island. PPL Montour and PPL Brunner Island have granted liens on their respective generating facilities to secure any amount they may owe under their guarantees. The facility expires in November 2019, but is subject to automatic one-year renewals under certain conditions. There were $88 million of secured obligations outstanding under this facility at March 31, 2015.

At December 31, 2003, PPL Generation had two remaining spare gas combustion turbine generators and related equipment, originally intended for use in a cancelled project. In February 2004, a subsidiary of PPL Generation sold one spare gas combustion turbine generator and related equipment for approximately $10 million. In June 2004, the subsidiary sold the other spare gas combustion turbine generator and related equipment for approximately $9 million. The net loss from these sales was insignificant.11

~~The~~Table ~~turbine upgrade for PPL Susquehanna Unit 1 was completed in April 2004. This project provides a nominal power increase~~ of 49 MW of generation capacity, of which PPL Susquehanna has a 90% undivided interest. Through June 30, 2004, a total of approximately $77 million had been incurred on the Unit 1 upgrade.Contents

~~In May 2004, the 600 MW Lower Mt~~5. ~~Bethel plant in eastern Pennsylvania was placed in service. Construction of the natural gas-fired power plant began in December 2001. Through June 30~~ Acquisitions, ~~2004,~~Development ~~approximately~~and ~~$456 million had been incurred on the plant construction.~~Divestitures

~~In 2003,~~ PPL ~~Maine~~Energy ~~entered~~Supply ~~into~~from antime ~~agreement~~to intime ~~principle~~evaluates ~~with~~opportunities afor ~~coalition of~~potential ~~government~~acquisitions, ~~agencies~~divestitures and ~~private~~development ~~groups to sell three of its nine hydroelectric dams in Maine~~projects. Development ~~The~~projects ~~parties~~are ~~reached~~reexamined abased ~~final~~on ~~agreement~~market inconditions ~~June 2004~~ and ~~submitted the~~other ~~plan~~factors to ~~the~~determine ~~FERC~~whether ~~for~~to ~~approval.~~proceed ~~Under~~with the ~~agreement~~projects, asell, ~~non-profit~~cancel ~~organization designated~~or byexpand ~~the coalition would have a five-year option to purchase the dams for approximately $25 million~~them, ~~and~~execute ~~PPL~~tolling ~~Maine~~agreements ~~would~~or ~~receive~~pursue ~~rights to increase energy output at its~~ other ~~hydroelectric dams in Maine~~options. Any ~~The~~resulting ~~coalition has~~transactions ~~announced~~may ~~plans~~impact tofuture ~~remove~~financial orresults. See ~~bypass~~Note ~~the~~8 ~~dams subject to the agreement~~ in ~~order~~PPL toEnergy ~~restore~~Supply's ~~runs~~2014 ofForm ~~Atlantic~~10-K ~~salmon~~for ~~and~~additional ~~other migratory fish to the Penobscot River~~information. ~~The agreement will require several approvals by the FERC.~~

See Note 6 for a discussion of the June 2004 purchase of the Sundance and University Park generation assets from a consolidated trust.

In June 2004, a subsidiary of PPL Generation agreed to sell the 450 MW Sundance power plant located in Pinal County, Arizona, to the Arizona Public Service Company for approximately $190 million in cash, subject to the receipt of various state and federal regulatory approvals and customary closing conditions. If the necessary regulatory approvals can be obtained, the sale is expected to close in the first quarter of 2005. It is expected that the proceeds of the sale would be used to reduce PPL's outstanding debt. Either party may terminate the agreement if the required state regulatory approvals are not obtained by December 31, 2004. If it becomes likely that the required regulatory approvals will be obtained, PPL will reassess the Sundance assets for possible impairment. PPL cannot predict whether or when the regulatory approvals for this transaction will be obtained, and whether or when this transaction will be consummated.

International Energy Projects (PPL and PPL Energy Supply)

Sale of CEMAR

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

On August 21, 2002, ANEEL authorized an administrative intervention in CEMAR and fully assumed operational and financial control of the company. The intervener appointed by ANEEL initiated efforts to transfer the ownership interest in CEMAR to a new owner. Since PPL Global no longer controlled or managed CEMAR, it deconsolidated the assets and liabilities of CEMAR from its financial statements and stopped recording CEMAR's operating results at that time. As of February 11, 2003, due to the inability to discharge their obligations under the continuing intervention, PPL-related officers and directors of CEMAR resigned from their respective positions.

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

Discontinued Operations

InMontana ~~December~~Hydro 2003, PPL Global's Board of Managers authorized PPL Global to sell its investment in a Latin American telecommunications company, and approved a plan of sale. It was determined that the viability of this non-strategic business was not economical. As a result, PPL Global recorded an $18 million write-down in the carrying value of the company's net assets to their estimated fair value of approximately $1 million.Sale

In ~~June~~November ~~2004~~2014, PPL ~~Global~~Montana ~~sold~~completed ~~this~~the ~~investment~~sale to ~~local~~NorthWestern ~~management for a nominal amount. The operating results~~ of ~~the~~633 ~~Latin~~MW ~~American telecommunications company, as well as an insignificant write-down~~ of ~~its~~hydroelectric ~~net~~generating ~~assets~~facilities located in ~~2004, are~~Montana ~~recorded~~for ~~as "Loss from Discontinued Operations" on the Statement of Income,~~ approximately $2900 million ~~and~~in $1cash. The ~~million~~sale ~~for~~included ~~the~~11 ~~six~~hydroelectric ~~months~~power ~~ended June~~facilities ~~30, 2004~~ and ~~2003~~related assets.

~~Other~~Following ~~Sales~~are the components of Discontinued Operations in the Statement of Income for the period ended March 31.

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



	Three Months
	2014
Operating revenues	29
Interest expense (a)	2
Income (loss) before income taxes (b)	(10	)
Income (Loss) from Discontinued Operations (net of income taxes) (b)	(8	)

In(a) ~~June~~Represents ~~2004,~~allocated ~~PPL Global completed the sale of its 50% ownership~~ interest in ~~nine~~expense ~~small~~based ~~hydroelectric~~upon ~~generating~~the ~~facilities~~discontinued inoperations ~~Spain~~share ~~for~~of ~~approximately $8~~the ~~million.~~net ~~There~~assets ~~was~~of anPPL ~~insignificant~~Energy ~~loss on this transaction~~Supply.

~~DelSur~~(b) ~~Tender~~Includes ~~Offer~~an impairment charge related to the Kerr Dam Project. See Note 10 for additional information.

~~In April 2004, EC launched a tender offer to acquire outstanding shares of DelSur for up to an aggregate purchase price of $17 million~~6. Defined The offer closed in May, with a purchase of 163,927 shares for approximately $5 million, increasing EC's ownership of DelSur by 5.34%. At June 30, 2004, EC owned approximately 85.9% of DelSur.Benefits

~~Other~~Certain (net periodic defined benefit costs are applied to accounts that are further distributed between capital and expense, including certain costs allocated to PPL) Energy Supply for plans sponsored by PPL Services.

InFollowing ~~June~~are ~~2004,~~the anet ~~PPL~~periodic ~~subsidiary~~defined ~~evaluated~~benefit ~~its~~costs ~~investment~~(credits) ~~in a technology supplier for impairment. As a result~~ of the ~~evaluation,~~plans ~~the~~sponsored ~~subsidiary~~by ~~recorded an~~PPL ~~impairment~~Energy ~~charge~~Supply offor ~~approximately $10 million pre-tax, which is included in "Other Income - net" on~~ the ~~Statement~~periods ofended ~~Income.~~March 31:

Energy Purchases and Sales Commitments



	Pension Benefits
	Three Months
	2015			2014
Service cost	$	1		$	1
Interest cost	2			2
Expected return on plan assets	(3		)	(2		)
Amortization of:
Actuarial (gain) loss	1			—
Net periodic defined benefit costs (credits)	$	1		$	1

~~Liability~~In ~~for~~addition ~~Above~~to ~~Market~~the ~~NUG~~specific ~~Contracts~~plans ~~(PPL~~it sponsors, PPL Energy Supply ~~and~~is also allocated costs of defined benefit plans sponsored by PPL ~~Electric)~~Services which management believes are reasonable. For the periods ended March 31, Energy Supply was allocated the following net periodic defined benefit costs.

In 1998, PPL Electric recorded a loss accrual for above market contracts with NUGs of $854 million, due to its generation business being deregulated. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy purchases" on the Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment in 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. At June 30, 2004, the remaining liability associated with the above market NUG contracts was $315 million.



Three Months
2015		2014
$	11	$	7

~~Wholesale Energy Commitments (PPL and PPL Energy Supply)~~12

AsTable ~~part~~ of the purchase of generation assets from Montana Power, PPL Montana assumed a power purchase agreement and a power sales agreement, which were still in effect at June 30, 2004. In accordance with purchase accounting guidelines, PPL Montana recorded liabilities of $65 million as the estimated fair value of these agreements at the acquisition date. These liabilities are being reduced over the terms of the agreements, through 2010, as adjustments to "Wholesale energy marketing" revenues and "Energy purchases" on the Statement of Income. The unamortized balance of the liability related to the power purchase agreement at June 30, 2004, was $54 million and is included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. The power sales agreement was re-evaluated under DIG Issue C20, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts With a Price Adjustment Feature," and is now reflected at its fair value as a derivative instrument.Contents

~~On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate of 450 MW of energy to be supplied by PPL Montana~~7. Commitments ~~Under two five-year agreements, PPL EnergyPlus is supplying 300 MW of around-the-clock electricity~~ and 150 MW of unit-contingent on-peak electricity. PPL Montana also makes short-term energy sales to NorthWestern. Following NorthWestern's credit downgrades to below investment grade in late-2002, PPL Montana and NorthWestern agreed to modify the payment provisions of the energy contracts such that NorthWestern would pay PPL Montana on a weekly basis, in arrears.Contingencies

In September 2003, NorthWestern filed a voluntary petition for relief seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code. NorthWestern made its filing in federal bankruptcy court in Delaware. Between the time of NorthWestern's last weekly payment and the bankruptcy filing date, PPL Montana made approximately $1.6 million of energy sales to NorthWestern.

Following the date that NorthWestern filed for bankruptcy, PPL Montana and NorthWestern agreed to amend the power supply agreements to, among other things, eliminate the weekly payment arrangements and resume more typical monthly invoicing and payment arrangements. The amendments were contingent on NorthWestern's assumption of the power supply agreements in its bankruptcy proceeding.

In September 2003, NorthWestern filed a motion with the bankruptcy court seeking, among other things, to assume the two five-year power supply agreements (as amended) and to pay PPL Montana for the approximately $1.6 million of energy sales made immediately prior to the time of the bankruptcy filing. In October 2003, the bankruptcy court entered an order granting NorthWestern's motion. NorthWestern has, in accordance with the terms of the judge's order, paid PPL Montana for the pre-filing energy sales, and the parties have resumed monthly invoicing and payment arrangements.

In April 2003, the Maryland Public Service Commission authorized the competitive provision of the Standard Offer Service (SOS) to allow utilities to procure SOS for customers through the competitive selection of wholesale supply. In March 2004, PPL EnergyPlus was awarded an 11-month fixed-price SOS contract for customer load (approximately 60 MW) for Potomac Electric Power Company. This contract commenced in July 2004.

As a result of New Jersey's Electric Discount and Energy Competition Act, the New Jersey Board of Public Utilities authorized and made available to power suppliers, on a competitive basis, the opportunity to provide Basic Generation Service (BGS) to all non-shopping New Jersey customers. In February 2003, PPL EnergyPlus was awarded a 34-month fixed-price BGS contract for a fixed percentage of customer load (approximately 1,000 MW) for Atlantic City Electric Company, Jersey Central Power & Light Company and Public Service Electric & Gas Company. In February 2003, PPL EnergyPlus was also awarded about 500 MW for a 10-month hourly energy price supply contract. These contracts commenced in August 2003. Additionally, in February 2004, PPL EnergyPlus was awarded a 12-month hourly energy price supply BGS contract for a fixed percentage of customer load (approximately 450 MW) for Atlantic City Electric Company, Jersey Central Power & Light Company and Public Service Electric & Gas Company. These contracts commenced in June 2004.

In April 2003, PPL EnergyPlus entered into an agreement with Arizona Public Service Company to provide 112 MW of capacity and associated electricity from July through September of 2003 and 150 MW from June through September of 2004 and 2005. See Note 7 for information regarding the possible sale of the Sundance power plant to Arizona Public Service Company.

In May 2003, PPL EnergyPlus entered into agreements with Tucson Electric Power Company to provide 37 MW of capacity and associated electricity from June through December of 2003 and 75 MW from January 2004 through December 2006.

In May 2003, PPL EnergyPlus entered into a 20-year agreement with Community Energy, Inc. to purchase energy from its Bear Creek wind power project in northeastern Pennsylvania. The project is expected to produce up to 20 MW and be completed in 2005.

In September 2003, Connecticut Light and Power Company (CL&P) issued a request for proposals seeking energy supply for CL&P's Transitional Standard Offer retail customer load. In October 2003, PPL EnergyPlus was awarded a three-year, fixed-price contract beginning in January 2004 to supply 12.5% of CL&P's Transitional Standard Offer load. During peak hours, PPL EnergyPlus' obligation to supply CL&P's Transitional Standard Offer load may reach 625 MW.

Legal Matters

(PPL Energy Supply and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL Energy Supply and ~~PPL~~its ~~Electric)~~subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.

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

On March 6, 2013, the Sierra Club and MEIC filed a complaint in the U.S. District Court, District of Montana, ~~Power~~Billings ~~Shareholders'~~Division ~~Litigation~~against (PPL Montana and ~~PPL~~the ~~Energy Supply~~other Colstrip Steam Electric Station (Colstrip) co-owners: Avista Corporation, Puget Sound Energy, Portland General Electric Company, NorthWestern and PacifiCorp. PPL Montana operates Colstrip on behalf of the co-owners. The complaint alleges certain violations of the Clean Air Act, including New Source Review, Title V and opacity requirements and listed 39 separate claims for relief. The complaint requests injunctive relief and civil penalties on average of $36,000 per day per violation, including a request that the owners remediate environmental damage and that $100,000 of the civil penalties be used for beneficial mitigation projects.

In ~~August~~July ~~2001~~2013, athe ~~purported~~Sierra ~~class-action~~Club ~~lawsuit~~and ~~was~~MEIC filed byan aadditional ~~group~~Notice of ~~shareholders~~ ofIntent ~~Montana~~to ~~Power~~Sue, ~~against~~identifying ~~Montana~~additional ~~Power,~~plant ~~the~~projects ~~directors~~that ofare ~~Montana Power,~~alleged ~~certain~~not ~~advisors~~to ~~and~~be ~~consultants~~in ofcompliance ~~Montana~~with ~~Power~~the ~~and~~Clean ~~PPL~~Air ~~Montana. The~~Act ~~plaintiffs allege~~and, ~~among~~in ~~other~~September ~~things~~2013, ~~that~~filed ~~Montana~~an ~~Power~~amended ~~was~~complaint. The ~~required to,~~amended ~~and~~complaint ~~did~~dropped ~~not,~~all ~~obtain~~claims ~~shareholder~~regarding ~~approval~~pre-2001 ofplant ~~the~~projects, ~~sale~~as ofwell ~~Montana~~as ~~Power~~the plaintiffs'~~s generation~~ ~~assets~~Title toV ~~PPL~~and ~~Montana~~opacity ~~in 1999~~claims. It ~~Although~~did, ~~most~~however, ofadd ~~the~~ claims ~~in the~~with ~~complaint~~respect ~~are~~to ~~against~~a ~~Montana~~number ~~Power~~of post-2000 plant projects, ~~its~~which ~~board~~effectively ofincreased ~~directors,~~the ~~and~~number ~~its consultants~~of ~~and~~projects ~~advisors,~~subject ~~two~~to ~~claims~~the ~~are~~litigation ~~asserted~~by ~~against~~about 40. PPL Montana. In and the ~~first~~other ~~claim,~~Colstrip ~~plaintiffs~~owners ~~seek~~filed a ~~declaration~~motion ~~that~~to ~~because~~dismiss ~~Montana~~the ~~Power shareholders~~amended ~~did~~complaint ~~not~~in ~~vote~~October on2013. In ~~the~~May ~~1999~~2014, ~~sale~~the ofcourt ~~generating~~dismissed ~~assets~~the toplaintiffs' ~~PPL~~independent ~~Montana, that~~Best ~~sale~~Available ~~"was~~Control ~~null~~Technology claims and ~~void~~their abPrevention ~~initio."~~of ~~The~~Significant ~~second~~Deterioration ~~claim~~(PSD) ~~alleges~~claims ~~that~~for ~~PPL Montana~~three ~~was~~projects, ~~privy~~but todenied ~~and~~the ~~participated~~owners' inmotion ato ~~strategy~~dismiss ~~whereby~~the ~~Montana~~plaintiffs' ~~Power would~~other ~~sell~~PSD ~~its~~claims ~~generation~~on ~~assets~~statute toof ~~PPL~~limitation ~~Montana~~grounds. On ~~without~~August ~~first~~27, ~~obtaining Montana~~2014, ~~Power~~the ~~shareholder~~Sierra ~~approval,~~Club and ~~that~~MEIC ~~PPL~~filed ~~Montana~~a ~~has~~second ~~made~~amended ~~net~~complaint. This ~~profits in~~complaint ~~excess~~includes ~~of $100 million as~~ the ~~result~~same causes of ~~this~~action ~~alleged~~articulated ~~illegal~~in ~~sale. In~~ the ~~second~~first ~~claim~~amended complaint, ~~plaintiffs~~but ~~request~~alleges ~~that~~those ~~the~~claims ~~court~~in ~~impose~~regard ato ~~"resulting and/or~~only ~~constructive~~eight ~~trust"~~projects onat ~~both~~ the ~~generation~~plant ~~assets~~between ~~themselves~~2001 and ~~all~~ ~~profits,~~2013. On ~~plus~~September ~~interest~~26, on2014, the ~~amounts~~Colstrip ~~subject~~owners filed an answer to the ~~trust~~second amended complaint. Discovery ~~This~~has ~~lawsuit is~~been ~~currently~~completed. In ~~pending~~April in2015, the ~~U.S.~~plaintiffs ~~District~~indicated ~~Court~~they ofintend ~~Montana,~~to ~~Butte~~pursue ~~Division. In~~claims ~~July~~related ~~2004,~~to ~~the~~only ~~plaintiffs~~four ~~notified~~of the ~~District~~remaining ~~Court~~projects. In ~~that~~January ~~the~~2015, ~~parties had~~trial ~~reached~~as ato ~~partial~~liability ~~settlement~~in ofthis ~~the~~matter ~~case~~was ~~that~~rescheduled ~~would~~to ~~result~~November in16, ~~the~~2015. A ~~dismissal of~~trial ~~PPL~~date ~~Montana~~with asrespect ato ~~defendant.~~remedies, ~~Under~~if ~~the~~there ~~terms~~is ofa ~~the~~finding ~~proposed~~of ~~settlement~~liability, ~~PPL~~ ~~Montana~~has ~~would~~ not ~~have~~been toscheduled. PPL ~~pay~~Energy ~~any~~Supply ~~amount~~believes toit and the ~~plaintiffs.~~other ~~The~~co-owners ~~settlement must~~have ~~still~~numerous bedefenses ~~reduced~~ to ~~writing~~the ~~and~~allegations ~~approved~~set byforth ~~the~~in ~~plaintiff~~this ~~class~~complaint and ~~the~~ ~~District~~will ~~Court.~~vigorously ~~PPL~~assert ~~and~~the same. PPL Energy Supply cannot predict ~~whether~~ the ~~settlement~~ ~~will be approved or the~~ ultimate outcome of this matter ifat ~~the settlement~~this ~~is not approved~~time.

~~NorthWestern~~Notice ~~Corporation~~of ~~Litigation~~Intent ~~(PPL~~to ~~and~~File ~~PPL Energy Supply)~~Suit

In ~~connection~~October ~~with~~2014, ~~the~~PPL ~~acquisition~~Energy ofSupply ~~the~~received ~~Montana~~a ~~generation~~notice ~~assets,~~letter from the ~~Montana~~ ~~Power~~Chesapeake ~~APA,~~Bay ~~which~~Foundation ~~was~~(CBF) ~~previously~~alleging ~~assigned~~violations toof ~~PPL~~the ~~Montana~~Clean byWater ~~PPL~~Act ~~Global, includes~~and aPennsylvania ~~provision~~Clean ~~concerning~~Streams Law at the ~~proposed~~Brunner ~~purchase~~Island bygeneration ~~PPL~~plant. The ~~Montana~~letter ~~of a~~was ~~portion~~sent ofto ~~NorthWestern's~~PPL ~~interest~~Brunner inIsland and the ~~500-kilovolt~~PADEP ~~Colstrip~~and ~~Transmission System~~is ~~(CTS)~~intended ~~for~~to ~~$97~~provide ~~million.~~notice ~~During~~of ~~2002,~~the ~~PPL~~alleged ~~Montana~~violations ~~had~~and ~~been~~CBF's inintent ~~discussions with~~to ~~NorthWestern~~file ~~regarding~~suit ~~the~~in ~~proposed~~Federal ~~purchase~~court after expiration of the ~~CTS~~60 ~~and~~day ~~the~~statutory ~~claims that~~notice ~~PPL~~period. Among ~~Montana~~other ~~believes~~things, itthe ~~has~~letter ~~against~~alleges ~~NorthWestern~~that ~~arising~~PPL ~~from~~Brunner ~~the~~Island ~~Montana Power~~failed ~~APA~~to ~~and~~comply ~~related~~with ~~agreements.~~the ~~Notwithstanding~~terms ~~such~~of ~~discussions,~~its inNational ~~September 2002,~~Pollutant ~~NorthWestern~~Discharge ~~filed~~Elimination aSystem ~~lawsuit~~permit ~~against~~and ~~PPL~~associated ~~Montana~~regulations inrelated ~~Montana~~to ~~state court~~the ~~seeking~~application ~~specific~~of ~~performance~~nutrient ofcredits ~~PPL~~to ~~Montana~~the facility's ~~purchase~~discharges of ~~the~~nitrogen ~~CTS or,~~into ~~alternatively,~~the ~~damages~~Susquehanna ~~for breach of contract~~River. The ~~Pursuant~~letter toalso ~~PPL~~alleges ~~Montana's application,~~that ~~the~~PADEP ~~matter~~has ~~was~~failed ~~removed~~ to ~~the~~ensure ~~U.S.~~that ~~District~~credits ~~Court~~generated offrom ~~Montana, Butte~~nonpoint ~~Division.~~source ~~Following~~pollution ~~removal,~~reduction ~~NorthWestern~~activities ~~asserted~~that ~~additional~~PPL ~~claims for~~Brunner ~~damages~~Island ~~against~~applies ~~PPL~~to ~~Montana,~~its ~~and~~discharges ~~PPL~~meet ~~Montana~~the ~~filed~~eligibility ~~defenses~~and ~~denying liability~~certification ~~for~~requirements ~~NorthWestern~~under PADEP's ~~claims~~nutrient astrading ~~well~~program asregulations. If ~~counterclaims~~a ~~against~~court-approved ~~NorthWestern seeking~~settlement ~~damages~~cannot ~~PPL~~be ~~Montana~~reached, ~~believes~~CBF itplans ~~has~~to ~~suffered~~seek ~~under~~injunctive ~~the~~relief, ~~Montana~~monetary ~~Power APA~~penalties, fees and ~~related~~costs ~~agreements~~of litigation. PPL Energy Supply cannot predict the outcome of this matter.

InProposed ~~September~~Legislation 2003, NorthWestern filed a petition in Delaware for reorganization under the U.S. Bankruptcy Code, which resulted in an automatic stay of PPL Montana's counterclaims against NorthWestern. In December 2003, NorthWestern filed a motion to transfer this litigation from the Montana federal district court to the federal district court in Delaware where NorthWestern's bankruptcy proceeding is pending. In March 2004, the Montana federal district court denied this motion to transfer. As a result of the court's decision and a prior stipulation of NorthWestern and PPL Montana in NorthWestern's bankruptcy proceeding, the automatic stay of PPL Montana's counterclaims has been lifted. This matter currently is scheduled for trial in the Montana federal district court in mid-~~2005.~~ ~~PPL~~Pacific ~~and PPL Energy Supply cannot predict the outcome of this litigation.~~ Northwest

~~Montana~~In ~~Hydroelectric~~the ~~Litigation~~first ~~(PPL~~quarter of 2015, legislation was proposed in the State of Oregon to eliminate, over time, the sale of electricity in Oregon from coal-fired generating facilities, and in the State of Washington to provide a means of cost recovery to utility owners of coal-fired generating facilities who commit to retire such facilities. Both proposals are in early stages of consideration and PPL Energy Supply) cannot predict whether any legislation seeking to achieve the objectives of the Oregon or Washington legislation will be enacted. Were such legislation to be enacted as proposed, such laws, either individually or collectively, would not be expected to have a material adverse effect on PPL Energy Supply's financial condition or results of operation.

In October 2003, a lawsuit was filed against PPL Montana, PPL Services, Avista Corporation, PacifiCorp and nine John Doe defendants in the U.S. District Court of Montana, Missoula Division, by two residents allegedly acting in a representative capacity on behalf of the State of Montana. In January 2004, the complaint was amended to, among other things, include the Great Falls school districts as additional plaintiffs. In May 2004, the Montana Attorney General filed a motion to allow the State of Montana to intervene as an additional plaintiff in the litigation. The corporate defendants have filed motions to dismiss the State of Montana as a party plaintiff. The action seeks a declaratory judgment, compensatory damages for unjust enrichment, trespass and negligence, and attorneys fees on a "private attorney general" theory for use of state and/or "school trust" lands without the compensation required by law and to require the defendants to adequately compensate the state and/or the State School Trust fund for full market value of lands occupied. Generally, the suit is founded on allegations that the bed of navigable rivers is state-owned property following admission to statehood, and that the use thereof for placement of dam structures, affiliated structures and reservoirs should trigger lease payments for use of land underneath. The plaintiffs allege that the State Land Board and Department of Natural Resources and Conservation failed to exercise their duty to administer riverbeds for the maximum benefit of public education and/or the state. No specific amount of damages or future rental value has been claimed. PPL Montana and PPL Services cannot predict the outcome of this litigation.13

~~Proposed~~Table ~~Montana~~of ~~Energy Security Initiative (PPL and PPL Energy Supply)~~Contents

On April 30, 2004, the Montana Secretary of State certified, in accordance with applicable statutes, that it had approved the form of a proposed "Montana Energy Security Act" initiative. The proposed initiative was determined by the Montana Attorney General to be legally sufficient, but the initiative failed to qualify for the November 2004 statewide ballot because sufficient signatures were not obtained prior to June 18, 2004. Among the stated purposes of the proposed initiative was the creation of a Montana public power board, appointed by the governor, to determine whether it would be in the public interest to purchase electric and natural gas generation, transmission and distribution facilities in Montana on behalf of the state. The proposed initiative would have permitted the board to purchase such facilities, including any or all of PPL Montana's hydroelectric dams or coal-fired facilities, at fair market value.

Regulatory Issues

~~California~~New ~~ISO~~Jersey ~~and~~Capacity ~~Western Markets (PPL and PPL Energy Supply)~~Legislation

~~Through~~In ~~its~~January ~~subsidiaries~~2011, ~~PPL~~New ~~has~~Jersey ~~made~~enacted ~~approximately~~a ~~$18~~law ~~million~~(the ofAct) ~~sales to~~that ~~the~~PPL ~~California~~Energy ~~ISO,~~Supply ofbelieves ~~which~~would ~~$17~~intervene ~~million~~in ~~has~~the ~~not~~wholesale ~~been~~capacity ~~paid~~market to ~~PPL~~create ~~subsidiaries. Given~~incentives for the ~~myriad~~development of new, in-state electricity ~~supply~~generation ~~problems~~facilities ~~presently~~even ~~faced~~when, byunder the ~~California electric~~FERC-approved ~~utilities~~PJM ~~and~~economic ~~the~~model, ~~California~~such ~~ISO,~~new ~~PPL~~generation ~~cannot~~would ~~predict~~not ~~whether~~be ~~or when~~economic. The itAct ~~will~~could ~~receive~~depress ~~payment.~~capacity Asprices ofin ~~June~~PJM ~~30,~~in ~~2004~~the short term, impacting PPL ~~has~~Energy ~~fully~~Supply's ~~reserved for~~revenues, ~~possible~~and ~~underrecoveries~~harm the long-term ability of ~~payments~~the ~~for~~PJM ~~these~~capacity ~~sales~~market to encourage necessary generation investment throughout PJM.

~~Regulatory~~In ~~proceedings~~February ~~arising~~2011, ~~out~~PPL Energy Supply and several other companies filed a complaint in U.S. District Court in New Jersey challenging the Act on the grounds that it violates the Supremacy and Commerce clauses of the ~~California~~U.S. ~~electricity~~Constitution ~~supply situation~~and ~~have~~requesting ~~been~~relief ~~filed~~barring atimplementation. In October 2013, the ~~FERC~~U.S. ~~The~~District ~~FERC~~Court ~~has~~in ~~determined~~New ~~that~~Jersey ~~all sellers~~issued ofa ~~energy~~decision ~~into~~finding ~~markets~~the ~~operated~~Act byunconstitutional under the ~~California~~Supremacy ~~ISO~~Clause ~~and~~on the ~~California Power~~grounds ~~Exchange,~~that ~~including~~it ~~PPL~~infringes ~~Montana,~~upon ~~should~~the beFERC's ~~subject~~exclusive authority to ~~refund~~regulate ~~liability~~ the wholesale sale of electricity in interstate commerce. The decision was appealed to the U.S. Court of Appeals for the ~~period~~Third ~~beginning~~Circuit ~~October~~(Third 2,Circuit) ~~2000,~~by ~~through~~CPV ~~June~~Power 20Development, ~~2001~~Inc., Hess Newark, LLC and ~~initiated an~~the ~~evidentiary~~State ~~hearing~~of ~~concerning~~New ~~refund~~Jersey ~~amounts.~~(the Appellants). In ~~April~~September ~~2003~~2014, the ~~FERC changed~~Third Circuit affirmed the ~~manner~~District inCourt's ~~which~~decision. In ~~this~~December ~~refund~~2014, ~~liability~~the isAppellants tofiled bea ~~computed~~petition ~~and ordered~~for ~~further~~certiorari ~~proceedings~~before tothe ~~determine~~U.S. Supreme Court. In March 2015, the ~~exact~~U.S. ~~amounts~~Supreme ~~that~~Court requested the ~~sellers, including~~U. ~~PPL~~S. ~~Montana,~~Solicitor ~~would~~General beto ~~required~~submit briefs expressing its views as to ~~refund~~the issues raised in this case.

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

~~Litigation~~In ~~arising~~April ~~out~~2012, of the ~~California~~Maryland ~~electricity~~Public ~~supply~~Service ~~situation~~Commission ~~has been~~(MD ~~filed~~PSC) inordered ~~California~~(Order) ~~courts~~three ~~against~~electric ~~sellers~~utilities ofin ~~energy~~Maryland to ~~the~~enter ~~California ISO.~~into ~~The~~long-term ~~plaintiffs~~contracts ~~and~~to ~~interveners~~support inthe ~~these~~construction ~~legal proceedings allege, among other things, abuse~~ of ~~market~~new ~~power,~~electricity ~~manipulation~~generating offacilities ~~market~~in ~~prices~~Maryland, ~~unfair trade~~the ~~practices~~intent ~~and violations~~ of ~~state antitrust laws~~which, ~~and~~PPL ~~seek~~Energy ~~other~~Supply ~~relief~~believed, ~~including~~ ~~treble~~was ~~damages~~to ~~and~~encourage ~~attorneys'~~the ~~fees.~~construction ~~While~~of ~~PPL's~~new ~~subsidiaries~~generation ~~have not~~even ~~been~~when, ~~named~~under by the ~~plaintiffs~~FERC-approved inPJM ~~these~~economic ~~legal proceedings~~model, ~~PPL~~such ~~Montana was~~new ~~named~~generation bywould anot ~~defendant~~be ineconomic. The ~~its~~MD ~~cross-complaint~~PSC inaction acould ~~consolidated~~depress ~~court proceeding,~~capacity ~~which~~prices ~~combined~~in ~~into~~PJM ~~one~~in ~~master proceeding several of~~ the ~~lawsuits alleging~~short ~~antitrust violations and unfair trade practices. This generator denies that any unlawful~~term, ~~unfair~~impacting orPPL ~~fraudulent~~Energy ~~conduct~~Supply's ~~occurred but asserts that~~revenues, ifand itharm ~~is found liable,~~ the ~~other~~long-term ~~generators~~ability ~~and~~of ~~power~~the ~~marketers,~~PJM ~~including PPL~~capacity ~~Montana,~~market ~~caused, contributed~~ to ~~and/or~~encourage ~~participated~~necessary ingeneration ~~the~~investment ~~plaintiffs' alleged~~throughout ~~losses~~PJM.

In ~~May~~April ~~2003~~2012, ~~the~~PPL ~~Port~~Energy ofSupply ~~Seattle~~and several other companies filed a ~~lawsuit~~complaint in ~~the~~ U.S. District Court ~~for~~ ~~the Western~~ (District ofCourt) ~~Washington~~in ~~against~~Maryland ~~eighteen~~challenging ~~defendants,~~the ~~including PPL~~Order ~~Montana.~~on ~~The~~the ~~lawsuit~~grounds ~~asserts~~that ~~claims~~it ~~against~~violates ~~all defendants under~~ the ~~federal~~ Supremacy and ~~state~~Commerce ~~antitrust~~clauses ~~laws,~~of the ~~federal~~U.S. ~~Racketeer~~Constitution, ~~Influenced~~ and ~~Corrupt Organizations~~requested ~~Act~~declaratory and ~~for~~injunctive ~~common~~relief ~~law~~barring ~~fraud.~~implementation ~~The~~of ~~complaint~~the ~~centers~~Order onby ~~many of~~ the ~~same~~MD ~~alleged~~PSC ~~activities~~Commissioners. In ~~that~~September ~~are~~2013, the ~~basis~~District ~~for~~Court ~~the~~issued ~~litigation~~a ~~arising out~~decision offinding the ~~California~~order ~~electricity~~unconstitutional ~~supply~~under ~~situation~~the ~~described~~Supremacy ~~above.~~Clause ~~The Port~~on ofthe ~~Seattle~~grounds isthat ~~seeking~~it ~~actual,~~infringes ~~trebled~~upon ~~and~~the ~~punitive~~FERC's ~~damages,~~exclusive asauthority ~~well as~~to ~~attorneys'~~regulate ~~fees.~~the Inwholesale ~~December~~sale ~~2003,~~of ~~this~~electricity ~~matter~~in interstate commerce. The decision was ~~transferred~~appealed to the U.S. ~~District~~ Court of Appeals for the ~~Southern~~Fourth ~~District~~Circuit of(Fourth ~~California~~Circuit) ~~for~~by ~~inclusion with~~CPV ~~proceedings~~Power ~~already~~Development, ~~centralized~~Inc. and ~~pending~~the inState ~~that~~of ~~court.~~Maryland (the Appellants). In ~~May~~June ~~2004~~2014, the Fourth Circuit affirmed the District Court's ~~dismissed~~opinion ~~the~~and ~~action.~~subsequently Indenied ~~its~~the ~~appeal~~Appellants' ofmotion ~~this~~for ~~decision~~rehearing. In December 2014, the ~~Port~~Appellants offiled ~~Seattle~~a ~~expressly~~petition ~~excluded~~for ~~PPL~~certiorari ~~Montana,~~before ~~thereby~~the ~~making~~U.S. Supreme Court. In March 2015, the ~~District~~ U.S. Supreme Court's ~~dismissal~~requested ~~final~~the U.S. Solicitor General to submit briefs expressing its views as to ~~PPL~~the ~~Montana~~issues raised in this case.

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

~~While~~Through its subsidiaries, PPL ~~and~~Energy ~~its~~Supply ~~subsidiaries~~made ~~believe~~spot ~~that~~market ~~they~~bilateral ~~have~~sales ~~not~~of ~~engaged~~power in ~~any improper~~the ~~trading~~Pacific ~~practices~~Northwest during the period from December 2000 through June 2001. Several parties subsequently claimed refunds at FERC as a result of these sales. In June 2003, ~~they~~the ~~cannot~~FERC ~~predict~~terminated proceedings to consider whether, orto order refunds for spot market bilateral sales made in the ~~extent~~Pacific ~~to which~~Northwest, ~~any~~including sales made by PPL ~~subsidiaries~~Montana, ~~will~~during bethe period December 2000 through June 2001. In August 2007, the ~~target~~U.S. Court of ~~any~~Appeals ~~additional~~for ~~governmental investigations~~the orNinth ~~named~~Circuit inreversed ~~other~~the ~~lawsuits~~FERC's ordecision ~~refund~~and ordered the FERC to consider additional evidence. In October 2011, the FERC initiated proceedings to consider additional evidence. In July 2012, PPL Montana and the ~~outcome~~ City of ~~any~~Tacoma, ~~such~~one ~~lawsuits~~of orthe ~~proceedings~~two orparties ~~whether~~claiming refunds at FERC, reached a settlement whereby PPL Montana paid $75 thousand to resolve the ~~ultimate~~City ~~impact~~of onTacoma's ~~them~~ $23 million claim. The settlement does not resolve the remaining claim outstanding by the City of Seattle for approximately $50 million. Hearings before a FERC Administrative Law Judge (ALJ) regarding the ~~electricity~~City ~~supply~~of ~~situation~~Seattle's refund claims were completed in ~~California~~October 2013 and ~~other~~briefing ~~western~~was ~~states~~ completed in January 2014. In March 2014, the ALJ issued an initial decision denying the City of Seattle's complaint against PPL Montana. The initial decision is pending review by the FERC. In June 2015, the United States Court of Appeals for the Ninth Circuit will behold ~~material~~oral arguments on an appeal from the FERC's October 2011 order setting out the remand process that FERC has followed from 2011 to the present.

~~PJM~~Although ~~Capacity~~PPL ~~Transactions~~Energy ~~(PPL~~Supply and its subsidiaries believe they have not engaged in any improper trading or marketing practices affecting the Pacific Northwest markets, PPL Energy Supply ~~and PPL~~cannot ~~Electric)~~predict the outcome of the above-described proceedings or

In September 2002, PPL was served with a complaint filed by Utilimax.com, Inc., which was a member of PJM, in the U.S. District Court for the Eastern District of Pennsylvania against PPL and PPL EnergyPlus alleging, among other things, violations of the federal antitrust laws in connection with the pricing of installed capacity in the PJM daily market during the first quarter of 2001. The court dismissed the complaint with prejudice in July 2003, and Utilimax has appealed the court's dismissal to the U.S. Court of Appeals for the Third Circuit.14

InTable ~~December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus and PPL Electric filed in the U.S. District Court for the Eastern District~~ of Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleges, in broad terms, similar violations of the federal antitrust laws. These boroughs were wholesale customers of PPL Electric. The claims of the boroughs are similar to those previously alleged by a single borough in litigation that is still pending in the same court. In addition, in November 2003, PPL and PPL EnergyPlus were served with a complaint which was filed in the same court by Joseph Martorano, III (d/b/a ENERCO), that also alleges violations of the federal antitrust laws in early 2001. The complaint indicates that ENERCO provides consulting and energy procurement services to clients in Pennsylvania and New Jersey.Contents

~~Each~~whether ofany ~~the~~subsidiaries ~~U.S.~~will ~~Department~~be ofthe ~~Justice~~subject -of ~~Antitrust~~any ~~Division,~~additional ~~the~~governmental ~~FERC~~investigations ~~and the~~or ~~Pennsylvania~~named ~~Attorney~~in ~~General~~other ~~conducted~~lawsuits ~~investigations~~or ~~regarding~~refund proceedings. Consequently, PPL~~'s PJM~~ ~~capacity~~Energy ~~market~~Supply ~~transactions~~cannot inestimate ~~early~~a ~~2001~~range ~~and~~of ~~did~~reasonably ~~not~~possible ~~find~~losses, if any, ~~reason~~ related to ~~take~~this ~~action against PPL~~matter.

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

~~New~~The ~~England~~NERC ~~Investigation~~is ~~(PPL~~responsible for establishing and ~~PPL~~enforcing ~~Energy~~mandatory ~~Supply~~reliability standards (Reliability Standards) regarding the bulk power system. The FERC oversees this process and independently enforces the Reliability Standards.

InThe ~~January~~Reliability ~~2004,~~Standards ~~PPL~~have ~~became aware of an investigation by~~ the ~~Connecticut Attorney~~force ~~General~~ and ~~the~~effect ~~FERC's Office~~ of ~~Market~~law ~~Oversight~~ and ~~Investigation (OMOI)~~apply ~~regarding~~to ~~allegations~~certain ~~that~~users ~~natural gas-fired generators located in New England illegally sold natural gas instead~~ of ~~generating electricity during~~ the ~~week~~bulk ofpower ~~January~~electricity 12system, ~~2004.~~including ~~Subsequently,~~electric ~~PPL~~utility ~~and~~companies, ~~other~~ generators ~~were~~ ~~served~~and ~~with a data request by OMOI~~marketers. Under ~~The~~the ~~data~~Federal ~~request~~Power ~~indicated that PPL was not under suspicion of a regulatory violation~~Act, ~~but~~the ~~that~~FERC ~~OMOI~~may ~~was conducting~~assess ancivil ~~initial~~penalties ~~investigation.~~of ~~PPL~~up ~~has responded~~ to ~~this~~$1 ~~data~~million ~~request. PPL~~per ~~also~~day, ~~has~~per ~~responded~~violation, tofor ~~data~~certain requests of ISO - New England and data requests served by subpoena from the Connecticut Attorney General. Both OMOI and ISO - New England have issued preliminary reports finding no regulatory or other violations ~~concerning these matters~~. While PPL does not believe that it committed any regulatory or other violations concerning the subject matter of these investigations, PPL cannot predict the outcome of these investigations.

~~PJM Billing (~~PPL, ~~PPL~~ Energy Supply monitors its compliance with the Reliability Standards and ~~PPL~~continues ~~Electric~~to self-report potential violations of certain applicable reliability requirements and submit accompanying mitigation plans, as required. The resolution of a number of potential violations is pending. Any Regional Reliability Entity (including RFC or SERC) determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC.

In ~~March~~the ~~2004,~~course ~~an Exelon Corporation subsidiary, PECO Energy, Inc. (PECO), alleged that PJM had overcharged PECO by approximately $45 million, exclusive~~ of ~~interest,~~implementing ~~from~~their ~~April~~programs ~~1998~~to ~~through~~ensure ~~May~~compliance ~~2003 as a result of an error by PJM in the State Estimator Program used in connection~~ with billing all PJM customers for certain transmission, spot market energy and ancillary services charges. PECO further alleged that PPL Electric or other PPL subsidiaries should be responsible for all these overcharges, plus interest. PPL, PECO and PJM have selected a mediator to conduct a non-binding mediation of the ~~dispute~~ ~~pursuant~~Reliability toStandards ~~the~~by ~~dispute~~those ~~resolution procedures of the PJM Operating Agreement. Although participating in the discussions,~~ PPL ~~Electric and PPL~~ Energy Supply doaffiliates ~~not~~subject ~~believe that they or any PPL subsidiaries have any financial responsibility or liability~~ to ~~PJM~~the orstandards, ~~PECO~~certain asother ainstances ~~result~~ of ~~PJM's alleged~~potential ~~error.~~non-compliance ~~PJM~~may ~~has~~be ~~not~~identified ~~taken~~from atime ~~position~~to ~~on this matter~~time. PPL ~~Electric and PPL~~ Energy Supply cannot predict the outcome of these ~~discussions~~matters, ~~whether any~~and ~~legal~~cannot ~~proceedings~~estimate ~~may~~a ~~result~~range ~~from~~of ~~these~~reasonably ~~allegations,~~possible ~~the outcome of such proceedings~~losses, orif ~~the ultimate impact on~~ any ~~PPL subsidiary~~.

In October 2012, the FERC ~~Market~~initiated its consideration of proposed changes to Reliability Standards to address the impacts of geomagnetic disturbances on the reliable operation of the bulk-~~Based~~power ~~Rate~~system, ~~Authority~~which (might, among other things, lead to a requirement to install equipment that blocks geomagnetically induced currents on implicated transformers. In May 2013, FERC issued Order No. 779, requiring NERC to submit two types of Reliability Standards for FERC's approval. The first type would require certain owners and operators of the nation's electricity infrastructure, such as PPL Energy Supply, to develop and implement operational procedures to mitigate the effects of geomagnetic disturbances on the bulk-power system. This NERC-proposed standard was filed by NERC with FERC for approval in January 2014 and was approved in June 2014. The second type is to require owners and operators of the bulk-power system to assess certain geomagnetic disturbance events and develop and implement plans to protect the bulk-power system from those events. This proposal was filed by NERC with FERC for approval by January 22, 2015 and is pending consideration by FERC. PPL Energy Supply) may be required to make significant expenditures in new equipment or modifications to their facilities to comply with the new requirements. PPL Energy Supply is unable to predict the amount of any expenditures that may be required as a result of the adoption of any Reliability Standards for geomagnetic disturbances.

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

InDue ~~June~~to ~~2004,~~the ~~FERC~~environmental ~~approved~~issues ~~certain~~discussed ~~changes~~below toor ~~its~~other ~~standards~~environmental matters, it may be necessary for ~~granting market-based~~PPL ~~rate~~Energy ~~authority.~~Supply Asto amodify, ~~result~~curtail, ~~PPL~~replace ~~EnergyPlus~~or ~~will~~cease ~~need~~operation of certain facilities or performance of certain operations to ~~re-file for~~comply ~~market-based~~with ~~rate~~statutes, ~~authority~~regulations ~~under~~and ~~the~~other ~~new~~requirements ~~standards~~of inregulatory ~~November~~bodies ~~2004~~or courts. ~~PPL~~ In ~~EnergyPlus~~addition, ~~cannot~~legal ~~predict~~challenges to new environmental permits or rules add to the ~~outcome~~uncertainty of ~~this~~estimating ~~filing~~the future cost of these permits and rules.

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

In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design." The proposed rule is currently available for public comment and contains a proposed implementation date of July 31, 2003. However, since the issuance of the proposed rule, the FERC has delayed the implementation date. This far-reaching proposed rule, in its current form, purports to establish uniform transmission rules and a standard market design by, among other things:CSAPR

•The ~~enacting~~EPA's ~~standard~~CSAPR ~~transmission~~addresses ~~tariffs~~the interstate transport of fine particulates and ~~uniform~~ozone ~~market~~by ~~mechanisms,~~regulating •emissions ~~monitoring~~of sulfur dioxide and ~~mitigating~~nitrogen ~~"market~~oxide. In ~~power~~accordance with an October 2014 U.S. Court of Appeals decision," •CSAPR ~~managing~~establishes ~~transmission~~interstate ~~congestion~~allowance ~~through~~trading ~~pricing~~programs for sulfur dioxide and ~~tradable~~nitrogen ~~financial~~oxide ~~rights,~~emissions •from ~~requiring~~fossil-fueled ~~independent~~plants ~~operational~~in ~~control~~two ~~over~~phases: Phase ~~transmission~~1 ~~facilities,~~commenced •in ~~forming~~January ~~state~~2015 ~~advisory~~and ~~committees~~Phase on2 ~~regional~~commences ~~transmission~~in ~~organizations~~2017. Sulfur dioxide emissions are subject to an annual trading program and ~~resource~~nitrogen ~~adequacy,~~oxide emissions are subject to annual and •ozone ~~exercising~~season ~~FERC~~programs. Oral ~~jurisdiction~~arguments ~~over~~pertaining ~~all~~to ~~transmission~~outstanding ~~service~~challenges to the EPA's CSAPR were heard before the D.C. Circuit Court during February 2015.

InAlthough ~~April~~PPL ~~2003,~~Energy ~~the~~Supply ~~FERC~~does ~~issued~~not aanticipate ~~white~~significant ~~paper~~costs ~~describing certain modifications~~ to ~~the~~comply ~~proposed~~with ~~rule.~~these ~~The~~programs, ~~FERC~~changes ~~has~~in ~~requested~~market ~~comments~~or ~~and~~operating isconditions ~~holding~~could ~~numerous public~~result ~~comment~~in ~~sessions~~impacts ~~concerning~~that ~~the~~are ~~white~~higher ~~paper~~than anticipated.

~~If adopted, this proposed rule may have a significant impact on PPL and its subsidiaries, which cannot be predicted at this time.~~15

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

~~Wallingford~~National ~~Deactivation~~Ambient ~~(PPL~~Air ~~and~~Quality ~~PPL Energy Supply)~~Standards

In ~~January 2003~~2008, ~~PPL~~the ~~negotiated~~EPA anrevised ~~agreement~~the ~~with~~National ~~the~~Ambient ~~ISO~~Air -Quality ~~New~~Standard ~~England that~~for ~~would~~ozone. As ~~declare~~a ~~that~~result, ~~four~~states ofin the ~~five~~ozone ~~units~~transport atregion ~~PPL's Wallingford~~(OTR), ~~Connecticut facility~~including Pennsylvania, are ~~"reliability~~required ~~must~~by ~~run"~~the ~~units~~Clean ~~and~~Air ~~put~~Act ~~those~~to ~~units~~impose ~~under~~additional ~~cost-based rates.~~reductions ~~This~~in ~~agreement~~nitrogen ~~and~~oxide ~~the~~emissions ~~cost-~~based ~~rates~~upon ~~are~~reasonably ~~subject~~available tocontrol ~~the~~technologies ~~FERC's approval,~~(RACT). The ~~and~~PADEP ~~PPL~~is ~~filed~~expected ato ~~request~~finalize ~~with~~a ~~the~~RACT ~~FERC~~rule ~~for~~in ~~such~~2015 ~~approval.~~requiring ~~PPL~~some ~~requested authority for cost~~fossil-~~based~~fueled ~~rates~~plants ~~because~~to ~~the~~operate ~~current~~at ~~and~~more ~~anticipated~~stringent ~~wholesale prices~~nitrogen inoxide ~~New~~emission ~~England~~rates. The ~~are~~EPA ~~insufficient~~proposed to ~~cover~~further strengthen the ~~costs~~ozone ofstandard ~~keeping~~in ~~these units~~November ~~available~~2014, ~~for~~which ~~operation.~~could Inlead ~~March~~to ~~2003~~further nitrogen oxide reductions, for PPL ~~filed~~Energy anSupply's ~~application~~fossil-fueled ~~with~~ plants within the ~~New~~OTR. The ~~England~~EPA ~~Power~~is ~~Pool~~under tocourt ~~temporarily~~order ~~deactivate~~to ~~these~~finalize ~~four~~the ~~units.~~standard ~~In May~~by ~~2003~~October 1, ~~the~~2015. States ~~FERC~~are ~~denied~~also ~~PPL's~~obligated ~~request~~to ~~for~~address ~~cost-based~~interstate ~~rates~~transport inissues ~~light~~associated ~~of the~~with ~~FERC's~~new ~~changes~~ozone tostandards through the ~~market~~establishment ~~and~~of ~~bid~~"good ~~mitigation~~neighbor" ~~rules~~state ofimplementation ~~ISO~~plans -for ~~New~~those ~~England made~~states inthat aare ~~similar~~found ~~case~~to ~~involving~~contribute ~~generating~~significantly ~~units~~to ~~owned~~another bystates' ~~NRG~~non-attainment. In ~~Energy~~January 2015, ~~Inc. PPL~~the ~~subsequently~~EPA ~~has~~issued ~~explained~~a topolicy ~~the~~memo ~~FERC~~to ~~that~~state ~~its~~agencies ~~changes~~ to facilitate the ~~market and~~development ~~bid~~of ~~mitigation~~these ~~rules~~plans offor ~~ISO~~the -2008 ~~New~~standard, ~~England~~including ~~will~~modeling ~~not~~data ~~provide~~defining ~~sufficient revenues~~state tocontributions. The ~~PPL,~~implementation ~~and~~of ~~PPL~~such ~~continues~~plans tocould ~~seek~~have ~~approval~~an ofimpact ~~its~~on ~~cost-based~~the ~~rates. However,~~structure ~~PPL~~and ~~has~~stringency ~~informed~~of ~~the~~CSAPR ~~New~~Phase ~~England~~2 ~~Power~~reductions ~~Pool~~(discussed ~~that~~above), or it ~~will~~could ~~not~~lead ~~pursue its~~to ~~request~~the todevelopment ~~temporarily~~of ~~deactivate~~a ~~certain~~new ~~Wallingford~~ozone ~~units~~transport rule. InNon-OTR ~~February 2004,~~states ~~PPL~~are ~~appealed~~working ~~the~~together ~~FERC's~~to ~~denial~~evaluate offurther ~~its~~nitrogen ~~request~~oxide ~~for~~reductions ~~cost~~from fossil-~~based~~fueled ~~rates to~~plants ~~the~~with USCRs.S. ~~Court~~The ofnature ~~Appeals~~and ~~for~~timing ~~the~~of ~~District~~any ofadditional ~~Columbia~~reductions ~~Circuit.~~resulting ~~PPL~~from these evaluations cannot ~~predict~~ ~~the~~be ~~outcome~~determined ofat this ~~matter~~time.

~~IRS~~In ~~Synthetic~~2010, ~~Fuels~~the ~~Tax~~EPA ~~Credits~~finalized a new National Ambient Air Quality Standard for sulfur dioxide and required states to identify areas that meet those standards and areas that are in "non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Yellowstone County in Montana (~~PPL~~Billings area). Attainment must be achieved by 2018. Pursuant to a consent decree between the EPA and Sierra Club approved on March 2, 2015, states are working to finalize designations for other areas by the 2017 or 2020 deadline depending on which designation methodology is used. PPL Energy Supply anticipates that some of the measures required for compliance with the CSAPR (as discussed above), or the MATS, or the Regional Haze Rules (as discussed below), such as upgraded or new sulfur dioxide scrubbers at certain plants will help to achieve compliance with the new sulfur dioxide standard. If additional reductions were to be required, the financial impact could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment (as noted above) is not expected to be significant, as the operations were suspended and the plant was retired in March 2015. In addition, MDEQ recently submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.

~~PPL,~~In ~~through~~December ~~its subsidiaries~~2012, ~~has~~the ~~interests~~EPA inissued ~~two~~final ~~synthetic~~rules ~~fuel~~that ~~production facilities:~~tighten the ~~Somerset~~annual ~~facility~~National ~~located~~Ambient inAir ~~Pennsylvania~~Quality ~~and~~Standard ~~the~~for ~~Tyrone facility~~fine ~~located in Kentucky~~particulates. The ~~PPL~~rules ~~receives~~were ~~tax~~challenged ~~credits~~by ~~pursuant~~industry togroups, ~~Section 29~~and ofin ~~the~~May ~~Internal~~2014 ~~Revenue Code based on~~ the ~~sale of synthetic fuel from these facilities to unaffiliated third-party purchasers~~D.C. ~~Section 29~~Circuit ofCourt ~~the~~upheld ~~Internal Revenue Code provides tax credits for the production and sale of solid synthetic fuels produced from coal~~them. On ToJanuary ~~qualify~~15, ~~for the Section 29 tax credits~~2015, the ~~synthetic~~EPA ~~fuel~~published ~~must~~a ~~meet~~final ~~three~~rule ~~primary~~establishing ~~conditions: (i)~~area ~~there~~designations ~~must~~under bethe astandard. Non-attainment ~~significant~~areas ~~chemical change~~ in ~~the~~Pennsylvania ~~coal~~were ~~feedstock~~identified; however, ~~(ii) the~~EPA ~~product~~recently ~~must~~approved bestate ~~sold~~implementation toplan anrevisions ~~unaffiliated~~for ~~entity,~~both ~~and~~states ~~(iii)~~that ~~the~~improved ~~production facility~~these ~~must~~classifications. PPL ~~have~~Energy ~~been~~Supply ~~placed~~plants in ~~service~~Pennsylvania ~~before~~will ~~July~~not 1,be ~~1998.~~expected ~~Section 29 tax credits are currently scheduled~~ to ~~expire~~make atfurther ~~the~~reductions ~~end~~towards ofachieving ~~2007~~attainment.

AUntil ~~PPL~~final ~~subsidiary~~rules ~~owns~~are ~~and operates the Somerset facility. In November 2001~~promulgated, ~~PPL~~ ~~received~~non-attainment adesignations ~~private~~are ~~letter~~finalized ~~ruling~~and ~~from~~state ~~the~~compliance ~~IRS~~plans ~~pursuant~~are ~~to which~~developed, ~~among other~~PPL ~~things,~~Energy ~~the~~Supply ~~IRS~~cannot ~~concluded~~predict ~~that~~ the ~~synthetic~~ultimate ~~fuel~~outcome ~~produced~~of at the ~~Somerset~~ ~~facility~~new ~~qualifies~~National ~~for~~Ambient ~~Section~~Air 29Quality ~~tax~~standards ~~credits.~~for ~~The Somerset facility uses the Covol technology to produce synthetic fuel~~ozone, ~~and~~sulfur ~~the~~dioxide ~~IRS issued the private letter ruling after its review~~ and ~~approval~~particulate ~~of that technology~~matter. In reliance on this private letter ruling, PPL has sold synthetic fuel produced at the Somerset facility resulting in an aggregate of approximately $175 million of tax credits as of June 30, 2004.

PPL owns a limited partnership interest in the entity that owns and operates the Tyrone facility. In April 2004, this entity received a private letter ruling from the IRS. Similar to its conclusions relating to the Somerset facility, the IRS concluded that the synthetic fuel to be produced at the Tyrone facility qualifies for Section 29 tax credits. The Tyrone facility commenced commercial operations in the third quarter of 2004 after being relocated to Kentucky from Pennsylvania.MATS

~~PPL~~In ~~also~~February ~~purchases~~2012, ~~synthetic~~the ~~fuel~~EPA finalized the MATS rule requiring reductions of mercury and other hazardous air pollutants from ~~unaffiliated~~fossil-fuel ~~third~~fired ~~parties~~power plants, atknown ~~prices below~~as the ~~market~~MATS, ~~price~~with an effective date of ~~coal~~April 16, 2012. The rule was challenged by industry groups and states and was upheld by the D.C. Circuit Court, in April 2014. A group of states subsequently petitioned the U.S. Supreme Court to review this decision and on March 25, 2015 oral arguments were heard as to one issue - whether or not EPA unreasonably refused to consider costs when determining whether the MATS regulation was appropriate and necessary. A U.S. Supreme Court decision is expected by June 30, 2015. The rule provides for ~~use~~a atthree-year ~~its~~compliance ~~coal~~deadline with the potential for one-~~fired~~ ~~power~~and two-year extensions as provided under the statute. PPL Energy Supply has completed installation or upgrading of relevant environmental controls at affected plants or have received compliance extensions for certain plants as applicable.

InPPL ~~June~~Energy ~~2003,~~Supply ~~the~~believes ~~IRS announced~~ that itinstallation ~~had reason to question the scientific validity~~ of ~~certain~~chemical ~~test~~additive ~~procedures~~systems and ~~results~~other ~~that~~controls ~~have~~may ~~been~~be ~~presented to~~necessary itat bycertain ~~taxpayers~~coal-fired ~~with~~plants ~~interests~~ in ~~synthetic~~Pennsylvania, ~~fuel~~the ~~operations~~capital ascost ~~evidence that~~of ~~the~~which ~~required~~is ~~significant~~not ~~chemical~~expected ~~change~~to ~~has~~be ~~occurred,~~significant. PPL ~~and~~Energy ~~that~~Supply ~~it was~~continues ~~reviewing~~to ~~information~~analyze ~~regarding~~the ~~these~~potential ~~test~~impact ~~procedures~~of ~~and~~MATS ~~practices. In~~on ~~October~~operating ~~2003,~~costs. With ~~the~~respect ~~IRS~~to ~~announced~~PPL ~~that~~Energy itSupply's ~~had~~Montana ~~completed~~plants, ~~its~~modifications ~~review~~to ~~and determined that~~ the ~~test~~air ~~procedures~~pollution ~~and~~controls ~~results~~installed ~~used~~at byColstrip ~~taxpayers~~ are ~~scientifically valid~~required, if the ~~procedures~~cost ~~are~~of ~~applied~~which inis anot ~~consistent~~expected ~~and~~to ~~unbiased~~be ~~manner~~significant. ~~The~~ Operations ~~IRS~~were ~~indicated~~suspended ~~that~~and itthe ~~would~~Corette ~~require~~plant ~~taxpayers~~was toretired ~~comply~~in ~~with~~March ~~certain sampling~~2015 ~~and~~due ~~data/record~~to ~~retention~~expected ~~practices~~market toconditions ~~obtain~~and orthe ~~maintain~~costs ato ~~ruling on~~comply ~~significant~~with ~~chemical~~the ~~change~~MATS requirements.

PPL believes that the October IRS announcement and its receipt of the private letter ruling for the Tyrone facility following this announcement confirms that PPL is justified in its reliance on the private letter rulings for the Somerset and Tyrone facilities and that the test results that PPL presented to the IRS in connection with its private letter rulings are scientifically valid. In addition, PPL believes that it has operated the Somerset facility in compliance with the private letter ruling and Section 29 of the Internal Revenue Code.16

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

~~Certain~~PPL ~~other~~Energy ~~owners~~Supply oris ~~operators~~conducting ~~of synthetic fuel facilities have recently reported that the IRS has questioned whether their facilities were placed~~ in-depth ~~service~~reviews ~~before~~of ~~July 1, 1998. Whether or not a facility meets~~ the ~~"in service"~~EPA's ~~requirement~~amendments isto ~~based on~~ the ~~particular~~final ~~facts~~rule and ~~circumstances relating~~certain toproposed ~~the~~corrections, ~~operation~~none of ~~that~~which ~~facility.~~are ~~PPL~~currently isexpected ~~not aware of the facts and circumstances relating~~ to ~~the~~be ~~operation of the facilities being questioned by the IRS or the specific IRS position in these other matters~~significant. ~~However, PPL believes that the Tyrone and Somerset facilities meet the in service requirement.~~

~~U.K.~~Regional ~~Electricity~~Haze ~~Regulation (PPL~~ and ~~PPL Energy Supply)~~Visibility

The ~~principal~~EPA's ~~legislation~~regional ~~governing~~haze ~~the~~programs ~~structure~~were ofdeveloped under the ~~electricity~~Clean ~~industry in~~Air ~~Great~~Act ~~Britain~~to iseliminate ~~the~~man-made ~~Electricity~~visibility ~~Act~~degradation ~~1989~~by (2064. Under the ~~"Electricity Act")~~programs, ~~as amended~~states byare ~~the~~required ~~Utilities~~to ~~Act~~make ~~2000~~reasonable (progress every decade, through the ~~"Utilities~~application, ~~Act"~~among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977.

The ~~provisions~~primary inpower ~~the~~plant ~~Utilities~~emissions ~~Act~~affecting ~~include~~visibility ~~the~~are ~~replacement~~sulfur ofdioxide, ~~individual gas~~nitrogen oxides and ~~electricity~~particulates. To ~~regulators~~date, ~~with~~ the ~~Gas~~focus ~~and~~of ~~Electricity~~regional ~~Markets~~haze ~~Authority (~~regulation has been the ~~"Regulator")~~western U.S. As ~~The~~for ~~principal~~the ~~objective~~eastern ofU.S., the ~~Regulator~~EPA ishad todetermined ~~protect the~~that ~~interests~~region-wide ofreductions ~~consumers,~~under ~~wherever~~the ~~appropriate,~~CSAPR bytrading ~~promoting~~program ~~effective competition~~could, in ~~electricity~~most ~~generation~~instances, ~~and~~be ~~supply.~~utilized ~~There~~under ~~currently~~state isprograms ~~no competition~~to insatisfy ~~electricity~~BART ~~distribution,~~requirements ~~but~~for ~~recently~~sulfur adioxide ~~small~~and ~~operator~~nitrogen ~~has applied~~oxides. However, to the ~~Regulator~~EPA's ~~for~~determination ais ~~license~~being tochallenged ~~operate~~by inenvironmental ~~Great~~groups ~~Britain~~and others.

~~Each~~In ~~distribution~~Montana, ~~business~~the ~~constitutes~~EPA aRegion ~~natural~~8 developed the regional ~~monopoly~~haze ~~and is~~plan ~~subject~~as tothe ~~control~~MDEQ ondeclined ~~the~~to ~~prices~~do itso. ~~can~~The ~~charge~~EPA ~~and~~finalized the ~~quality~~Federal ofImplementation ~~supply it~~Plan ~~must~~(FIP) ~~provide.~~for ~~The~~Montana ~~operations~~in ofSeptember ~~WPD~~2012. The ~~are~~final ~~regulated~~FIP ~~under~~assumed ~~its~~no ~~distribution licenses,~~additional ~~pursuant~~controls tofor ~~which~~Corette ~~income~~or ~~generated~~Colstrip isUnits ~~subject~~3 toand an4, ~~allowed~~but ~~revenue regulatory~~proposed ~~framework~~stricter ~~that~~limits ~~provides~~for ~~economic~~Corette ~~incentives~~and toColstrip ~~minimize~~Units ~~operating, capital~~1 and ~~financing costs~~2. PPL ~~Under~~Energy ~~the~~Supply ~~Electricity~~was ~~Act,~~meeting ~~WPD~~these isstricter ~~under~~permit alimits ~~statutory duty~~at toCorette ~~offer~~without ~~terms~~any tosignificant ~~connect~~changes ~~any~~to ~~customer~~operations, ~~requiring~~although ~~electricity~~other ~~within their~~requirements ~~area~~have ~~and~~led to ~~maintain~~the ~~that~~suspension ~~connection.~~of ~~The~~operations ~~allowed~~and ~~revenue~~retirement ~~that~~of ~~is recovered~~Corette ~~from~~in ~~electricity~~March ~~supply~~2015 ~~businesses~~(see ~~through~~"MATS" ~~charges~~discussion byabove). Under the ~~Distribution Network~~final ~~Operator~~FIP, ~~(DNO)~~Colstrip ~~made~~Units ~~for~~1 ~~the~~and ~~use~~2 ofmay ~~the~~require ~~distribution~~additional ~~network~~controls, isincluding ~~regulated on~~ the ~~basis~~possible installation of ~~the~~an ~~Retail~~SNCR ~~Price~~and ~~Index~~other ~~(RPI)~~technology, ~~minus~~to Xmeet ~~formula.~~more ~~The~~stringent ~~allowed revenue~~nitrogen isoxides ~~increased~~and bysulfur ~~RPI~~dioxide ~~minus~~limits. The Xcost ~~during~~of ~~the~~these ~~tenure~~potential ofadditional ~~each~~controls, ~~price~~if ~~control period.~~required, ~~(RPI~~could isbe asignificant. Both ~~measure~~PPL ofEnergy ~~inflation~~Supply and ~~equals~~environmental ~~the~~groups ~~percentage~~have ~~change in~~appealed the ~~U.K.~~final ~~RPI~~FIP ~~between~~to the ~~six-month~~U.S. ~~period~~Court of ~~July~~Appeals tofor ~~December in~~ the ~~previous~~ ~~year.~~Ninth ~~The~~Circuit Xoral ~~factor~~argument iswas ~~established~~heard byin ~~the~~May ~~Regulator~~2014, ~~following review~~ and ~~represents an annual efficiency factor.) The Regulator currently sets~~ the ~~Distribution~~parties ~~Price~~are ~~Control~~awaiting ~~Formula~~a ~~for five-year periods~~decision.

~~The~~New ~~current~~Source ~~Distribution~~Review Price Control Formula permits DNOs, within a review period, to partially retain additional revenues due to increased distribution of units and to retain all increases in operating profit due to efficient operations and the reduction of expenses (~~including financing costs~~NSR). The Regulator may reduce this increase in operating profit through a one-off price reduction in the first year of the new pricing regime, if the Regulator determines that it is not a function of efficiency savings, or if genuine efficiency savings have been made and the Regulator determines that customers should benefit through lower prices.

InThe ~~December~~EPA ~~1999~~has continued its NSR enforcement efforts targeting coal-fired generating plants. The EPA has asserted that modification of these plants has increased their emissions and, ~~the~~consequently, ~~Regulator~~that ~~published~~they ~~final~~are ~~price~~subject ~~proposals~~to ~~for~~stringent ~~distribution price~~NSR ~~control~~requirements ~~for~~under the 12Clean ~~DNOs~~Air Act. PPL Energy Supply received various EPA information requests in ~~England~~2007 and ~~Wales.~~2009, ~~These~~but ~~proposals~~has ~~represented a~~received ~~reduction~~no further communications from the EPA related to ~~distribution~~those ~~prices~~requests since providing their responses. In January 2009, PPL Energy Supply and other companies that own or operate the Keystone plant in Pennsylvania received a notice of ~~20%~~violation ~~for~~from ~~WPD~~the ~~(South~~EPA ~~West)~~alleging that certain projects were undertaken without proper NSR compliance. The companies responded to the EPA and ~~26%~~the ~~for WPD~~matter ~~(South~~remains ~~Wales)~~open. In ~~effective~~May ~~April~~and ~~2000~~November 2012, ~~followed~~PPL byMontana received information requests from the EPA regarding projects undertaken during a ~~reduction~~Spring in2012 ~~real terms~~maintenance (ioutage at Colstrip Unit 1.e The EPA requests remain an open matter. In September 2012, ~~before~~PPL ~~inflation~~Montana isreceived ~~taken~~an ~~into~~information ~~account)~~request from the MDEQ regarding Colstrip Unit 1 and other projects. MDEQ formally suspended this request on June 6, 2014, in consideration of 3%pending ~~each~~litigation ~~year~~(see ~~from April~~"Legal ~~2001~~Matters - Sierra Club Litigation" above). PPL ~~This~~Energy ~~price~~Supply ~~control~~cannot ispredict ~~scheduled~~the tooutcome ~~operate~~of ~~until~~these ~~March~~matters, ~~2005~~and cannot estimate a range of reasonably possible losses, if any.

~~Improvements~~States inand ~~quality~~environmental ofgroups ~~supply~~also ~~form~~have ancommenced ~~important~~litigation ~~part~~alleging violations of the ~~final~~NSR ~~proposals. Revised~~regulations ~~targets~~by ~~for~~coal-fired ~~system~~generating ~~performance,~~plants inacross ~~terms~~the ofnation. See ~~the~~"Legal ~~security~~Matters" ~~and~~above ~~availability of~~for ~~supply,~~information ~~were~~on ~~implemented~~a ~~with~~lawsuit ~~new~~filed ~~targets~~by ~~for~~environmental ~~reductions~~groups in ~~minutes~~March ~~lost~~ 2013 against PPL Montana and ~~interruptions.~~other owners of Colstrip.

~~The~~If ~~Regulator~~any ~~previously~~PPL ~~introduced~~Energy aSupply ~~quality~~subsidiary ofis ~~service~~found ~~incentive~~to ~~plan for~~have ~~the~~violated ~~period~~NSR ~~from~~regulations ~~April~~by ~~2002~~significantly toincreasing ~~March~~pollutants ~~2005.~~through ~~Companies~~a ~~may~~major beplant ~~penalized annually~~modification, upthe tosubsidiary 2%would, ofamong ~~revenue~~other ~~for~~things, ~~failing~~be required to meet ~~their~~stringent ~~quality~~permit oflimits ~~supply targets~~reflecting Best Available Control Technology (BACT) for pollutants meeting the ~~incentive~~National ~~plan.~~Ambient ~~The~~Air ~~plan~~Quality ~~includes~~Standards a(NAAQS) ~~mechanism~~in ~~for~~the ~~rewarding companies~~area ~~which~~and ~~exceed~~reflecting ~~their~~Lowest ~~targets~~Achievable ~~based~~Emission onRates ~~their~~for ~~rate~~pollutants ofnot ~~improvement of~~meeting ~~performance~~the ~~during~~NAAQS in the ~~period~~area. The ~~and~~costs ato ~~process~~meet ~~for~~such ~~rewarding~~limits, ~~exceptional performance~~including byinstallation ~~specifying~~of ~~how~~technology ~~the~~at ~~targets~~certain ~~will~~units, could be ~~reset~~material.

~~Distribution~~Climate businesses must also meet the Guaranteed and Overall Standards of Performance, which are set by the Regulator to ensure an appropriate level of quality of supply. If a company fails to provide the level of service specified, it must make a fixed payment to the retail customer affected. Change

InAs ~~July~~a ~~2004,~~result of the ~~Regulator~~April ~~published~~2007 aU.S. ~~report~~Supreme onCourt decision that the ~~quality~~EPA ofhas ~~supply~~ authority under the Clean Air Act to regulate carbon dioxide emissions from new motor vehicles, in April ~~2002~~2010, ~~through~~the ~~March~~EPA ~~2003~~and the U.S. Department of Transportation issued new light-duty vehicle emissions standards that applied beginning with 2012 model year vehicles. The ~~report~~EPA ~~confirms~~also clarified that ~~WPD~~this ~~(South West)~~standard, ~~and~~beginning ~~WPD~~in ~~(South~~2011, ~~Wales)~~authorized ~~met~~regulation orof ~~exceeded~~carbon ~~quality~~dioxide emissions from stationary sources under the NSR and Title V operating permit provisions of ~~service~~the ~~targets~~Clean ~~set by~~Air Act. The EPA's rules were challenged in court and on June 23, 2014, the ~~Regulator~~U.S. Supreme Court ruled that the EPA has the authority to regulate carbon dioxide emissions under these provisions of the

In June 2004, the Regulator published its initial distribution price control proposal for the next five-year price control period, which will commence April 1, 2005. This initial proposal is the latest step in the Regulator's ongoing price review of WPD and the other DNOs in England and Wales. The Regulator's review is expected to be completed in November 2004. The initial proposal acknowledged WPD's leading quality-of-service performance and provided an additional 1% in revenues because of WPD's reliability performance. PPL cannot predict the final outcome of the Regulator's review or how the Regulator's final decision will impact WPD's revenues.17

~~Environmental~~Table ~~Matters~~of ~~- Domestic~~Contents

~~(PPL~~Clean Air Act but only for stationary sources that would otherwise have been subject to these provisions due to significant increases in emissions of other pollutants. As a result, ~~PPL~~any ~~Energy~~new ~~Supply~~sources ~~and~~or ~~PPL~~major ~~Electric)~~modifications to an existing GHG source causing a net significant increase in carbon dioxide emissions must comply with BACT permit limits for carbon dioxide if it would otherwise be subject to BACT or lowest achievable emissions rate limits due to significant increases in other pollutants.

~~Due~~In toJune 2013, President Obama released his Climate Action Plan that reiterates the ~~environmental~~goal ~~issues~~of ~~discussed~~reducing GHG emissions in the U.S. "in the range of" 17% below or2005 ~~other~~levels ~~environmental matters~~by 2020 through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing more restrictive energy efficiency standards. Additionally, the Climate Action Plan calls for the U.S. to prepare for the impacts of climate change. Requirements related to this plan could affect PPL ~~subsidiaries~~Energy Supply and others in the industry as modifications may be ~~required~~needed to ~~modify,~~electricity ~~replace~~delivery orsystems ~~cease~~to ~~operating certain~~improve ~~facilities~~the ability to ~~comply~~withstand ~~with~~major ~~statutes,~~storms ~~regulations~~in ~~and~~order ~~actions~~to bymeet ~~regulatory bodies~~those ~~or courts~~requirements. As Infurther described below, the EPA has proposed rules pursuant to this ~~regard~~directive, ~~PPL~~which ~~subsidiaries~~it ~~also~~expects ~~may~~to ~~incur~~finalize ~~capital expenditures~~in the second or ~~operating~~third ~~expenses~~quarter inof ~~amounts~~2015. The EPA has also announced that it will develop a federal implementation plan which would apply to any states that fail to submit an acceptable state implementation plan. The EPA’s authority to promulgate these regulations under Section 111 of the Clean Air Act when the sources are ~~not~~already ~~now~~regulated ~~determinable, but~~under ~~which~~Section ~~could~~112 beis ~~significant~~under challenge in the D.C. Circuit Court. Oral arguments were heard on April 16, 2015.

~~Air~~In ~~(PPL~~January 2014, the EPA issued a revised proposal to regulate carbon dioxide emissions from new power plants. The revised proposal calls for separate emission standards for coal and ~~PPL~~gas ~~Energy~~units ~~Supply)~~based on the application of different technologies. The coal standard is based on the application of partial carbon capture and sequestration technology, but because this technology is not presently commercially available, the revised proposal effectively precludes the construction of new coal-fired plants. The standard for natural gas-fired combined-cycle power plants is the same as the EPA proposed in 2012 and is not continuously achievable. The preclusion of new coal-fired plants and the compliance difficulties posed for new gas-fired plants could have a significant industry-wide impact.

In June 2014, the EPA issued proposed regulations addressing carbon dioxide emissions from existing power plants. The ~~Clean~~existing ~~Air~~plant ~~Act~~proposal ~~deals,~~contains instate-specific ~~part,~~rate-based ~~with~~reduction ~~acid~~goals ~~rain,~~and ~~attainment~~guidelines offor ~~federal ambient~~the ~~ozone~~development, ~~standards~~submission and ~~toxic~~implementation ~~air~~of ~~emissions~~state inplans to achieve the Ustate goals.S. State-specific ~~PPL~~goals were calculated from 2012 data by applying EPA's ~~subsidiaries are~~broad ininterpretation ~~substantial~~and ~~compliance~~definition ~~with~~of the ~~Clean~~Best ~~Air~~System ~~Act.~~of ~~The~~Emission ~~Bush~~Reduction ~~administration~~ resulting in stringent targets to be met in two phases (2020-2029 and ~~certain~~2030 ~~members~~and ofbeyond). The ~~Congress~~EPA ~~have~~believes ~~made~~it ~~proposals~~has ~~regarding~~offered ~~possible~~some ~~amendments~~ flexibility to the ~~Clean~~states ~~Air~~as ~~Act.~~to ~~These~~how ~~amendments~~state ~~could~~compliance ~~require~~plans ~~significant~~can ~~further reductions~~be incrafted, ~~nitrogen~~including ~~oxide,~~the ~~sulfur~~option ~~dioxide~~to ~~and~~demonstrate ~~mercury~~compliance ~~and~~on ~~could~~a ~~possibly require~~mass ~~measures~~basis toand ~~limit~~through ~~carbon~~multi-state ~~dioxide~~collaborations. The ~~cost~~EPA is also proposing potential state plan extensions based on the type of ~~these~~plan ~~reductions~~filed ~~could be~~(single ~~substantial~~or multi-state). ~~The~~PPL ~~federal~~has ~~government~~analyzed isthe ~~seeking~~proposal ~~commitments~~and ~~from~~identified ~~many major~~potential ~~industries~~impacts toand ~~voluntarily~~solutions ~~reduce~~in ~~carbon~~comments ~~dioxide~~filed ~~emissions.~~on InDecember ~~addition~~1, ~~several~~ ~~states~~2014. ~~have~~PPL ~~taken~~also ~~their~~submitted ~~own~~Supplemental ~~actions~~Comments ~~requiring~~to ~~mandatory~~FERC ~~carbon~~through ~~dioxide emission~~EEI ~~reductions.~~advocating ~~Pennsylvania~~for reliability coordination and ~~Montana~~relief ~~have~~in ~~not,~~response atto ~~this~~technical ~~time,~~conferences ~~established any~~hosted ~~formal~~by ~~programs~~FERC toon ~~address~~the reliability implications of implementing this rule. The regulation of carbon dioxide emissions from existing power plants could have a significant industry-wide impact depending on the structure and ~~other~~stringency ~~greenhouse~~of ~~gases~~the final rule and state implementation plans.

~~The~~In ~~Pennsylvania DEP began requiring further seasonal (May-~~June) ~~nitrogen oxide~~2014, ~~reductions to 80% from 1990 levels starting in 2003. This requirement is pursuant to~~ the EPA's ~~1998~~also ~~State~~proposed ~~Implementation~~a ~~Plan~~regulation ~~(SIP)~~addressing ~~call~~carbon todioxide ~~22 eastern~~emissions ~~states,~~from ~~including~~existing ~~Pennsylvania,~~power toplants ~~revise~~that ~~their~~are ~~state~~modified ~~implementation plans.~~or reconstructed. PPL ~~achieved~~Energy ~~the~~Supply, ~~2003~~however, ~~nitrogen~~does ~~oxide~~not ~~reductions~~expect ~~with~~a ~~the~~significant ~~installation of~~impact ~~SCR~~from ~~technology~~this onrulemaking ~~the~~as ~~Montour~~there ~~units,~~are ~~and~~no ~~may~~plans ~~install~~to ~~SCR~~modify or ~~other~~reconstruct ~~additional nitrogen~~their ~~oxide~~existing ~~reduction~~plants ~~technology~~in ona ~~one~~manner orthat ~~more~~would ~~Brunner~~trigger ~~Island~~the ~~units at~~proposed ~~a later date~~requirements.

~~The~~Based ~~EPA~~on ~~has~~the ~~also~~stringent ~~developed~~GHG ~~new~~reduction ~~standards~~requirements ~~for ambient levels of ozone and fine particulates~~ in the ~~U.S.~~EPA's ~~These~~proposed ~~standards~~rule, ~~have~~for ~~been~~existing ~~upheld~~plants ~~following court~~and ~~challenges.~~based Toon ~~facilitate~~information ~~attainment~~gained offrom ~~these~~public ~~standards~~input, the ~~EPA~~PADEP ~~has also~~is ~~proposed~~no alonger ~~rule~~expecting ~~(now~~to ~~called~~achieve ~~the~~all ~~Clean~~required ~~Air~~GHG ~~Interstate~~reductions ~~Rule~~by -solely ~~CAIR)~~increasing ~~for 28~~efficiency ~~midwestern~~at ~~and~~existing ~~eastern~~fossil-fuel ~~states,~~plants ~~including~~and/or ~~Pennsylvania,~~reducing totheir ~~reduce~~generation ~~sulfur dioxide~~as ~~emissions~~set byforth ~~40%~~in ~~and~~the ~~nitrogen~~PADEP's ~~oxide~~April ~~emissions by 55% from current required levels~~10, ~~starting~~2014 inwhite ~~2010~~paper. In ~~Starting~~October ~~in 2015~~2014, the ~~proposed~~Governor ~~rule~~of ~~requires reductions~~Pennsylvania insigned ~~sulfur~~into ~~dioxide~~law, ~~and~~Act ~~nitrogen~~175 ~~oxide~~ of ~~70%~~2014 ~~and~~requiring ~~65%,~~the ~~respectively, from~~PADEP ~~current~~to ~~required~~obtain ~~levels.~~General ~~The~~Assembly ~~proposed~~approval ~~rule~~of ~~allows~~any ~~these~~state ~~reductions to~~plan beaddressing ~~achieved~~GHG ~~through~~emissions ~~cap-and-trade~~under ~~programs, and is consistent with~~ the ~~Bush~~ ~~administration~~EPA's ~~proposed~~GHG ~~amendments~~rules tofor ~~the~~existing ~~Clean~~plants. The ~~Air~~law ~~Act,~~includes ~~except~~provisions ~~that it applies~~ to ~~only~~minimize the 28exposure ~~states. In order~~ to ~~meet~~a ~~requirements~~federal ofimplementation ~~the~~plan ~~CAIR, PPL~~due ~~has~~to ~~been~~legislative ~~evaluating the installation of sulfur dioxide scrubbers at one or more of its Pennsylvania plants, as well as the installation of SCR technology at Brunner Island~~delay.

The ~~EPA~~MDEQ, ~~has~~at ~~proposed~~the ~~mercury~~request ~~and~~of ~~nickel~~the ~~regulations~~Governor ~~and~~of isMontana, ~~expected~~has ~~to finalize~~issued ~~these~~a ~~regulations~~white inpaper ~~2004.~~outlining ~~The~~possible ~~proposed~~regulatory ~~mercury~~scenarios ~~regulations affect coal-fired plants. With respect~~ to ~~mercury,~~implement the EPA's ~~has~~ proposed ~~two~~GHG ~~alternative approaches:~~rule anfor ~~emission~~existing ~~trading~~plants ~~program~~including toa ~~take~~combination ~~effect~~of ~~beginning~~increasing ~~January 2010~~energy orefficiency aat ~~requirement~~coal-fired toplants, ~~take~~adding ~~effect~~more inlow- ~~2007~~and ~~that~~zero-carbon ~~every~~generation, ~~unit~~and ~~install~~carbon ~~maximum achievable~~sequestration ~~control~~at ~~technology (MACT)~~Colstrip. The ~~proposed~~white ~~nickel~~paper ~~regulations~~was ~~impose MACT~~made ~~requirements~~public onin ~~oil-fired~~September ~~units~~2014 toand ~~take~~the ~~effect~~MDEQ inhas ~~2007.~~held ~~The~~public ~~nickel regulations~~meetings ~~would~~to ~~affect~~present ~~Martins~~the ~~Creek~~white ~~Units~~paper 3 and 4gather comments. Legislation ~~The~~drafted ~~cost~~to ofrequire ~~complying with~~legislative ~~these~~approval ~~regulations~~of isany ~~not~~related ~~now~~plan ~~determinable,~~formulated ~~but~~by ~~could~~MDEQ bewas ~~significant~~tabled.

InA ~~1999,~~number ~~the~~of ~~EPA~~lawsuits ~~initiated~~have ~~enforcement~~been ~~actions~~filed ~~against several utilities,~~ asserting ~~that~~common ~~older,~~law ~~coal-fired~~claims ~~power~~including ~~plants operated by those utilities have~~nuisance, ~~over~~trespass ~~the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation~~ and ~~commenced~~negligence ~~enforcement activities~~ against ~~other utilities.~~various ~~The~~companies ~~future~~with ~~direction~~GHG ofemitting ~~the~~plants ~~EPA's enforcement initiative is presently unclear. Therefore~~and, atalthough ~~this~~the ~~time,~~decided ~~PPL~~cases ~~is unable~~ to ~~predict~~date ~~whether~~have ~~such EPA~~not ~~enforcement~~sustained ~~actions~~claims ~~will be~~ brought ~~with~~on ~~respect~~the tobasis ~~any~~ of ~~its~~these ~~affiliates' plants.~~theories ~~However~~of liability, the ~~EPA~~law ~~regional~~remains ~~offices~~unsettled ~~that~~on ~~regulate~~these ~~plants in Pennsylvania (Region III) and Montana (Region VIII) have indicated an intention to issue information requests to all utilities in their jurisdiction~~claims. In ~~The~~September ~~Region VIII~~2009, ~~office issued such a request to PPL Montana's Corette plant in 2000 and~~ the ~~Colstrip plant in 2003~~U. ~~The Region III office issued such a request to PPL Generation's Martins Creek plant in 2002~~S. ~~PPL~~Court ~~and~~of ~~its~~Appeals ~~subsidiaries have~~for ~~responded to~~ the ~~Corette~~Second ~~and~~Circuit ~~Martins~~in ~~Creek information requests and began responding to~~ the ~~Colstrip~~case ~~information request. The EPA has stayed further production~~ of ~~Colstrip~~AEP ~~documents pending discussion among the Colstrip owners and the EPA~~v. ~~The~~Connecticut ~~EPA~~reversed ~~has~~a ~~taken~~federal nodistrict ~~further~~court's ~~action~~decision ~~following the Martins Creek~~ and ~~Corette~~ruled ~~submittals.~~that ~~PPL~~several ~~cannot~~states presently predict what, if any, action the EPA might take in this regard. Should the EPA or any state initiate one or more enforcement actions against PPL or its subsidiaries, compliance with any such enforcement actions could result in additional capital and ~~operating~~ ~~expenses which are not now determinable, but which could be significant.~~

In 2003, the EPA issued changes to its "New Source" regulations that clarify what projects are exempt from "New Source" requirements as routine maintenance and repair. Under these clarifications, any project to replace existing equipment with functionally equivalent equipment would be considered routine maintenance and excluded from "New Source" review if the cost of the replaced equipment does not exceed 20% of the replacement cost of the entire process unit, the basic design is not changed and no permit limit is exceeded. These clarifications would substantially reduce the uncertainties under the prior "New Source" regulations; however, they have been stayed by the U.S. Court of Appeals for the District of Columbia Circuit. PPL is therefore continuing to operate under the "New Source" regulations as they existed prior to the EPA's clarifications. 18

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

Inpublic ~~addition~~interest togroups, ~~the~~as ~~opacity~~well ~~concerns~~as ~~raised~~the byCity ~~the~~of New ~~Jersey DEP~~York, ~~the~~could ~~Pennsylvania DEP~~sue ~~also~~five ~~has~~electric ~~raised~~utility ~~concerns~~companies ~~about~~under ~~the~~federal ~~opacity~~common oflaw ~~emissions~~for ~~from~~allegedly ~~the~~causing ~~Martins Creek~~a ~~and~~public ~~Montour~~nuisance ~~plants.~~as ~~PPL~~a isresult ~~discussing~~of ~~these~~their ~~concerns~~emissions ~~with~~of GHGs. In June 2011, the ~~Pennsylvania DEP~~U.S. IfSupreme itCourt isoverturned ~~determined~~the Second Circuit and held that ~~actions~~such ~~must~~federal becommon ~~taken~~law toclaims ~~address~~were displaced by the ~~Pennsylvania DEP's~~Clean ~~concerns,~~Air ~~such~~Act and regulatory actions ~~could~~of ~~result~~the inEPA. PPL ~~costs~~Energy ~~that~~Supply ~~are~~cannot ~~not~~predict ~~now~~the ~~determinable, but~~outcome ~~which~~of ~~could~~these belawsuits ~~significant~~or estimate a range of reasonably possible losses, if any.

InRenewable ~~December~~Energy 2003, PPL Montana, as operator of the Colstrip facility, received an Administrative Compliance Order (ACO) from the EPA pursuant to the Clean Air Act. The ACO alleges that Units 3 and 4 of the facility have been in violation of the Clean Air Act permit at Colstrip since 1980. The permit required Colstrip to submit for review and approval by the EPA an analysis and proposal for reducing emissions of nitrogen oxide to address visibility concerns if and when the EPA promulgates Best Available Retrofit Technology requirements for nitrogen oxide. The EPA is asserting that regulations it promulgated in 1980 triggered this requirement. PPL believes that the ACO is unfounded and is discussing the matter with the EPA. The ACO does not expressly seek penalties, and it is unclear at this time what, if any, additional control technology the EPA may consider to be required. Accordingly, the costs to install any additional controls for nitrogen oxide, if required, are not now determinable, but could be significant. In addition, the Montana Department of Environmental Quality (DEQ) is questioning whether the permit limits for sulfur dioxide emissions from Colstrip Units 3 and 4 are too high under provisions of the Clean Air Act that limit allowable emissions from sources built after 1978. PPL is engaged in settlement negotiations on these matters with the EPA, the Montana DEQ and the Northern Cheyenne Tribe. PPL cannot predict the outcome of this matter.Legislation

~~Water/Waste~~In ~~(PPL~~Pennsylvania, House Bill 100 was introduced in February 2015, proposing to increase AEPS solar and Tier 1 targets. A similar bill is in the process of being introduced in the Senate (no bill number is available at this time). PPL Energy Supply) cannot predict the outcome of this legislative effort.

~~Brunner~~In ~~Island's~~New ~~NPDES~~Jersey, ~~permit contains~~ a ~~provision~~bill ~~requiring~~(S-1475) ~~further~~has ~~studies on~~been ~~the~~introduced ~~thermal~~to ~~impact~~increase of the ~~cooling~~current ~~water~~Renewable ~~discharge~~Portfolio ~~from~~Standard ~~the~~(RPS) ~~plant.~~to ~~These studies~~30% ~~are~~from ~~underway~~Class I ~~and~~sources ~~are~~by ~~expected to be completed in 2006~~2020. The ~~Pennsylvania DEP~~chairman ~~has~~of ~~stated~~the ~~that~~Senate itEnvironmental ~~believes~~Committee ~~the~~convened ~~studies~~a workgroup to ~~date~~look ~~show~~at ~~that~~further ~~the~~changes ~~temperature of~~to ~~the~~New ~~discharge~~Jersey's ~~must~~RPS belaw ~~lowered.~~to ~~The~~enable ~~Pennsylvania~~New ~~DEP~~Jersey ~~has~~to ~~also~~meet ~~stated~~emissions ~~that it~~goals ~~believes~~established ~~the plant is~~ in ~~violation of a permit condition prohibiting~~ the ~~discharge~~state's ~~from~~Global ~~changing~~Warming ~~the~~Response ~~river temperature by more than two degrees per hour~~Act. A ~~PPL~~bill is(S-2444) ~~discussing~~was ~~these~~subsequently ~~matters~~introduced ~~with~~to ~~the~~mandate ~~agency.~~that ~~Depending~~80% ~~on the outcome~~ of ~~these~~New ~~discussions,~~Jersey's ~~the~~electricity ~~plant could~~ be ~~subject~~generated tofrom ~~additional capital~~renewable ~~and~~resources ~~operating~~by ~~costs~~2050. PPL ~~that~~Energy ~~are~~Supply ~~not~~cannot ~~now~~predict ~~determinable,~~the ~~but~~outcome ~~which~~of ~~could be~~this ~~significant~~legislation.

~~The~~PPL ~~Pennsylvania~~Energy ~~DEP~~Supply ~~has~~believes ~~issued~~there aare ~~water~~financial, ~~quality~~regulatory ~~certification~~ and ~~NPDES permit~~operational uncertainties related to ~~PPL~~the ~~Holtwood,~~implementation ~~LLC~~of inrenewable energy mandates that will need to be resolved before the ~~FERC~~impact ~~license~~of ~~renewal~~such ~~proceeding~~requirements ~~for~~on ~~its Lake~~them ~~Wallenpaupack~~can ~~hydroelectric~~be ~~facility~~estimated. Such ~~PPL~~uncertainties, ~~has~~among ~~appealed~~others, ~~both~~include the ~~certification~~ need to provide back-up supply to augment intermittent renewable generation, potential generation over-supply and downward pressure on energy prices that could result from such renewable generation and back-up, impacts to PJM's capacity market and the ~~NPDES~~need ~~permit.~~for ~~The~~substantial ~~parties~~changes ~~are~~to ~~close~~transmission and distribution systems to aaccommodate ~~settlement~~renewable ofenergy ~~this~~sources. These ~~appeal that~~uncertainties are not directly addressed by proposed legislation. PPL Energy Supply cannot predict the effect on their competitive plants' future competitive position, ifresults ~~finalized~~of operation, ~~would~~cash ~~not~~flows ~~impose~~and ~~significant~~financial ~~additional~~position of renewable energy mandates that may be adopted, although the costs onto ~~PPL~~implement and comply with any such requirements could be significant.

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

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

On April 17, 2015, the EPA published its final rule regulating CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. The rule will become effective on October 14, 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs, with some restrictions. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and is enforceable through citizen suits. PPL Energy Supply expects that its plants using surface impoundments for management and disposal of CCRs or the past management of CCRs and continued use to manage waste waters will be most impacted by this rule. The rule's requirements for covered CCR impoundments and landfills include commencement or completion of closure activities generally between three and ten years from certain triggering events. PPL Energy Supply also anticipates incurring capital or operation and maintenance costs prior to that time to address other provisions of the rule, such as groundwater monitoring and disposal facility modifications, or to implement various compliance strategies.

PPL Energy Supply is reviewing the rule and is still evaluating its financial and operational impact. It is expected that these requirements will result in increases to existing AROs which will be recorded in the second quarter of 2015. PPL Energy Supply is not yet able to determine an estimate of the expected increases to the existing AROs.

Effluent Limitations Guidelines (ELGs) and Standards

In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations contain requirements that would affect the inspection and operation of CCR facilities, if finalized as proposed. The proposal contains alternative approaches, some of which could significantly impact PPL Energy Supply's coal-fired plants. The final regulation is expected to be issued by the third or fourth quarter of 2015. At the present time, PPL Energy Supply is unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the

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ELGs, certain states (including Pennsylvania) and environmental groups are proposing more stringent technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could be significant and costs could be imposed ahead of federal timelines.

Seepages and Groundwater Infiltration - Pennsylvania and Montana

Seepages or groundwater infiltration have been detected at active and retired wastewater basins and landfills at various PPL Energy Supply plants. PPL Energy Supply has completed or is completing assessments of seepages or groundwater infiltration at various facilities and has completed or is working with agencies to respond to notices of violations and implement assessment or abatement measures, where required or applicable. A range of reasonably possible losses cannot currently be estimated.

In August 2012, PPL Montana entered into an Administrative Order on Consent (AOC) with the MDEQ which establishes a comprehensive process to investigate and remediate groundwater seepage impacts related to the wastewater facilities at the Colstrip power plant. The AOC requires that within five years, PPL Montana provide financial assurance to the MDEQ for the costs associated with closure and future monitoring of the waste-water treatment facilities. PPL Montana cannot predict at this time if the actions required under the AOC will create the need to adjust the existing ARO related to this facility.

In September 2012, Earthjustice filed an affidavit pursuant to Montana's Major Facility Siting Act (MFSA) that sought review of the AOC by Montana's Board of Environmental Review (BER) on behalf of the Sierra Club, the MEIC, and the National Wildlife Federation. In September 2012, PPL Montana filed an election with the BER to have this proceeding conducted in Montana state district court as contemplated by the MFSA. In October 2012, Earthjustice filed a petition for review of the AOC in the Montana state district court in Rosebud County. This matter was stayed in December 2012. In April 2014, Earthjustice filed a motion for leave to amend the petition for review and to lift the stay which was granted by the court in May 2014. PPL Montana and the MDEQ responded to the amended petition and filed partial motions to dismiss in July 2014, which were both denied in October 2014. Discovery is ongoing, and a bench trial is set for April 2016.

Clean Water Act/316(b)

The EPA's final 316(b) rule for existing facilities, became effective in October 2014, and regulates cooling water intake structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the rule. The rule requires existing facilities to choose between several options to reduce the impact to aquatic organisms that become trapped against water intake screens (impingement) and to determine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants already equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to comply with the rule. Brunner Island (all units) are the only units expected to be impacted.

PPL Energy Supply is evaluating compliance strategies but does not presently expect the compliance costs to be material.

Waters of the United States (WOTUS)

In April 2014, the EPA and the U.S. Army Corps of Engineers (Army Corps) published a proposed rule defining WOTUS that could greatly expand the federal government's interpretation of what constitutes WOTUS subject to regulation under the Clean Water Act. If the definition is expanded as proposed by the EPA and the Army Corps, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The EPA plans to make certain changes to the proposed regulation based on comments received. The U.S. House and Senate are considering legislation to block this regulation. Until a final rule is issued, PPL Energy Supply cannot predict the outcome of the pending rulemaking. A final rule is expected by summer 2015.

Other Issues

The EPA is reassessing its polychlorinated biphenyls (PCB) regulations under the Toxic Substance Control Act, which currently allow certain PCB articles to remain in use. In April 2010, the EPA issued an Advanced Notice of Proposed Rulemaking for changes to these regulations. This rulemaking could lead to a phase-out of all or some PCB-containing equipment. The EPA is planning to propose the revised regulations in 2015. PCBs are found, in varying degrees, in all of PPL Energy Supply's operations. PPL Energy Supply cannot predict at this time the outcome of these proposed EPA regulations and what impact, if any, they would have on its facilities, but the costs could be significant.

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A subsidiary of PPL Energy Supply has investigated alternatives to exclude fish from the discharge channel at its Brunner Island plant. In June 2012, a Consent Order and Agreement (COA) with the PADEP was signed, allowing the subsidiary to study a change in a cooling tower operational method that may keep fish from entering the channel. The COA required a retrofit of impingement control technology at the intakes to the cooling towers, at a cost that would have been significant. Based on the results of the first year of study, the PADEP has suggested closing the COA and writing a new COA to resolve the issue. PPL Energy Supply is in negotiations with the agency at this time. PPL Energy Supply cannot predict at this time the outcome of the proposed new COA and what impact, if any, it would have on their facilities, but the costs could be significant.

Superfund and Other Remediation

(From time to time, PPL Energy Supply undertakes remedial action in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary for compliance with applicable requirements, negotiate with property owners and other third parties alleging impacts from PPL Energy Supply)'s operations and undertake similar actions necessary to resolve environmental matters that arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on PPL Energy Supply's operations.

~~Under~~Future ~~the~~cleanup ~~Pennsylvania~~or ~~Clean~~remediation ~~Streams~~work ~~Law, subsidiaries of PPL Generation are obligated to remediate acid mine drainage~~ at ~~former mine~~ sites ~~and~~currently ~~may be~~under ~~required~~review, toor ~~take additional measures to prevent potential acid mine drainage~~ at ~~previously capped refuse piles. One PPL Generation subsidiary is pumping and treating mine water at two mine~~ sites. ~~Another~~not ~~PPL~~currently ~~Generation subsidiary is installing passive wetlands treatment at a third site~~identified, ~~and the Pennsylvania DEP has suggested that it~~ may ~~require~~result ~~that~~in ~~PPL~~significant ~~Generation~~additional ~~subsidiary to pump and treat the mine water at that third site. At June 30, 2004, a PPL Energy Supply subsidiary had accrued $29 million to cover the~~ costs ~~of pumping and treating groundwater at the two mine sites~~ for 50PPL ~~years~~Energy ~~and for installing passive wetlands treatment at the third site~~Supply.

(PPL, PPL Energy Supply and PPL Electric)

In 1995, PPL Electric and PPL Generation entered into a consent order with the Pennsylvania DEP to address a number of sites that were not being addressed under another regulatory program such as Superfund, but for which PPL Electric or PPL Generation may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; oil or other contamination which may exist at some of PPL Electric's former generating facilities; and potential contamination at abandoned power plant sites owned by PPL Generation. As of June 30, 2004, work has been completed for 97% of the sites included in the consent order. Additional sites formerly owned or operated by PPL Electric are added to the consent order on a case-by-case basis.

In 1996, PPL Gas Utilities entered into a similar consent order with the Pennsylvania DEP to address a number of sites where subsidiaries of PPL Gas Utilities may be liable for remediation. The sites primarily include former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities are also investigating the potential for any mercury contamination from gas meters and regulators. Accordingly, PPL Gas Utilities and the Pennsylvania DEP have agreed to add 72 meter/regulation sites to the consent order. As of June 30, 2004, PPL Gas Utilities had addressed 34% of the sites under its consent order.

At June 30, 2004, PPL Electric and PPL Gas Utilities had accrued approximately $3 million and $8 million, representing the estimated amounts each will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above. Depending on the outcome of investigations at sites where investigations have not begun or have not been completed, the costs of remediation and other liabilities could be substantial. PPL also could face other non-remediation liabilities at sites included in the consent order or other contaminated sites, the costs of which are not now determinable, but which could be significant.

(PPL and PPL Energy Supply)

In conjunction with its 1999 acquisition of generating assets from Montana Power, PPL Montana required Montana Power to prepare a Phase I and Phase II Environmental Site Assessment. The assessment identified various seepages from the freshwater pond and wastewater ponds at the Colstrip plant. Based upon that assessment and subsequent assessments by PPL Montana, certain groundwater remediation measures have been implemented. However, additional investigations are ongoing and additional remediation measures could be required at costs which are not now determinable, but which could be significant.

In May 2003, approximately 50 plaintiffs brought an action in the Montana Second Judicial District Court, Butte-Silver Bow County, against PPL Montana and the other owners of the Colstrip plant alleging property damage from the seepage noted above. This action has been moved to the Montana Sixteenth Judicial District Court, Rosebud County. This action could result in PPL Montana and the other Colstrip owners being liable for damages and being required to take additional remedial measures beyond those noted above. The cost to PPL Montana of any such damages and remedial measures is not now determinable, but could be significant.

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

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

Asbestos (PPL and PPL Energy Supply)

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

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

Concerns have been expressed by some members of the public regarding the potential health effects of EMFs. These fields 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 focused attention on this issue. PPL and its subsidiaries support the current efforts to determine whether EMFs cause any human health problems and are taking steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PPL is unable to predict what effect, if any, the EMF issue might have on its operations and facilities either in the U.S. or abroad, and the associated cost, or what, if any, liabilities it might incur related to the EMF issue.

Lower Mt. Bethel (PPL and PPL Energy Supply)

In August 2002, the Northampton County Court of Common Pleas issued a decision concerning the permissible noise levels from the Lower Mt. Bethel facility when it becomes operational. Specifically, the court's decision sets certain permissible noise levels required for plant operation. PPL appealed the court's decision to the Commonwealth Court, and an intervener in the lawsuit cross-appealed the court's decision. In May 2003, the Commonwealth Court remanded the case to the Court of Common Pleas for further findings of fact concerning the zoning application relating to the construction of the facility. In September 2003, the Court of Common Pleas ruled in PPL's favor while also reaffirming its decision on the noise levels, and the intervener appealed this ruling to the Commonwealth Court. In April 2004, the Commonwealth Court affirmed the decision of the Court of Common Pleas. The intervener has pending before the Supreme Court of Pennsylvania a Petition for Allowance of Appeal. The Lower Mt. Bethel facility was placed in service in May 2004.

Environmental Matters - International (PPL and PPL Energy Supply)

U.K.

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

Latin America

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

Other

Nuclear Insurance ~~(PPL and PPL Energy Supply)~~

~~PPL~~The ~~Susquehanna~~Price-Anderson Act is a ~~member~~United ofStates ~~certain~~Federal ~~insurance~~law ~~programs~~governing ~~which~~liability-related ~~provide coverage~~issues ~~for~~and ~~property~~ensures ~~damage~~the toavailability ~~members'~~of ~~nuclear~~funds ~~generating~~for ~~stations.~~public ~~Facilities at~~liability ~~the~~claims ~~Susquehanna~~arising ~~station~~from ~~are~~an ~~insured~~incident ~~against~~at ~~property~~any ~~damage losses up to $2~~U.75S. ~~billion~~licensed ~~under~~nuclear ~~these programs~~facility. It ~~PPL Susquehanna is~~ also aseeks ~~member of~~to anlimit ~~insurance program which provides insurance coverage for~~ the ~~cost~~liability of ~~replacement~~ ~~power~~nuclear ~~during~~reactor ~~prolonged~~owners ~~outages~~for ofsuch ~~nuclear~~claims ~~units~~from ~~caused~~any bysingle ~~certain specified conditions~~incident. At ~~Under~~March 31, 2015, the ~~property~~liability ~~and~~limit ~~replacement~~per ~~power~~incident ~~insurance programs,~~is ~~PPL~~$13.6 ~~Susquehanna~~billion ~~could~~for besuch ~~assessed~~claims ~~retroactive~~which ~~premiums~~is infunded ~~the event~~by ofinsurance ~~the~~coverage ~~insurers'~~from ~~adverse~~American ~~loss~~Nuclear ~~experience.~~Insurers Atand ~~June~~an ~~30,~~industry ~~2004, this maximum~~ assessment ~~was about $40 million~~program.

~~PPL~~Under ~~Susquehanna's public liability for claims resulting from a nuclear incident at~~ the Susquehanna station is limited to about $10.8 billion under provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna is protected against this liability by a combination of commercial insurance and an industry assessment program., Inin the event of a nuclear incident at any of the reactors covered by The Price -Anderson ~~Amendments~~ Act, ofas ~~1988~~amended, PPL Susquehanna could be assessed up to $~~201~~255 million per incident, payable at $2038 million per year.

Additionally, PPL Susquehanna purchases property insurance programs from NEIL, an industry mutual insurance company of which PPL Susquehanna is a member. At March 31, 2015, facilities at the Susquehanna plant are insured against property damage losses up to $2.0 billion. PPL Susquehanna also purchases an insurance program that provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.

Under the NEIL property and replacement power insurance programs, PPL Susquehanna could be assessed retrospective premiums in the event of the insurers' adverse loss experience. This maximum assessment is $46 million at March 31, 2015. Effective April 1, 2015, this maximum assessment increased to $55 million. PPL Energy Supply has additional coverage that, under certain conditions, may reduce this exposure.

Guarantees and Other Assurances

(In the normal course of business, PPL) Energy Supply enters 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 engage.

~~PPL~~The ~~fully~~table ~~and~~below ~~unconditionally~~details guarantees ~~all~~provided as of March 31, 2015. "Exposure" represents the ~~debt~~estimated ~~securities~~maximum potential amount of ~~PPL~~ ~~Capital~~future ~~Funding,~~payments athat ~~wholly-owned~~could ~~financing~~be ~~subsidiary~~required to be made under the guarantee. The probability of ~~PPL~~expected payment/performance for the guarantees described below is remote with the exception of a $12 million recorded liability at March 31, 2015. The recorded liability at December 31, 2014 was $13 million.

~~(PPL, PPL Energy Supply and PPL Electric)~~21

~~The~~Table table below provides an update to those guarantees specifically disclosed in Note 14 to the Financial Statements contained in each Registrant's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003. Not reflected in the table below is the guarantee by PPL of all of the obligations of PPL Capital Funding Trust I under its trust preferred securities that were a component of the PEPS Units. PPL was released from this guarantee upon cancellation of the trust preferred securities as discussed in Note 6.Contents

	Recorded Liability at						Exposure at
	Exposure at March 31, 2015					ExpirationDate
			June 30, 2004		December 31, 2003		June 30, 2004 (a)			Expiration Date
Indemnifications for sales of assets	1,150			(a)		2016 - 2025
PPL
Residual value guarantees of leased equipment							$	3			2005	(b)
PPL Energy Supply (c)
WPD LLP guarantee of obligations under SIUK Capital Trust I preferred securities								82	(d)		2027
Letters of credit issued on behalf of affiliates								8	(e)		2005
Support agreements to guarantee partnerships' obligations for the sale of coal								9			2007
Potential retroactive premiums under nuclear insurance programs								40
	Recorded Liability at						Exposure at
			June 30, 2004		December 31, 2003		June 30, 2004 (a)			Expiration Date
Nuclear claims under The Price Anderson Amendments Act of 1988								201	(f)
Obligation to purchase commodities under option contracts								2			2004
Contingent purchase price payments to former owners of synfuel projects		$ 4				$ 4		59			2007
Residual value guarantees of leased equipment								4			2005	(b)
WPD guarantee related to a contract assigned as part of a sale of one of its businesses								19			2005
Guarantee of an unconsolidated entity's lease obligations (g)								2			2008
PPL Electric (c)
Guarantee of a portion of an unconsolidated entity's debt								7	(d)		2008
Residual value guarantees of leased equipment		11				16		85			2005	(b)

(a) ~~Represents~~Indemnifications ~~the~~are ~~estimated~~governed ~~maximum~~by ~~potential~~the ~~amount~~specific ofsales ~~future~~agreement ~~payments~~and ~~that~~include ~~could~~breach beof ~~required~~the torepresentations, bewarranties ~~made~~and ~~under~~covenants, ~~the~~and ~~guarantee.~~liabilities ~~(b)~~for ~~Although~~certain ~~the~~other ~~expiration~~matters. ~~date~~PPL ~~noted~~Energy isSupply's ~~2005,~~maximum ~~equipment~~exposure ofwith ~~similar~~respect ~~value~~to iscertain ~~generally~~indemnifications ~~leased~~ and ~~guaranteed~~the onexpiration anof ~~on-going~~the ~~basis.~~indemnifications ~~(c)~~cannot ~~Other~~be ~~than~~estimated because the ~~exceptions~~maximum ~~noted~~potential inliability ~~(e)~~is ~~below,~~not ~~all~~capped ~~guarantees~~by ofthe ~~PPL~~transaction ~~Energy~~documents ~~Supply~~ and ~~PPL~~the ~~Electric~~expiration ~~also~~date ~~apply~~is tobased ~~PPL~~ on athe ~~consolidated~~applicable ~~basis.~~statute ~~(d)~~of ~~Reflects principal payments only~~limitations. ~~(e)~~The ~~Represents~~exposure ~~letters~~and ofexpiration ~~credit~~date ~~issued~~noted atis ~~the~~based ~~direction~~on ofthose ~~PPL~~cases ~~Energy~~in ~~Supply~~which ~~for~~ the ~~benefit~~agreements ofprovide ~~third parties~~ for ~~assurance~~specific ~~against nonperformance by PPL and PPL Gas Utilities~~limits. ~~This~~The isexposure ~~not~~at aMarch ~~guarantee~~31, by2015 ~~PPL~~includes onamounts arelated ~~consolidated~~to ~~basis.~~the ~~(f)~~sale ~~Amount~~of isthe ~~per~~Montana ~~incident.~~Hydroelectric ~~(g) This guarantee was entered into in 2004~~facilities. ~~The~~See ~~maximum~~Note ~~amount~~5 offor ~~potential~~additional ~~payments~~information isrelated ~~not~~to ~~explicitly stated in~~ the ~~related agreements~~sale.

~~Affiliate~~PPL ~~Trust~~Energy ~~(PPL)~~Supply provides 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, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.

~~See~~PPL, ~~Note~~on 6behalf ~~for~~of aitself ~~discussion~~and certain of ~~various~~its ~~transactions~~subsidiaries ~~involving~~(including PPL ~~Capital Funding~~Energy ~~subordinated~~Supply), ~~notes~~maintains insurance that ~~were~~covers ~~held~~liability byassumed ~~PPL~~under ~~Capital~~contract ~~Funding~~for ~~Trust~~bodily Iinjury and property damage. The coverage provides maximum aggregate coverage of $225 million. This insurance may be applicable to obligations under certain of these contractual arrangements.

~~PLR~~8. Related ~~Contracts~~Party ~~(PPL Energy Supply and PPL Electric)~~Transactions

~~PPL Electric has power sales agreements with PPL EnergyPlus, effective January 1, 2002, to supply all of PPL Electric's~~ PLR ~~load~~Contracts/Purchase through 2009. Under these contracts, PPL EnergyPlus provides electricity at the pre-determined capped prices that PPL Electric is authorized to charge its PLR customers. For the three months ended June 30, 2004 and 2003, these purchases totaled $346 million and $327 million. For the six months ended June 30, 2004 and 2003, these purchases totaled $756 million and $714 million. These purchases include nuclear decommissioning recovery and amortization of anAccounts up-front contract payment, and are included in the Statement of Income as "Energy purchases from affiliate" by PPL Electric, and as "Wholesale energy marketing to affiliates" revenues by PPL Energy Supply.Receivable

~~Under one of the PLR contracts,~~ PPL Electric isholds ~~required~~competitive tosolicitations ~~make~~for ~~performance assurance~~PLR ~~deposits~~generation ~~with~~ supply. PPL EnergyPlus ~~when~~has ~~the~~been ~~market~~awarded ~~price~~a portion of ~~electricity is less than~~ the ~~contract~~PLR ~~price~~generation bysupply ~~more~~through ~~than~~these ~~its~~competitive ~~contract~~solicitations. The ~~collateral~~sales ~~threshold. Conversely,~~between PPL EnergyPlus isand ~~required to make performance assurance deposits with~~ PPL Electric ~~when~~are ~~the~~included ~~market~~in ~~price of electricity is greater than~~ the ~~contract~~ ~~price~~Statements byof ~~more~~Income ~~than~~as ~~its~~"Unregulated ~~contract~~wholesale ~~collateral~~energy ~~threshold. At June 30, 2004, PPL Energy Supply was required~~ to ~~provide~~affiliate" ~~PPL~~by ~~Electric with performance assurance of $300 million, the maximum amount required under the contract.~~ PPL Energy Supply ~~caused a $300 million letter of credit to be issued under its bank credit facilities to satisfy this collateral requirement~~.

InUnder ~~2001,~~the ~~PPL~~standard ~~Electric~~Default ~~made~~Service aSupply ~~$90~~Master ~~million~~Agreement ~~up-front~~for ~~payment~~the tosolicitation process, PPL ~~EnergyPlus in~~Electric ~~connection~~requires ~~with~~all ~~the~~suppliers ~~PLR~~to ~~contracts.~~post ~~The~~collateral ~~up-front~~once ~~payment~~credit isexposures ~~being~~exceed ~~amortized by~~defined ~~both~~credit ~~parties~~limits. PPL ~~over~~EnergyPlus ~~the~~is ~~term~~required ofto ~~the~~post ~~PLR~~collateral ~~contracts.~~with ~~The~~PPL ~~unamortized~~Electric ~~balance of~~when: (a) ~~this~~the ~~payment~~market ~~and~~price ~~other~~of ~~payments~~electricity ~~under~~to ~~the~~be ~~contract~~delivered ~~was~~by ~~$64~~PPL ~~million~~EnergyPlus ~~at June~~exceeds ~~30,~~the ~~2004,~~contract ~~and~~price ~~$70~~for ~~million~~the atforecasted ~~December~~quantity ~~31,~~of ~~2003.~~electricity ~~This~~to ~~balance~~be isdelivered; ~~reported on~~and ~~the~~(b) ~~Balance~~this ~~Sheet~~market asprice ~~"Prepayment~~exposure onexceeds ~~PLR~~a ~~energy~~contractual ~~supply~~credit ~~from~~limit. At ~~affiliate" by~~March 31, ~~PPL Electric~~2015, ~~and~~PPL asEnergyPlus ~~"Deferred~~was ~~revenue~~not onrequired ~~PLR energy supply~~ to ~~affiliate" by~~post ~~PPL Energy Supply~~collateral.

~~NUG~~PPL ~~Purchases~~Electric's ~~(PPL~~customers ~~Energy~~may ~~Supply~~choose ~~and~~an alternative supplier for their generation supply. See Note 2 for additional information regarding PPL Electric)'s purchases of accounts receivable from PPL EnergyPlus.

~~PPL~~At ~~Electric~~March 31, ~~has~~2015, ~~a reciprocal contract with~~ PPL EnergyPlus tohad ~~sell~~a ~~electricity purchased~~net ~~under~~credit ~~contracts~~exposure ~~with~~of ~~NUGs.~~$31 ~~PPL~~million ~~Electric purchases electricity~~ from ~~the NUGs at contractual rates and then sells the electricity at the same price to~~ PPL ~~EnergyPlus.~~Electric ~~For~~from ~~the~~its ~~three~~commitment ~~months~~as ~~ended~~a ~~June~~PLR ~~30,~~supplier ~~2004~~ and ~~2003,~~ ~~these~~from ~~NUG purchases totaled $39 million and $37 million. For~~ the ~~six months~~sale ~~ended June 30, 2004 and 2003, these NUG purchases totaled $76 million for both periods. These amounts are included in the Statement~~ of ~~Income as~~its ~~"Wholesale~~accounts ~~electric~~receivable to ~~affiliate" revenues by~~ PPL Electric~~, and as "Energy purchases from affiliates" by PPL Energy Supply~~.

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

PPL ~~Services~~Energy ~~provides~~Supply ~~corporate~~is ~~functions~~provided ~~such~~with ~~as financial~~administrative, ~~legal,~~management ~~human resources~~ and ~~information~~support services., primarily from PPL Services. Where ~~bills~~applicable, the ~~respective~~costs ~~PPL subsidiaries~~of ~~for~~these ~~the~~services ~~cost~~are ofcharged ~~such~~to ~~services~~PPL ~~when~~Energy ~~they~~Supply ~~can~~as bedirect ~~specifically identified~~support costs. General ~~The~~costs ~~cost~~that ofcannot ~~these~~be ~~services~~directly ~~that~~attributed isto ~~not~~a ~~directly~~specific affiliate are allocated and charged to the respective affiliates, including PPL ~~subsidiaries~~ isEnergy ~~allocated~~Supply, toas ~~certain~~indirect ofsupport ~~the~~costs. PPL ~~subsidiaries~~Services ~~based~~uses ona anthree-factor ~~average of~~methodology ~~the~~that ~~subsidiaries'~~includes ~~relative~~the affiliates invested capital, operation and maintenance expenses, and number of employees. ~~PPL Services allocated the following charges~~ to ~~PPL~~allocate ~~Energy~~indirect ~~Supply and PPL Electric:~~costs.

		Three Months Ended June 30,				Six Months Ended June 30,
		2004		2003		2004		2003
Direct expenses
	PPL Energy Supply	$	24	$	24	$	48	$	45
	PPL Electric		20		17		40		31
Overhead costs
	PPL Energy Supply		18		14		32		28
	PPL Electric		7		7		13		13

PPL Energy Supply was charged primarily by PPL Services the following amounts for the periods ended March 31, and believes these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense.

Intercompany Borrowings (PPL Energy Supply)



Three Months
2015		2014
$	49	$	58

PPL Energy Supply had no notes receivable at June 30, 2004, and through its financing subsidiary, PPL Investment Corporation, had a $2 million note receivable from PPL Energy Funding at December 31, 2003, with interest equal to the one-month LIBOR plus 3%. Interest earned on loans to affiliates, included in "Other Income - net" on the Statement of Income, was $1 million and $4 million for the three months ended June 30, 2004 and 2003, and was $1 million and $12 million for the six months ended June 30, 2004 and 2003.22

InTable ~~May~~of ~~2004, PPL Energy Supply issued a $495 million note payable to an affiliate. The note matures in May 2006 with interest payable monthly in arrears at LIBOR plus 1%.~~ Contents

~~Trademark Royalties (PPL Energy Supply)~~Other

InSee ~~the~~Note ~~fourth~~6 quarter of 2002, a PPL subsidiary that owns PPL trademarks began billing certain affiliates which use these trademarks. PPL Energy Supply was allocated $8 million and $9 million of this license fee for ~~the three~~discussions ~~months~~regarding ~~ended~~intercompany ~~June 30,~~allocations ~~2004~~associated ~~and~~with ~~2003,~~defined ~~and $16 million and $20 million for the six months ended June 30, 2004 and 2003~~benefits. ~~The allocation of this license fee is primarily included in "Other operation and maintenance" on the Statement of Income.~~

9. Other Income (~~PPL~~Expense) - net

~~The breakdown of PPL's~~ "Other Income (Expense) - net" for the three months ended March 31, 2015 and 2014 was asprimarily ~~follows:~~earnings on securities in NDT funds.

		Three Months Ended June 30,				Six Months Ended June 30,
		2004		2003		2004		2003
Other Income
	Interest income	$	3	$	4	$	6	$	7
	Sale of CEMAR (Note 7)		23				23
	Realized earnings on nuclear decommissioning trust				6		4		8
	Hyder-related activity				3		2		4
	Gain by WPD on the disposition of property				3		1		3
	Rental income				3				3
	Legal claims				1				3
	Gain on hedge activity		1				1
	Equity earnings		1		1		2
	Miscellaneous - Domestic		4		2		8		2
	Miscellaneous - International		1		5		4		11
	Total		33		28		51		41
Other Deductions
	Impairment of investment in technology supplier (Note 7)		10				10
	Domestic project development costs				1				1
	Taxes, other than income		1		1		1		1
	Charitable contributions						2		1
	Miscellaneous - Domestic		1				4		1
	Miscellaneous - International		2		3		3		6
	Total		14		5		20		10
Other Income - net		$	19	$	23	$	31	$	31

10. Fair Value Measurements and Credit Concentration

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). 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) are used to measure the fair value of an asset or liability, as appropriate. 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. The fair value of a group of financial assets and liabilities is measured on a net basis. Transfers between levels are recognized at end-of-reporting-period values. During the three months ended March 31, 2015 and 2014, there were no transfers between Level 1 and Level 2. See Note 1 in PPL Energy Supply)'s 2014 Form 10-K for information on the levels in the fair value hierarchy.

~~The~~Recurring ~~breakdown~~Fair ofValue ~~PPL Energy Supply's "Other Income - net" was as follows:~~Measurements

		Three Months Ended June 30,					Six Months Ended June 30,
		2004		2003			2004		2003
Other Income
	Affiliated interest income	$	1	$	4		$	1	$	12
	Sale of CEMAR (Note 7)		23					23
	Realized earnings on nuclear decommissioning trust				6			4		8
	Hyder-related activity				3			2		4
	Gain by WPD on the disposition of property				3			1		3
	Interest income		2		3			4		4
	Rental income				3					3
	Legal claims				1					3
	Gain on hedge activity		1					1
	Equity earnings		1		1			2		2
	Miscellaneous - Domestic		2		1			3		(1	)
	Miscellaneous - International		1		5			4		11
	Total		31		30			45		49
Other Deductions
	Domestic project development costs				1					1
	Taxes, other than income		1		1			1		1
	Miscellaneous - Domestic				(1	)		2		(1	)
	Miscellaneous - International		2		3			3		6
	Total		3		4			6		7
Other Income - net		$	28	$	26		$	39	$	42

The assets and liabilities measured at fair value were:

Fair Value Hedges (PPL and PPL Energy Supply)



	March 31, 2015								December 31, 2014
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	221	$	221	$	—	$	—	$	352	$	352	$	—	$	—
Restricted cash and cash equivalents (a)	201		201		—		—		193		193		—		—
Price risk management assets:
Energy commodities	1,298		2		1,136		160		1,318		6		1,171		141
Total price risk management assets	1,298		2		1,136		160		1,318		6		1,171		141
NDT funds:
Cash and cash equivalents	20		20		—		—		19		19		—		—
Equity securities
U.S. large-cap	620		461		159		—		611		454		157		—
U.S. mid/small-cap	93		38		55		—		89		37		52		—
Debt securities
U.S. Treasury	97		97		—		—		99		99		—		—
U.S. government sponsored agency	8		—		8		—		9		—		9		—
Municipality	76		—		76		—		76		—		76		—
Investment-grade corporate	45		—		45		—		42		—		42		—
Other	3		—		3		—		3		—		3		—
Receivables (payables), net	3		1		2		—		2		—		2		—
Total NDT funds	965		617		348		—		950		609		341		—
Auction rate securities (b)	8		—		—		8		8		—		—		8
Total assets	$	2,693	$	1,041	$	1,484	$	168	$	2,821	$	1,160	$	1,512	$	149
Liabilities
Price risk management liabilities:
Energy commodities	$	1,163	$	2	$	1,130	$	31	$	1,217	$	5	$	1,182	$	30
Total price risk management liabilities	$	1,163	$	2	$	1,130	$	31	$	1,217	$	5	$	1,182	$	30

~~PPL and PPL Energy Supply enter into financial or physical contracts to hedge~~ (a) Current portion ofis ~~the~~included ~~fair value of firm commitments of forward electricity sales. These contracts range~~ in ~~maturity~~"Restricted ~~through~~cash ~~2006. Additionally, PPL~~ and ~~PPL~~cash ~~Energy~~equivalents" ~~Supply~~and ~~enter~~long-term ~~into~~portion ~~financial~~is ~~contracts~~included ~~to hedge fluctuations~~ in ~~market~~"Other ~~value~~noncurrent ofassets" ~~existing~~on ~~debt~~the ~~issuances.~~Balance ~~These contracts range in maturity through 2029~~Sheets.

~~PPL~~(b) ~~and~~Included ~~PPL~~in ~~Energy~~"Other ~~Supply~~investments" ~~did~~on ~~not recognize any gains or losses resulting from hedges of firm commitments that no longer qualified as fair value hedges for~~ the ~~three~~Balance ~~and six months ended June 30, 2004 or 2003~~Sheets.

~~PPL and PPL Energy Supply did not recognize any gains or losses resulting from the ineffective portion of fair value hedges for the three and six months ended June 30, 2004 or 2003.~~23

~~Cash~~Table ~~Flow~~of ~~Hedges (PPL and PPL Energy Supply)~~Contents

~~PPL~~A ~~and~~reconciliation ~~PPL~~of ~~Energy~~net ~~Supply~~assets ~~enter into financial~~ and ~~physical~~liabilities ~~contracts, including~~classified ~~forwards,~~as ~~futures~~Level ~~and~~3 ~~swaps,~~for ~~to hedge~~ the ~~price~~periods ~~risk~~ended ~~associated with electric~~March 31, ~~gas~~is ~~and~~as oil commodities. These contracts range in maturity through 2010. Additionally, PPL and PPL Energy Supply enter into financial interest rate swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. These swaps range in maturity through 2014 for PPL and 2010 for PPL Energy Supply. PPL and PPL Energy Supply also enter into foreign currency forward contracts to hedge exchange rates associated with firm commitments denominated in foreign currencies and to hedge the net investment of foreign operations. These forward contracts range in maturity through 2028. follows:

Cash flow hedges may be discontinued if it is probable that the original forecasted transaction will not occur by the end of the originally specified time period. Due to the extinguishment of a consolidated trust's debt related to the Sundance and University Park generating facilities in June 2004, interest rate swaps that hedged the interest payments on the debt were terminated. Therefore, PPL and PPL Energy Supply reclassified a $3 million pre-tax loss from other comprehensive income to "Interest Expense" on the Statement of Income. PPL and PPL Energy Supply did not discontinue any other cash flow hedges during the three and six months ended June 30, 2004. For the three and six months ended June 30, 2003, PPL and PPL Energy Supply discontinued certain cash flow hedges that resulted in a pre-tax loss of $11 million being reclassified from other comprehensive income into earnings (reported in "Interest Expense" on the Statement of Income).



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months 2015
	Energy Commodities, net			Auction Rate Securities		Total
Balance at beginning of period	$	111		$	8	$	119
Total realized/unrealized gains (losses) included in earnings	(17		)	—		(17		)
Settlements	30			—		30
Transfers into Level 3	4			—		4
Transfers out of Level 3	1			—		1
Balance at end of period	$	129		$	8	$	137

Due to hedge ineffectiveness, PPL and PPL Energy Supply reclassified amounts that were not significant from other comprehensive income (reported in "Wholesale energy marketing" revenues and "Energy purchases" on the Statement of Income) for the three and six months ended June 30, 2004. PPL and PPL Energy Supply recorded a net loss of $1 million in earnings for the three and six months ended June 30, 2003.



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months 2014
	Energy Commodities, net			Auction Rate Securities			Total
Balance at beginning of period	$	24		$	16		$	40
Total realized/unrealized gains (losses) included in earnings	(135		)	—			(135		)
Sales	—			(3		)	(3		)
Settlements	128			—			128
Balance at end of period	$	17		$	13		$	30

AsThe ofsignificant ~~June~~unobservable ~~30,~~inputs ~~2004,~~used ~~the deferred net loss, after tax, on derivative instruments~~ in ~~"Accumulated~~and ~~other~~quantitative ~~comprehensive~~information ~~loss"~~about ~~expected to be reclassified into earnings during~~ the ~~next~~fair ~~twelve~~value ~~months~~measurement ~~was~~of ~~$10~~assets ~~million~~ and $8liabilities ~~million~~classified ~~for PPL~~as ~~and~~Level ~~PPL~~3 ~~Energy~~are ~~Supply.~~as follows:

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



	March 31, 2015
	Fair Value, net Asset (Liability)		Valuation Technique	Significant Unobservable Input(s)	Range (Weighted Average) (a)
Energy commodities
Natural gas contracts (b)	$	49	Discounted cash flow	Proprietary model used to calculate forward prices	11% - 100% (43%)
Power sales contracts (c)	1		Discounted cash flow	Proprietary model used to calculate forward prices	10% - 100% (82%)
Heat rate options (e)	79		Discounted cash flow	Proprietary model used to calculate forward prices	22% - 44% (40%)
Auction rate securities (f)	8		Discounted cash flow	Modeled from SIFMA Index	50% - 69% (56%)

	Three Months Ended June 30,						Six Months Ended June 30,
	December 31, 2014
	2004			2003			2004			2003
	Fair Value, netAsset(Liability)			ValuationTechnique		Significant UnobservableInput(s)	Range(WeightedAverage) (a)
PPL
Energy commodities
Beginning accumulated derivative gain	$	1		$	34		$	36		$	7
Natural gas contracts (b)	$	59		Discounted cash flow		Proprietary model used to calculate forward prices	11% - 100% (52%)
Net change associated with current period hedging activities and other		5			22			48			71
Power sales contracts (c)	(1		)	Discounted cash flow		Proprietary model used to calculate forward prices	10% - 100% (59%)
Net change associated with hedges of net investments					(3	)		1			(3	)
FTR purchase contracts (d)	3			Discounted cash flow		Historical settled prices used to model forward prices	100% (100%)
Net change from reclassification into earnings		1			(32	)		(78	)		(54	)
Heat rate options (e)	50			Discounted cash flow		Proprietary model used to calculate forward prices	23% - 51% (45%)
Ending accumulated derivative gain	$	7		$	21		$	7		$	21
Auction rate securities (f)	8			Discounted cash flow		Modeled from SIFMA Index	51% - 69% (63%)
PPL Energy Supply
Beginning accumulated derivative gain	$	23		$	52		$	55		$	23
Net change associated with current period hedging activities and other		(3	)		31			44			74
Net change associated with hedges of net investments					(3	)		1			(3	)
Net change from reclassification into earnings		(2	)		(33	)		(82	)		(47	)
Ending accumulated derivative gain	$	18		$	47		$	18		$	47

~~Related Implementation Issues (PPL and PPL Energy Supply)~~24

InTable June 2001, the FASB issued definitive guidance on DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity." DIG Issue C15 provides additional guidance on the classification and application of derivative accounting rules relating to purchases and sales of electricity utilizing forward and option contracts. This guidance became effective as of July 1, 2001. In December 2001, the FASB revised the guidance in DIG Issue C15, principally related to the eligibility of options for the normal purchases and normal sales exception. The revised guidance was effective April 1, 2002. In November 2003, the FASB again revised the guidance in DIG Issue C15 to clarify the application of derivative accounting rules for contracts that may involve capacity. The guidance was effective January 1, 2004 for PPL. PPL had no financial statement impact from this revised guidance.Contents

~~PPL~~(a) ~~Energy~~For ~~Supply~~energy ~~adopted~~commodities ~~the final provisions of EITF Issue 03-11, "Reporting Realized Gains~~ and ~~Losses~~auction onrate ~~Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3~~securities," ~~prospectively as of October 1, 2003. As a result of~~ the ~~adoption,~~ ~~non-trading~~range bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. The impact on PPL and ~~PPL~~weighted ~~Energy~~average ~~Supply~~represent ~~of applying EITF Issue 03-11 was a reduction of $61 million in "Wholesale energy marketing" revenues and "Energy purchases" for~~ the ~~three~~percentage ~~months ended June 30, 2004, and a reduction~~ of ~~$142~~fair ~~million~~value inderived ~~"Wholesale~~from ~~energy marketing" revenues and "Energy purchases" for~~ the ~~six~~unobservable ~~months ended June 30, 2004~~inputs.

~~Credit~~(b) ~~Concentration~~As the forward price of natural gas increases/(decreases), the fair value of purchase contracts increases/(decreases). As the forward price of natural gas increases/(decreases), the fair value of sales contracts (decreases)/increases.

(~~PPL~~c) ~~and~~As ~~PPL~~forward ~~Energy~~market ~~Supply~~prices increase/(decrease), the fair value of contracts (decreases)/increases. As volumetric assumptions for contracts in a gain position increase/(decrease), the fair value of contracts increases/(decreases). As volumetric assumptions for contracts in a loss position increase/(decrease), the fair value of the contracts (decreases)/increases.

~~PPL~~(d) ~~and~~As ~~PPL Energy Supply enter into contracts with many entities for~~ the ~~purchase~~ ~~and~~forward ~~sale~~implied ofspread ~~energy. Most of these contracts are considered a normal part of doing business and~~increases/(decreases), ~~as such,~~ the ~~mark-to-market~~fair value of ~~these contracts is not reflected in~~ the ~~financial statements. However, the mark-to-market value of these~~ contracts ~~is considered when committing to new business from a credit perspective~~increases/(decreases).

~~PPL~~(e) ~~and~~The ~~PPL~~proprietary ~~Energy~~model ~~Supply~~used ~~have credit exposures~~ to ~~energy~~calculate ~~trading~~fair ~~partners. The~~value ~~majority~~incorporates ~~of these exposures were the mark-to-~~market ~~value~~heat ofrates, ~~multi-year contracts~~correlations ~~for energy sales~~ and ~~purchases~~volatilities. ~~Therefore,~~As ifthe ~~these~~market ~~counterparties fail~~implied toheat ~~perform~~rate ~~their obligations under such contracts~~increases/(decreases), ~~PPL and PPL Energy Supply would not experience an immediate financial loss, but would experience lower revenues or higher costs in future years to~~ the ~~extent~~fair ~~that~~value ~~replacement sales~~of ~~or purchases could not be made at~~ the ~~same prices as those under the defaulted~~ contracts increases/(decreases).

At(f) ~~June~~The ~~30,~~model ~~2004,~~used ~~PPL~~to ~~had~~calculate afair ~~credit~~value ~~exposure~~incorporates ofan ~~$274~~assumption ~~million~~that tothe ~~energy~~auctions ~~trading partners.~~will ~~Eleven~~continue ~~counterparties~~to ~~accounted for 66% of this exposure~~fail. NoAs ~~other individual~~the ~~counterparty~~modeled ~~accounted~~forward ~~for~~rates ~~more than 3%~~ of the ~~exposure.~~SIFMA ~~Eight of~~Index ~~the eleven counterparties had an investment grade credit rating from Standard & Poor's Ratings Services~~ increase/(~~S&P~~decrease)~~. One counterparty was not rated by S&P. One non-investment grade counterparty of PPL Montana~~, ~~NorthWestern,~~ ~~has filed for Chapter 11 bankruptcy protection. This contract has been affirmed by~~ the ~~bankruptcy~~fair ~~court,~~value ~~and~~of ~~PPL Montana has been granted critical vendor status. NorthWestern has assumed~~ the ~~power~~securities ~~supply agreements in its bankruptcy proceeding, and NorthWestern has remained current on all post-bankruptcy obligations with PPL Montana~~increases/(decreases). See Note 8 under "Wholesale Energy Commitments" for additional information regarding the NorthWestern bankruptcy proceeding. The other non-investment grade counterparty is also current on its obligations under the existing contract.

AtNet ~~June~~gains ~~30,~~and ~~2004,~~losses ~~PPL~~on ~~Energy~~assets ~~Supply~~and ~~had~~liabilities aclassified ~~credit~~as ~~exposure~~Level of3 ~~$268~~and ~~million to~~included ~~energy~~in ~~trading~~earnings ~~partners. Eleven counterparties accounted~~ for ~~67%~~the ofperiods ~~this exposure.~~ended NoMarch ~~other~~31 ~~individual~~are ~~counterparty~~reported ~~accounted~~in ~~for more than 3% of~~ the ~~exposure.~~Statements ~~Eight~~ of ~~the~~Income eleven counterparties had an investment grade credit rating from S&P. One counterparty was not rated by S&P. One non-investment grade counterparty, NorthWestern, has filed for Chapter 11 bankruptcy protection, as ~~discussed~~follows: ~~above. The other non-investment grade counterparty is also current on its obligations under the existing contract.~~

PPL and PPL Energy Supply have the right to request collateral from each of these counterparties, except for one government agency, in the event their credit ratings fall below investment grade. PPL Montana and NorthWestern have mutually agreed not to request collateral from each other while NorthWestern's Chapter 11 bankruptcy proceeding is pending. It is also the policy of PPL and PPL Energy Supply to enter into netting agreements with all of their counterparties to minimize credit exposure.



	Three Months
	Energy Commodities, net
	Unregulated Wholesale Energy					Unregulated Retail Energy						Energy Purchases
	2015		2014			2015			2014			2015		2014
Total gains (losses) included in earnings	$	21	$	(89	)	$	(40	)	$	(63	)	$	2	$	17
Change in unrealized gains (losses) relating to positions still held at the reporting date	25		(13		)	(9		)	(33		)	1		1

~~(PPL~~Price ~~Energy~~Risk ~~Supply~~Management ~~and~~Assets/Liabilities ~~PPL~~- ~~Electric)~~Energy Commodities

InEnergy ~~past~~commodity ~~years,~~contracts ~~PPL~~are ~~Energy~~generally ~~Supply~~valued ~~has~~using ~~had~~the anincome ~~exposure~~approach, toexcept ~~PPL~~for ~~Electric~~exchange-traded ~~under~~ derivative contracts, which are valued using the ~~long-term~~market ~~contract~~approach toand ~~provide~~are ~~PPL~~classified ~~Electric's~~as ~~PLR~~Level ~~load~~1. Level ~~However,~~2 ~~increases in~~contracts ~~electricity~~are ~~prices~~valued ~~during~~using ~~2004~~inputs ~~have~~which ~~reversed~~may ~~this~~include ~~position.~~quotes Atobtained ~~June~~from ~~30, 2004,~~an ~~PPL~~exchange ~~Electric~~(where ~~had~~there ais ~~mark-to-~~insufficient market ~~exposure~~liquidity to ~~PPL~~warrant ~~Energy~~inclusion ~~Supply~~in ~~of $~~Level 1.3), ~~billion~~binding and non-binding broker quotes, prices posted by ISOs or published tariff rates. Furthermore, Inindependent ~~accordance~~quotes ~~with~~are ~~the~~obtained ~~terms~~from ofthe ~~one~~market ofto validate the ~~PLR~~forward price curves. Energy commodity contracts include forwards, ~~PPL~~ ~~Energy~~futures, ~~Supply~~swaps, ~~provided~~options ~~PPL~~and ~~Electric~~structured ~~with~~transactions ~~performance~~and ~~assurance~~may ~~through a~~be ~~letter~~offset ofwith ~~credit~~similar positions in ~~the~~exchange-traded ~~amount~~markets. To ofthe ~~$300~~extent ~~million~~possible, ~~the~~fair ~~maximum~~value ~~amount~~measurements ~~required under~~utilize ~~the~~various ~~contract~~inputs that include quoted prices for similar contracts or market-corroborated inputs. In ~~This~~certain isinstances, ~~the~~these ~~only~~contracts ~~credit~~may ~~exposure~~be ~~for~~valued ~~PPL~~using ~~Electric~~models, ~~that has~~including astandard ~~mark-to-market~~option ~~element.~~valuation Nomodels and other ~~counterparty~~standard ~~accounts~~industry ~~for~~models. When ~~more~~the ~~than 1%~~lowest level inputs that are significant to the fair value measurement of ~~PPL~~a ~~Electric's~~contract ~~total~~are ~~exposure~~observable, the contract is classified as Level 2.

(When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3. Level 3 contracts are valued using PPL Energy Supply's proprietary models which may include significant unobservable inputs such as delivery at a location where pricing is unobservable, delivery dates that are beyond the dates for which independent quotes are available, volumetric assumptions, implied volatilities, implied correlations, and market implied heat rates. Forward transactions, including forward transactions classified as Level 3, are analyzed by PPL Energy Supply's Risk Management department. Accounting personnel interpret the analysis quarterly to appropriately classify the forward transactions in the fair value hierarchy. Valuation techniques are evaluated periodically. Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on PPL Energy Supply's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets). PPL Energy Supply's credit department assesses all reasonably available market information which is used by accounting personnel to calculate the credit valuation adjustment.

In certain instances, energy commodity contracts are transferred between Level 2 and Level 3. The ~~components~~primary reasons for the transfers during 2015 were changes in the availability of ~~net~~market ~~pension~~information and ~~other~~changes ~~postretirement~~in ~~benefit~~the ~~costs~~significance ~~(credits) were~~of asthe ~~follows:~~unobservable inputs utilized in the valuation of the contracts.

	Pension Benefits
	Three Months Ended June 30,												Six Months Ended June 30,
	2004						2003						2004						2003
	Domestic			Intl.			Domestic			Intl.			Domestic			Intl.			Domestic			Intl.
PPL
Service cost	$	12		$	4		$	11		$	4		$	24		$	7		$	21		$	7
Interest cost		28			36			26			31			56			72			52			62
Expected return on plan assets		(38	)		(52	)		(36	)		(47	)		(75	)		(105	)		(72	)		(94	)
Amortization of transition obligation		(1	)					(1	)					(2	)					(2	)
Amortization of prior service cost		4			1			3			1			7			2			7			2
Amortization of (gain)/loss		(2	)		1			(4	)					(3	)		3			(8	)
Net periodic pension cost/(credit)	$	3		$	(10	)	$	(1	)	$	(11	)	$	7		$	(21	)	$	(2	)	$	(23	)
PPL Energy Supply
Service cost	$	1		$	4		$	1		$	4		$	2		$	7		$	1		$	7
Interest cost		1			36			1			31			2			72			2			62
Expected return on plan assets		(1	)		(52	)		(1	)		(47	)		(2	)		(105	)		(2)			(94	)
Amortization of prior service cost					1						1						2						2
Amortization of loss					1												3			1
Net periodic pension cost/(credit)	$	1		$	(10	)	$	1		$	(11	)	$	2		$	(21	)	$	2		$	(23	)

NDT Funds

	Other Postretirement Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
PPL
Service cost	$	2		$	2		$	3		$	3
Interest cost		7			7			14			14
Expected return on plan assets		(4	)		(3	)		(9	)		(6)
Amortization of transition obligation		2			2			4			4
Amortization of prior service cost		1			2			2			4
Amortization of loss		2			1			4			3
Net other postretirement benefit cost	$	10		$	11		$	18		$	22

The market approach is used to measure the fair value of equity securities held in the NDT funds.

~~Medicare~~• ~~Prescription~~The ~~Drug,~~fair ~~Improvement~~value ~~and~~measurements ~~Modernization~~of ~~Act~~equity ofsecurities ~~2003 (PPL,~~classified ~~PPL~~as ~~Energy~~Level ~~Supply~~1 ~~and~~are ~~PPL~~based ~~Electric)~~on quoted prices in active markets.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D and also provides for a federal subsidy to sponsors of retiree health care benefit plans that provide an actuarially equivalent level of prescription drug benefits. The subsidy would be 28% of eligible drug costs for retirees that are over age 65 and covered under PPL's other postretirement benefit plans.25

InTable ~~January 2004, the FASB issued FSP FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act~~ of 2003." FSP FAS 106-1 permitted companies to defer accounting for the effects of the Act, as the impact of the Act on the provisions of SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," had not been determined as of such time. PPL elected to defer recognizing the effects of the Act in accounting for its other postretirement benefit plans until authoritative guidance on the accounting for the federal subsidy was issued.Contents

In• ~~May~~The ~~2004,~~fair ~~the~~value ~~FASB~~measurements ~~issued FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act~~ of ~~2003,"~~investments ~~which~~in ~~supersedes~~commingled ~~FSP~~equity ~~FAS~~funds ~~106-1,~~are ~~details~~classified ~~the accounting~~as ~~for~~Level ~~the effects of the Act under SFAS 106 and requires certain disclosures~~2. ~~FSP~~These ~~FAS~~fair ~~106-2~~value ismeasurements ~~effective~~are ~~for~~based ~~the~~on ~~first~~firm ~~interim~~quotes orof ~~annual period~~net ~~beginning~~asset ~~after~~values ~~June~~per 15share, ~~2004.~~which ~~Thus,~~are ~~the~~not ~~measures~~obtained offrom ~~PPL's~~a ~~accumulated postretirement~~quoted ~~benefit~~price ~~obligations and net postretirement benefit costs~~ in ~~the~~an ~~financial~~active ~~statements and accompanying notes do not reflect the effects of the Act~~market.

~~PPL~~The ~~has~~fair ~~consulted~~value ~~with its independent actuary and determined that portions~~ of ~~certain~~debt ofsecurities ~~its~~is ~~other~~generally ~~postretirement~~measured ~~benefit~~using ~~plans~~a ~~provide~~market ~~benefits that may be actuarially equivalent to Medicare Part D benefits~~approach, ~~pending~~including ~~final detailed guidance from~~ the ~~U.S.~~use ~~Department~~ of ~~Health~~pricing ~~and~~models ~~Human~~which ~~Services. For~~incorporate ~~those~~observable ~~plans~~inputs. Common ~~that~~inputs ~~provide~~include ~~benefits~~benchmark ~~that~~yields, ~~are~~relevant attrade ~~least~~data, ~~actuarially~~broker/dealer ~~equivalent to~~bid/ask ~~Medicare Part D~~prices, ~~PPL~~benchmark ~~will~~securities ~~perform a remeasurement of its plan assets~~ and ~~accumulated~~credit ~~benefit~~valuation ~~obligation~~adjustments. When ~~as of July 1~~necessary, ~~2004, resulting in an updated net periodic postretirement benefit cost for 2004, in accordance with~~ the ~~prospective~~ ~~adoption~~fair ~~provisions~~value ~~allowed~~of ~~under~~debt ~~FSP~~securities ~~FAS~~is ~~106-2.~~measured ~~The~~using ~~impact of~~ the ~~Act~~income onapproach, ~~the~~which ~~postretirement~~incorporates ~~benefit~~similar ~~obligations~~observable ~~and~~inputs ~~net~~as ~~postretirement benefit~~well ~~costs~~as ~~for~~payment ~~PPL's~~data, ~~other~~future ~~postretirement~~predicted ~~benefit~~cash ~~plans~~flows, iscollateral ~~not~~performance ~~expected to~~and benew ~~material~~issue data.

~~(PPL~~Auction ~~and~~Rate ~~PPL Energy Supply)~~Securities

~~The~~Auction ~~changes~~rate insecurities ~~the~~include ~~carrying~~Federal ~~amounts~~Family ofEducation ~~goodwill~~Loan byProgram ~~segment~~guaranteed ~~were~~student loan revenue bonds, as ~~follows:~~well as various municipal bond issues. The probability of realizing losses on these securities is not significant.

	PPL Energy Supply											PPL
	Supply		International				Total			Delivery(a)		Total
Balance at December 31, 2003	$	93	$	920			$	1,013		$	55	$	1,068
Effect of foreign currency exchange rates				47				47					47
Purchase accounting adjustments		1		(37	)	(b)		(36	)				(36	)
Balance at June 30, 2004	$	94	$	930			$	1,024		$	55	$	1,079

The fair value of auction rate securities is estimated using an income approach that includes readily observable inputs, such as principal payments and discount curves for bonds with credit ratings and maturities similar to the securities, and unobservable inputs, such as future interest rates that are estimated based on the SIFMA Index, creditworthiness, and liquidity assumptions driven by the impact of auction failures. When the present value of future interest payments is significant to the overall valuation, the auction rate securities are classified as Level 3.

(a)		The Delivery segment is not part of PPL Energy Supply.
(b)		Tax adjustments pursuant to EITF Issue 97-3, "Uncertainties Related to Income Taxes in a Purchase Business Combination."

Auction rate securities are valued by PPL Energy Supply's Treasury department. Accounting personnel interpret the analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.

~~(PPL~~Nonrecurring ~~and~~Fair ~~PPL~~Value ~~Energy Supply)~~Measurements

~~PPL~~The ~~and~~following ~~PPL~~nonrecurring ~~Energy~~fair ~~Supply~~value ~~adopted~~measurement ~~SFAS~~occurred ~~143,~~during ~~"Accounting~~the ~~for~~three ~~Asset~~months ~~Retirement Obligations,"~~ended ~~effective January 1~~March 31, ~~2003. SFAS 143 addresses the accounting for obligations associated with the retirement of tangible long-lived assets. In connection with the adoption of SFAS 143~~2014, ~~PPL~~resulting ~~and~~in ~~PPL~~an ~~Energy~~asset ~~Supply recorded a cumulative effect of adoption that increased net income by $63 million.~~impairment:

PPL and PPL Energy Supply's AROs are included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. The changes in the carrying amounts of the AROs were as follows:

ARO at December 31, 2003	$	242
Accretion expense		9
Settlement		(4	)
ARO at June 30, 2004	$	247


(a)	Represents carrying value before fair value measurement.

Carrying
Amount (a)

Fair Value Measurements Using
Level 3

Kerr Dam Project:

March 31, 2014