- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2010
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

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

1-11459	PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-2758192

1-32944	PPL Energy Supply, LLC (Exact name of Registrant as specified in its charter) (Delaware) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-3074920

1-905	PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-0959590

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

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

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

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

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

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

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

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

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

	PPL Corporation	Common stock, $.01 par value, 483,291,708 shares outstanding at October 22, 2010.

	PPL Energy Supply, LLC	PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.

	PPL Electric Utilities Corporation	Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at October 22, 2010.

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

PPL CORPORATION

PPL ENERGY SUPPLY, LLC

PPL ELECTRIC UTILITIES CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

Table of Contents

				Page
GLOSSARY OF TERMS AND ABBREVIATIONS					i
FORWARD-LOOKING INFORMATION					1
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		PPL Corporation and Subsidiaries
			Condensed Consolidated Statements of Income		2
			Condensed Consolidated Statements of Cash Flows		3
			Condensed Consolidated Balance Sheets		4
			Condensed Consolidated Statements of Equity		6
			Condensed Consolidated Statements of Comprehensive Income		7
		PPL Energy Supply, LLC and Subsidiaries
			Condensed Consolidated Statements of Income		8
			Condensed Consolidated Statements of Cash Flows		9
			Condensed Consolidated Balance Sheets		10
			Condensed Consolidated Statements of Equity		12
			Condensed Consolidated Statements of Comprehensive Income		13
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statements of Income		14
			Condensed Consolidated Statements of Cash Flows		15
			Condensed Consolidated Balance Sheets		16
			Condensed Consolidated Statements of Shareowners' Equity		18
	Combined Notes to Condensed Consolidated Financial Statements (Unaudited)
		1. Interim Financial Statements			19
		2. Summary of Significant Accounting Policies			19
		3. Segment and Related Information			21
		4. Earnings Per Share			22
		5. Income Taxes			23
		6. Variable Interest Entities			25
		7. Financing Activities			26
		8. Acquisitions, Development and Divestitures			30
		9. Defined Benefits			34
		10. Commitments and Contingencies			35
		11. Related Party Transactions			49
		12. Other Income (Expense) - net			50
		13. Fair Value Measurements and Credit Concentration			50
		14. Derivative Instruments and Hedging Activities			56
		15. Goodwill			68
		16. Asset Retirement Obligations			68
		17. Available-for-Sale Securities			68
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
			PPL Corporation and Subsidiaries		70
			PPL Energy Supply, LLC and Subsidiaries		88
			PPL Electric Utilities Corporation and Subsidiaries		102
	Item 3. Quantitative and Qualitative Disclosures About Market Risk				108
	Item 4. Controls and Procedures				108
	Item 4T. Controls and Procedures				108
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings				109
	Item 1A. Risk Factors				109
	Item 6. Exhibits				111
SIGNATURES					112
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
			PPL Corporation and Subsidiaries		113
			PPL Energy Supply, LLC and Subsidiaries		114
			PPL Electric Utilities Corporation and Subsidiaries		115
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation		116
			PPL Energy Supply, LLC		118
			PPL Electric Utilities Corporation		120
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation		122
			PPL Energy Supply, LLC		124
			PPL Electric Utilities Corporation		126

GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and certain of its current and former subsidiaries

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

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

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

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

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

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

PPL Gas Utilities - PPL Gas Utilities Corporation, a regulated utility that provided natural gas distribution, transmission and storage services, and the competitive sale of propane, which was a subsidiary of PPL until its sale in October 2008.

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

PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Supply that primarily owns and operates a business in the U.K., WPD, that is focused on the regulated distribution of electricity.

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

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

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

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

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

WPD - refers collectively to WPDH Limited and its subsidiaries.

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

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

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

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

Other terms and abbreviations

£ - British pound sterling.

2009 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2009.

Acid Rain Program - allowance trading system established by the Clean Air Act to reduce levels of sulfur dioxide. Under this program, affected power plants are allocated allowances based on their fuel consumption during specified baseline years and a specific emissions rate.

Act 129 - became effective in October 2008. The law amends the Pennsylvania Public Utility Code and creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct and makes changes to the existing Alternative Energy Portfolio Standard.

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

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

AOCI - accumulated other comprehensive income or loss.

ARO - asset retirement obligation.

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

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

Bcf - billion cubic feet.

Bridge Facility - an up to $6.5 billion Senior Bridge Term Loan Credit Agreement between PPL Capital Funding, as borrower, and PPL, as guarantor, and a group of banks syndicated in June 2010, to serve as a backstop in the event alternative financing is not available prior to the closing of PPL's pending acquisition of E.ON U.S.

CAIR - t he EPA's Clean Air Interstate Rule.

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

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

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

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

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

Dodd-Frank Act - the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in July 2010.

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

DRIP - Dividend Reinvestment Plan.

E.ON AG - a German corporation and the parent of E.ON US Investments.

E.ON U.S. - E.ON U.S. LLC, a Kentucky limited liability company and the parent of LG&E and KU.

E.ON US Investments - E.ON US Investments Corp., a Delaware corporation and the parent of E.ON U.S.

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

EMF - electric and magnetic fields.

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

EPS - earnings per share.

Equity Unit - consists of a Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.625% Junior Subordinated Notes due 2018.

ESOP - Employee Stock Ownership Plan.

Euro - the basic monetary unit among participating members of the European Union .

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

Fitch - Fitch, Inc., a credit rating agency.

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

Fundamental Change - as it relates to the terms of the Equity Units, will be deemed to have occurred if any of the following occurs with respect to PPL, subject to certain exceptions: (i) a change of control; (ii) a consolidation with or merger into any other entity; (iii) common stock ceases to be listed or quoted; or (iv) a liquidation, dissolution or termination.

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

GBP - British pound sterling.

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

Health Care Reform - The Patient Protection and Affordable Care Act (HR 3590) and the Health Care and Education Reconciliation Act of 2010 (HR 4872), signed into law in March 2010.

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

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

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

ISO - Independent System Operator.

KU - Kentucky Utilities Company, a Kentucky and a Virginia corporation and a public utility subsidiary of E.ON U.S. engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.

LG&E - Louisville Gas and Electric Company, a Kentucky corporation and a public utility subsidiary of E.ON U.S. engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.

LIBOR - London Interbank Offered Rate.

Long Island generation business - includes a 79.9 MW gas-fired plant in the Edgewood section of Brentwood, New York and a 79.9 MW oil-fired plant in Shoreham, New York and related tolling agreements. This business was sold in February 2010.

MACT - maximum achievable control technology.

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

Moody's - Moody's Investors Service, Inc., a credit rating agency.

MW - megawatt, one thousand kilowatts.

NDT - PPL Susquehanna's nuclear plant decommissioning trust.

NERC - North American Electric Reliability Corporation.

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

NPDES - National Pollutant Discharge Elimination System.

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

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

NUGs - non-utility generators, generating plants not owned by public utilities, whose electrical output must be purchased by utilities under the PURPA if the plant meets certain criteria.

OCI - other comprehensive income or loss.

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

PEDFA - Pennsylvania Economic Development Financing Authority.

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

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

PP&E - property, plant and equipment.

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

Purchase Contract - a contract that is a component of the Equity Unit that requires holders to purchase shares of PPL common stock on or prior to July 1, 2013.

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

RECs - renewable energy credits.

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

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

RMC - Risk Management Committee.

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

SCR - selective catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases.

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

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

SIFMA Index - the Securities Industry and Financial Markets Association Municipal Swap Index.

SNCR - selective non-catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases.

S&P - Standard & Poor's Ratings Services, a credit rating agency.

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

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

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

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

VaR - value-at-risk, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level.

VIE - variable interest entity.

Volumetric risk - the risk that the actual load provided under full-requirement contracts, which do not provide for specific levels of load, could vary significantly from forecasted estimates.

VWAP - as it relates to the Equity Units issued by PPL, the per share volume-weighted-average price as displayed under the heading Bloomberg VWAP on Bloomberg page "PPL <EQUITY> AQR" (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading on the relevant trading day until the scheduled close of trading on the relevant trading day (or if such volume-weighted-average price is unavailable, the market price of one share of PPL common stock on such trading day determined, using a volume-weighted-average method, by a nationally recognized independent investment banking firm retained for this purpose by PPL).

FORWARD-LOOKING INFORMATION

Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although PPL, PPL Energy Supply and PPL Electric believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in "PART I - Item 1A. Risk Factors" in each Registrant's 2009 Form 10-K, and "PART I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "PART II - Item 1A. Risk Factors" 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.

·	fuel supply cost and availability;
·	weather conditions affecting generation, customer energy use and operating costs;
·	operation, availability and operating costs of existing generation facilities;
·	transmission and distribution system conditions and operating costs;
·	potential expansion of alternative sources of electricity generation;
·	potential laws or regulations to reduce emissions of "greenhouse" gases;
·	collective labor bargaining negotiations;
·	the outcome of litigation against PPL and its subsidiaries;
·	potential effects of threatened or actual terrorism, war or other hostilities, or natural disasters;
·	the commitments and liabilities of PPL and its subsidiaries;
·	market demand and prices for energy, capacity, emission allowances and delivered fuel;
·	competition in retail and wholesale power markets;
·	liquidity of wholesale power markets;
·	defaults by counterparties under energy, fuel or other power product contracts;
·	market prices of commodity inputs for ongoing capital expenditures;
·	capital market conditions, including the availability of capital or credit, changes in interest rates, and decisions regarding capital structure;
·	stock price performance of PPL;
·	the fair value of debt and equity securities and the impact on defined benefit costs and resultant cash funding requirements for defined benefit plans;

·	interest rates and their effect on pension, retiree medical and nuclear decommissioning liabilities;
·	the impact of financial market and economic conditions;
·	the effect of electricity price deregulation beginning in 2010 in PPL Electric's service territory;
·	the profitability and liquidity, including access to capital markets and credit facilities, of PPL and its subsidiaries;
·	new accounting requirements or new interpretations or applications of existing requirements;
·	changes in securities and credit ratings;
·	foreign currency exchange rates;
·	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;
·	political, regulatory or economic conditions in states, regions or countries where PPL or its subsidiaries conduct business;
·	receipt of necessary governmental permits, approvals and rate relief;
·	new state, federal or foreign legislation, including new tax legislation;
·	state, federal and foreign regulatory developments;
·	the outcome of any rate cases by PPL Electric at the PUC;
·	the impact of any state, federal or foreign investigations applicable to PPL and its subsidiaries and the energy industry;
·	the effect of any business or industry restructuring;
·	development of new projects, markets and technologies;
·	performance of new ventures; and
·	business or asset acquisitions and dispositions, including PPL's pending acquisition of E.ON U.S. and the satisfaction of all conditions precedent to the completion of that acquisition.

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

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

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Operating Revenues
Utility	$	732		$	955		$	2,438		$	2,901
Unregulated retail electric and gas		116			34			321			108
Wholesale energy marketing
Realized		1,192			976			3,782			2,474
Unrealized economic activity (Note 14)		52			(307	)		(190	)		(67	)
Net energy trading margins		(20	)		7			(4	)		2
Energy-related businesses		107			117			311			321
Total Operating Revenues		2,179			1,782			6,658			5,739

Operating Expenses
Operation
Fuel		322			259			810			700
Energy purchases
Realized		386			748			2,132			2,032
Unrealized economic activity (Note 14)		300			(79	)		418			255
Other operation and maintenance		366			316			1,229			1,039
Amortization of recoverable transition costs					73						227
Depreciation		127			116			376			332
Taxes, other than income		56			69			181			208
Energy-related businesses		100			109			288			298
Total Operating Expenses		1,657			1,611			5,434			5,091

Operating Income		522			171			1,224			648

Other Income (Expense) - net		(26	)		9			(18	)		37

Other-Than-Temporary Impairments								3			18

Interest Expense		171			104			413			288

Income from Continuing Operations Before Income Taxes		325			76			790			379

Income Taxes		19			25			152			75

Income from Continuing Operations After Income Taxes		306			51			638			304

Loss from Discontinued Operations (net of income taxes) (Note 8)		(53	)		(25	)		(38	)		(35	)

Net Income		253			26			600			269

Net Income Attributable to Noncontrolling Interests		5			6			17			15

Net Income Attributable to PPL Corporation	$	248		$	20		$	583		$	254

Amounts Attributable to PPL Corporation:
Income from Continuing Operations After Income Taxes	$	301		$	45		$	621		$	289
Loss from Discontinued Operations (net of income taxes)		(53	)		(25	)		(38	)		(35	)
Net Income	$	248		$	20		$	583		$	254

Earnings Per Share of Common Stock:
Income from Continuing Operations After Income Taxes Available to PPL Corporation Common Shareowners:
Basic	$	0.62		$	0.12		$	1.49		$	0.76
Diluted	$	0.62		$	0.12		$	1.49		$	0.76
Net Income Available to PPL Corporation Common Shareowners:
Basic	$	0.51		$	0.05		$	1.40		$	0.67
Diluted	$	0.51		$	0.05		$	1.40		$	0.67

Dividends Declared Per Share of Common Stock	$	0.350		$	0.345		$	1.050		$	1.035

Weighted-Average Shares of Common Stock Outstanding (in thousands)
Basic		482,552			376,384			414,068			375,795
Diluted		482,762			376,716			414,287			376,113

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Nine Months Ended September 30,
	2010			2009
Cash Flows from Operating Activities
Net income	$	600		$	269
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		387			345
Amortization		211			286
Defined benefit plans - expense		72			56
Defined benefit plans - funding		(371	)		(85	)
Deferred income taxes and investment tax credits		(179	)		20
Gains related to the extinguishment of notes					(29	)
Impairment of assets		118			109
Unrealized losses on derivatives, and other hedging activities		595			256
Provision for Montana hydroelectric litigation		62
Other		54			36
Change in current assets and current liabilities
Accounts receivable		(93	)		(69	)
Accounts payable		74			(201	)
Unbilled revenue		37			98
Prepayments		(48	)		(13	)
Counterparty collateral		169			326
Price risk management assets and liabilities		(30	)		(216	)
Other		126			41
Other operating activities
Other assets		(86	)		17
Other liabilities		(2	)		1
Net cash provided by operating activities		1,696			1,247

Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(980	)		(821	)
Proceeds from the sale of the Long Island generation business		124
Expenditures for intangible assets		(64	)		(67	)
Purchases of nuclear plant decommissioning trust investments		(93	)		(182	)
Proceeds from the sale of nuclear plant decommissioning trust investments		83			163
Proceeds from the sale of other investments					150
Net decrease in restricted cash and cash equivalents		78			170
Other investing activities		12			(4	)
Net cash used in investing activities		(840	)		(591	)

Cash Flows from Financing Activities
Issuance of long-term debt		1,750			298
Retirement of long-term debt		(1	)		(916	)
Issuance of equity, net of issuance costs		2,425			45
Payment of common stock dividends		(397	)		(386	)
Redemption of preferred stock of a subsidiary		(54	)
Debt issuance costs		(79	)		(14	)
Net decrease in short-term debt		(443	)		(70	)
Other financing activities		(15	)		(17	)
Net cash provided by (used in) financing activities		3,186			(1,060	)

Effect of Exchange Rates on Cash and Cash Equivalents		10

Net Increase (Decrease) in Cash and Cash Equivalents		4,052			(404	)
Cash and Cash Equivalents at Beginning of Period		801			1,100
Cash and Cash Equivalents at End of Period	$	4,853		$	696

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

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
	September 30, 2010		December 31, 2009
Assets

Current Assets
Cash and cash equivalents	$	4,853	$	801
Restricted cash and cash equivalents		32		105
Accounts receivable (less reserve: 2010, $36; 2009, $37)
Customer		494		409
Other		57		59
Unbilled revenues		558		600
Fuel, materials and supplies		338		357
Prepayments		149		102
Price risk management assets		2,251		2,157
Other intangibles		17		25
Assets held for sale		387		127
Other current assets		56		10
Total Current Assets		9,192		4,752

Investments
Nuclear plant decommissioning trust funds		579		548
Other investments		45		65
Total Investments		624		613

Property, Plant and Equipment
Electric plant
Transmission and distribution		8,738		8,686
Generation		10,115		10,493
General		919		899
Electric plant in service		19,772		20,078
Construction work in progress		687		567
Nuclear fuel		531		506
Electric plant		20,990		21,151
Gas and oil plant		68		68
Other property		163		166
Property, plant and equipment, gross		21,221		21,385
Less: accumulated depreciation		8,310		8,211
Property, Plant and Equipment, net (a)		12,911		13,174

Regulatory and Other Noncurrent Assets
Regulatory assets		518		531
Goodwill		756		806
Other intangibles (a)		601		615
Price risk management assets		1,622		1,274
Other noncurrent assets		504		400
Total Regulatory and Other Noncurrent Assets		4,001		3,626

Total Assets	$	26,728	$	22,165

(a)

At September 30, 2010, includes $417 million of PP&E, consisting primarily of "Generation," including leasehold improvements, and $11 million of "Other intangibles" from the consolidation of a VIE. At December 31, 2009, these balances were $424 million and $11 million. See Note 6 for additional information.

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

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
	September 30, 2010			December 31, 2009
Liabilities and Equity

Current Liabilities
Short-term debt	$	181		$	639
Accounts payable		733			619
Taxes		135			92
Interest		168			113
Dividends		173			135
Price risk management liabilities		1,748			1,502
Counterparty collateral		525			356
Other current liabilities		682			726
Total Current Liabilities		4,345			4,182

Long-term Debt		8,839			7,143

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		2,468			2,153
Price risk management liabilities		839			582
Accrued pension obligations		780			1,283
Asset retirement obligations		326			416
Other deferred credits and noncurrent liabilities		539			591
Total Deferred Credits and Other Noncurrent Liabilities		4,952			5,025

Commitments and Contingent Liabilities (Note 10)

Equity
PPL Corporation Shareowners' Common Equity
Common stock - $0.01 par value (a)		5			4
Capital in excess of par value		4,582			2,280
Earnings reinvested		3,897			3,749
Accumulated other comprehensive loss		(160	)		(537	)
Total PPL Corporation Shareowners' Common Equity		8,324			5,496
Noncontrolling Interests		268			319
Total Equity		8,592			5,815

Total Liabilities and Equity	$	26,728		$	22,165

(a)		780,000 shares authorized; 482,813 and 377,183 shares issued and outstanding at September 30, 2010 and December 31, 2009.

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

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	PPL Corporation Shareowners
	Common stock shares outstanding (a)		Common stock		Capital in excess of par value			Earnings reinvested			Accumulated other comprehensive loss			Non-controlling interests			Total

June 30, 2010	482,188		$	5	$	4,553		$	3,818		$	(439	)	$	268		$	8,205
Common stock issued (b)	625					16												16
Purchase Contracts (c)						10												10
Stock-based compensation						3												3
Net income									248						5			253
Dividends, dividend equivalents, redemptions and distributions (d)									(169	)					(5	)		(174	)
Other comprehensive income												279						279
September 30, 2010	482,813		$	5	$	4,582		$	3,897		$	(160	)	$	268		$	8,592

December 31, 2009	377,183		$	4	$	2,280		$	3,749		$	(537	)	$	319		$	5,815
Common stock issued (b)	105,630			1		2,474												2,475
Purchase Contracts (c)						(176	)											(176	)
Stock-based compensation						4												4
Net income									583						17			600
Dividends, dividend equivalents, redemptions and distributions (d)									(435	)					(68	)		(503	)
Other comprehensive income												377						377
September 30, 2010	482,813		$	5	$	4,582		$	3,897		$	(160	)	$	268		$	8,592

June 30, 2009	376,144		$	4	$	2,246		$	3,837		$	(568	)	$	319		$	5,838
Common stock issued (b)	495					17												17
Stock-based compensation						1												1
Net income									20						6			26
Dividends, dividend equivalents and distributions (d)									(131	)					(6	)		(137	)
Other comprehensive income												192						192
September 30, 2009	376,639		$	4	$	2,264		$	3,726		$	(376	)	$	319		$	5,937

December 31, 2008	374,581		$	4	$	2,196		$	3,862		$	(985	)	$	319		$	5,396
Common stock issued (b)	2,092					66												66
Common stock repurchased	(34	)				(1	)											(1	)
Stock-based compensation						3												3
Net income									254						15			269
Dividends, dividend equivalents and distributions (d)									(391	)					(15	)		(406	)
Other comprehensive income												610						610
Cumulative effect adjustment (e)									1			(1	)
September 30, 2009	376,639		$	4	$	2,264		$	3,726		$	(376	)	$	319		$	5,937

(a)		Shares in thousands. Each share entitles the holder to one vote on any question presented to any shareowners' meeting.
(b)		The nine months ended September 30, 2010 includes the June 2010 issuance of 103.5 million shares of common stock. See Note 7 for additional information. The three and nine months ended September 30, 2010 and 2009 include shares of common stock issued through various stock and incentive compensation plans.
(c)		The three months ended September 30, 2010 includes the recording of a deferred tax benefit for the issuance costs related to the Purchase Contracts. The nine months ended September 30, 2010 includes $157 million for the Purchase Contracts and $19 million of related fees and expenses, net of tax. See Note 7 for additional information.
(d)		"Earnings reinvested" includes dividends and dividend equivalents on PPL Corporation common stock and restricted stock units. "Noncontrolling interests" includes dividends, redemptions and distributions to noncontrolling interests, which for the nine months ended September 30, 2010 includes $54 million paid to redeem PPL Electric's preferred stock. See Note 7 for additional information.
(e)		Recorded in connection with the adoption of accounting guidance related to the recognition and presentation of other-than-temporary impairments.

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Net income	$	253		$	26		$	600		$	269
Other comprehensive income:
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Foreign currency translation adjustments, net of tax of $1, $(1), $0, $3		81			18			(79	)		88
Available-for-sale securities, net of tax of $(22), $(26), $(12), $(37)		19			24			12			34
Qualifying derivatives, net of tax of $(96), $(65), $(244), $(263)		134			90			360			360
Defined benefit plans:
Prior service costs, net of tax of $(14), $0, $(14), $0		17						17
Net actuarial gain (loss), net of tax of $11, $(3), $(20), $(3)		(17	)		4			63			4
Transition obligation, net of tax of $(4), $0, $(4), $0		7						7
Reclassifications to net income - (gains) losses, net of tax expense (benefit):
Available-for-sale securities, net of tax of $0, $1, $2, $1		1			(2	)		(3	)		(2	)
Qualifying derivatives, net of tax of $(15), $(38), $23, $(79)		26			54			(41	)		113
Defined benefit plans:
Prior service costs, net of tax of $(2), $(2), $(6), $(6)		2			4			9			10
Net actuarial loss, net of tax of $(4), $0, $(10), $(2)		9						30			2
Transition obligation, net of tax of $0, $0, $(1), $0								2			1
Total other comprehensive income attributable to PPL Corporation		279			192			377			610
Comprehensive income		532			218			977			879
Comprehensive income attributable to noncontrolling interests		5			6			17			15
Comprehensive income attributable to PPL Corporation	$	527		$	212		$	960		$	864

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Operating Revenues
Wholesale energy marketing
Realized	$	1,192		$	976		$	3,782		$	2,474
Unrealized economic activity (Note 14)		52			(307	)		(190	)		(67	)
Wholesale energy marketing to affiliate		71			445			250			1,353
Utility		163			165			538			496
Unregulated retail electric and gas		116			34			321			108
Net energy trading margins		(20	)		7			(4	)		2
Energy-related businesses		106			113			303			312
Total Operating Revenues		1,680			1,433			5,000			4,678

Operating Expenses
Operation
Fuel		322			259			810			700
Energy purchases
Realized		159			718			1,289			1,939
Unrealized economic activity (Note 14)		300			(79	)		418			255
Energy purchases from affiliate		1			19			2			59
Other operation and maintenance		251			226			887			774
Depreciation		89			80			263			225
Taxes, other than income		24			22			73			63
Energy-related businesses		99			106			281			292
Total Operating Expenses		1,245			1,351			4,023			4,307

Operating Income		435			82			977			371

Other Income (Expense) - net		5			8			18			31

Other-Than-Temporary Impairments								3			18

Interest Income from Affiliates		1						3			2

Interest Expense		84			72			250			191

Income from Continuing Operations Before Income Taxes		357			18			745			195

Income Taxes		37			5			155			12

Income from Continuing Operations After Income Taxes		320			13			590			183

Loss from Discontinued Operations (net of income taxes) (Note 8)		(54	)		(28	)		(38	)		(38	)

Net Income (Loss)		266			(15	)		552			145

Net Income Attributable to Noncontrolling Interests		1			1			1			1

Net Income (Loss) Attributable to PPL Energy Supply	$	265		$	(16	)	$	551		$	144

Amounts Attributable to PPL Energy Supply:
Income from Continuing Operations After Income Taxes	$	319		$	12		$	589		$	182
Loss from Discontinued Operations (net of income taxes)		(54	)		(28	)		(38	)		(38	)
Net Income (Loss)	$	265		$	(16	)	$	551		$	144

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Nine Months Ended September 30,
	2010			2009

Cash Flows from Operating Activities
Net income	$	552		$	145
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		274			237
Amortization		109			52
Defined benefit plans - expense		41			17
Defined benefit plans - funding		(293	)		(81	)
Deferred income taxes and investment tax credits		(235	)		77
Impairment of assets		118			105
Unrealized losses on derivatives, and other hedging activities		602			257
Provision for Montana hydroelectric litigation		62
Other		47			7
Change in current assets and current liabilities
Accounts receivable		43			121
Accounts payable		(31	)		(224	)
Unbilled revenue		(45	)		49
Collateral on PLR energy supply to affiliate					300
Taxes		112			29
Counterparty collateral		169			326
Price risk management assets and liabilities		(31	)		(215	)
Other		111			(8	)
Other operating activities
Other assets		(64	)		11
Other liabilities		54			(36	)
Net cash provided by operating activities		1,595			1,169

Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(707	)		(619	)
Proceeds from the sale of the Long Island generation business		124
Expenditures for intangible assets		(60	)		(60	)
Purchases of nuclear plant decommissioning trust investments		(93	)		(182	)
Proceeds from the sale of nuclear plant decommissioning trust investments		83			163
Proceeds from the sale of other investments					150
Net decrease in restricted cash and cash equivalents		76			170
Net increase in note receivable from affiliate					(104	)
Other investing activities		9			(3	)
Net cash used in investing activities		(568	)		(485	)

Cash Flows from Financing Activities
Issuance of long-term debt		600
Retirement of long-term debt					(220	)
Distributions to Member		(512	)		(487	)
Contributions from Member		3,525			50
Net increase (decrease) in short-term debt		(443	)		25
Other financing activities		(10	)		(10	)
Net cash provided by (used in) financing activities		3,160			(642	)

Effect of Exchange Rates on Cash and Cash Equivalents		10

Net Increase in Cash and Cash Equivalents		4,197			42
Cash and Cash Equivalents at Beginning of Period		245			464
Cash and Cash Equivalents at End of Period	$	4,442		$	506

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

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	September 30, 2010		December 31, 2009
Assets

Current Assets
Cash and cash equivalents	$	4,442	$	245
Restricted cash and cash equivalents		27		99
Accounts receivable (less reserve: 2010, $21; 2009, $21)
Customer		222		168
Other		21		31
Unbilled revenues		442		402
Accounts receivable from affiliates		68		165
Fuel, materials and supplies		304		325
Prepayments		42		56
Price risk management assets		2,241		2,147
Other intangibles		17		25
Assets held for sale		387		127
Other current assets		4		1
Total Current Assets		8,217		3,791

Investments
Nuclear plant decommissioning trust funds		579		548
Other investments		38		58
Total Investments		617		606

Property, Plant and Equipment
Electric plant
Transmission and distribution		3,942		4,024
Generation		10,116		10,493
General		268		285
Electric plant in service		14,326		14,802
Construction work in progress		475		422
Nuclear fuel		531		506
Electric plant		15,332		15,730
Gas and oil plant		68		68
Other property		160		164
Property, plant and equipment, gross		15,560		15,962
Less: accumulated depreciation		6,187		6,169
Property, Plant and Equipment, net (a)		9,373		9,793

Other Noncurrent Assets
Goodwill		756		806
Other intangibles (a)		459		477
Price risk management assets		1,584		1,234
Other noncurrent assets		421		317
Total Other Noncurrent Assets		3,220		2,834

Total Assets	$	21,427	$	17,024

(a)

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

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	September 30, 2010		December 31, 2009
Liabilities and Equity

Current Liabilities
Short-term debt	$	181	$	639
Accounts payable		521		537
Accounts payable to affiliates		71		51
Taxes		144		33
Interest		125		86
Price risk management liabilities		1,603		1,502
Counterparty collateral		525		356
Other current liabilities		482		481
Total Current Liabilities		3,652		3,685

Long-term Debt		5,562		5,031

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		1,791		1,511
Price risk management liabilities		812		582
Accrued pension obligations		435		883
Asset retirement obligations		326		416
Other deferred credits and noncurrent liabilities		214		330
Total Deferred Credits and Other Noncurrent Liabilities		3,578		3,722

Commitments and Contingent Liabilities (Note 10)

Equity
Member's equity		8,617		4,568
Noncontrolling interests		18		18
Total Equity		8,635		4,586

Total Liabilities and Equity	$	21,427	$	17,024

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

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Member's equity			Non-controlling interests			Total

June 30, 2010	$	8,168		$	18		$	8,186
Net income		265			1			266
Other comprehensive income		332						332
Distributions		(148	)		(1	)		(149	)
September 30, 2010	$	8,617		$	18		$	8,635

December 31, 2009	$	4,568		$	18		$	4,586
Net income		551			1			552
Other comprehensive income		485						485
Contributions from member		3,525						3,525
Distributions		(512	)		(1	)		(513	)
September 30, 2010	$	8,617		$	18		$	8,635

June 30, 2009	$	4,974		$	18		$	4,992
Net income (loss)		(16	)		1			(15	)
Other comprehensive income		189						189
Contributions from member		50						50
Distributions		(114	)		(1	)		(115	)
September 30, 2009	$	5,083		$	18		$	5,101

December 31, 2008	$	4,794		$	18		$	4,812
Net income		144			1			145
Other comprehensive income		582						582
Contributions from member		50						50
Distributions		(487	)		(1	)		(488	)
September 30, 2009	$	5,083		$	18		$	5,101

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Net income (loss)	$	266		$	(15	)	$	552		$	145
Other comprehensive income:
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Foreign currency translation adjustments, net of tax of $1, $(1), $0, $3		81			18			(79	)		88
Available-for-sale securities, net of tax of $(22), $(25), $(12), $(37)		19			25			12			35
Qualifying derivatives, net of tax of $(147), $(67), $(337), $(247)		207			91			492			336
Defined benefit plans:
Prior service costs, net of tax of $(9), $0, $(9), $0		12						12
Net actuarial gain (loss), net of tax of $7, $(1), $(24), $(1)		(13	)		1			67			1
Transition obligation, net of tax of $(3), $0, $(3), $0		6						6
Reclassifications to net income - (gains) losses, net of tax expense (benefit):
Available-for-sale securities, net of tax of $0, $1, $2, $1		1			(2	)		(3	)		(2	)
Qualifying derivatives, net of tax of $(2), $(37), $36, $(79)		9			54			(59	)		114
Defined benefit plans:
Prior service costs, net of tax of $(1), $(1), $(4), $(4)		1			1			6			7
Net actuarial loss, net of tax of $(4), $(1), $(10), $(2)		9						29			2
Transition obligation, net of tax of $(1), $(1), $(1), $(1)					1			2			1
Total other comprehensive income attributable to PPL Energy Supply		332			189			485			582
Comprehensive income		598			174			1,037			727
Comprehensive income attributable to noncontrolling interests		1			1			1			1
Comprehensive income attributable to PPL Energy Supply	$	597		$	173		$	1,036		$	726

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Operating Revenues
Retail electric	$	570	$	790	$	1,904	$	2,407
Wholesale electric to affiliate		1		19		2		59
Total Operating Revenues		571		809		1,906		2,466

Operating Expenses
Operation
Energy purchases		229		30		848		93
Energy purchases from affiliate		71		445		250		1,353
Other operation and maintenance		126		103		377		307
Amortization of recoverable transition costs				73				227
Depreciation		34		33		101		96
Taxes, other than income		32		47		108		145
Total Operating Expenses		492		731		1,684		2,221

Operating Income		79		78		222		245

Other Income (Expense) - net						3		2

Interest Income from Affiliate				1		1		4

Interest Expense		24		31		74		91

Income Before Income Taxes		55		48		152		160

Income Taxes		15		16		47		53

Net Income		40		32		105		107

Distributions on Preferred Securities		4		5		16		14

Net Income Available to PPL Corporation	$	36	$	27	$	89	$	93

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Nine Months Ended September 30,
	2010			2009

Cash Flows from Operating Activities
Net income	$	105		$	107
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		101			96
Amortization		40			242
Defined benefit plans - expense		16			18
Defined benefit plans - funding		(49	)
Deferred income taxes and investment tax credits		52			(45	)
Other		5			5
Change in current assets and current liabilities
Accounts receivable		(34	)		4
Accounts payable		(15	)		(85	)
Unbilled revenue		82			50
Prepayments		(71	)		(46	)
Collateral on PLR energy supply from affiliate					(300	)
Other		(49	)		36
Other operating activities
Other assets		(33	)		(2	)
Other liabilities		(23	)		5
Net cash provided by operating activities		127			85

Cash Flows from Investing Activities
Expenditures for property, plant and equipment		(251	)		(186	)
Net decrease in note receivable from affiliate					300
Other investing activities		(2	)		(3	)
Net cash provided by (used in) investing activities		(253	)		111

Cash Flows from Financing Activities
Issuance of long-term debt					298
Retirement of long-term debt					(495	)
Contributions from PPL		55
Redemption of preferred stock		(54	)
Payment of common stock dividends to PPL		(49	)		(206	)
Net decrease in short-term debt					(95	)
Dividends on preferred securities		(13	)		(14	)
Other financing activities		(1	)		(3	)
Net cash used in financing activities		(62	)		(515	)

Net Decrease in Cash and Cash Equivalents		(188	)		(319	)
Cash and Cash Equivalents at Beginning of Period		485			483
Cash and Cash Equivalents at End of Period	$	297		$	164

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

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
	September 30, 2010		December 31, 2009
Assets

Current Assets
Cash and cash equivalents	$	297	$	485
Restricted cash and cash equivalents		3		1
Accounts receivable (less reserve: 2010, $15; 2009, $16)
Customer		271		240
Other		22		19
Unbilled revenues		116		198
Materials and supplies		33		33
Accounts receivable from affiliates		9		7
Prepayments		95		24
Other current assets		15		29
Total Current Assets		861		1,036

Property, Plant and Equipment
Electric plant
Transmission and distribution		4,796		4,662
General		558		535
Electric plant in service		5,354		5,197
Construction work in progress		179		118
Electric plant		5,533		5,315
Other property		2		2
Property, plant and equipment, gross		5,535		5,317
Less: accumulated depreciation		2,078		2,008
Property, Plant and Equipment, net		3,457		3,309

Regulatory and Other Noncurrent Assets
Intangibles		142		139
Taxes recoverable through future rates		260		253
Recoverable costs of defined benefit plans		217		229
Other regulatory and noncurrent assets		115		126
Total Regulatory and Other Noncurrent Assets		734		747

Total Assets	$	5,052	$	5,092

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

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
	September 30, 2010		December 31, 2009
Liabilities and Equity

Current Liabilities
Accounts payable	$	163	$	53
Accounts payable to affiliates		70		186
Taxes		50		61
Interest		27		18
Overcollected transmission costs		17		39
Customer rate mitigation prepayments		18		36
Overcollected transition costs		10		33
Other current liabilities		103		92
Total Current Liabilities		458		518

Long-term Debt		1,472		1,472

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		811		769
Accrued pension obligations		207		245
Other deferred credits and noncurrent liabilities		164		192
Total Deferred Credits and Other Noncurrent Liabilities		1,182		1,206

Commitments and Contingent Liabilities (Note 10)

Shareowners' Equity
Preferred securities		250		301
Common stock - no par value (a)		364		364
Additional paid-in capital		879		824
Earnings reinvested		447		407
Total Shareowners' Equity		1,940		1,896

Total Liabilities and Equity	$	5,052	$	5,092

(a)

170,000 shares authorized; 66,368 shares issued and outstanding at September 30, 2010 and December 31, 2009.

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

CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
	Common stock shares outstanding (a)	Preferred securities			Common stock		Additional paid-in capital		Earnings reinvested			Total

June 30, 2010	66,368	$	250		$	364	$	879	$	420		$	1,913
Net income (b)										40			40
Cash dividends declared on preferred securities										(4	)		(4	)
Cash dividends declared on common stock										(9	)		(9	)
September 30, 2010	66,368	$	250		$	364	$	879	$	447		$	1,940

December 31, 2009	66,368	$	301		$	364	$	824	$	407		$	1,896
Net income (b)										105			105
Redemption of preferred stock (c)			(51	)						(3	)		(54	)
Capital contributions from PPL								55					55
Cash dividends declared on preferred securities										(13	)		(13	)
Cash dividends declared on common stock										(49	)		(49	)
September 30, 2010	66,368	$	250		$	364	$	879	$	447		$	1,940

June 30, 2009	66,368	$	301		$	364	$	424	$	475		$	1,564
Net income (b)										32			32
Cash dividends declared on preferred securities										(5	)		(5	)
Cash dividends declared on common stock										(58	)		(58	)
September 30, 2009	66,368	$	301		$	364	$	424	$	444		$	1,533

December 31, 2008	66,368	$	301		$	364	$	424	$	557		$	1,646
Net income (b)										107			107
Cash dividends declared on preferred securities										(14	)		(14	)
Cash dividends declared on common stock										(206	)		(206	)
September 30, 2009	66,368	$	301		$	364	$	424	$	444		$	1,533

(a)		Shares in thousands. All common shares of PPL Electric stock are owned by PPL.
(b)		PPL Electric's net income approximates comprehensive income.
(c)		PPL Electric redeemed all five series of its outstanding preferred stock. See Note 7 for additional information.

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

Combined Notes to Condensed Consolidated Financial Statements (Unaudited)

1.	Interim Financial Statements

(PPL, PPL Energy Supply and PPL Electric)

Terms and abbreviations appearing in Combined Notes to Condensed Consolidated Financial Statements are explained in the glossary. Dollars are in millions, except per share data, unless otherwise noted. Per share amounts disclosed related to changes in accounting estimates that impacted 2010 operating results were calculated using weighted-average shares outstanding for the nine-months ended September 30, 2010.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with accounting principles generally accepted in the U.S. are reflected in the condensed consolidated financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, 2009 is derived from that Registrant's 2009 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 2009 Form 10-K. The results of operations for the nine months ended September 30, 2010, are not necessarily indicative of the results to be expected for the full year ending December 31, 2010, or other future periods, because results for interim periods can be disproportionately influenced by various factors and developments and seasonal variations.

The classification of certain prior period amounts has been changed to conform to the presentation in the September 30, 2010 financial statements.

(PPL and PPL Energy Supply)

"Loss from Discontinued Operations (net of income taxes)" on the Statements of Income includes the activities of various businesses that were sold in 2010 and 2009. It also includes the activities of certain non-core generation facilities expected to be sold in the fourth quarter of 2010. See Note 8 for additional information. The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.

2.	Summary of Significant Accounting Policies

(PPL, PPL Energy Supply and PPL Electric)

The following accounting policy disclosures represent updates to the "Summary of Significant Accounting Policies" Note in each Registrant's 2009 Form 10-K and should be read in conjunction with that discussion.

General

Business and Consolidation

(PPL)

In April 2010, PPL announced that it had entered into a Purchase and Sale Agreement among E.ON US Investments, PPL, and (for certain limited purposes) E.ON AG, providing for the sale of E.ON U.S. to PPL. E.ON U.S. is a limited liability company engaged, through its public utility subsidiaries, LG&E and KU, in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas, primarily in Kentucky. See Notes 7 and 8 for additional information.

(PPL, PPL Energy Supply and PPL Electric)

PPL, PPL Energy Supply and PPL Electric consolidate a VIE when they are determined to be the primary beneficiary of the entity. As described below in "New Accounting Guidance Adopted," new accounting guidance modified the criteria for determining the primary beneficiary of a VIE. See Note 6 for information on VIEs.

Long-Lived Assets and Intangible Assets

Asset Retirement Obligations (PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries recognize various AROs associated with the retirement of long-lived assets as liabilities in the financial statements. Initially, an ARO is measured and recorded at fair value. An equivalent amount is recorded as a capitalized asset and is allocated to expense over the useful life of the associated long-lived asset. Until the ARO is settled, the ARO is increased, through the recognition of accretion expense in the income statement, for changes in the ARO due to the passage of time.

Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed periodically to ensure that any material changes are incorporated into the latest estimate of the ARO. Any change to the capitalized asset, positive or negative, is amortized over the remaining life of the associated long-lived asset. See Note 16 for a discussion of the remeasurement of the ARO for the decommissioning of the Susquehanna nuclear units.

(PPL, PPL Energy Supply and PPL Electric)

Other

Accounts Receivable

PPL Electric's customers may elect to procure generation supply from an alternative supplier. As a result of a PUC-approved purchase of accounts receivable program, beginning in the first quarter of 2010, PPL Electric has purchased certain accounts receivable from alternative suppliers at a nominal discount, which reflects a provision for uncollectible accounts. Additionally, PPL Electric receives a nominal fee for administering the program. The alternative suppliers (including PPL EnergyPlus) have no continuing involvement or interest in the purchased accounts receivable. The purchased accounts receivable are initially recorded at fair value using a market approach based on the purchase price paid and are classified as Level 2 in the fair value hierarchy. The purchased accounts receivable have substantially the same risk profile and payment terms as PPL Electric's other customer accounts receivable. During the three and nine months ended September 30, 2010, PPL and PPL Electric purchased $203 million and $428 million of accounts receivable from third parties. During the three and nine months ended September 30, 2010, PPL Electric purchased $66 million and $157 million of accounts receivable from PPL EnergyPlus.

Debt Issuance Costs

Debt issuance costs are deferred and amortized over the term of the related debt using the interest method or another method, generally straight-line, if the results obtained are not materially different than those that would result from the interest method.

New Accounting Guidance Adopted

Accounting for Transfers of Financial Assets

Effective January 1, 2010, PPL and its subsidiaries adopted accounting guidance issued to revise the accounting for transfers of financial assets. This guidance:

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

This guidance is applied prospectively to new transfers of financial assets. Disclosures are required for all transfers, including those entered into before the effective date.

The adoption did not have a material impact on PPL and its subsidiaries' financial statements. See Note 7 for information on PPL Electric's participation in an asset-backed commercial paper program and "Accounts Receivable" above for information on PPL Electric's purchase of accounts receivable from alternative suppliers, which are within the scope of this guidance.

Consolidation of Variable Interest Entities

Effective January 1, 2010, PPL and its subsidiaries adopted accounting guidance issued to replace the quantitative-based risks and rewards calculation for determining which entity, if any, has a controlling financial interest in a VIE and is the primary beneficiary. The primary beneficiary must consolidate the VIE. This guidance:

·	prescribes a qualitative approach focused on identifying which entity has the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE;
·	requires ongoing assessments of whether an entity is the primary beneficiary of a VIE;
·	requires enhanced disclosures to improve the transparency of an entity's involvement in a VIE;
·	requires that all previous consolidation conclusions be reconsidered; and
·	requires that QSPEs be evaluated for consolidation (resulting from the elimination of the QSPE concept in the guidance addressing accounting for transfers of financial assets).

The adoption did not have a material impact on PPL and its subsidiaries' financial statements. See PPL and PPL Energy Supply's Balance Sheets and Note 6 for enhanced VIE disclosures.

Improving Disclosures about Fair Value Measurements

Effective January 1, 2010, PPL and its subsidiaries prospectively adopted accounting guidance issued to improve disclosures about fair value measurements. This guidance:

·	requires disclosures be provided for each class of assets and liabilities, with class determined on the basis of the nature and risks of the assets and liabilities;
·	clarifies that a description of valuation techniques and inputs used to measure fair value is required for Level 2 and 3 recurring and nonrecurring fair value measurements; and
·	for recurring fair value measurements, requires separate disclosure of significant transfers into and out of levels and the reasons for those transfers.

PPL and its subsidiaries recognize transfers between levels at end-of-reporting-period values.

This guidance makes corresponding amendments to employers' disclosures about pensions and other postretirement benefits.

The adoption did not have a material impact on PPL and its subsidiaries' financial statements. The enhanced disclosures are presented in Note 13.

Subsequent Measurement - Cash Flow Hedges

Effective April 1, 2010, PPL and its subsidiaries prospectively adopted accounting guidance that was issued to clarify how an entity should reflect the subsequent measurement of cash flow hedges in AOCI if, during a prior period, hedge accounting was not permitted. This situation may arise if an entity's retrospective assessment of hedge effectiveness indicated that the hedging relationship had not been highly effective in a period, but the prospective assessment of hedge effectiveness showed an expectation that the hedging relationship would be highly effective in the future; therefore, the hedging relationship continued even though hedge accounting was not permitted for a certain period. This guidance:

·	requires that the cumulative gain or loss on the derivative that is used to determine the maximum amount of gain or loss that may be reflected in AOCI exclude the gains or losses that occurred during the period when hedge accounting was not permitted; and
·	requires that the cumulative change in the expected future cash flows on the hedged transaction exclude the changes related to the period when hedge accounting was not applied.

The adoption did not have a significant impact on PPL and its subsidiaries; however, the impact in future periods could be material.

3.	Segment and Related Information

(PPL and PPL Energy Supply)

See the "Segment and Related Information" Note in each Registrant's 2009 Form 10-K for a discussion of reportable segments. "Unallocated Costs" represent E.ON U.S. acquisition-related costs and includes advisory, accounting and legal fees, certain internal costs and Bridge Facility costs. "Unallocated Assets" represent deferred Bridge Facility costs also related to the acquisition. See Note 7 for additional information about the Bridge Facility. Financial data is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
PPL	2010			2009			2010			2009
Income Statement Data
Revenues from external customers
Supply (a)	$	1,437		$	818		$	4,191		$	2,812
International Delivery		172			174			563			520
Pennsylvania Delivery		570			790			1,904			2,407
Revenues from external customers	$	2,179		$	1,782		$	6,658		$	5,739
Intersegment revenues (b)
Supply	$	71		$	445		$	250		$	1,353
Pennsylvania Delivery		1			19			2			59

Net Income Attributable to PPL
Supply (a) (c)	$	153		$	(31	)	$	320		$	(12	)
International Delivery		93			24			227			173
Pennsylvania Delivery		36			27			89			93
Unallocated Costs		(34	)					(53	)
Net Income Attributable to PPL	$	248		$	20		$	583		$	254

	September 30, 2010		December 31, 2009
Balance Sheet Data
Assets
Supply	$	17,055	$	12,766
International Delivery		4,664		4,516
Pennsylvania Delivery		4,997		4,883
Unallocated Assets		12
Total assets	$	26,728	$	22,165

	Three Months Ended September 30,					Nine Months Ended September 30,
PPL Energy Supply	2010		2009			2010		2009
Income Statement Data
Revenues from external customers
Supply (a)	$	1,508	$	1,259		$	4,437	$	4,158
International Delivery		172		174			563		520
Revenues from external customers	$	1,680	$	1,433		$	5,000	$	4,678
Net Income (Loss) Attributable to PPL Energy Supply
Supply (a) (c)	$	172	$	(40	)	$	324	$	(29	)
International Delivery		93		24			227		173
Net Income (Loss) Attributable to PPL Energy Supply	$	265	$	(16	)	$	551	$	144

	September 30, 2010		December 31, 2009
Balance Sheet Data
Assets
Supply	$	16,763	$	12,508
International Delivery		4,664		4,516
Total assets	$	21,427	$	17,024

(a)		Includes impact from energy-related economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 for additional information.
(b)		See "PLR Contracts" and "NUG Purchases" in Note 11 for a discussion of the basis of accounting between reportable segments.
(c)		Includes Discontinued Operations. See Note 8 for additional information.

4.	Earnings Per Share

(PPL)

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

Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of shares outstanding that are increased for additional shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares. In 2009 and 2010, these securities included stock options and performance units granted under incentive compensation plans. Additionally, in 2010, these securities included the Purchase Contract component of the Equity Units issued in June 2010. The Purchase Contracts will be dilutive only if the average VWAP of PPL's common stock for a certain period exceeds $28.80. Because the average VWAP has not exceeded $28.80 since issuance, the Purchase Contracts were excluded from the diluted EPS calculations. See below and Note 7 for additional information on the Purchase Contracts.

Basic and diluted EPS, computed using the two-class method, and reconciliations of the amounts of income and shares of common stock (in thousands) used in the calculation are:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Income (Numerator)
Income from continuing operations after income taxes attributable to PPL	$	301		$	45		$	621		$	289
Less amounts allocated to participating securities		1						2			1
Income from continuing operations after income taxes available to PPL common shareowners	$	300		$	45		$	619		$	288

Loss from discontinued operations (net of income taxes) available to PPL	$	(53	)	$	(25	)	$	(38	)	$	(35	)

Net income attributable to PPL	$	248		$	20		$	583		$	254
Less amounts allocated to participating securities		1						2			1
Net income available to PPL common shareowners	$	247		$	20		$	581		$	253

Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS		482,552			376,384			414,068			375,795
Add incremental non-participating securities:
Stock options and performance units		210			332			219			318
Weighted-average shares - Diluted EPS		482,762			376,716			414,287			376,113

Basic EPS
Available to PPL common shareowners:
Income from continuing operations after income taxes	$	0.62		$	0.12		$	1.49		$	0.76
Loss from discontinued operations (net of income taxes)		(0.11	)		(0.07	)		(0.09	)		(0.09	)
Net Income	$	0.51		$	0.05		$	1.40		$	0.67

Diluted EPS
Available to PPL common shareowners:
Income from continuing operations after income taxes	$	0.62		$	0.12		$	1.49		$	0.76
Loss from discontinued operations (net of income taxes)		(0.11	)		(0.07	)		(0.09	)		(0.09	)
Net Income	$	0.51		$	0.05		$	1.40		$	0.67

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(Shares in thousands)	2010		2009		2010		2009

Stock options		5,194		2,662		4,844		2,315
Performance units						61		1

During the three and nine months ended September 30, 2010, PPL issued 33,731 and 308,255 shares of common stock related to the exercise of stock options, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors under its stock-based compensation plans, and issued 591,277 and 1,587,884 shares of common stock related to its DRIP. PPL also issued 234,211 shares related to its ESOP during the nine months ended September 30, 2010.

In June 2010, PPL issued 103.5 million shares of common stock and 23 million Equity Units pursuant to concurrent registered underwritten offerings. See Note 7 for additional information. Subject to antidilution adjustments, the maximum number of shares that could potentially be issued to settle the Purchase Contracts is 61,136,300 shares, including 47,915,900 shares that could be issued under standard provisions of the Purchase Contracts and 13,220,400 shares that could be issued under make-whole provisions in the event of early settlement upon a Fundamental Change.

5.	Income Taxes

(PPL)

Reconciliations of income taxes from continuing operations are:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Reconciliation of Income Taxes
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35%	$	114		$	27		$	277		$	133
Increase (decrease) due to:
State income taxes		17			(11	)		32			(14	)
State net operating loss valuation allowance								(8	)
Impact of lower U.K. income tax rates		(8	)		(6	)		(15	)		(16	)
U.S. income tax on foreign earnings - net of foreign tax credit		(8	)		(1	)		(14	)		(4	)
Change in federal and state tax reserves (a)		(52	)		1			(59	)		8
Change in foreign tax reserves (b)		15			46			46			17
Federal and state income tax return adjustments (c)					26						26
Domestic manufacturing deduction		(12	)		(4	)		(24	)		(11	)
Health Care Reform (d)								8
Foreign losses generated through restructuring (b)		(18	)		(46	)		(52	)		(46	)
Enactment of the U.K.'s Finance Act 2010 (e)		(19	)					(19	)
Investment tax credits		(4	)					(8	)		(1	)
Other		(6	)		(7	)		(12	)		(17	)
Total decrease		(95	)		(2	)		(125	)		(58	)
Total income taxes from continuing operations	$	19		$	25		$	152		$	75

(a)		In 1997, the U.K. imposed a Windfall Profits Tax on privatized utilities, including WPD. In September 2010, the U.S. Tax Court ruled in PPL's favor in a pending dispute with the IRS, concluding that the U.K. Windfall Profits Tax is a creditable tax for U.S. tax purposes. As a result, and with the finalization of other issues, PPL recorded a $42 million tax benefit to federal and state income tax reserves and related deferred income taxes in the third quarter of 2010. In July 2010, the U.S. Tax Court ruled in PPL's favor in a pending dispute with the IRS, concluding that street lighting assets of PPL Electric are depreciable for tax purposes over seven years. As a result, PPL recorded a $7 million tax benefit to federal and state income tax reserves and related deferred income taxes in the third quarter of 2010.
(b)		During the three and nine months ended September 30, 2010, PPL recorded $18 and $52 million of foreign tax benefits and related adjustments to foreign tax reserves of $15 and $46 million in conjunction with losses generated by restructuring. During the three and nine months ended September 30, 2009, PPL recorded a $46 million foreign tax benefit and a related $46 million tax reserve related to losses generated by restructuring. Additionally, during the nine months ended September 30, 2009, PPL recorded a $29 million foreign tax benefit related to the resolution of a tax dispute and foreign currency exchange losses.
(c)		During the third quarter of 2009, PPL received consent from the IRS to change its method of accounting for certain expenditures for tax purposes. PPL deducted the resulting IRC Sec. 481 adjustment on the 2008 federal income tax return and recorded a $26 million adjustment for the three and nine months ended September 30, 2009 to federal and state income tax expense resulting from the reduction of federal income tax benefits related to the domestic manufacturing deduction and reduction of certain state tax benefits related to state net operating losses and regulated depreciation.
(d)		Beginning in 2013, provisions within Health Care Reform eliminated the tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D Coverage. As a result, PPL recorded deferred income tax expense in the first quarter of 2010. See Note 9 for additional information.
(e)		The U.K.'s Finance Act of 2010, enacted in July 2010, included a reduction in the U.K. statutory income tax rate. Effective April 1, 2011, the statutory income tax rate will be reduced from 28% to 27%. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2010.

(PPL Energy Supply)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Reconciliation of Income Taxes
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35%	$	125		$	6		$	261		$	68
Increase (decrease) due to:
State income taxes		13			(15	)		27			(15	)
Impact of lower U.K. income tax rates		(8	)		(6	)		(15	)		(16	)
U.S. income tax on foreign earnings - net of foreign tax credit		(8	)		(1	)		(14	)		(4	)
Change in federal and state tax reserves (a)		(46	)		2			(49	)		5
Change in foreign tax reserves (b)		15			46			46			17
Domestic manufacturing deduction		(12	)		(4	)		(24	)		(11	)
Federal and state income tax return adjustments (c)					26						26
Health Care Reform (d)								5
Foreign losses generated through restructuring (b)		(18	)		(46	)		(52	)		(46	)
Enactment of the U.K.'s Finance Act 2010 (e)		(19	)					(19	)
Investment tax credits		(4	)					(8	)		(1	)
Other		(1	)		(3	)		(3	)		(11	)
Total decrease		(88	)		(1	)		(106	)		(56	)
Total income taxes from continuing operations	$	37		$	5		$	155		$	12

(a)		In 1997, the U.K. imposed a Windfall Profits Tax on privatized utilities, including WPD. In September 2010, the U.S. Tax Court ruled in PPL's favor in a pending dispute with the IRS, concluding that the U.K. Windfall Profits Tax is a creditable tax for U.S. tax purposes. As a result, and with the finalization of other issues, PPL Energy Supply recorded a $42 million tax benefit to federal and state income tax reserves and related deferred income taxes in the third quarter of 2010.
(b)		During the three and nine months ended September 30, 2010, PPL Energy Supply recorded $18 and $52 million of foreign tax benefits and related adjustments to foreign tax reserves of $15 and $46 million in conjunction with losses generated by restructuring. During the three and nine months ended September 30, 2009, PPL Energy Supply recorded a $46 million foreign tax benefit and a related $46 million tax reserve related to losses generated by restructuring. Additionally, during the nine months ended September 30, 2009, PPL Energy Supply recorded a $29 million foreign tax benefit related to the resolution of a tax dispute and foreign currency exchange losses.
(c)		During the third quarter of 2009, PPL Energy Supply received consent from the IRS to change its method of accounting for certain expenditures for tax purposes. PPL Energy Supply deducted the resulting IRC Sec. 481 adjustment on the 2008 federal income tax return and recorded a $26 million adjustment for the three and nine months ended September 30, 2009 to federal and state income tax expense resulting from the reduction of federal income tax benefits related to the domestic manufacturing deduction and reduction of certain state tax benefits related to state net operating losses.
(d)		Beginning in 2013, provisions within Health Care Reform eliminated the tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D Coverage. As a result, PPL Energy Supply recorded deferred income tax expense in the first quarter of 2010. See Note 9 for additional information.
(e)		The U.K.'s Finance Act of 2010, enacted in July 2010, included a reduction in the U.K. statutory income tax rate. Effective April 1, 2011, the statutory income tax rate will be reduced from 28% to 27%. As a result, PPL Energy Supply reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2010.

(PPL Electric)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Reconciliation of Income Taxes
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	19		$	17		$	53		$	56
Increase (decrease) due to:
State income taxes		3			4			7			8
Amortization of investment tax credit								(1	)		(1	)
Change in federal and state tax reserves (a)		(6	)		(2	)		(10	)		(5	)
Other		(1	)		(3	)		(2	)		(5	)
Total decrease		(4	)		(1	)		(6	)		(3	)
Total income taxes	$	15		$	16		$	47		$	53

(a)

In July 2010, the U.S. Tax Court ruled in PPL Electric's favor in a pending dispute with the IRS, concluding that street lighting assets are depreciable for tax purposes over seven years. As a result, PPL Electric recorded a $7 million tax benefit to federal and state income tax reserves and related deferred income taxes during the third quarter of 2010.

Unrecognized Tax Benefits (PPL, PPL Energy Supply and PPL Electric)

Changes to unrecognized tax benefits were as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
PPL
Beginning of period	$	224		$	173		$	212		$	202
Additions based on tax positions of prior years								4			14
Reductions based on tax positions of prior years		(50	)		(1	)		(56	)		(1	)
Additions based on tax positions related to the current year		13			47			43			50
Reductions based on tax positions related to the current year		(1	)					(6	)
Settlements		(11	)					(12	)		(40	)
Lapse of applicable statutes of limitations		(2	)		(2	)		(6	)		(6	)
Effects of foreign currency translation		5						(1	)		(2	)
End of period	$	178		$	217		$	178		$	217

PPL Energy Supply
Beginning of period	$	142		$	82		$	124		$	119
Additions based on tax positions of prior years								2			2
Reductions based on tax positions of prior years		(43	)		(1	)		(47	)		(1	)
Additions based on tax positions related to the current year		13			47			43			50
Reductions based on tax positions related to the current year								(3	)
Settlements								(1	)		(40	)
Effects of foreign currency translation		5						(1	)		(2	)
End of period	$	117		$	128		$	117		$	128

PPL Electric
Beginning of period	$	68		$	80		$	74		$	77
Additions based on tax positions of prior years								2			7
Reductions based on tax positions of prior years		(7	)					(9	)
Reductions based on tax positions related to the current year		(1	)					(3	)
Lapse of applicable statutes of limitations		(2	)		(2	)		(6	)		(6	)
End of period	$	58		$	78		$	58		$	78

At September 30, 2010, it was reasonably possible that during the next 12 months the total amount of unrecognized tax benefits could increase by as much as $22 million or decrease by up to $152 million for PPL, decrease by up to $116 million for PPL Energy Supply and increase by as much as $22 million or decrease by up to $36 million for PPL Electric. These changes could result from subsequent recognition, derecognition and/or changes in the measurement of uncertain tax positions related to the creditability of foreign taxes, the timing and utilization of foreign tax credits and the related impact on alternative minimum tax and other credits, the timing and/or valuation of certain deductions, intercompany transactions and unitary filing groups. The events that could cause these changes are direct settlements with taxing authorities, litigation, legal or administrative guidance by relevant taxing authorities and the lapse of an applicable statute of limitation.

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

	2010		2009

PPL	$	116	$	139
PPL Energy Supply		102		114
PPL Electric		14		16

At September 30, 2010, PPL, PPL Energy Supply and PPL Electric had interest receivable related to tax positions of $7 million, $7 million and $2 million. At December 31, 2009, PPL, PPL Energy Supply and PPL Electric had accrued interest payable related to tax positions of $36 million, $27 million and $5 million.

PPL and its subsidiaries recognize interest and penalties related to tax positions in "Income Taxes" on their Statements of Income. The following expenses (benefits) were recognized:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010			2009

PPL	$	(41	)	$	4	$	(39	)	$	6
PPL Energy Supply		(34	)		3		(30	)		3
PPL Electric		(6	)				(7	)		(1	)

The amounts recognized during the three and nine months ended September 30, 2010 were primarily the result of interest reversed related to prior-year tax positions. The amounts recognized during the three and nine months ended September 30, 2009, were primarily the result of additional interest accrued or reversed related to tax positions of prior years, settlements or adjustments to tax positions of prior years and the lapse of applicable statutes of limitations, with respect to certain issues.

6.	Variable Interest Entities

(PPL and PPL Energy Supply)

In December 2001, a subsidiary of PPL Energy Supply entered into a $455 million operating lease arrangement, as lessee, for the development, construction and operation of a gas-fired combined-cycle generation facility located in Lower Mt. Bethel Township, Northampton County, Pennsylvania. The owner/lessor of this generation facility, LMB Funding, LP, was created to own/lease the facility and incur the related financing costs. The initial lease term commenced on the date of commercial operation, which occurred in May 2004, and ends in December 2013. Under a residual value guarantee, if the generation facility is sold at the end of the lease term and the cash proceeds from the sale are less than the original acquisition cost, the subsidiary of PPL Energy Supply is obligated to pay up to 70.52% of the original acquisition cost. This residual value guarantee protects the other variable interest holders from losses related to their investments. LMB Funding, LP cannot extend or cancel the lease or sell the facility without the prior consent of the PPL Energy Supply subsidiary. As a result, LMB Funding, LP was determined to be a VIE and the subsidiary of PPL Energy Supply was considered the primary beneficiary that consolidates this VIE.

The lease financing, which includes $437 million of "Long-term Debt" and $18 million of "Noncontrolling Interests" at September 30, 2010 and December 31, 2009, is secured by, among other things, the generation facility, the carrying amount of which is disclosed on the Balance Sheets. The debt matures at the end of the initial lease term. As a result of the consolidation, PPL Energy Supply has recorded interest expense in lieu of rent expense. For the three and nine months ended September 30, 2010, additional depreciation on the generation facility of $4 million and $12 million was recorded. For the three and nine months ended September 30, 2009, additional depreciation on the generation facility of $3 million and $8 million was recorded.

7.	Financing Activities

Credit Arrangements and Short-term Debt

(PPL and PPL Energy Supply)

PPL Energy Supply had the following credit facilities in place at September 30, 2010:

	Expiration Date		Capacity		Borrowed (a)		Letters of Credit Issued		Unused Capacity

PPL Energy Supply Domestic Credit Facilities
5-year Structured Credit Facility (b)		March 2011	$	300		n/a	$	143	$	157
5-year Syndicated Credit Facility (c)		June 2012		3,225				5		3,220
3-year Bilateral Credit Facility (d)		March 2013		200		n/a		85		115
Total PPL Energy Supply Domestic Credit Facilities			$	3,725			$	233	$	3,492

WPD Credit Facilities
WPDH Limited 5-year Syndicated Credit Facility (e)		Jan. 2013	£	150	£	121		n/a	£	29
WPD (South West) 3-year Syndicated Credit Facility (f)		July 2012		210				n/a		210
Uncommitted Credit Facilities				63			£	3		60
Total WPD Credit Facilities			£	423	£	121	£	3	£	299

(a)		Amounts borrowed are recorded as "Short-term debt" on the Balance Sheet.

(b)		Under this facility, PPL Energy Supply has the ability to request the lenders to issue letters of credit but cannot make cash borrowings. PPL Energy Supply's obligations under this facility are supported by a $300 million letter of credit issued on PPL Energy Supply's behalf under a separate, but related, $300 million five-year credit agreement, also expiring in March 2011.

(c)		In June 2010, PPL Energy Supply closed into escrow a new $4 billion syndicated credit facility, expiring December 31, 2014, that, upon effectiveness, is intended to replace its $400 million 364-day syndicated credit facility, which expired in September 2010, and the $3.2 billion 5-year Syndicated Credit Facility. In the third quarter of 2010, the escrowed credit facility was amended to provide PPL Energy Supply the ability to make the facility effective upon five business days written notice. Under the $4 billion syndicated credit facility, PPL Energy Supply has the ability to make cash borrowings and to request the lenders to issue letters of credit. Borrowings will generally bear interest at LIBOR-based rates plus a spread, depending upon the company's senior unsecured long-term debt rating. PPL Energy Supply will also pay customary commitment and letter of credit issuance fees under the new facility. Similar to the existing facilities, the new credit facility contains a financial covenant requiring PPL Energy Supply's debt to total capitalization to not exceed 65% and other customary covenants. Additionally under certain conditions, PPL Energy Supply may request that the credit facility's capacity be increased by up to $500 million. At September 30, 2010, $40 million of deferred fees were accrued related to this facility.

		In October 2010, PPL Energy Supply terminated its $3.2 billion 5-year Syndicated Credit Facility and made the $4 billion syndicated credit facility effective. PPL Energy Supply subsequently borrowed $3.2 billion under the new credit facility in October 2010 in order to enable a subsidiary to make loans to certain affiliates to provide interim financing of amounts required by PPL to partially fund PPL's pending acquisition of E.ON U.S. Such borrowing bears interest at 2.26% and is expected to be refinanced by PPL through the issuance of long-term debt by affiliates and the use of internal funds.

(d)		In March 2010, PPL Energy Supply's 364-day bilateral credit facility was amended. The amendment included extending the expiration date to March 2013, thereby making it a three-year facility, and setting related fees based on the company's senior unsecured long-term debt rating. Under this facility, PPL Energy Supply can request the bank to issue letters of credit but cannot make cash borrowings.

(e)		Under this facility, WPDH Limited has the ability to make cash borrowings but cannot request the lenders to issue letters of credit. Borrowings under this facility bear interest at LIBOR-based rates plus a spread, depending on the company's long-term credit rating. The cash borrowing outstanding at September 30, 2010 was a USD-denominated borrowing of $181 million, which equated to £121 million at the time of borrowing and bears interest at approximately 1.19%.

(f)		Under this facility, WPD (South West) has the ability to make cash borrowings but cannot request the lenders to issue letters of credit. Borrowings under this facility bear interest at LIBOR-based rates plus a margin.

In May 2010, PPL Energy Supply entered into a $500 million Facility Agreement expiring in June 2017, whereby PPL Energy Supply has the ability to request up to $500 million of committed letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions. As of September 30, 2010, PPL Energy Supply has not requested any capacity for the issuance of letters of credit under this arrangement.

(PPL and PPL Electric)

PPL Electric had the following credit facilities in place at September 30, 2010:

	Expiration Date		Capacity	Borrowed		Letters of Credit Issued		Unused Capacity

5-year Syndicated Credit Facility (a)	May 2012	$	190		$	13	$	177
Asset-backed Credit Facility (b)	July 2011		150			n/a		150
Total PPL Electric Credit Facilities		$	340		$	13	$	327

(a)		Under this facility, PPL Electric has the ability to make cash borrowings and to request the lenders to issue letters of credit. Borrowings generally bear interest at LIBOR-based rates plus a spread, depending upon the company's senior secured long-term debt rating.

		In June 2010, PPL Electric closed into escrow a new $200 million syndicated credit facility, expiring December 31, 2014, that, upon effectiveness, is intended to replace its existing 5-year Syndicated Credit Facility. Subject to certain conditions, the new credit facility can become effective on the earliest of (i) December 31, 2010, (ii) the date on which the acquisition of E.ON U.S. is completed by PPL, or (iii) the date on which the purchase and sale agreement relating to the acquisition of E.ON U.S. has been terminated or expired or such acquisition has otherwise been abandoned by PPL. PPL Electric expects to make this facility effective on December 31, 2010. Upon effectiveness, PPL Electric will have the ability to make cash borrowings and to request the lenders to issue letters of credit. Borrowings will generally bear interest at LIBOR-based rates plus a spread, depending upon the company's senior secured long-term debt rating. PPL Electric will also pay customary commitment and letter of credit issuance fees under the new facility. Similar to the existing facility, the new credit facility contains a financial covenant requiring PPL Electric's debt to total capitalization to not exceed 70% and other customary covenants. Additionally, under certain conditions, PPL Electric may request that the facility's capacity be increased by up to $100 million. At September 30, 2010, $2 million of deferred fees were accrued related to this facility.

(b)		PPL Electric participates in an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary has pledged these assets to secure loans from a commercial paper conduit sponsored by a financial institution. The subsidiary's borrowing costs under the credit facility vary based on the commercial paper conduit's actual cost to issue commercial paper that supports the debt.

		At September 30, 2010 and December 31, 2009, $252 million and $223 million of accounts receivable and $91 million and $192 million of unbilled revenue were pledged by the subsidiary under the credit agreement related to PPL Electric's and the subsidiary's participation in the asset-backed commercial paper program. Based on the accounts receivable and unbilled revenue pledged, $150 million was available for borrowing at September 30, 2010. PPL Electric's sale to its subsidiary of the accounts receivable and unbilled revenue is an absolute sale of the assets, and PPL Electric does not retain an interest in these assets. However, for financial reporting purposes, the subsidiary's financial results are consolidated in PPL Electric's financial statements. PPL Electric performs certain record-keeping and cash collection functions with respect to the assets in return for a servicing fee from the subsidiary. In July 2010, PPL Electric and the subsidiary extended the expiration date of the credit agreement to July 2011.

PPL Electric maintains a commercial paper program for up to $200 million to provide an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are currently supported by PPL Electric's 5-year Syndicated Credit Facility, which expires in May 2012, based on available capacity. PPL Electric had no commercial paper outstanding at September 30, 2010.

(PPL)

In June 2010, PPL closed into escrow two new $400 million syndicated credit facilities, expiring December 31, 2014, that are intended to be entered into by LG&E and KU, subject to certain conditions precedent, upon closing of PPL's acquisition of E.ON U.S. Upon effectiveness of the facilities, LG&E and KU will each have the ability to make cash borrowings and to request the lenders to issue letters of credit. Borrowings will generally bear interest at LIBOR-based rates plus a spread, depending upon the respective company's senior unsecured long-term debt rating. Each company will also pay customary commitment and letter of credit issuance fees under their respective facility. The new credit facilities each contain a financial covenant requiring the respective borrower's debt to total capitalization to not exceed 70% and other customary covenants. Additionally, under certain conditions, LG&E and KU may each request that its respective facility's capacity be increased by up to $100 million. At September 30, 2010, an aggregate of $5 million of deferred fees were accrued related to these facilities.

Bridge Facility

Concurrently, and in connection with entering into the agreement to acquire E.ON U.S., PPL entered into a commitment letter with certain lenders pursuant to which, subject to the conditions set forth therein, the lenders committed to provide PPL with 364-day unsecured bridge financing of up to $6.5 billion, the proceeds of which, if drawn upon, must be used at closing of the acquisition (i) to fund the consideration for the acquisition and (ii) to pay certain fees and expenses in connection with the acquisition. In June 2010, the commitment of such lenders for the bridge financing was syndicated to a group of banks, including the lenders under the commitment letter. Upon the syndication of the commitment, PPL Capital Funding, as borrower, and PPL, as guarantor, entered into a $6.5 billion Bridge Facility.

In accordance with the terms of the Bridge Facility, the capacity of the Bridge Facility was permanently reduced after PPL's issuance of common stock and Equity Units in June 2010, as discussed in "Long-term Debt and Equity Securities" below, and as a result of the monetization of certain full-requirement sales contracts in the third quarter of 2010. At September 30, 2010, the capacity of the Bridge Facility was approximately $2.6 billion. See "Commodity Price Risk (Non-trading) - Monetization of Certain Full-Requirement Sales Contracts" in Note 14 for additional information on the monetization. In October 2010, the capacity of the Bridge Facility was reduced further to $300 million in connection with the October 2010 borrowing under PPL Energy Supply's $4 billion syndicated credit facility, which is discussed above in "Credit Arrangements and Short-term Debt."

The Bridge Facility, if drawn upon, will mature 364 days after closing of the acquisition. Any borrowings under the Bridge Facility would generally bear interest at LIBOR-based rates plus a spread, depending upon PPL Capital Funding's public debt rating and the length of time that the borrowings are outstanding. If drawn upon, PPL Capital Funding would also be required to pay the lenders additional fees under the Bridge Facility that are dependent upon the amount of borrowings and length of time outstanding. During the nine months ended September 30, 2010, PPL incurred $79 million of fees in connection with the Bridge Facility, of which $74 million was deferred and is being amortized through the anticipated closing date of the acquisition in November 2010.

The Bridge Facility contains a financial covenant requiring PPL to maintain a ratio of debt to total capitalization, as defined therein, not to exceed 70%. The Bridge Facility also contains customary representations, covenants, and events of default and requires the prepayment of advances and/or the permanent reduction of commitments under the facility with the net cash proceeds received from disposals of assets, incurrence of debt and issuance of equity securities, subject to certain exceptions.

Long-term Debt and Equity Securities

(PPL)

Effective June 21, 2010, PPL Capital Funding's 6.85% Senior Notes due 2047 ceased being the covered debt under the Replacement Capital Covenant entered into by PPL and PPL Capital Funding in March 2007 in connection with the issuance of PPL Capital Funding's 2007 Series A Junior Subordinated Notes due 2067, as a result of there being less than $100 million aggregate principal amount of such notes outstanding. Because there was no other eligible debt outstanding to become the covered debt benefiting from the Replacement Capital Covenant, the Replacement Capital Covenant terminated.

In June 2010, PPL issued 103.5 million shares of its common stock at a public offering price of $24.00 per share, for a total of $2.484 billion. Proceeds from the issuance were $2.409 billion, net of the $75 million underwriting discount. PPL also issued 23 million Equity Units at a stated amount per unit of $50.00, for a total of $1.150 billion. Proceeds from the issuance were $1.116 billion, net of the $34 million underwriting discount. PPL invested the net proceeds in U.S. government obligations, bank deposits and other highly-rated investments until needed to partially fund the acquisition of E.ON U.S. and pay certain acquisition-related fees and expenses.

Each Equity Unit consists of a Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.625% Junior Subordinated Notes due 2018 (2018 Notes).

Each Purchase Contract obligates the holder to purchase, and PPL to sell, for $50.00 a variable number of shares of PPL common stock determined by the average VWAP of PPL's common stock for the 20-trading day period ending on the third trading day prior to July 1, 2013, subject to antidilution adjustments and an early settlement upon a Fundamental Change, as follows:

·	if the average VWAP equals or exceeds $28.80, then 1.7361 shares (a minimum of 39,930,300 shares);
·	if the average VWAP is less than $28.80 but greater than $24.00, a number of shares of common stock having a value, based on the average VWAP, equal to $50.00; and
·	if the average VWAP is less than or equal to $24.00, then 2.0833 shares (a maximum of 47,915,900 shares).

If holders elect to settle the Purchase Contract prior to July 1, 2013, they will receive 1.7361 shares of PPL common stock, subject to antidilution adjustments and an early settlement upon a Fundamental Change.

A holder's ownership interest in the 2018 Notes is pledged to PPL to secure the holder's obligation under the related Purchase Contract. If a holder of a Purchase Contract chooses at any time to no longer be a holder of the 2018 Notes, such holder's obligation under the Purchase Contract must be secured by a U.S. Treasury security.

Each Purchase Contract also requires PPL to make quarterly contract adjustment payments at a rate of 4.875% per year on the $50.00 stated amount of the Equity Unit. PPL has the option to defer these contract adjustment payments until the Purchase Contract settlement date. Deferred contract adjustment payments will accrue additional contract adjustment payments at the rate of 9.5% per year until paid. Until any deferred contract adjustment payments have been paid, PPL may not declare or pay any dividends or distributions on, or redeem, purchase or acquire or make a liquidation payment with respect to, any of its capital stock, subject to certain exceptions.

The 2018 Notes are fully and unconditionally guaranteed by PPL as to payment of principal and interest. The 2018 Notes initially bear interest at 4.625% and are not subject to redemption prior to July 2015. Beginning July 2015, PPL Capital Funding may, at its option, redeem the 2018 Notes, in whole but not in part, at any time, at par plus accrued and unpaid interest. The 2018 Notes are expected to be remarketed in 2013 in two tranches, such that neither tranche will have an aggregate principal amount of less than the lesser of $300 million and 50% of the aggregate principal amount of the 2018 Notes to be remarketed. One tranche will mature on or about the third anniversary of the settlement of the remarketing, and the other tranche will mature on or about the fifth anniversary of such settlement. The 2018 Notes will be remarketed as subordinated, unsecured obligations of PPL Capital Funding, as PPL Capital Funding notified the trustee in September 2010 of its irrevocable election to maintain the subordination provisions of the notes and related guarantees in a remarketing. Upon a successful remarketing, the interest rate on the 2018 Notes may be reset and the maturity of the tranches may be modified as necessary. In connection with a remarketing, PPL Capital Funding may elect with respect to each tranche to extend or eliminate the early redemption date and/or calculate interest on the notes of a tranche on a fixed or floating rate basis. If the remarketing fails, holders of the 2018 Notes will have the right to put their notes to PPL Capital Funding on July 1, 2013 for an amount equal to the principal amount plus accrued interest.

Prior to July 2013, PPL Capital Funding may elect at one or more times to defer interest payments on the 2018 Notes for one or more consecutive interest periods until the earlier of the third anniversary of the interest payment due date and July 2015. Deferred interest payments will accrue additional interest at a rate equal to the interest rate then applicable to the 2018 Notes. Until any deferred interest payments have been paid, PPL may not, subject to certain exceptions, (i) declare or pay any dividends or distributions on, or redeem, purchase or acquire or make a liquidation payment with respect to, any of its capital stock, (ii) make any payment of principal of, or interest or premium, if any, on, or repay, purchase or redeem any of its debt securities that upon its liquidation ranks equal with, or junior in interest to, the subordinated guarantee of the 2018 Notes by PPL as of the date of issuance and (iii) make any payments regarding any guarantee by PPL of securities of any of its subsidiaries (other than PPL Capital Funding) if the guarantee ranks equal with, or junior in interest to, the 2018 Notes as of the date of their issuance.

In the financial statements, the proceeds from the sale of the Equity Units were allocated to the 2018 Notes and the Purchase Contracts, including the obligation to make contract adjustment payments, based on the underlying fair value of each instrument at the time of issuance. As a result, the 2018 Notes were recorded at $1.150 billion, which approximated fair value, as long-term debt. At the time of issuance, the present value of the contract adjustment payments of $157 million was recorded to other liabilities, representing the obligation to make contract adjustment payments, with an offsetting reduction to capital in excess of par value for the issuance of the Purchase Contracts, which approximated the fair value of each. The liability will be accreted through interest expense over the three-year term of the Purchase Contracts. Through September 30, 2010, costs to issue the Equity Units were primarily allocated on a relative cost basis, resulting in $29 million being recorded to capital in excess of par value and $7 million being recorded to other noncurrent assets. See Note 4 for EPS considerations related to the Purchase Contracts.

In October 2010, PPL Capital Funding repurchased $20 million of its 2007 Series A Junior Subordinated Notes due 2067, for $19 million, plus accrued interest.

(PPL and PPL Energy Supply)

In March 2010, WPD (South Wales) and WPD (South West) each issued £200 million of 5.75% Notes due 2040 (Notes). The combined debt issuance of £400 million equated to $603 million at the time of issuance, of which WPD received proceeds of £394 million, which equated to $593 million, net of discounts and underwriting fees. The proceeds have been or will be used for general corporate purposes, including repayment of short-term debt, prepayment of certain pension contributions and funding of capital expenditures. See Note 9 for further discussion of pension contributions.

The Notes may be redeemed any time prior to maturity in whole, but not in part, at the option of each issuer at make-whole redemption prices. Additionally, the Notes may be put by the holders back to the issuer for redemption if the long-term credit ratings assigned to the Notes by Moody's, S&P or Fitch are withdrawn by any of the rating agencies or reduced to a non-investment grade rating of Ba1 or BB+ in connection with a restructuring event. A restructuring event includes the loss of, or a material adverse change to, the distribution license under which WPD (South Wales) and WPD (South West) operate.

In August 2010, PPL Energy Supply elected to change the interest rate mode on the Exempt Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series 2009C due 2037 (PPL Energy Supply, LLC Project) that were issued by the PEDFA on behalf of PPL Energy Supply in 2009. The interest rate mode on all three series was converted from a commercial paper rate to a term rate of 3.00% for five years, effective in September 2010. In connection with this change, the letters of credit supporting the bonds were terminated.

(PPL and PPL Electric)

In April 2010, PPL Electric redeemed all five series of its outstanding preferred stock, with a par value in the aggregate of $51 million for $54 million, including accumulated dividends. The preferred stock was reflected on PPL's Balance Sheets in "Noncontrolling Interests" as of December 31, 2009. The redeemed shares are no longer outstanding and represent only the right to receive the applicable redemption price, to the extent the shares have not yet been presented for payment. The premium of $3 million is included in "Net Income Attributable to Noncontrolling Interests" on PPL's Statement of Income and "Distributions on Preferred Securities" on PPL Electric's Statement of Income.

The Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023 that were issued by the PEDFA on behalf of PPL Electric in 2008 were remarketed in September 2010. The bonds were in a term rate mode bearing interest at 4.85% until October 2010. Effective October 2010, the term rate on the bonds was set at 4.00% through maturity.

Legal Separateness (PPL, PPL Energy Supply and PPL Electric)

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

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

Distributions and Capital Contributions

(PPL)

In February 2010, PPL announced an increase to its quarterly common stock dividend, effective April 1, 2010, to 35.0 cents per share (equivalent to $1.40 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

(PPL Energy Supply)

During the nine months ended September 30, 2010, PPL Energy Supply distributed $512 million to its parent company, PPL Energy Funding, and received cash contributions of $3.5 billion. The cash contributions received from its parent relate to the funds received by PPL in June 2010 from the issuance of common stock and Equity Units. These funds were invested by a subsidiary of PPL Energy Supply until they were returned to PPL Energy Funding in October 2010 to be available to partially fund PPL's acquisition of E.ON U.S. and pay certain acquisition-related fees and expenses.

(PPL Electric)

During the nine months ended September 30, 2010, PPL Electric paid common stock dividends of $49 million to PPL and received cash contributions of $55 million.

8.	Acquisitions, Development and Divestitures

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries continuously evaluate strategic options and, from time to time, negotiate with third parties regarding acquisitions and dispositions of businesses and assets, joint ventures and development projects, which may or may not result in consummated transactions. Any resulting transactions may impact future financial results.

Domestic

Pending Acquisition of E.ON U.S.

(PPL)

In April 2010, PPL announced that it had entered into a Purchase and Sale Agreement (the PSA) among E.ON US Investments, PPL, and (for certain limited purposes) E.ON AG, providing for the sale of E.ON U.S. to PPL.

At closing, PPL will acquire all of the outstanding limited liability company interests of E.ON U.S. for cash consideration estimated to be $2.5 billion. In addition, PPL will assume, through consolidation, an estimated $764 million of outstanding pollution control bonds and will repay indebtedness owed by E.ON U.S. and its subsidiaries to E.ON US Investments and its affiliates. Such affiliate indebtedness is estimated to be $4.3 billion. The aggregate consideration payable by PPL at closing is estimated to be $7.6 billion (including the surviving indebtedness). These amounts are subject to adjustment for any specified incremental investment in E.ON U.S. made by E.ON US Investments and its affiliates prior to closing. See Note 7 for information on PPL's June 2010 issuance of $3.634 billion of common stock and Equity Units, the net proceeds (totaling $3.525 billion, net of underwriting discounts) of which will be used to partially fund the acquisition. Note 7 also provides information on the October 2010 borrowing under PPL Energy Supply's syndicated credit facility that will provide interim financing to partially fund the acquisition.

E.ON U.S. Investments and PPL have made customary representations and warranties and covenants in the PSA. The transaction is subject to customary closing conditions, including receipt of required regulatory approvals and the absence of injunctions or restraints imposed by governmental entities. The transaction has received all requisite regulatory approvals, including the Kentucky Public Service Commission, the Tennessee Regulatory Authority, the Virginia State Corporation Commission, the FERC and antitrust clearance from the U.S. Federal Trade Commission and the U.S. Department of Justice. The transaction is expected to close on or about November 1, 2010.

The PSA also contains certain customary termination rights for both PPL and E.ON US Investments, including a termination right for either party if the closing does not occur by April 28, 2011 (provided that either party may postpone such date to October 28, 2011 in the event that the only closing condition that remains to be satisfied is the receipt of regulatory approvals). In addition, E.ON US Investments has the right to terminate the PSA if PPL has failed to consummate the transaction when it was otherwise obligated to do so. Upon such termination, subject to certain conditions, PPL may be required to pay E.ON US Investments a termination fee of $450 million.

During the three and nine months ended September 30, 2010, PPL incurred third-party acquisition-related costs including advisory, accounting and legal fees, of $4 million and $11 million, which were recorded in "Other Income (Expense) - net" on the Statement of Income. In addition, Bridge Facility costs of $45 million and $67 million were recorded in "Interest Expense" on the Statement of Income. See Note 7 for a discussion of costs incurred related to PPL's June 2010 issuance of common stock and Equity Units.

(PPL and PPL Energy Supply)

As part of the E.ON U.S. acquisition financing strategy, in September 2010, certain PPL Energy Supply subsidiaries signed definitive agreements to sell their interests in certain non-core generation facilities for cash proceeds of $381 million. See "Discontinued Operations - Anticipated Sale of Certain Non-Core Generation Facilities" for additional information. Also, in July 2010, PPL Energy Supply monetized certain full-requirement sales contracts that resulted in cash proceeds of $249 million. See "Commodity Price Risk (Non-trading) - Monetization of Certain Full-Requirement Sales Contracts" in Note 14 for additional information.

As a result of the expected net proceeds from the anticipated sale of certain non-core generation facilities, coupled with the monetization of certain full-requirement sales contracts, debt that had been planned to be issued by PPL Energy Supply in 2010 was no longer needed. As a result, hedge accounting associated with interest rate swaps entered into by PPL in anticipation of a debt issuance by PPL Energy Supply was discontinued. Net losses of $(29) million, or $(19) million after tax, were reclassified from AOCI to "Other Income (Expense) - net" on PPL's Statement of Income for the three and nine months ended September 30, 2010.

Development

(PPL and PPL Energy Supply)

PPL Energy Supply applied for DOE loan guarantees for the 125 MW Holtwood expansion project and for the 28 MW Rainbow redevelopment project. In April 2010, PPL Energy Supply notified the DOE that it was withdrawing the applications for both projects citing improvements in the financial markets. Construction continues on both projects, with commercial operations scheduled to begin in 2013 for the Holtwood project and 2012 for the Rainbow project.

In 2008, PPL Susquehanna received NRC approval for its request to increase the generation capacity of the Susquehanna nuclear plant. The project is being completed in phases over several years. PPL Susquehanna's share of the total expected capacity increase is currently estimated to be 195 MW. The final phase of the Unit 1 uprate was completed in 2010 and yielded 55 MW for PPL Susquehanna. The final Unit 2 uprate is scheduled for 2011 and is projected to yield an additional 50 MW for PPL Susquehanna. PPL Susquehanna's share of the expected capital cost of the remaining uprate is $19 million.

In 2008, a PPL Energy Supply subsidiary submitted a COLA to the NRC for the proposed Bell Bend nuclear generating unit (Bell Bend) to be built adjacent to the Susquehanna plant. Also in 2008, the COLA was formally docketed and accepted for review by the NRC. The NRC continues to review the COLA. In February 2010, the NRC published its official review schedule that culminates with the issuance of Bell Bend's final safety evaluation report in 2012, after which a public hearing will be held before Bell Bend's license can be issued.

In 2008, a PPL Energy Supply subsidiary submitted Parts I and II of an application for a federal loan guarantee for Bell Bend to the DOE. In 2009, the DOE announced that it was working to finalize loan guarantees related to four projects, which did not include Bell Bend. Eight of the ten applicants who submitted Part II applications remain active in the DOE program; however, the DOE has stated that the $18.5 billion currently appropriated to support new nuclear projects would not likely be enough for more than three projects. A PPL Energy Supply subsidiary submits quarterly application updates for Bell Bend to the DOE to remain active in the loan guarantee application process.

The President's proposed budget for fiscal year 2011 includes an additional $36 billion of loan guarantees for nuclear projects. If this increased loan guarantee authorization is approved, PPL believes that Bell Bend could be a candidate for a share of such additional guarantees. However, PPL has made no decision to proceed with construction of Bell Bend and expects that such decision will not be made for several years given the anticipated lengthy NRC license approval process. Additionally, PPL has announced that it does not expect to proceed with construction absent favorable economics, a joint arrangement with other interested parties and a federal loan guarantee or other acceptable financing. PPL and its subsidiaries are currently authorized by PPL's Board of Directors to spend up to $111 million on the COLA and other permits necessary for construction. At September 30, 2010 and December 31, 2009, $98 million and $77 million of costs associated with the licensing application were capitalized and are included in noncurrent "Other intangibles" on the Balance Sheets. PPL believes it is probable that these costs are ultimately recoverable following NRC approval of the COLA either through construction of the new nuclear unit, transfer of the COLA rights to a joint venture, or sale of the COLA rights to another party.

(PPL and PPL Electric)

In 2007, PJM directed the construction of a new 150-mile, 500-kilovolt transmission line between the Susquehanna substation in Pennsylvania and the Roseland substation in New Jersey that it identified as essential to long-term reliability of the mid-Atlantic electricity grid. PJM determined that the line is needed to prevent potential overloads that could occur as early as 2013 on several existing transmission lines in the interconnected PJM system. PJM has directed PPL Electric to construct the portion of the Susquehanna-Roseland line in Pennsylvania and has directed Public Service Electric & Gas Company to construct the portion of the line in New Jersey, in each case by June 1, 2012. PPL Electric's estimated share of the project costs is approximately $500 million.

This project is pending certain regulatory approvals. PPL Electric has identified the approximately 100-mile route for the Pennsylvania portion of the line. In February 2010, the PUC and the New Jersey Board of Public Utilities approved the project. Several parties appealed the PUC decision to the Commonwealth Court of Pennsylvania, and certain of those appeals are pending before the court. PPL Electric cannot predict the ultimate outcome or timing of these proceedings.

In addition, both companies are working with the National Park Service to obtain any approvals that may be required to route the line through the Delaware Water Gap National Recreation Area. The National Park Service has stated that its review will not be completed until 2012. PPL Electric cannot predict the ultimate outcome or timing of the National Park Service approval.

PPL Electric anticipates the delays in the approval process will delay the in-service date to 2014 or later. PPL Electric also cannot predict what action, if any, PJM might take in the event of a delay to its scheduled in-service date for the new line. PJM continues to reaffirm the need for this project.

Divestiture (PPL and PPL Energy Supply)

In 2004, a PPL Energy Supply subsidiary entered into an agreement with a coalition of government agencies and private groups to sell three of its hydroelectric facilities in Maine. Under the agreement, a non-profit organization designated by the coalition received a five-year option to purchase the hydroelectric facilities for $25 million and, if the option was exercised, the PPL Energy Supply subsidiary would receive rights to increase energy output at its other hydroelectric facilities. The coalition announced plans to remove or bypass the subject facilities to restore runs of Atlantic salmon and other migratory fish to the Penobscot River. In 2008, the coalition notified the PPL Energy Supply subsidiary of its intent to exercise the purchase option. The agreement requires updates to its representations and warranties, and is subject to approvals by the FERC and other regulatory agencies. Also in 2008, the PPL Energy Supply subsidiary and the coalition requested the FERC, the U.S. Army Corps of Engineers and the Maine DEP to approve the transfer of ownership of the three facilities. In June 2010, certain of these required approvals, including the FERC approvals of the transfer and of the decommissioning and removal of certain hydroelectric facilities, were obtained. Completion of the transaction is pending receipt of certain remaining approvals, not all of which are mandatory.

As a result of the June 2010 approvals, these three Maine hydroelectric facilities, which are included in the Supply segment, met the held for sale criteria and, accordingly, at September 30, 2010 the related assets were classified on the Balance Sheet as held for sale. These assets, totaling $12 million, consist primarily of PP&E (corresponding amounts at December 31, 2009 were substantially the same, but have not been reclassified on the Balance Sheet as of that period). The results of operations of these facilities for the three and nine months ended September 30, 2010 and 2009 were insignificant and, therefore, have not been classified as Discontinued Operations.

Discontinued Operations (PPL and PPL Energy Supply)

Anticipated Sale of Certain Non-Core Generation Facilities

As part of the E.ON U.S. acquisition financing strategy, management explored the sale of certain non-core assets. As a result of this process, in September 2010, certain PPL Energy Supply subsidiaries signed definitive agreements to sell their entire ownership interests in certain non-core generation facilities, included in the Supply segment, for approximately $381 million in cash. The transaction includes the natural gas-fired facilities in Wallingford, Connecticut and University Park, Illinois and a PPL Energy Supply subsidiary's share in the Safe Harbor hydroelectric facility in Conestoga, Pennsylvania, which is accounted for as an equity investment.

These non-core generation facilities met the held for sale criteria in the third quarter of 2010. As a result, assets with a carrying amount of $473 million were written down to their estimated fair value (less cost to sell) of $377 million at September 30, 2010, resulting in a pre-tax impairment charge of $96 million ($58 million after tax). In addition, $5 million ($4 million after tax) of allocated goodwill was written off in the third quarter of 2010. These charges are included in "Loss from Discontinued Operations (net of income taxes)" on the Statements of Income for the three and nine months ended September 30, 2010. The sale is expected to close in the fourth quarter of 2010, subject to the receipt of necessary regulatory approvals and third-party consents.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Operating revenues	$	35		$	22		$	91		$	80
Operating expenses (a)		118			13			147			32
Operating income (loss)		(83	)		9			(56	)		48
Other income (expense) – net		1			1			2			1
Interest expense (b)		1			2			5			6
Income (loss) before income taxes		(83	)		8			(59	)		43
Income tax expense (benefit)		(30	)		9			(21	)		25
Income (Loss) from Discontinued Operations – PPL	$	(53	)	$	(1	)	$	(38	)	$	18

Income tax adjustment (c)		1			3						3
Income (Loss) from Discontinued Operations – PPL Energy Supply	$	(54	)	$	(4	)	$	(38	)	$	15

(a)		2010 includes the impairment to the carrying value of the generation facilities being sold and the write-off of allocated goodwill.
(b)		Represents allocated interest expense based upon debt attributable to the generation facilities being sold.
(c)		To adjust for the difference between PPL's and PPL's Energy Supply's annual effective tax rate.

The major classes of assets reported as held for sale on the Balance Sheet at September 30, 2010 were $356 million of PP&E and a $13 million equity method investment (corresponding amounts at December 31, 2009 were $461 million of PP&E and a $13 million equity method investment, which have not been reclassified on the Balance Sheet as of that date).

Sale of Long Island Generation Business

In February 2010, a PPL Energy Supply subsidiary completed the sale of the Long Island generation business, which was included in the Supply segment. The definitive sales agreement, which was executed in May 2009, included provisions that reduced the $135 million purchase price monthly, commencing September 1, 2009. After adjusting for these price-reduction provisions, proceeds from the sale approximated $124 million.

In the second quarter of 2009, the Long Island generation business met the held for sale criteria. As a result, at June 30, 2009, net assets held for sale were written down to their estimated fair value less cost to sell, resulting in a pre-tax impairment charge of $52 million ($34 million after tax). At September 30, 2009, the estimated fair value (less cost to sell) was remeasured and an additional impairment of $5 million ($3 million after tax) was recorded. In addition to the above impairments, PPL Energy Supply recorded a loss on the sale of $3 million during the first quarter of 2010 due to the price-reduction provisions. The losses recognized in the third quarter of 2009 and the first quarter of 2010 did not significantly impact earnings, as such amounts were substantially offset by tolling revenues from the Long Island generation assets during the same periods. These amounts are included in "Loss from Discontinued Operations (net of income taxes)" on the Statements of Income.

The tolling agreements related to these plants, which were accounted for as containing leases, were transferred to the new owner upon completion of the sale.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010	2009			2010		2009

Operating revenues		$	7		$	4	$	18
Operating expenses (a)			7			4		62
Operating loss								(44	)
Interest expense (b)								2
Loss before income taxes								(46	)
Income tax expense (benefit)			1					(15	)
Loss from Discontinued Operations		$	(1	)	$		$	(31	)

(a)		The nine months ended September 30, 2010 includes the loss on the sale of the business. The three and nine months ended September 30, 2009 include impairment charges.
(b)		Represents allocated interest expense based upon debt attributable to PPL's Long Island generation business.

Upon completion of the sale, $41 million of PP&E and an $86 million net investment in a direct-financing lease, which had been classified as held for sale, were removed from the Balance Sheet.

Sale of the Majority of Maine Hydroelectric Generation Business

In November 2009, a PPL Energy Supply subsidiary completed the sale of the majority of its Maine hydroelectric generation business, which was included in the Supply segment, for $81 million in cash, adjusted for working capital. The assets sold in this transaction included five hydroelectric facilities and a 50% equity interest in a sixth hydroelectric facility, which had been accounted for as an equity investment, together with rights to increase energy output at these facilities if the potential sale of a PPL Energy Supply subsidiary's three other hydroelectric facilities is completed (see "Divestiture" above). Upon completion of the sale of the three other hydroelectric facilities noted above, the PPL Energy Supply subsidiary will receive $14 million in contingent consideration, provided such sale is completed on or before November 1, 2013.

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

	Three Months Ended		Nine Months Ended
	September 30, 2009

Operating revenues	$	3	$	6
Operating expenses		1		3
Operating income		2		3
Other income (expense) - net		1		2
Interest expense (a)		1		1
Income before income taxes		2		4
Income tax expense		1		2
Income from Discontinued Operations	$	1	$	2

(a)

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

Sale of Latin American Businesses

In 2007, PPL completed the sale of its regulated electricity delivery businesses in Chile, El Salvador and Bolivia, which were included in the International Delivery segment. In 2009, PPL identified a correction to the previously computed tax bases of the Latin American businesses. The most significant adjustment related to the sale of the El Salvadoran business and was largely due to returns of capital in certain prior years that had not been reflected in the calculated tax basis. During the three and nine months ended September 30, 2009, PPL and PPL Energy Supply recorded $24 million of additional income tax expense, which is reflected on the Statement of Income in "Loss from Discontinued Operations (net of income taxes)."

9.	Defined Benefits

(PPL and PPL Energy Supply)

Net periodic defined benefit costs (credits) were:

	Pension Benefits
	Three Months Ended September 30,												Nine Months Ended September 30,
	U.S.						U.K.						U.S.						U.K.
	2010			2009			2010 (a)			2009			2010			2009			2010 (a)			2009
PPL
Service cost	$	15		$	15		$	4		$	3		$	45		$	45		$	13		$	7
Interest cost		37			36			38			40			111			108			113			114
Expected return on plan assets		(43	)		(43	)		(51	)		(49	)		(131	)		(127	)		(150	)		(139	)
Amortization of:
Transition asset					(1	)											(3	)
Prior service cost		5			5			1			1			15			15			3			3
Actuarial loss								12						2			2			36			2
Net periodic defined benefit costs (credits) prior to termination benefits		14			12			4			(5	)		42			40			15			(13	)
Termination benefits (b)																	9
Net periodic defined benefit costs (credits)	$	14		$	12		$	4		$	(5	)	$	42		$	49		$	15		$	(13	)

PPL Energy Supply
Service cost	$	1		$	1		$	4		$	3		$	3		$	3		$	13		$	7
Interest cost		2			2			38			40			5			5			113			114
Expected return on plan assets		(1	)		(2	)		(51	)		(49	)		(4	)		(5	)		(150	)		(139	)
Amortization of:
Prior service cost								1			1									3			3
Actuarial loss					1			12						1			2			36			2
Net periodic defined benefit costs (credits)	$	2		$	2		$	4		$	(5	)	$	5		$	5		$	15		$	(13	)

(a)		Net periodic defined benefit costs reflect the impact of a March 2010 remeasurement of WPD's principal pension plan. As a result of the remeasurement, projected net periodic defined benefit costs decreased by $10 million for 2010. The decrease primarily resulted from an increase in the expected return on plan assets, which was adjusted to include $165 million of additional pension contributions.
(b)		Relates to 2009 workforce reductions. See "Separation Benefits" below for additional information.

	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010 (a)			2009			2010 (a)			2009
PPL
Service cost	$	2		$	2		$	6		$	5
Interest cost		6			7			20			21
Expected return on plan assets		(5	)		(5	)		(15	)		(13	)
Amortization of:
Transition obligation		1			3			5			7
Prior service cost					2			4			6
Actuarial loss		2			1			4			2
Net periodic defined benefit costs	$	6		$	10		$	24		$	28

(a)

Net periodic defined benefit costs reflect the impact of plan changes and remeasurement of PPL's postretirement medical plan in the third quarter. As a result of the remeasurement, projected net periodic defined benefit costs decreased by $8 million for 2010. The remeasurement results include the impact of significant decreases in bond yields that reduced the discount rate and return on plan asset assumptions.

(PPL Energy Supply and PPL Electric)

In addition to the specific plans it sponsors, PPL Energy Supply is also allocated costs of defined benefit plans sponsored by PPL Services, based on its participation in those plans. PPL Electric does not directly sponsor any defined benefit plans. PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services, based on its participation in those plans. PPL Services allocated the following amounts to PPL Energy Supply and PPL Electric, including amounts applied to accounts that are further distributed between capital and expense.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

PPL Energy Supply	$	7	$	9	$	25	$	25
PPL Electric		7		7		21		21

Expected Cash Flows - U.K. Pension Plans (PPL and PPL Energy Supply)

During the nine months ended September 30, 2010, WPD contributed $225 million to its pension plans. In total, pension contributions are estimated to be $228 million in 2010. Additional contributions of $165 million were made to prepay future contribution requirements for WPD's principal pension plan.

Effective April 1, 2010, WPD's principal pension plan was closed to most new employees, except for those meeting specific grandfathered participation rights. New employees not eligible to participate in the plan will be offered benefits under a defined contribution plan.

(PPL, PPL Energy Supply and PPL Electric)

Separation Benefits

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

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

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

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

Health Care Reform

In March 2010, Health Care Reform was signed into law. Many provisions of Health Care Reform do not take effect for an extended period of time, and most will require the publication of implementing regulations and/or issuance of program guidelines.

Beginning in 2013, provisions within Health Care Reform eliminate the tax deductibility of retiree health care costs to the extent of federal subsidies received by plan sponsors that provide retiree prescription drug benefits equivalent to Medicare Part D Coverage. As a result, in the first quarter of 2010:

·	PPL decreased deferred tax assets by $13 million, increased regulatory assets by $9 million, increased deferred tax liabilities by $4 million and recorded income tax expense of $8 million;
·	PPL Energy Supply decreased deferred tax assets by $5 million and recorded income tax expense of $5 million; and
·	PPL Electric decreased deferred tax assets by $5 million, increased regulatory assets by $9 million and increased deferred tax liabilities by $4 million.

Other provisions within Health Care Reform that could apply to PPL and it subsidiaries include:

·	an excise tax, beginning in 2018, imposed on high-cost plans providing health coverage that exceeds certain thresholds;
·	a requirement to extend dependent coverage up to age 26; and
·	broadening the eligibility requirements under the Federal Black Lung Act.

PPL and its subsidiaries have evaluated the impact of Health Care Reform and to date have not identified any items that could materially impact the financial statements. PPL and its subsidiaries will continue to monitor the potential impact of any changes to the existing provisions and implementation guidance related to Health Care Reform on their benefit programs.

10.	Commitments and Contingencies

Energy Purchases, Energy Sales and Other Commitments

Energy Purchase Commitments

(PPL and PPL Energy Supply)

PPL and PPL Energy Supply enter into long-term purchase contracts to supply the fuel requirements for generation facilities. These contracts include commitments to purchase coal, emission allowances, limestone, natural gas, oil and nuclear fuel. These long-term contracts extend through 2019, with the exception of a limestone contract that extends through 2030. PPL and PPL Energy Supply also enter into long-term contracts for the storage and transportation of natural gas. The long-term natural gas storage contracts extend through 2015, and the long-term natural gas transportation contracts extend through 2032. Additionally, PPL and PPL Energy Supply have entered into long-term contracts to purchase power that extend through 2017, with the exception of long-term power purchase agreements for the full output of two wind farms that extend through 2027.

(PPL and PPL Electric)

PPL Electric conducted competitive solicitations to purchase PLR supply in 2010 for customers who do not choose an alternative supplier.

In 2009, the PUC approved PPL Electric's procurement plan for the period January 2011 through May 2013. Through October 2010, PPL Electric has conducted six of its 14 planned competitive solicitations. The solicitations include a mix of long-term and short-term purchases to fulfill PPL Electric's obligation to provide for customer supply as PLR.

(PPL Energy Supply and PPL Electric)

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

Energy Sales Commitments

(PPL and PPL Energy Supply)

In connection with its marketing activities or hedging strategy for its power plants, PPL Energy Supply has entered into long-term power sales contracts that extend through 2023, excluding long-term retail sales agreements for the full output from solar generators that extend through 2036. All long-term contracts were executed at prices approximating market prices at the time of execution.

(PPL Energy Supply and PPL Electric)

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

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

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

The Kerr Dam Project license (50-year term) was jointly issued by the FERC to Montana Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation in 1985, and requires PPL Montana (as successor licensee to Montana Power to hold and operate the project for at least 30 years (to 2015). Between 2015 and 2025, the tribes have the option to purchase, hold and operate the project for the remainder of the license term, which expires in 2035. PPL Montana cannot predict if and when this option will be exercised. The license also requires PPL Montana to continue to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife and their habitats. Under this arrangement, PPL Montana has a remaining commitment to spend $10 million between 2010 and 2015, in addition to the annual rent it pays to the tribes.

PPL Montana entered into two Memoranda of Understanding (MOUs) with state, federal and private entities related to the issuance in 2000 of the FERC renewal license for the nine dams comprising the Missouri-Madison project. The MOUs are periodically updated and renewed and require PPL Montana to implement plans to mitigate the impact of its projects on fish, wildlife and their habitats, and to increase recreational opportunities. The MOUs were created to maximize collaboration between the parties and enhance the possibility to receive matching funds from relevant federal agencies. Under these arrangements, PPL Montana has a remaining commitment to spend $35 million between 2010 and 2040.

Legal Matters

(PPL, PPL Energy Supply and PPL Electric)

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

(PPL and PPL Energy Supply)

Montana Power Shareholders' Litigation

In August 2001, a lawsuit was filed by a group of Montana Power shareholders against Montana Power, the directors of Montana Power, certain advisors and consultants of Montana Power, and PPL Montana. The plaintiffs allege, among other things, that Montana Power failed to obtain shareholder approval for the sale of Montana Power's generation assets to PPL Montana in 1999, and that the sale was null and void. Among the remedies sought by the plaintiffs is the establishment of a "resulting and/or constructive trust" on both the generation assets and all profits earned by PPL Montana from the generation assets, plus interest on the amounts subject to the trust. This lawsuit is pending in the U.S. District Court of Montana, Butte Division. Settlement discussions resumed in June 2009, and a proposed settlement was reached under which plaintiffs will receive approximately $115 million but PPL Montana would not be required to pay any portion of the settlement amount. The proposed settlement filed with the judge in November 2009 has been approved and is now final.

Montana Hydroelectric Litigation

In November 2004, PPL Montana, Avista Corporation (Avista) and PacifiCorp commenced an action for declaratory judgment in Montana First Judicial District Court seeking a determination that no lease payments or other compensation for their hydroelectric facilities' use and occupancy of streambeds in Montana can be collected by the State of Montana. This request was brought following the dismissal on jurisdictional grounds of the State of Montana's federal lawsuit seeking such payments or compensation in the U.S. District Court of Montana, Missoula Division. The State's federal lawsuit was founded on allegations that the beds of Montana's navigable rivers became state-owned trust property upon Montana's admission to statehood, and that the use of them for placement of dam structures, affiliated structures and reservoirs should, under a 1931 regulatory scheme enacted after all but one of the dams in question were constructed, trigger lease payments for use of land beneath. In July 2006, the Montana state court approved a stipulation by the State of Montana that it is not seeking lease payments or other compensation from PPL Montana for the period prior to PPL Montana's December 1999 acquisition of the hydroelectric facilities.

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

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

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

In October 2008, PPL Montana appealed the decision to the Montana Supreme Court, requesting a stay of judgment and stay of the Land Board's authority to assess compensation for 2008 and future periods. In March 2010, the Montana Supreme Court substantially affirmed the June 2008 Montana District Court decision. As a result, in the first quarter of 2010, PPL Montana recorded a pre-tax charge of $56 million ($34 million after tax or $0.08 per share, basic and diluted, for PPL), representing estimated rental compensation for the first quarter of 2010 and prior years. Rental compensation was estimated for periods subsequent to 2007, although such estimated amounts may differ from amounts ultimately determined by the Montana State Land Board. The portion of the pre-tax charge that related to prior years totaled $54 million ($32 million after tax). The pre-tax charge recorded on the Statement of Income was $49 million in "Other operation and maintenance" and $7 million in "Interest Expense." PPL Montana continues to accrue interest expense for the prior years and rent expense for the current year. PPL Montana's total loss accrual at September 30, 2010 was $71 million.

In August 2010, PPL Montana filed a petition for a writ of certiorari with the U.S. Supreme Court requesting that the Court accept this matter for review. Several amicus briefs were subsequently filed supporting the petition of PPL Montana, including, among others, briefs submitted by the Edison Electric Institute and the National Hydropower Association. In October 2010, the State of Montana filed a response brief and PPL Montana subsequently filed its reply brief. The U.S. Supreme Court's decision to grant or deny PPL Montana's petition is expected before the end of 2010. The stay of the judgment granted during the proceedings before the Montana Supreme Court has been extended by agreement with the State of Montana, to cover the anticipated period of the proceeding before the U.S. Supreme Court. PPL Montana cannot predict the outcome of this matter.

PJM/MISO Billing Dispute (PPL, PPL Energy Supply and PPL Electric)

In 2009, PJM reported that it had discovered a modeling error in the market-to-market power flow calculations between PJM and the Midwest ISO (MISO). The error was a result of incorrect modeling of certain generation resources that have an impact on power flows across the PJM/MISO border. Informal settlement discussions on this issue terminated in March 2010. Also in March 2010, MISO filed two complaints with the FERC concerning the modeling error and related matters with a demand for $130 million of principal plus interest. In April 2010, PJM filed answers to the complaints and filed a related complaint against MISO. In its answers and complaint, PJM denies that any compensation is due to MISO and seeks recovery in excess of $25 million from MISO for alleged violations by MISO regarding market-to-market power flow calculations. PPL participates in markets in both PJM and MISO. The amount and timing of any payments by PJM to MISO or by MISO to PJM relating to these modeling errors is uncertain, as is the method by which PJM or MISO would allocate any such payments to PJM and MISO participants. In June 2010, the FERC ordered the complaints to be consolidated and set for settlement discussions, followed by hearings if the discussions are unsuccessful. PPL cannot predict the outcome of this matter; however, the impact on PPL subsidiaries is not currently expected to be material.

Regulatory Issues

Enactment of Financial Reform Legislation (PPL and PPL Energy Supply)

In July 2010, the Dodd-Frank Act was signed into law. Of particular relevance to PPL and PPL Energy Supply, the Dodd-Frank Act includes provisions that require most over-the-counter derivative transactions to be executed through an exchange and to be cleared centrally. The Dodd-Frank Act, however, provides an exemption from mandatory clearing and exchange trading requirements for over-the-counter derivative transactions used to hedge commercial risk. Although the term "hedging commercial risk" is not defined in the Dodd-Frank Act, it is anticipated that transactions utilized by PPL and PPL Energy Supply should qualify if they are not entered into for speculative purposes. The Dodd-Frank Act also provides that the Commodity Futures Trading Commission may impose collateral and margin requirements for over-the-counter derivative transactions, including those that are used to hedge commercial risk. However, during drafting of the Dodd-Frank Act, certain members of Congress adopted report language and issued a public letter stating that it was not their intention to impose margin and collateral requirements on counterparties that utilize these transactions to hedge commercial risk. Final rules on major provisions in the Dodd-Frank Act, including imposition of collateral and margin requirements, will be established through rulemakings and, in most cases, will not take effect until 12 months after the date of enactment. PPL and PPL Energy Supply may be required to post additional collateral if they are subject to margin requirements as ultimately adopted in the implementing regulations of the Dodd-Frank Act. PPL and PPL Energy Supply will continue to evaluate the provisions of the Dodd-Frank Act and monitor developments related to its implementation. At this time, PPL and PPL Energy Supply cannot predict the impact that the new law or implementing its regulations will have on their business or operations, or the markets in which they transact business.

Pennsylvania Activities (PPL and PPL Electric)

Act 129 requires electric utilities to meet specified goals for reduction in customer electricity usage and peak demand by specified dates. Utilities not meeting the requirements of Act 129 are subject to significant penalties.

Under Act 129, Electric Distribution Companies (EDCs) must develop and file an energy efficiency and conservation plan (EE&C Plan) with the PUC and contract with conservation service providers to implement all or a portion of the EE&C Plan. Act 129 requires EDCs to cause reduced electricity consumption of 1% by 2011 and 3% by 2013, and reduced peak demand of 4.5% by 2013. EDCs will be able to recover the costs (capped at 2% of the EDC's 2006 revenue) of implementing their EE&C Plans. In October 2009, the PUC approved PPL Electric's EE&C Plan. The plan includes 14 programs, all of which are voluntary for customers. The plan includes a proposed rate mechanism for recovery of all costs incurred by PPL Electric to implement the plan. In September 2010, PPL Electric filed its Program Year 1 Annual Report and Process Evaluation Report.

Act 129 also requires installation of smart meters for new construction, upon the request of consumers at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs will be able to recover the costs of providing smart metering technology. In August 2009, PPL Electric filed its proposed smart meter technology procurement and installation plan with the PUC. All of PPL Electric's metered customers currently have smart meters installed at their service locations, and PPL Electric's current advanced metering technology generally satisfies the requirements of Act 129 and does not need to be replaced. In June 2010, the PUC entered its order approving PPL Electric's smart meter plan with several modifications. In compliance with the order, in the third quarter of 2010, PPL Electric submitted a revised plan with a cost estimate of $38 million to be incurred over a five-year period, beginning in 2009, and filed a rider to recover these costs beginning January 1, 2011.

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

Under Act 129, the DSP competitive procurement plan must ensure adequate and reliable service "at least cost to customers" over time. Act 129 grants the PUC authority to extend long-term power contracts up to 20 years, if necessary, to achieve the "least cost" standard. The PUC has approved PPL Electric's procurement plan for the period January 1, 2011 through May 31, 2013, and PPL Electric has begun purchasing under that plan.

California ISO and Western U.S. Markets (PPL and PPL Energy Supply)

Through its subsidiaries, PPL made $18 million of sales to the California ISO during the period October 2000 through June 2001, $17 million of which has not been paid to PPL subsidiaries. In July 2010, PPL reached an agreement in principle with the California ISO pursuant to which PPL would receive an insignificant portion of its $17 million claim, together with interest. PPL plans to prepare a definitive written settlement agreement which will be filed with the FERC together with a request for approval of the settlement. At September 30, 2010, PPL continues to be fully reserved for non-payment for these sales.

Regulatory proceedings arising out of the California electricity supply controversy have been filed with the FERC. The FERC has determined that all sellers of energy into markets operated by the California ISO and the California Power Exchange, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001, but the FERC has not yet ruled on the exact amounts that the sellers, including PPL Montana, would be required to refund. In decisions in September 2004 and August 2006, the U.S. Court of Appeals for the Ninth Circuit held that the FERC had the additional legal authority to order refunds for periods prior to October 2, 2000, and ordered the FERC to determine whether it would be appropriate to grant such additional refunds. In November 2009, the FERC issued an order scheduling evidentiary hearings in 2010 on such refunds but has suspended certain of these proceedings and instituted settlement procedures.

In June 2003, the FERC took several actions as a result of several related investigations. The FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence. The FERC also commenced additional investigations relating to "gaming" and bidding practices during 2000 and 2001, but neither PPL EnergyPlus nor PPL Montana believes it is a subject of these investigations.

In February 2004, the Montana Public Service Commission initiated a limited investigation of the Montana retail electricity market for the years 2000 and 2001, focusing on how that market was affected by transactions involving the possible manipulation of the electricity grid in the western U.S. The investigation includes all public utilities and licensed electricity suppliers in Montana, including PPL Montana, as well as other entities that may possess relevant information. In June 2004, the Montana Attorney General served PPL Montana and more than 20 other companies with subpoenas requesting documents, and PPL Montana has provided responsive documents to the Montana Attorney General.

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

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

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

In December 2008, PJM submitted amendments to certain provisions governing its RPM capacity market. The amendments were intended to permit the compensation available to suppliers that provide capacity, including PPL Energy Supply, to increase. PJM sought approval of the amendments in time for them to be implemented for the May 2009 capacity auction (for service in June 2012 through May 2013). Numerous parties, including PPL, protested PJM's filing. Certain of the protesting parties proposed changes to the capacity market auction that would result in a reduction in compensation to capacity suppliers. The changes proposed by PJM and by other parties in response to PJM proposals could significantly affect the compensation available to suppliers of capacity participating in future RPM auctions. In March 2009, the FERC entered an order approving in part and disapproving in part the changes proposed by PJM. In August 2009, the FERC issued an order granting rehearing in part, denying rehearing in part and clarifying its March 2009 order. No request for rehearing or appeal of the August 2009 order was timely filed. In October 2010, the August 2009 Order became final and will not have a material impact on PPL, PPL Energy Supply or PPL Electric. As a result, the remaining issues in this matter are those referred to in the paragraph above.

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

In December 1998, the FERC authorized 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 after the order, and every three years thereafter. Since then, periodic market-based rate filings with the FERC have been made by PPL EnergyPlus, PPL Electric, PPL Montana and most of PPL Generation's subsidiaries. These filings consisted of a Western market-based rate filing for PPL Montana and an Eastern market-based rate filing for most of the other PPL subsidiaries in PJM's region. The next filings are due in the fourth quarter of 2010.

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

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

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

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

Since 2007, PPL Electric and certain subsidiaries of PPL Energy Supply have self-reported potential violations of certain applicable reliability requirements and submitted accompanying mitigation plans. The resolution of certain of these potential violation reports is pending. In April 2010, a PPL Electric settlement with RFC resolving four self-reported potential violations became final. PPL Electric agreed to pay a settlement amount of $290,000 and, among other things, to engage in additional vegetation clearing at a cost of approximately $7 million over the next three years. The settlement amount was paid in May 2010. The resolution of certain other self-reported matters is pending. Any regional reliability entity determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC. PPL Electric and PPL Energy Supply cannot predict the outcome of these matters.

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

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

In 2002, for safety reasons, the U.K. Government issued guidance that low voltage overhead electricity networks within three meters horizontal clearance of a building should either be insulated or relocated. This imposed a retroactive requirement on existing assets that were built with lower clearances. In 2008, the U.K. Government determined that the U.K. electricity network should comply with the guidance issued. WPD estimates that the cost of compliance will be $87 million. The projected expenditures over the next five years have been allowed to be recovered through rates, and it is expected that expenditures beyond this five-year period will also be recovered through rates. The U.K. Government has determined that WPD (South Wales) should comply by 2015 and WPD (South West) by 2018.

To improve network reliability, in 2009, the U.K. Government enforced a regulation requiring network operators to implement a risk-based program over 25 years to clear trees within falling distance of key high-voltage overhead lines. WPD estimates that the cost of compliance will be $100 million over the 25-year period. The projected expenditures over the next five years have been allowed to be recovered through rates, and it is expected that expenditures beyond this five-year period will also be recovered through rates.

Environmental Matters - Domestic

(PPL, PPL Energy Supply and PPL Electric)

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

(PPL and PPL Energy Supply)

Air

The Clean Air Act addresses, among other things; emissions causing acid deposition, installation of best available control technologies for new or substantially modified sources, attainment of national ambient air quality standards, toxic air emissions and visibility standards in the U.S. Amendments to the Clean Air Act requiring additional emission reductions are likely to continue to be proposed in the U.S. Congress. The Clean Air Act allows states to develop more stringent regulations and in some instances, as discussed below, Pennsylvania and Montana have done so.

Clean Air Transport Rule (formerly CAIR)

The EPA has proposed a new Clean Air Transport Rule (Transport Rule) to replace the EPA's previous rule called CAIR, which was struck down by the U.S. Court of Appeals for the District of Columbia Circuit (the Court). CAIR subsequently was effectively reinstated by the Court pending finalization of the Transport Rule. The final Transport Rule is expected in 2011.

CAIR and the new Transport Rule are meant to facilitate attainment of ambient air quality standards for ozone and fine particulates by requiring reductions in sulfur dioxide and nitrogen oxides. The Transport Rule would establish a new sulfur dioxide emission allowance cap and trade program that is completely independent of the current Acid Rain Program, and establishes a new nitrogen oxide emission allowance cap and trade program. The EPA is seeking comment on several different approaches that would allow varying degrees of trading, but all trading would be more restrictive than under the previous CAIR rule. The first phase of the Transport Rule that would cap sulfur dioxide and nitrogen oxide emissions would become effective in 2012. The second phase lowering the sulfur dioxide cap would become effective in 2014.

PPL's preliminary review of the allocations proposed by the EPA in the Transport Rule indicates that, starting in 2012, greater reductions in sulfur dioxide would likely be required for PPL than were required under CAIR starting in 2015, because the number of allowances allocated to PPL will be lower than what was allocated to PPL under CAIR and the more restrictive trading under the Transport Rule reduces flexibility for compliance options. The final regulations are expected in 2011. PPL may look at more aggressive operation of scrubbers at its Brunner Island and Montour plants (which PPL already installed to meet the reductions required by CAIR), fuel switching and/or dual fuel capability. All of these options could impose significant costs.

With respect to nitrogen oxide, the Transport Rule proposes a slightly higher number of allowances for PPL than under CAIR. However, due to the more restrictive trading program, the purchase of nitrogen oxide allowances may not be a reliable compliance option. Therefore, other compliance options, such as SCRs or SNCRs at one or more Brunner Island units, are being evaluated. The costs of these compliance options could be significant.

In addition to the reductions in sulfur dioxide and nitrogen oxide required for PPL's Pennsylvania plants due to the Transport Rule, all of PPL's plants may face further reductions in sulfur dioxide and nitrogen oxide emissions as a result of more stringent national ambient air quality standards for ozone, nitrogen oxide, sulfur dioxide or fine particulates. The EPA has recently finalized a new one-hour standard for sulfur dioxide, and states are required to identify areas that meet those standards and areas that are in non-attainment. For areas that are in non-attainment, states are required to develop plans by 2014 for bringing those areas into attainment by 2017. For areas in attainment or unclassifiable, states are required to develop maintenance plans by mid-2013 that demonstrate continued attainment. If additional reductions were to be required, the costs to PPL could be significant.

Mercury and other Hazardous Air Pollutants

Citing its authority under the Clean Air Act, in 2005, the EPA issued the Clean Air Act Mercury Regulations (CAMR) affecting coal-fired power plants. Since CAMR was overturned by a 2008 decision by the U.S. Circuit Court, the EPA is now proceeding to develop standards imposing MACT for mercury emissions and other hazardous air pollutants from electric generating units. Under a recent approved settlement, the EPA is required to issue final MACT standards by November 2011 and compliance is statutorily required three years later . In order to develop these standards, the EPA has collected information from coal- and oil-fired electric utility steam generating units. The costs of complying with the final MACT standards are not now determinable, but could be significant.

Regional Haze and Visibility

The Clean Air Visibility Rule was issued by the EPA in June 2005, to address regional haze or regionally-impaired visibility caused by multiple sources over a wide area. The rule requires Best Available Retrofit Technology (BART) for certain electric generating units. Under the BART rule, PPL submitted to the Pennsylvania DEP its analyses of the visibility impacts of particulate matter emissions from Martins Creek Units 3 and 4, Brunner Island Units 2 and 3 and Montour Units 1 and 2. No analysis was submitted for sulfur dioxide or nitrogen oxides, because the EPA determined that meeting the requirements for CAIR also meets the BART requirements for those pollutants. Although the EPA has not yet expressly stated that a similar approach will be taken under the Transport Rule, the EPA has not requested any further studies. PPL's analyses have shown that because PPL had already upgraded its particulate emissions controls at Montour Units 1 and 2 and Brunner Island Units 2 and 3, further controls are not justified as there would be little corresponding visibility improvement. PPL has not received comments from the Pennsylvania DEP on these submissions.

Also under the BART rule, PPL submitted to the EPA its analyses of the visibility impacts of sulfur dioxide, nitrogen oxides and particulate matter emissions for Colstrip Units 1 and 2 and Corette. PPL's analyses concluded that further reductions are not needed. The EPA responded to PPL's reports for Colstrip and Corette and requested further information and analysis. PPL completed further analysis and submitted addendums to its initial reports for Colstrip and Corette. In February 2009, PPL received an information request for additional data related to the Colstrip generating plant non-BART-affected emission sources. PPL responded to this request in March 2009. PPL has not received comments from the EPA on these submissions.

PPL cannot predict whether any additional reductions will be required in Pennsylvania or Montana. If additional reductions are required, the costs could be significant depending on what is required.

New Source Review (NSR)

The EPA has reinitiated its NSR enforcement efforts. This initiative targets older, coal-fired power plants. The EPA has asserted that modification to these plants has increased their emissions, and consequently they are subject to more stringent NSR requirements under the Clean Air Act. In April 2009, PPL received EPA information requests for its Montour and Brunner Island plants. The requests are similar to those that PPL received several years ago for its Colstrip, Corette and Martins Creek plants. PPL has met with the EPA and exchanged information regarding this matter. PPL cannot predict the outcome of this matter.

In January 2009, PPL and other companies that own or operate the Keystone plant received a notice of violation from the EPA alleging that certain projects were undertaken without proper NSR compliance. PPL and the EPA have exchanged certain information regarding this matter. PPL cannot predict the outcome of this matter.

States and environmental groups also have initiated enforcement actions and litigation alleging violations of the NSR regulations by coal-fired plants, and PPL is unable to predict whether such actions will be brought against any of PPL's plants.

If PPL is found to have violated NSR regulations, PPL would, among other things, be required to meet permit limits reflecting best available control technology for the emissions of any pollutant found to have significantly increased due to a major plant modification. The costs to meet such limits, including installation of technology at certain units, could be significant.

Pursuant to the 2007 U.S. Supreme Court decision on global climate change, as discussed below, the EPA has announced that it will regulate carbon dioxide emissions from new or modified stationary sources under its NSR regulations beginning January 2011. The NSR regulations require major new or modified sources of regulated pollutants to receive construction and operation permits with limits that prevent the significant deterioration of air pollution in areas that are in attainment of the ambient air quality standards for those pollutants. In May 2010, the EPA published a final rule establishing thresholds for regulating greenhouse gas emissions from major new or modified sources. Combined carbon dioxide emissions or carbon dioxide equivalent emissions of 100,000 tons or more per year will classify a source as major for permitting applicability purposes. The threshold for a major modification of a major source is an increase of carbon dioxide or carbon dioxide equivalent of 75,000 tons per year. If the modifications result in emissions increases exceeding 75,000 tons per year, the plant will need to conduct an analysis of best available control technology for carbon dioxide emissions and meet limits based on best available control technology. To date, the EPA has not provided official guidance on what constitutes best available control technology for greenhouse gas emissions, but has indicated that it may look at efficiency projects and fuel switching as possible best available control technology for carbon dioxide emissions from power plants. The implications of these developments, including the outcome of any litigation challenging the regulation, are uncertain.

Opacity

From time to time, emissions from PPL's power plants may cause opacity issues, which may raise environmental concerns. PPL addresses these issues on a case-by-case basis. If it is determined that actions must be taken to address opacity issues, such actions could result in costs that are not now determinable, but could be significant.

Global Climate Change and Renewable Energy Requirements

There is concern nationally and internationally about global climate change and the possible contribution of greenhouse gas emissions including, most significantly, carbon dioxide from the combustion of fossil fuels. This has resulted in increased demands for carbon dioxide emission reductions from investors, environmental organizations, government agencies and the international community. These demands and concerns have led to increased federal legislative proposals, actions at regional, state and local levels, as well as litigation relating to greenhouse gas emissions.

Of particular note, in April 2007, the U.S. Supreme Court held that the EPA has the authority to regulate greenhouse gas emissions from new motor vehicles under the Clean Air Act. In September 2009, the U.S. Court of Appeals for the Second Circuit reversed a federal district court's decision and ruled that several states and public interest groups, as well as the City of New York, could sue five electric utility companies under federal common law for allegedly causing a public nuisance as a result of their emissions of greenhouse gases. On the other hand, a recent decision by the U.S. Court of Appeals for the Fifth Circuit ruled that plaintiffs did not have standing to pursue public and private nuisance claims against companies that produce fossil fuels. Additional litigation in federal and state courts over these issues is continuing.

As a result of the 2007 Supreme Court decision, the EPA is moving forward with regulation of greenhouse gas emissions under the Clean Air Act. In 2009, the EPA issued a rule, effective January 1, 2010, requiring economy-wide reporting of greenhouse gas emissions and in December 2009, issued a final endangerment finding that greenhouse gases contribute to air pollution and may endanger public health or welfare. In April 2010, the EPA jointly with the U.S. Department of Transportation issued new light-duty vehicle emissions standards that will apply beginning with 2012 model year vehicles. The EPA has also clarified that this standard requires the regulation of greenhouse gas emissions under the NSR provisions of the Clean Air Act starting in 2011.

In June 2009, the U.S. House of Representatives passed H.R. 2454, the American Clean Energy and Security Act of 2009. A key element affecting PPL includes a declining cap on carbon emissions beginning in 2012, which requires a 3% reduction in greenhouse gas emissions (below 2005 levels) by 2012, increasing to 83% by 2050. The legislation also would require that electric utilities meet a mandatory 20% renewable energy supply and energy efficiency requirement by 2020.

In September 2009, S. 1733, the Clean Energy, Jobs and American Power Act, a comprehensive climate change bill, was introduced in the U.S. Senate. The Senate Committee on Environment and Public Works approved S. 1733 in November 2009.

Renewable Electricity Standards (RES) are currently included in a separate Senate bill, S. 1462, the American Clean Energy Leadership Act of 2009, which passed in the Senate Energy Committee in June 2009. This comprehensive energy bill promotes clean energy technology development by requiring electric utilities to meet 15% RES from renewable energy resources or energy efficiency improvements by 2021, as well as strengthening the FERC's role in siting interstate electric transmission facilities.

Stand-alone RES provisions have recently been introduced in two separate measures in an attempt to address this issue without the climate provisions. However, no decision is expected before Congress adjourns in December.

Debate on climate legislation has been halted in Congress, given other competing legislative priorities and the November 2010 elections. The timing and elements of any future legislation addressing greenhouse gas emission reductions and renewable energy requirements are uncertain and may depend on the outcome of the November 2010 elections and the 2011 Congressional agenda.

At the regional level, ten northeastern states signed a Memorandum of Understanding (MOU) agreeing to establish a greenhouse gas emission cap-and-trade program, called the Regional Greenhouse Gas Initiative (RGGI). The program commenced in January 2009 and calls for stabilization of carbon dioxide emissions, at base levels established in 2005, from electric power plants with capacity greater than 25 MW. The MOU also provides for a 10% reduction in carbon dioxide emissions from base levels by 2019.

Pennsylvania has not stated an intention to join RGGI, but has enacted the Pennsylvania Climate Change Act of 2008 (PCCA). The PCCA established a Climate Change Advisory Committee to advise the DEP on the development of a Climate Change Action Plan. In December 2009, the Advisory Committee finalized its Climate Change Action Report which identifies specific actions that could result in reducing greenhouse gas emissions by 30% by 2020. Some of the proposed actions, such as a mandatory 5% efficiency improvement at power plants, could be technically unachievable. To date, there have been no regulatory or legislative actions taken to implement the recommendations of the report. In addition, legislation has been introduced and amendments filed to several bills that would, if enacted, significantly increase renewable and solar supply requirements. It is highly unlikely that this legislation will achieve passage in the 2010 legislative session.

Eleven Western states, including Montana and certain Canadian provinces are members of the Western Climate Initiative (WCI). The WCI has established a goal of reducing carbon dioxide emissions 15% below 2005 levels by 2020 and is currently developing greenhouse gas emission allocations, offsets, and reporting recommendations.

PPL continues to evaluate options for reducing, avoiding, off-setting or sequestering its carbon dioxide emissions. In 2009, PPL's power plants emitted in excess of approximately 25 million tons of carbon dioxide (based on PPL's equity share of these assets).

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

Water/Waste

Coal Combustion Residuals

In June 2010, the EPA proposed two approaches to regulating the disposal and management of coal combustion residuals (CCRs) under the Resource Conservation and Recovery Act (RCRA). CCRs include fly ash, bottom ash and scrubber wastes. In the one approach, the EPA would regulate CCRs as a hazardous waste under Subtitle C of RCRA. This approach would have very significant impacts on any coal-fired plant, and would require plants to retrofit their operations to comply with full hazardous waste requirements from the generation of CCRs and associated waste waters through transportation and disposal. This would also have a negative impact on the beneficial use of CCRs and could eliminate the current markets. The second approach would regulate CCRs as a solid waste under Subtitle D of RCRA. This approach would only affect disposal and most significantly affect any wet disposal operations. Under this approach, many of the current markets for beneficial uses would not be affected. Currently, PPL expects that only the Colstrip plant could be significantly impacted by the requirements of Subtitle D of RCRA, as its other plants beneficially re-use most of their CCRs.

PPL cannot predict at this time the final requirements of the EPA's CCR regulations and what impact, if any, they would have on PPL's facilities, but the costs to PPL could be significant.

The EPA has been seeking information from the power industry as it considers whether or not to regulate CCRs as hazardous waste, and PPL has responded to the EPA's requests. The EPA conducted a follow-up inspection of PPL Montana's Colstrip plant and PPL's Martins Creek plant. PPL is implementing certain actions in response to recommendations from these inspections. In June 2009, the EPA's Office of Enforcement and Compliance Assurance issued a much broader information request to Colstrip and 18 other non-affiliated plants, seeking information under the RCRA, the Clean Water Act and the Emergency Planning and Community Right-to-Know Act. PPL responded to the EPA's broader information request. Although the EPA's enforcement office issued the request, the EPA has not necessarily concluded that the plants are in violation of any EPA requirements. The EPA conducted a multi-media inspection at Colstrip in August 2009 and has not yet issued a report from that inspection.

Martins Creek Fly Ash Release

In 2005, there was a release of approximately 100 million gallons of water containing fly ash from a disposal basin at the Martins Creek plant used in connection with the operation of the two 150 MW coal-fired generating units at the plant. This resulted in ash being deposited onto adjacent roadways and fields, and into a nearby creek and the Delaware River. PPL determined that the release was caused by a failure in the disposal basin's discharge structure. PPL conducted extensive clean-up and completed studies, in conjunction with a group of natural resource trustees and the Delaware River Basin Commission, evaluating the effects of the release on the river's sediment, water quality and ecosystem.

The Pennsylvania DEP filed a complaint in Pennsylvania Commonwealth Court against PPL Martins Creek and PPL Generation, alleging violations of various state laws and regulations and seeking penalties and injunctive relief. PPL and the Pennsylvania DEP have settled this matter. The settlement also required PPL to submit a report on the completed studies of possible natural resource damages. PPL subsequently submitted the assessment report to the Pennsylvania and New Jersey regulatory agencies and has continued discussing potential natural resource damages and mitigation options with the agencies.

Through September 30, 2010, PPL Energy Supply has spent $28 million for remediation and related costs and an immaterial remediation liability remained. PPL and PPL Energy Supply cannot be certain of the outcome of the natural resource damage assessment or the associated costs, the outcome of any lawsuit that may be brought by citizens or businesses or the exact nature of any other regulatory or other legal actions that may be initiated against PPL, PPL Energy Supply or their subsidiaries as a result of the disposal basin release.

Basin Seepage - Pennsylvania

Seepages have been detected at active and retired wastewater basins at various PPL plants, including the Montour and Brunner Island generating facilities. PPL has completed an assessment of some of the seepages at the Montour and Brunner Island facilities and is working with the Pennsylvania DEP to implement abatement measures for those seepages. PPL continues to assess other seepages at the Brunner Island facility. PPL currently plans to spend up to approximately $64 million to upgrade and/or replace certain wastewater facilities in response to the seepages and for other facility changes. The potential additional cost to address the identified seepages or other seepages at all of PPL's Pennsylvania plants is not now determinable, but could be significant.

Basin Seepage - Montana

In May 2003, approximately 50 plaintiffs brought an action against PPL Montana and the other owners of the Colstrip plant alleging property damage from seepage from the freshwater and wastewater ponds at Colstrip. In July 2008, the plaintiffs and the owner-defendants remaining after dismissal of NorthWestern, due to its bankruptcy, executed a settlement agreement. PPL Montana's share of the settlement was approximately $8 million. In 2008, PPL Montana recorded an insignificant reserve for its share of potential additional settlements with three property owners living near the original plaintiffs but who were not parties to the lawsuit. In the fourth quarter of 2009, PPL Montana settled with two of these property owners. PPL Montana may incur additional costs related to the potential claims, including additional groundwater investigations and any related remedial measures, which are not now determinable, but could be significant.

In 2007, six plaintiffs filed a separate lawsuit in the Montana Sixteenth Judicial District Court against the Colstrip plant owners asserting similar property damage claims as were asserted by the plaintiffs in the May 2003 complaint. A tentative settlement agreement was reached in July 2010. The settlement is not yet final, and may not be honored by the plaintiffs, but PPL Montana's share is not expected to be significant.

Other Issues

In 2006, the EPA significantly decreased to 10 parts per billion (ppb) the drinking water standard related to arsenic. In Pennsylvania and Montana, this arsenic standard has been incorporated into the states' water quality standards and could result in more stringent limits to PPL's NPDES permits for its Pennsylvania and Montana plants. Recently, the EPA developed a draft risk assessment of arsenic that increases the cancer risk exposure by more than 20 times, which would lower the current standard from 10 ppb to 0.1 ppb. If the lower standard became effective, costly treatment would be required to attempt to meet the standard and, at this time, there is no assurance that it could be achieved.

The EPA is reassessing its polychlorinated biphenyls ( PCB) regulations under the Toxics 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 PCB-containing equipment. PPL cannot predict at this time the outcome of these proposed EPA regulations and what impact, if any, they would have on PPL's facilities, but the costs to PPL could be significant.

The EPA finalized requirements in 2004 for new or modified cooling water intake structures. These requirements affect where generating facilities are built, establish intake design standards and could lead to requirements for cooling towers at new and modified power plants. Another rule, finalized in 2004, that addressed existing structures was withdrawn following a 2007 decision by the U.S. Court of Appeals for the Second Circuit. In 2008, however, the U.S. Supreme Court ruled that the EPA has discretion to use cost-benefit analysis in determining the best technology available for minimizing adverse environmental impact. The EPA is developing a new rule which is expected to be finalized in 2012. How the cost-benefit analysis will be employed, if incorporated, as well as other issues raised by the Second Circuit Court decision (not reviewed by the U.S. Supreme Court) and actions the states may take on their own could result in stricter standards for existing structures that could impose significant costs on PPL subsidiaries.

In October 2009, the EPA released its Final Detailed Study of the Steam Electric Power Generating effluent limitations guidelines and standards. Final regulations are expected to be effective in 2013. PPL expects the revised guidelines and standards to be more stringent than the current standards, which could result in more stringent discharge permit limits.

PPL has signed a Consent Order and Agreement (COA) with the Pennsylvania DEP under which it agreed, under certain conditions, to take further actions to minimize the possibility of fish kills at its Brunner Island plant. Fish are attracted to warm water in the power plant discharge channel, especially during cold weather. Debris at intake pumps can result in a unit trip or reduction in load, causing a sudden change in water temperature. PPL has committed to construct a barrier to prevent debris from entering the river water intake area, pending receipt of regulatory permits, at a cost of approximately $4 million.

PPL has also investigated alternatives to exclude fish from the discharge channel and submitted three alternatives to the DEP. According to the COA, once the cooling towers at Brunner Island become operational, PPL must implement one of these fish exclusion alternatives if a fish kill occurs in the discharge channel due to thermal impacts from the plant. Following start-up of the cooling towers in April 2010, several hundred dead fish were found in the cooling tower intake basket although there were no sudden changes in water temperature. In the third quarter of 2010, PPL discussed this matter with the DEP and both agreed that this condition was not one anticipated by the COA, thereby concluding it did not trigger a need to implement a fish exclusion project. At this time, no fish exclusion project is planned.

Superfund and Other Remediation

(PPL, PPL Energy Supply and PPL Electric)

PPL Electric is a potentially responsible party at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant Site, the Metal Bank site and the Ward Transformer site. Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been significant to PPL. However, should the EPA require different or additional measures in the future, or should PPL's share of costs at multi-party sites increase significantly more than currently expected, the costs to PPL could be significant.

PPL Electric has been remediating several sites that were not being addressed under another regulatory program such as Superfund, but for which PPL Electric may be liable for remediation. These include a number of coal gas manufacturing facilities formerly owned or operated by a predecessor to PPL Electric.

Depending on the outcome of investigations at sites where investigations have not begun or have not been completed, the costs of remediation and other liabilities could be substantial. PPL and its subsidiaries also could incur other non-remediation costs at sites included in the consent orders or other contaminated sites, the costs of which are not now determinable, but could be significant.

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

(PPL and PPL Energy Supply)

Under the Pennsylvania Clean Streams Law, subsidiaries of PPL Generation are obligated to remediate acid mine drainage at former mine sites and may be required to take additional steps to prevent potential acid mine drainage at previously capped refuse piles. One PPL Generation subsidiary is pumping mine water at two mine sites and treating water at one of these sites. Another PPL Generation subsidiary has installed a passive wetlands treatment system at a third site. At September 30, 2010, PPL Energy Supply had accrued a discounted liability of $25 million to cover the costs of pumping and treating groundwater at the two mine sites for 50 years and for operating and maintaining passive wetlands treatment at the third site. PPL Energy Supply discounted this liability based on risk-free rates at the time of the mine closures. The weighted-average rate used was 8.04%. Expected undiscounted payments are estimated at $1 million for each of the years from 2010 through 2014, and $144 million for work after 2014.

(PPL, PPL Energy Supply and PPL Electric)

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

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

Concerns have been expressed by some members of the public regarding potential health effects of power frequency EMFs, which are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment. Government officials in the U.S. and the U.K. have reviewed this issue. The U.S. National Institute of Environmental Health Sciences concluded in 2002 that, for most health outcomes, there is no evidence that EMFs cause adverse effects. The agency further noted that there is some epidemiological evidence of an association with childhood leukemia, but that the evidence is difficult to interpret without supporting laboratory evidence. The U.K. National Radiological Protection Board (part of the U.K. Health Protection Agency) concluded in 2004 that, while the research on EMFs does not provide a basis to find that EMFs cause any illness, there is a basis to consider precautionary measures beyond existing exposure guidelines. The Stakeholder Group on Extremely Low Frequency EMF, set up by the U.K. Government, has issued two reports, one in April 2007 and one in June 2010, describing options for reducing public exposure to EMF. The U.K. Government responded to the first report in 2009, agreeing to some of the proposals, including a proposed voluntary code to optimally phase 132 kilovolt overhead lines to reduce public exposure to EMF where it is cost effective to do so. The U.K. Government is currently considering the second report which concentrates on EMF exposure from distribution systems. PPL and its subsidiaries believe the current efforts to determine whether EMFs cause adverse health effects should continue and are taking steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PPL and its subsidiaries are unable to predict what effect, if any, the EMF issue might have on their operations and facilities either in the U.S. or the U.K., and the associated cost, or what, if any, liabilities they might incur related to the EMF issue.

Environmental Matters - WPD (PPL and PPL Energy Supply)

WPD's distribution businesses are subject to environmental regulatory and statutory requirements. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment.

The U.K. Government has implemented a project to alleviate the impact of flooding on the U.K. utility infrastructure, including major electricity substations. WPD has agreed with the Ofgem to spend $26 million on flood prevention, which will be recovered through rates during the five-year period commencing April 2010. WPD is currently liaising on site-specific proposals with local offices of a U.K. Government agency.

U.K. legislation has been passed that imposes a duty on certain companies, including WPD, to report on climate change adaptation. The first information request was received by WPD in March 2010, with reports due for submission by June 2011.

There are no other material legal or administrative proceedings pending against or related to WPD with respect to environmental matters. See "Environmental Matters - Domestic - Superfund and Other Remediation - Electric and Magnetic Fields" for a discussion of EMFs.

Nuclear Insurance (PPL and PPL Energy Supply)

PPL Susquehanna is a member of certain insurance programs that provide coverage for property damage to members' nuclear generating plants. Facilities at the Susquehanna plant are insured against property damage losses up to $2.75 billion under these programs. PPL Susquehanna is also a member of an insurance program that provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience. At September 30, 2010, this maximum assessment was $40 million.

In the event of a nuclear incident at the Susquehanna plant, PPL Susquehanna's public liability for claims resulting from such incident would be limited to $12.6 billion under provisions of The Price-Anderson Act Amendments under the Energy Policy Act of 2005. PPL Susquehanna is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act Amendments under the Energy Policy Act of 2005, PPL Susquehanna could be assessed up to $235 million per incident, payable at $35 million per year.

At September 30, 2010, the property, replacement power and nuclear incident insurers maintained an A.M. Best financial strength rating of A ("Excellent").

Guarantees and Other Assurances

(PPL, PPL Energy Supply and PPL Electric)

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

(PPL)

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

(PPL, PPL Energy Supply and PPL Electric)

The table below details guarantees provided as of September 30, 2010. The total recorded liability at September 30, 2010 was $2 million and at December 31, 2009 was $3 million. Other than as noted in the description for "WPD guarantee of pension and other obligations of unconsolidated entities," the probability of expected payment/performance under each of these guarantees is remote.

	Exposure at September 30, 2010 (a)		Expiration Date	Description
PPL
Indemnifications for sale of PPL Gas Utilities	$	300		PPL has provided indemnification to the purchaser of PPL Gas Utilities and Penn Fuel Propane, LLC for damages arising out of any breach of the representations, warranties and covenants under the related transaction agreement and for damages arising out of certain other matters, including certain pre-closing unknown environmental liabilities relating to former manufactured gas plant properties or off-site disposal sites, if any, outside of Pennsylvania. The indemnification provisions for most representations and warranties, including tax and environmental matters, are capped at $45 million, in the aggregate, and are triggered (i) only if the individual claim exceeds $50,000, and (ii) only if, and only to the extent that, in the aggregate, total claims exceed $4.5 million. The indemnification provisions for most representations and warranties expired on September 30, 2009 without any claims having been made. Certain representations and warranties, including those having to do with transaction authorization and title, survive indefinitely, are capped at the purchase price and are not subject to the above threshold or deductible. The indemnification provision for the tax matters representations survives for the duration of the applicable statute of limitations, and the indemnification provision for the environmental matters representations survives for a period of three years after the transaction closing. The indemnification relating to unknown environmental liabilities for manufactured gas plants and disposal sites outside of Pennsylvania could survive more than three years, but only with respect to applicable property or sites identified by the purchaser prior to the third anniversary of the transaction closing. The indemnification for covenants survives until the applicable covenant is performed and is not subject to any cap.

PPL Energy Supply (b)
Letters of credit issued on behalf of affiliates	17	2010 to 2011	Standby letter of credit arrangements under PPL Energy Supply's credit facilities for the purposes of protecting various third parties against nonperformance by PPL. This is not a guarantee by PPL on a consolidated basis.

Retroactive premiums under nuclear insurance programs	40		PPL Susquehanna is contingently obligated to pay this amount related to potential retroactive premiums that could be assessed under its nuclear insurance programs. See "Nuclear Insurance" for additional information.

Nuclear claims under The Price-Anderson Act Amendments under the Energy Policy Act of 2005	235		This is the maximum amount PPL Susquehanna could be assessed for each incident at any of the nuclear reactors covered by this Act. See "Nuclear Insurance" for additional information.

Indemnifications for entities in liquidation and sales of assets	215	2010 to 2012	PPL Energy Supply's maximum exposure with respect to certain indemnifications and the expiration of the indemnifications cannot be estimated because, in the case of certain indemnification provisions, the maximum potential liability is not capped by the transaction documents and the expiration date is based on the applicable statute of limitations. The exposure and expiration dates noted are only for those cases in which the agreements provide for specific limits. In connection with the liquidation of wholly owned subsidiaries that have been deconsolidated upon turning the entities over to the liquidators, certain affiliates of PPL Global have agreed to indemnify the liquidators, directors and/or the entities themselves for any liabilities or expenses arising during the liquidation process, including liabilities and expenses of the entities placed into liquidation. In some cases, the indemnifications are limited to a maximum amount that is based on distributions made from the subsidiary to its parent either prior or subsequent to being placed into liquidation. In other cases, the maximum amount of the indemnifications is not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases in which the agreements provide for a specific limit on the amount of the indemnification, and the expiration date was based on an estimate of the dissolution date of the entities. In March 2010, to enable the liquidator to declare distributions in that month, WPD agreed to indemnify the liquidator in connection with liquidations of two of its former subsidiaries that had been dormant since 2003. The maximum exposure of such indemnification equaled $1.5 billion in distributions. Such indemnification was released in September 2010.
			In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters. In addition, in connection with certain of these sales, WPD and its affiliates have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.
			A subsidiary of PPL Energy Supply has agreed to provide indemnification to the purchaser of the Long Island generation business for damages arising out of any breach of the representations, warranties and covenants under the related transaction agreement and for damages arising out of certain other matters, including liabilities relating to certain renewable energy facilities which were previously owned by one of the PPL subsidiaries sold in the transaction but which were unrelated to the Long Island generation business. The indemnification provisions are subject to certain customary limitations, including thresholds for allowable claims, caps on aggregate liability, and time limitations for claims arising out of breaches of most representations and warranties.

			A subsidiary of PPL Energy Supply has agreed to provide indemnification to the purchaser of the majority of its Maine hydroelectric business for damages arising out of any breach of the representations, warranties and covenants under the related transaction agreement and for damages arising out of certain other matters, including liabilities of the PPL Energy Supply subsidiary relating to the pre-closing ownership or operation of those hydroelectric facilities or relating to other assets of the PPL Energy Supply subsidiary that were not included in that sale. The indemnification obligations are subject to certain customary limitations, including thresholds for allowable claims, caps on aggregate liability, and time limitations for claims arising out of breaches of most representations and warranties.
			PPL Energy Supply has provided indemnification to the purchaser of a generating facility for losses arising out of any breach of the representations, warranties and covenants under the related transaction documents and for losses arising with respect to liabilities not specifically assumed by the purchaser, including certain pre-closing environmental and tort liabilities. The indemnification other than for pre-closing environmental and tort liabilities is triggered only if the purchaser's losses reach $1 million in the aggregate, capped at $95 million and either expired in May 2007 or will expire pursuant to the applicable statutes of limitations. The indemnification provision for unknown environmental and tort liabilities related to periods prior to PPL Energy Supply's ownership of the real property on which the facility is located is capped at $4 million in the aggregate. Substantially all of the remaining indemnifications expired in the second quarter of 2010.

Indemnification to operators of jointly owned facilities	6		In December 2007, a subsidiary of PPL Energy Supply executed revised owners agreements for two jointly owned facilities, the Keystone and Conemaugh generating plants. The agreements require that in the event of any default by an owner, the other owners fund contributions for the operation of the generating plants, based upon their ownership percentages. The maximum obligation among all owners, for each plant, is currently $20 million. The non-defaulting owners, who make up the defaulting owner's obligations, are entitled to the generation entitlement of the defaulting owner, based upon their ownership percentage. The agreements do not have an expiration date.

WPD guarantee of pension and other obligations of unconsolidated entities	66	2015	As a result of the privatization of the utility industry in the U.K., certain electric associations' roles and responsibilities were discontinued or modified. As a result, certain obligations, primarily pension-related, associated with these organizations have been guaranteed by the participating members. Costs are allocated to the members based on predetermined percentages as outlined in specific agreements. However, if a member becomes insolvent, costs can be reallocated to and are guaranteed by the remaining members. At September 30, 2010, WPD has recorded an estimated discounted liability based on its current allocated percentage of the total expected costs for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements. Therefore, they have been estimated based on the types of obligations.

Tax indemnification related to unconsolidated WPD affiliates	8	2012	Two WPD unconsolidated affiliates were refinanced during 2005. Under the terms of the refinancing, WPD has indemnified the lender against certain tax and other liabilities.

Guarantee of a portion of an unconsolidated entity's debt	22	2018	Reflects principal payments only.

(a)		Represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee.
(b)		Other than the letters of credit, all guarantees of PPL Energy Supply, on a consolidated basis, also apply to PPL on a consolidated basis. Neither PPL nor PPL Energy Supply is liable for obligations under guarantees provided by WPD, as the beneficiaries of the guarantees do not have recourse to such entities.

PPL, PPL Energy Supply and PPL Electric and their subsidiaries provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, PPL, PPL Energy Supply and PPL Electric and their subsidiaries have not made any significant payments with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.

PPL, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage requires a $4 million deductible per occurrence and provides maximum aggregate coverage of $150 million. This insurance may be applicable to obligations under certain of these contractual arrangements.

11.	Related Party Transactions

(PPL Energy Supply and PPL Electric)

PLR Contracts

PPL Electric had power purchase contracts with PPL EnergyPlus in which PPL EnergyPlus supplied PPL Electric's entire PLR load. These contracts expired on December 31, 2009. Under these contracts, PPL EnergyPlus provided electricity at the predetermined capped prices that PPL Electric was authorized to charge its PLR customers. For the three and nine months ended September 30, 2009, these purchases totaled $445 million and $1.4 billion. These purchases included nuclear decommissioning recovery and amortization of an up-front contract payment.

PPL Electric held competitive solicitations in prior years for PLR generation supply for 2010. PPL EnergyPlus is providing a portion of this supply. For the three and nine months ended September 30, 2010, these purchases totaled $71 million and $250 million.

The purchases discussed above are included in the Statements of Income as "Wholesale energy marketing to affiliate" by PPL Energy Supply, and as "Energy purchases from affiliate" by PPL Electric.

See Note 2 for additional information regarding PPL Electric's purchases of accounts receivable from PPL EnergyPlus.

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

PPL Energy Supply has credit exposure to PPL Electric under certain energy supply contracts. See Note 13 for additional information on this credit exposure.

NUG Purchases

PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates and sells the electricity at the same price to PPL EnergyPlus. For the three and nine months ended September 30, 2009, these NUG purchases totaled $19 million and $59 million. These amounts are included in the Statements of Income as "Wholesale electric to affiliate" by PPL Electric, and as "Energy purchases from affiliate" by PPL Energy Supply. Such amounts were not significant for the three and nine months ended September 30, 2010. The final NUG contract will expire in 2014.

Allocations of Corporate Service Costs

PPL Services provides corporate functions such as financial, legal, human resources and information services. PPL Services charges the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that is not directly charged to PPL subsidiaries is allocated to certain subsidiaries based on an average of the subsidiaries' relative invested capital, operation and maintenance expenses, and number of employees. PPL Services allocated the following amounts, which PPL management believes are reasonable, to PPL Energy Supply and PPL Electric, including amounts applied to accounts that are further distributed between capital and expense.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009 (a)

PPL Energy Supply	$	55	$	44	$	170	$	152
PPL Electric		36		26		101		86

(a)

Excludes allocated costs associated with the February 2009 workforce reduction. See Note 9 for additional information.

(PPL Energy Supply)

Intercompany Derivatives

In 2010 and 2009, PPL Energy Supply entered into a combination of average rate forwards and average rate options with PPL to sell British pounds sterling. These hedging instruments have terms identical to average rate forwards and average rate options entered into by PPL with third parties to protect the translation of expected income denominated in British pounds sterling to U.S. dollars. Gains and losses, both realized and unrealized, on these types of hedging instruments are included in "Other Income (Expense) - net" on the Statements of Income. PPL Energy Supply recorded a net gain of $2 million for the three months ended September 30, 2009 and a net loss of $9 million for the nine months ended September 30, 2009. Such amounts were not significant for the three and nine months ended September 30, 2010. Contracts outstanding at September 30, 2010 hedged a total exposure of £60 million related to the translation of expected income in 2010 and 2011. Contracts outstanding at December 31, 2009 hedged a total exposure of £48 million related to the translation of expected income in 2010. The fair value of these positions, primarily reflected on the Balance Sheet in "Current Liabilities - Price risk management liabilities" at September 30, 2010 and in "Current Assets - Price risk management assets" at December 31, 2009, was not significant.

PPL Energy Supply is also party to forward contracts with PPL to sell British pounds sterling to protect the value of a portion of its net investment in WPD. These hedging instruments have terms identical to forward sales contracts entered into by PPL with third parties. The total amount of the contracts outstanding at September 30, 2010 and December 31, 2009, was £15 million and £40 million ($30 million and $78 million based on contracted rates). The fair value of these positions at September 30, 2010 was an asset of $6 million, which is included in "Current Assets - Price risk management assets," with an offsetting after-tax amount included in the foreign currency translation adjustment component of AOCI, on the Balance Sheet. The fair value of these positions at December 31, 2009 was an asset of $13 million, of which $8 million was in "Current Assets - Price risk management assets" and $5 million in "Other Noncurrent Assets - Price risk management assets," with an offsetting after-tax amount in the foreign currency translation adjustment component of AOCI, on the Balance Sheet.

Trademark Royalties

A PPL subsidiary owns PPL trademarks and bills certain affiliates for their use. PPL Energy Supply was allocated $10 million and $12 million of this license fee for the three months ended September 30, 2010 and 2009, and $30 million and $34 million for the nine months ended September 30, 2010 and 2009. These allocations are primarily included in "Other operation and maintenance" on the Statements of Income.

12.	Other Income (Expense) - net

(PPL and PPL Energy Supply)

The breakdown of "Other Income (Expense) - net" was:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
PPL
Other Income
Earnings on securities in NDT funds	$	4		$	7		$	15		$	13
Interest income		3			1			4			9
Gains related to the extinguishment of notes (a)											29
Miscellaneous-Domestic		2						5			3
Miscellaneous-International								1			1
Total		9			8			25			55
Other Expense
Cash flow hedges (b)		29						29
Pending E.ON U.S. acquisition costs (Note 8)		4						11
Economic foreign currency exchange contracts		1			(2	)		(1	)		9
Miscellaneous-Domestic					1			3			8
Miscellaneous-International		1						1			1
Other Income (Expense) - net	$	(26	)	$	9		$	(18	)	$	37

PPL Energy Supply
Other Income
Earnings on securities in NDT funds	$	4	$	7		$	15		$	13
Interest income		3					3			5
Gains related to the extinguishment of notes (a)										25
Miscellaneous-Domestic		2		1			4			3
Miscellaneous-International							1			1
Total		9		8			23			47
Other Expense
Economic foreign currency exchange contracts		1		(2	)		(1	)		9
Miscellaneous-Domestic		2		2			5			6
Miscellaneous-International		1					1			1
Other Income (Expense) - net	$	5	$	8		$	18		$	31

(a)		In 2009, PPL Energy Supply completed tender offers to purchase up to $250 million aggregate principal amount of certain of its outstanding senior notes for $220 million, resulting in a $25 million net gain. PPL recorded an additional net gain of $4 million as a result of reclassifying gains and losses on related cash flow hedges from AOCI into earnings.
(b)		As a result of the expected net proceeds from the anticipated sale of certain non-core generation facilities, coupled with the monetization of full-requirement sales contracts, debt that had been planned to be issued by PPL Energy Supply was no longer needed. As a result, hedge accounting associated with interest rate swaps entered into by PPL in anticipation of a debt issuance by PPL Energy Supply was discontinued. Associated net losses were reclassified from AOCI into earnings.

13.	Fair Value Measurements and Credit Concentration

(PPL, PPL Energy Supply and PPL Electric)

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

Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:

	September 30, 2010									December 31, 2009
		Total		Level 1			Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL
Assets
Cash and cash equivalents	$	4,853	$	4,853						$	801	$	801
Restricted cash and cash equivalents		51		51							129		129
Price risk management assets:
Energy commodities		3,758		3		$	3,714	$	41		3,354		3	$	3,234	$	117
Interest rate swaps		48					48				50				50
Foreign currency exchange contracts		7					7				15				15
Cross-currency swaps		60					60				12				12
Total price risk management assets		3,873		3			3,829		41		3,431		3		3,311		117
NDT funds:
Cash and cash equivalents		7		7							7		7
Equity securities:
U.S. large-cap		273		186			87				259		176		83
U.S. mid/small-cap		106		80			26				101		75		26
Debt securities:
U.S. Treasury		84		84							74		74
U.S. government sponsored agency		8					8				9				9
Municipality		67					67				65				65
Investment-grade corporate		33					33				29				29
Residential mortgage-backed securities											1				1
Receivables/payables, net		1		(1	)		2				3				3
Total NDT funds		579		356			223				548		332		216
Auction rate securities		25							25		25						25
Total assets	$	9,381	$	5,263		$	4,052	$	66	$	4,934	$	1,265	$	3,527	$	142

Liabilities
Price risk management liabilities:
Energy commodities	$	2,402	$	2		$	2,373	$	27	$	2,080	$	2	$	2,068	$	10
Interest rate swaps		172					172
Foreign currency exchange contracts		1					1
Cross-currency swaps		12					12				4				4
Total price risk management liabilities	$	2,587	$	2		$	2,558	$	27	$	2,084	$	2	$	2,072	$	10

PPL Energy Supply
Assets
Cash and cash equivalents	$	4,442	$	4,442						$	245	$	245
Restricted cash and cash equivalents		35		35							111		111
Price risk management assets:
Energy commodities		3,758		3		$	3,714	$	41		3,354		3	$	3,234	$	117
Foreign currency exchange contracts		7					7				15				15
Cross-currency swaps		60					60				12				12
Total price risk management assets		3,825		3			3,781		41		3,381		3		3,261		117
NDT funds:
Cash and cash equivalents		7		7							7		7
Equity securities:
U.S. large-cap		273		186			87				259		176		83
U.S. mid/small-cap		106		80			26				101		75		26
Debt securities:
U.S. Treasury		84		84							74		74
U.S. government sponsored agency		8					8				9				9
Municipality		67					67				65				65
Investment-grade corporate		33					33				29				29
Residential mortgage-backed securities											1				1
Receivables/payables, net		1		(1	)		2				3				3
Total NDT funds		579		356			223				548		332		216
Auction rate securities		20							20		20						20
Total assets	$	8,901	$	4,836		$	4,004	$	61	$	4,305	$	691	$	3,477	$	137

Liabilities
Price risk management liabilities:
Energy commodities	$	2,402	$	2		$	2,373	$	27	$	2,080	$	2	$	2,068	$	10
Foreign currency exchange contracts		1					1
Cross-currency swaps		12					12				4				4
Total price risk management liabilities	$	2,415	$	2		$	2,386	$	27	$	2,084	$	2	$	2,072	$	10

PPL Electric
Assets
Cash and cash equivalents	$	297	$	297	$	485	$	485
Restricted cash and cash equivalents		15		15		14		14
Total assets	$	312	$	312	$	499	$	499

A reconciliation of net assets and liabilities classified as Level 3 at September 30, 2010 is as follows.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended								Nine Months Ended
		Energy Commodities, net			Auction Rate Securities		Total			Energy Commodities, net			Auction Rate Securities		Total
PPL
Balance at beginning of period	$	48		$	25	$	73		$	107		$	25	$	132
Total realized/unrealized gains (losses)
Included in earnings		(58	)				(58	)		(126	)				(126	)
Included in OCI (a)		4					4			12					12
Purchases, sales, issuances and settlements, net		(13	)				(13	)		(12	)				(12	)
Transfers into Level 3		(13	)				(13	)		(15	)				(15	)
Transfers out of Level 3		46					46			48					48
Balance at end of period	$	14		$	25	$	39		$	14		$	25	$	39

PPL Energy Supply
Balance at beginning of period	$	48		$	20	$	68		$	107		$	20	$	127
Total realized/unrealized gains (losses)
Included in earnings		(58	)				(58	)		(126	)				(126	)
Included in OCI (a)		4					4			12					12
Purchases, sales, issuances and settlements, net		(13	)				(13	)		(12	)				(12	)
Transfers into Level 3		(13	)				(13	)		(15	)				(15	)
Transfers out of Level 3		46					46			48					48
Balance at end of period	$	14		$	20	$	34		$	14		$	20	$	34

(a)

Included in "Qualifying derivatives" on the Statement of Comprehensive Income.

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

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended									Nine Months Ended
		Energy Commodities, net			Auction Rate Securities			Total			Energy Commodities, net			Auction Rate Securities			Total
PPL
Balance at beginning of period	$	139		$	18		$	157		$	188		$	24		$	212
Total realized/unrealized gains (losses)
Included in earnings		(48	)					(48	)		(124	)					(124	)
Included in OCI (a)		2						2			5			(6	)		(1	)
Purchases, sales, issuances and settlements, net		13						13			98						98
Transfers into/(out of) Level 3		7						7			(54	)					(54	)
Balance at end of period	$	113		$	18		$	131		$	113		$	18		$	131


PPL Energy Supply
Balance at beginning of period	$	139		$	15		$	154		$	188		$	19		$	207
Total realized/unrealized gains (losses)
Included in earnings		(48	)					(48	)		(124	)					(124	)
Included in OCI (a)		2			(1	)		1			5			(5	)
Purchases, sales, issuances and settlements, net		13						13			98						98
Transfers into/(out of) Level 3		7						7			(54	)					(54	)
Balance at end of period	$	113		$	14		$	127		$	113		$	14		$	127

(a)

Included in "Qualifying derivatives" and "Available-for-sale securities" on the Statement of Comprehensive Income.

Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the three and nine months ended September 30, 2010 are reported in the Statement of Income as follows.

	Three Months Ended									Nine Months Ended
	Energy Commodities, net									Energy Commodities, net
		Wholesale Energy Marketing		Unregulated Retail Electric and Gas		Net Energy Trading Margins		Energy Purchases			Wholesale Energy Marketing		Unregulated Retail Electric and Gas		Net Energy Trading Margins			Energy Purchases

PPL and PPL Energy Supply
Total gains (losses) included in earnings for the period	$	3	$	10	$	1	$	(72	)	$	16	$	22	$	(1	)	$	(163	)
Change in unrealized gains (losses) relating to positions still held at the reporting date		4		8				(3	)		8		18					(5	)

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

	Three Months Ended							Nine Months Ended
	Energy Commodities, net							Energy Commodities, net
		Wholesale Energy Marketing		Net Energy Trading Margins		Energy Purchases			Wholesale Energy Marketing		Net Energy Trading Margins			Energy Purchases

PPL and PPL Energy Supply
Total gains (losses) included in earnings for the period	$	17	$	2	$	(67	)	$	30	$	(16	)	$	(138	)
Change in unrealized gains (losses) relating to positions still held at the reporting date		16		2		(49	)		26		1			(85	)

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents ( PPL, PPL Energy Supply and PPL Electric)

The fair value measurements of cash and cash equivalents and restricted cash and cash equivalents are based on the amount on deposit.

(PPL and PPL Energy Supply)

Price Risk Management Assets/Liabilities - Energy Commodities

Energy commodity contracts are generally valued using the income approach, except for exchange-traded derivative gas and oil contracts, which are valued using the market approach and are classified as Level 1. When observable inputs are used to measure all or most of the value of a contract, the contract is classified as Level 2. Over-the-counter (OTC) contracts are valued by traders using quotes obtained from an exchange, binding and non-binding broker quotes, prices posted by ISOs or published tariff rates. PPL's risk management group obtains quotes from the market to validate the forward price curves. OTC contracts include forwards, swaps, options and structured deals for electricity, gas, oil, and/or emission allowances and may be offset with similar positions in exchange-traded markets. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these instruments may be valued using models, including standard option valuation models and standard industry models. For example, the fair value of a structured deal that delivers power to an illiquid delivery point may be measured by valuing the nearest liquid trading point plus the value of the basis between the two points. The basis input may be from market quotes, FTR prices, or historical prices.

When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3. Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on PPL's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets). PPL's credit department assesses all reasonably available market information and uses probabilities of default to calculate the credit adjustment. PPL assumes that observable market prices include sufficient adjustments for liquidity and modeling risks, but for Level 3 fair value measurements, PPL also assesses the need for additional adjustments for liquidity or modeling risks. The contracts classified as Level 3 represent contracts for which the delivery dates are beyond the dates for which independent prices are available or for certain power basis positions, which PPL generally values using historical settlement prices to project forward prices.

In certain instances, PPL transfers energy commodity contracts between Level 2 and Level 3. The primary reasons for the transfers during 2010 and 2009 were changes in the availability of market information. As the delivery period of a contract becomes closer, market information may become available. When this occurs, the model's unobservable inputs are replaced with observable market information.

Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Exchange Contracts/Cross-currency Swaps

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

NDT Funds

The fair value measurements of cash and cash equivalents are based on the amount on deposit.

PPL and PPL Energy Supply generally use the market approach to measure the fair value of equity securities held in the NDT funds.

·	The fair value measurements of equity securities classified as Level 1 are based on quoted prices in active markets and are comprised of securities that are representative of the Wilshire 5000 index, which is invested in approximately 70% large-cap stocks and 30% mid/small-cap stocks.

·	Investments in commingled equity funds are classified as Level 2 and represent securities that track the S&P 500 index and the Wilshire 4500 index. These fair value measurements are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market.

Debt securities are generally measured using a market approach, including the use of matrix pricing. Common inputs include reported trades, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as benchmark yields, credit valuation adjustments, reference data from market research publications, monthly payment data, collateral performance and new issue data. The debt securities held by the NDT funds at September 30, 2010 have a weighted-average coupon of 4.55% and a weighted-average duration of five years.

PPL and PPL Energy Supply recorded impairments for certain securities invested in the NDT funds of $3 million and $18 million for the nine months ended September 30, 2010 and 2009. These impairments are reflected on the Statements of Income in "Other-Than-Temporary Impairments."

Auction Rate Securities

PPL's and PPL Energy Supply's auction rate securities are recorded in "Other investments" on the Balance Sheets and include Federal Family Education Loan Program guaranteed student loan revenue bonds, as well as various municipal bond issues. In 2010, auction rate securities continue to be impacted by auction failures and the resulting inability to liquidate these securities. PPL and PPL Energy Supply continue to earn interest on these investments at contractually prescribed interest rates, and believe these investments continue to be of high credit quality. PPL and PPL Energy Supply do not have significant exposure to realize losses on these securities; however, auction rate securities are classified as Level 3 because failed auctions limit the amount of observable market data that is available for measuring the fair value of these securities.

PPL and PPL Energy Supply estimate the fair value of auction rate securities using an income approach which utilizes the following inputs:

·	the underlying structure and credit quality of each security;
·	the present value of future interest payments, estimated based on forward rates of the SIFMA Index, and principal payments discounted using interest rates for bonds with a credit rating and remaining term to maturity similar to the stated maturity of the auction rate securities; and
·	consideration of the impact of auction failures or redemption at par.

Based upon the evaluation of available information, the estimated fair value of these securities could change significantly based on future market conditions.

At September 30, 2010 and December 31, 2009, PPL and PPL Energy Supply concluded that the fair value of these auction rate securities approximated par value, which was $25 million for PPL and $20 million for PPL Energy Supply. At September 30, 2010, contractual maturities for these auction rate securities were a weighted average of approximately 25 years. During the three and nine months ended September 30, 2010, PPL and PPL Energy Supply liquidated an insignificant amount of securities at par.

Nonrecurring Fair Value Measurements (PPL and PPL Energy Supply)

			Fair Value Measurements Using
		Carrying Value (a)		Level 2		Level 3		Loss (b)
Sulfur dioxide emission allowances (c):
September 30, 2010	$	6			$	2	$	4
June 30, 2010		11				3		8
March 31, 2010		13				10		3
March 31, 2009		45				15		30
Certain non-core generation facilities:
September 30, 2010		473	$	381				96
Long Island generation business:
September 30, 2009		137		133				5
June 30, 2009		189		138				52

(a)		Represents carrying value before fair value measurement.
(b)		Losses on sulfur dioxide emission allowances were recorded in the Supply segment and included in "Other operation and maintenance" on the Statements of Income. Losses on certain non-core generation facilities and the Long Island generation business were recorded in the Supply segment and included in "Loss from Discontinued Operations (net of income taxes)" on the Statements of Income.
(c)		Current and long-term sulfur dioxide emission allowances are included in "Other intangibles" in their respective areas on the Balance Sheet.

Sulfur Dioxide Emission Allowances

Due to declines in market prices in 2010 and 2009, PPL Energy Supply assessed the recoverability of sulfur dioxide emission allowances not expected to be consumed. When available, observable market prices were used to value the sulfur dioxide emission allowances. When observable market prices were not available, fair value was modeled using prices from observable transactions and appropriate discount rates. The modeled values were significant to the overall fair value measurement.

Certain Non-Core Generation Facilities

Certain non-core generation facilities met the held for sale criteria at September 30, 2010. As a result, net assets held for sale were written down to their estimated fair value less cost to sell. The fair value in the table above excludes $4 million of estimated costs to sell and was based on the negotiated sales price (achieved through an active auction process). See Note 8 for additional information on the anticipated sale.

Long Island Generation Business

The Long Island generation business met the held for sale criteria at June 30, 2009. As a result, net assets held for sale were written down to their estimated fair value less cost to sell. The fair value in the table above excludes $1 million of estimated costs to sell and was based on the negotiated sales price (achieved through an active auction process). See Note 8 for additional information on the completed sale.

Financial Instruments Not Recorded at Fair Value

(PPL, PPL Energy Supply and PPL Electric)

NPNS

PPL and PPL Energy Supply enter into full-requirement sales contracts, power purchase agreements and certain retail energy and physical capacity contracts that range in maturity through 2023 and qualify for NPNS. PPL Electric also enters into contracts that qualify for NPNS. See "Energy Purchase Commitments" in Note 10 for information about PPL Electric's competitive solicitations. All of these contracts are accounted for using accrual accounting; therefore, there were no amounts recorded on the Balance Sheets at September 30, 2010 and December 31, 2009. The estimated fair value of these contracts, calculated using similar inputs and valuation techniques as those described above within "Price Risk Management Assets/Liabilities - Energy Commodities," was:

	Net Asset (Liability)
	September 30, 2010			December 31, 2009

PPL	$	254		$	122
PPL Energy Supply		373			334
PPL Electric		(121	)		(216	)

Other

The carrying amounts of contract adjustment payments related to the Purchase Contract component of the Equity Units and long-term debt on the Balance Sheets and their estimated fair value are set forth below. The fair value of these instruments was estimated using an income approach by discounting future cash flows at estimated current cost of funding rates.

	September 30, 2010				December 31, 2009
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
PPL
Contract adjustment payments (a)	$	159	$	161
Long-term debt		8,839		9,684	$	7,143	$	7,280
PPL Energy Supply
Long-term debt		5,562		6,182		5,031		5,180
PPL Electric
Long-term debt		1,472		1,720		1,472		1,567

(a)

Reflected in current and long-term other liabilities on the balance sheet. See Note 7 for additional information.

(PPL and PPL Energy Supply)

The carrying value of "Short-term debt" at September 30, 2010 and December 31, 2009 on the Balance Sheets represented or approximated fair value due to the liquid nature of the instruments or variable interest rates associated with the financial instruments.

Credit Concentration Associated with Financial Instruments

(PPL, PPL Energy Supply and PPL Electric)

PPL and its subsidiaries enter into contracts with many entities for the purchase and sale of energy. Many of these contracts are considered a normal part of doing business and, as such, the fair value of these contracts is not reflected in the financial statements. However, the fair value of these contracts is considered when committing to new business from a credit perspective. See Note 14 for information on credit policies used by PPL and its subsidiaries to manage credit risk, including master netting arrangements and collateral requirements.

(PPL)

At September 30, 2010, PPL had credit exposure of $3.9 billion to energy trading partners, excluding the effects of netting arrangements and collateral. As a result of netting arrangements and collateral, PPL's credit exposure was reduced to $1.0 billion. One of the counterparties accounted for 13% of this exposure, and no other individual counterparty accounted for more than 12% of the exposure. Ten counterparties accounted for $569 million, or 57%, of the net exposure. Nine of these counterparties had an investment grade credit rating from S&P and accounted for 94% of the top ten exposure. The remaining counterparty has not been rated by S&P, but is current on its obligations.

(PPL Energy Supply)

At September 30, 2010, PPL Energy Supply had credit exposure of $3.9 billion to energy trading partners, excluding exposure from related parties and the effects of netting arrangements and collateral. As a result of netting arrangements and collateral, this credit exposure was reduced to $1.0 billion. One of the counterparties accounted for 13% of this exposure, and no other individual counterparty accounted for more than 12% of the exposure. Ten counterparties accounted for $569 million, or 57%, of the net exposure. Nine of these counterparties had an investment grade credit rating from S&P and accounted for 94% of the top ten exposure. The remaining counterparty has not been rated by S&P, but is current on its obligations.

At September 30, 2010, PPL Energy Supply's credit exposure under certain energy supply contracts to PPL Electric was $47 million. Netting arrangements had an insignificant change on this credit exposure.

(PPL Electric)

At September 30, 2010, PPL Electric had no credit exposure under energy supply contracts (including its supply contracts with its affiliate PPL EnergyPlus).

14.	Derivative Instruments and Hedging Activities

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

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

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

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

·	commodity price, basis and volumetric risks for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity marketing activities (including full-requirement sales contracts) and the purchase of fuel and fuel-related commodities for generating assets, as well as for proprietary trading activities;
·	interest rate and price risk associated with debt used to finance operations and the pending acquisition of E.ON U.S., as well as debt and equity securities in NDT funds and defined benefit plans; and
·	foreign currency exchange rate risk associated with investments in U.K. affiliates, as well as purchases of equipment in currencies other than U.S. dollars.

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

PPL and PPL Electric are exposed to market price and volumetric risks from PPL Electric's obligation as PLR. The PUC has approved a cost recovery mechanism that allows PPL Electric to pass through to customers the cost associated with fulfilling its PLR obligation. This cost recovery mechanism substantially eliminates PPL Electric's exposure to market price risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement supply agreements for its customers. These supply agreements transfer the volumetric risk associated with the PLR obligation to the energy suppliers.

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

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

·	commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, and financial institutions;
·	interest rate derivatives with financial institutions; and
·	foreign currency derivatives with financial institutions.

PPL and PPL Electric are exposed to credit risk from PPL Electric's supply agreements for its PLR obligation.

The majority of PPL's, PPL Energy Supply's and PPL Electric's credit risk stems from PPL Energy Supply's and PPL Electric's commodity derivatives for multi-year contracts for energy sales and purchases. If PPL Energy Supply's counterparties fail to perform their obligations under such contracts and PPL Energy Supply could not replace the sales or purchases at the same prices as those under the defaulted contracts, PPL Energy Supply would incur financial losses. Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts. In the event a PPL Electric supplier defaults on its obligation, PPL Electric would be required to seek replacement power in the market. All incremental costs incurred by PPL Electric would be recoverable from customers in future rates.

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

PPL's and PPL Energy Supply's obligation to return counterparty cash collateral under master netting arrangements was $521 million and $355 million at September 30, 2010 and December 31, 2009.

PPL Electric had no obligation to return cash collateral under master netting arrangements at September 30, 2010 and December 31, 2009.

At September 30, 2010 and December 31, 2009, PPL Electric had not posted any cash collateral under master netting arrangements. PPL and PPL Energy Supply had posted an insignificant amount of cash collateral under master netting arrangements at September 30, 2010 and December 31, 2009.

(PPL and PPL Energy Supply)

Commodity Price Risk (Non-trading)

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

PPL and PPL Energy Supply enter into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electricity, gas, oil and other commodities. Certain contracts qualify for NPNS or are non-derivatives and are therefore not reflected in the financial statements until delivery. See Note 13 for additional information on NPNS. PPL and PPL Energy Supply segregate their remaining non-trading activities into two categories: cash flow hedge activity and economic activity.

Monetization of Certain Full-Requirement Sales Contracts

In early July 2010, in order to raise additional cash for the pending E.ON U.S. acquisition, PPL Energy Supply monetized certain full-requirement sales contracts that resulted in cash proceeds of $156 million.

The decision in late June to monetize these contracts triggered certain accounting for the second quarter of 2010:

·	A portion of these sales contracts had previously been accounted for as NPNS and received accrual accounting treatment. The related purchases to supply these sales contracts were accounted for as cash flow hedges, with the effective portion of the change in fair value being recorded in AOCI and the ineffective portion recorded in "Energy purchases - unrealized economic activity."

·	The rest of the sales contracts, along with their related hedges, had previously been accounted for as economic activity by PPL Energy Supply and the change in fair value of the sales contracts was recorded in "Wholesale energy marketing - Unrealized economic activity" and the change in fair value of the purchase contracts was recorded in "Energy purchases - Unrealized economic activity" on the Statement of Income.

·	At June 30, 2010, PPL Energy Supply could no longer assert that it was probable that any contracts with these counterparties would result in physical delivery. Therefore, the fair value of the NPNS contracts of $66 million was recorded on the Balance Sheet in "Price risk management assets," with a corresponding gain to "Wholesale energy marketing - Unrealized economic activity" on the Statement of Income. Of this amount, $16 million was related to full-requirement sales contracts that have not been monetized. The corresponding cash flow hedges were dedesignated and all amounts previously recorded in AOCI were reclassified to earnings. This resulted in a pre-tax reclassification of $(87) million of losses from AOCI into "Energy purchases - Unrealized economic activity" on the Statement of Income. An additional charge of $(23) million was also recorded at June 30, 2010 in "Wholesale energy marketing - Unrealized economic activity" on the Statement of Income to reflect the fair value of the sales contracts previously accounted for as economic activity.

·	The net result of these transactions, excluding the full-requirement sales contracts that have not been monetized, was a loss of $(60) million, or $(36) million after tax, for the three months ended June 30, 2010. Upon monetization in the third quarter of 2010, the loss on the full-requirement sales contracts was reclassified from "Wholesale energy marketing - Unrealized economic activity" to "Wholesale energy marketing - Realized" on the Statement of Income.

In late July 2010, PPL Energy Supply again monetized certain full-requirement sales contracts that resulted in additional cash proceeds of $93 million. The monetization in late July triggered certain accounting that impacted the third quarter of 2010.

·	These sales contracts had previously been accounted for as NPNS and received accrual accounting treatment. The related purchases to supply these sales contracts were accounted for as cash flow hedges, with the effective portion of the change in fair value being recorded in AOCI and the ineffective portion recorded in "Energy purchases - Unrealized economic activity" on the Statement of Income.

·	The $93 million received from the monetization of the NPNS contracts was recorded as a gain to "Wholesale energy marketing - Realized" on the Statement of Income. The corresponding cash flow hedges were dedesignated and all amounts previously recorded in AOCI were reclassified to earnings. This resulted in a pre-tax reclassification of $(61) million of losses from AOCI into "Energy purchases - Unrealized economic activity" on the Statement of Income.

·	The net result of these transactions was a gain of $32 million, or $19 million after tax, for the three months ended September 30, 2010.

The proceeds of $249 million from these monetizations are reflected in the Statement of Cash Flows as a component of "Net cash provided by operating activities."

Cash Flow Hedges

Many derivative contracts have qualified for hedge accounting so that the effective portion of a derivative's gain or loss is deferred in AOCI and reclassified into earnings when the forecasted transaction occurs. The cash flow hedges that existed at September 30, 2010 range in maturity through 2015. At September 30, 2010, the accumulated net unrealized after-tax gains that are expected to be reclassified into earnings during the next 12 months were $390 million for PPL and PPL Energy Supply. Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified into earnings. For the three and nine months ended September 30, 2010, such reclassifications were after-tax losses of $(36) million and $(89) million, primarily due to the monetization of certain full-requirement sales contracts, for which the associated hedges are no longer required, as discussed above. For the three and nine months ended September 30, 2009, such reclassifications were insignificant and gains of $4 million.

For the three months ended September 30, 2010 and 2009, hedge ineffectiveness associated with energy derivatives was after-tax gains of $8 million and $3 million. For the nine months ended September 30, 2010 and 2009, hedge ineffectiveness associated with energy derivatives was after-tax gains (losses) of $(16) million and $58 million.

In addition, when cash flow hedge positions fail hedge effectiveness testing, hedge accounting is not permitted in the quarter in which this occurs and, accordingly, the entire change in fair value for the periods that failed is recorded to the income statement. Certain cash flow hedge positions failed effectiveness testing during 2008 and the first quarter of 2009. However, these positions were not dedesignated as hedges, as prospective regression analysis demonstrated that these hedges were expected to be highly effective over their term. During the second quarter of 2009, fewer power and gas cash flow hedges failed hedge effectiveness testing as compared to the previous three quarters and thus a portion of the previously recognized unrealized gains associated with these hedges were reversed. During the three and nine months ended September 30, 2009, after-tax losses of $(74) million and $(166) million were recognized in earnings as a result of these reversals. During the first quarter of 2010, after-tax losses of $(82) million were recognized in earnings as a result of these reversals continuing. Effective April 1, 2010, clarifying accounting guidance was issued that precludes the reversal of previously recognized gains/losses resulting from hedge failures. See Note 2 for more information on this accounting change and its impact on PPL.

Economic Activity

Certain derivative contracts economically hedge the price and volumetric risk associated with electricity, gas, oil and other commodities but do not receive hedge accounting treatment. These derivatives hedge a portion of the economic value of PPL Energy Supply's generation assets and full-requirement and retail contracts, which are subject to changes in fair value due to market price volatility and volume expectations. Additionally, economic activity includes the ineffective portion of qualifying cash flow hedges, including the entire change in fair value of certain cash flow hedges that fail retrospective effectiveness testing (see "Cash Flow Hedges" above). The derivative contracts that existed at September 30, 2010 range in maturity through 2017.

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

Unrealized activity associated with monetizing certain full-requirement sales contracts was also included in economic activity during the second and third quarters of 2010. All transactions that previously had been considered cash flow hedges related to these full-requirement sales contracts, but no longer qualify as cash flow hedges, have been classified as economic activity at September 30, 2010.

The unrealized gains (losses) for economic activity are as follows.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Operating Revenues
Unregulated retail electric and gas	$	8					$	16		$	2
Wholesale energy marketing		52		$	(307	)		(190	)		(67	)
Operating Expenses
Fuel		16			7			13			35
Energy purchases (a)		(300	)		79			(418	)		(255	)

(a)

During the second quarter of 2010, PPL Energy Supply corrected an error relating to the fair value of a capacity contract (classified as economic activity) due to the use of an incorrect forward capacity curve. PPL Energy Supply's energy purchases were understated for the year ended December 31, 2009 and the first quarter of 2010 by an unrealized amount of $35 million ($20 million after tax or $0.05 per share, basic and diluted, for PPL) and $5 million ($3 million after tax or $0.01 per share, basic and diluted, for PPL). Management concluded that the impacts were not material to the financial statements of PPL and PPL Energy Supply for the year ended December 31, 2009 or the first quarter of 2010, and are not expected to be material to the financial statements for the full year 2010.

The net gains (losses) recorded in "Wholesale energy marketing" resulted primarily from certain full-requirement sales contracts for which PPL Energy Supply did not elect NPNS, from hedge ineffectiveness, including hedges that failed effectiveness testing, as discussed in "Cash Flow Hedges" above, and from the monetization of certain full-requirement sales contracts. The net gains (losses) recorded in "Energy purchases" resulted primarily from certain purchase contracts to supply the full-requirement sales contracts noted above for which PPL Energy Supply did not elect hedge treatment, from hedge ineffectiveness, including hedges that failed effectiveness testing, and from purchase contracts that no longer hedge the full-requirement sales contracts that have been monetized as discussed above in "Monetization of Certain Full-Requirement Sales Contracts."

Commodity Price Risk (Trading)

PPL Energy Supply also executes energy contracts to take advantage of market opportunities. As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated. PPL Energy Supply's trading activity is shown in "Net energy trading margins" on the Statements of Income.

Commodity Volumetric Activity

PPL Energy Supply currently employs four primary strategies to maximize the value of its wholesale energy portfolio. As further discussed below, these strategies include the sales of baseload generation, optimization of intermediate and peaking generation, marketing activities, and proprietary trading activities. The tables within this section present the volumes of PPL Energy Supply's derivative activity, excluding those that qualify for NPNS, unless otherwise noted.

Sales of Baseload Generation

PPL Energy Supply has a formal hedging program for its baseload generation fleet, which includes 7,370 MW of generating capacity. The objective of this program is to provide a reasonable level of near-term cash flow and earnings certainty for the next three years while preserving upside potential of power price increases over the medium term; however, in certain instances, PPL Energy Supply will sell power and purchase fuel beyond this three-year period. PPL Energy Supply sells its expected generation output on a forward basis using both derivative and non-derivative instruments. Both are included in the following tables.

The following table presents the expected sales, in GWh, of baseload generation based on current forecasted assumptions for 2010-2012. These expected sales could be impacted by several factors, including plant availability.

2010 (a)			2011 (b)			2012 (b)
	13,591			51,435			54,675

(a)		Represents expected sales from October 1, 2010 to December 31, 2010.
(b)		Excludes expected sales from the Safe Harbor hydroelectric facility that has been classified as held for sale. See Note 8 for additional information.

The following table presents the percentage of expected baseload generation sales shown above that has been sold forward under fixed-price contracts and the related percentage of fuel that has been purchased or committed at September 30, 2010.

	Derivative		Total Power		Fuel Purchases (d)
Year		Sales (a) (b)		Sales (c)		Coal	Nuclear

2010 (e)		88%		99%		100%	100%
2011		83%		92%		99%	100%
2012		59%		68%		96%	100%

(a)		Excludes non-derivative contracts and contracts that qualify for NPNS. Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.
(b)		Volumes for derivative sales contracts that deliver between 2013 and 2015 are 5,370 GWh.
(c)		Amount represents derivative and non-derivative contracts. Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.
(d)		Coal and nuclear contracts receive accrual accounting treatment, as they are not derivative contracts. Percentages are based on both fixed- and variable-priced contracts.
(e)		Represents the time period from October 1, 2010 to December 31, 2010.

In addition to the fuel purchases above, PPL Energy Supply attempts to economically hedge the fuel price risk that is within its fuel-related contracts and coal transportation contracts, which are tied to changes in crude oil or diesel prices. The following table presents the volumes (in thousands of barrels) of derivative contracts used in support of this strategy at September 30, 2010.

Contract Type	2010 (a)	2011	2012

Oil Swaps (b)	114	540	623

(a)		Represents the time period from October 1, 2010 to December 31, 2010.
(b)		Net volumes that deliver in 2013 are 300 thousand barrels.

Optimization of Intermediate and Peaking Generation

In addition to its baseload generation activities, PPL Energy Supply attempts to optimize the overall value of its intermediate and peaking fleet, which includes 4,349 MW of gas and oil-fired generation. The following table presents the volumes of derivative contracts used in support of this strategy at September 30, 2010.

	Units	2010 (a)		2011

Net Power Sales:
Options (b)	GWh	(152	)	(16	)
Non-option contracts (c)	GWh	(881	)	(743	)

Net Power/Fuel Purchases:
Non-option contracts	Bcf	7.1		5.4

(a)		Represents the time period from October 1, 2010 to December 31, 2010.
(b)		Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.
(c)		Included in these volumes are exercised option contracts that converted to non-option derivative contracts.

Marketing Activities

PPL Energy Supply's marketing portfolio is comprised of full-requirement sales contracts and their related supply contracts, retail gas and electricity sales contracts and other marketing activities. The full-requirement sales contracts and their related supply contracts make up a significant component of the marketing portfolio. The obligations under the full-requirement sales contracts include supplying a bundled product of energy, capacity, RECs, and other ancillary products. The full-requirement sales contracts PPL Energy Supply is awarded do not provide for specific levels of load, and actual load could vary significantly from forecasted amounts. PPL Energy Supply uses a variety of strategies to hedge its full-requirement sales contracts, including purchasing energy at a liquid trading hub or directly at the load delivery zone, purchasing capacity and RECs in the market and supplying the energy, capacity and RECs with its generation. RECs are not derivatives and are excluded from the table below. The following table presents the volumes of (sales)/purchase contracts, excluding FTRs, basis and capacity contracts, used in support of these activities at September 30, 2010.

	Units	2010 (a)		2011		2012

Energy sales contracts (b) (c)	GWh	(4,186	)	(11,604	)	(6,837	)
Related energy supply contracts (c):
Energy purchases	GWh	3,022		6,837		3,186
Volumetric hedges (d)	GWh	(190	)	38		(72	)
Generation Supply	GWh	778		2,690		3,150
Retail gas sales contracts	Bcf	(1.4	)	(4.9	)	(5.0	)
Retail gas purchase contracts	Bcf	1.4		4.9		5.0

(a)		Represents the time period from October 1, 2010 to December 31, 2010.
(b)		The majority of PPL Energy Supply's full-requirement sales contracts receive accrual accounting as they qualify for NPNS or are not derivative contracts. Also included in these volumes are the sales from PPL EnergyPlus to PPL Electric to supply PPL Electric's 2010 - 2012 PLR load obligation.
(c)		Net volumes for derivative contracts, excluding contracts that qualify for NPNS, that deliver between 2013 and 2015 are 113 GWh.
(d)		PPL Energy Supply uses power and gas options, swaps and futures to hedge the volumetric risk associated with full-requirement sales contracts since the demand for power varies hourly. Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.

FTRs and Other Basis Positions

PPL Energy Supply buys and sells FTRs and other basis positions to mitigate the basis risk between delivery points related to the sales of its generation, the supply of its full-requirement sales contracts and retail contracts, as well as for proprietary trading purposes. The following table presents the volumes of derivative FTR and basis (sales)/purchase contracts at September 30, 2010.

Commodity	Units	2010 (a)		2011		2012

FTRs	GWh	15,685		25,770
Power Basis Positions (b)	GWh	(6,291	)	(3,983	)	(73	)
Gas Basis Positions (c)	Bcf	11.2		11.0		3.2

(a)		Represents the time period from October 1, 2010 to December 31, 2010.
(b)		Net volumes that deliver in 2013 are (216) GWh.
(c)		Net volumes that deliver between 2013 and 2014 are (0.6) Bcf.

Capacity Positions

PPL Energy Supply buys and sells capacity related to the sales of its generation and the supply of its full-requirement sales contracts, as well as for proprietary trading purposes. The following table presents the volumes of derivative capacity (sales)/purchase contracts at September 30, 2010.

Commodity	Units	2010 (a)		2011		2012

Capacity (b)	MW-months	(2,537	)	(3,496	)	(177	)

(a)		Represents the time period from October 1, 2010 to December 31, 2010.
(b)		Net volumes that deliver between 2013 and 2016 are (358) MW-months.

Proprietary Trading Activity

At September 30, 2010, PPL Energy Supply's proprietary trading positions, excluding FTR, basis and capacity contract activity that has already been included in the tables above, were not significant.

Interest Rate Risk

PPL and its subsidiaries have issued debt to finance its operations, which results in an exposure to interest rate risk. PPL and its subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in its debt portfolio, adjust the duration of its debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of PPL's and its subsidiaries' debt portfolio due to changes in benchmark interest rates.

Cash Flow Hedges

Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. PPL and PPL Energy Supply may enter into financial interest rate swap contracts that qualify as cash flow hedges to hedge floating interest rate risk associated with both existing and anticipated debt issuances. For PPL, these interest rate swap contracts range in maturity through 2041 and had a notional value of $2.6 billion at September 30, 2010. For the three months ended September 30, 2010 and 2009, no amounts were recorded related to ineffectiveness. For the nine months ended September 30, 2010 and 2009, hedge ineffectiveness associated with these derivatives was not significant. PPL Energy Supply did not hold any such contracts at September 30, 2010.

In anticipation of debt issuances that occurred in March 2010, WPD (South West) and WPD (South Wales) entered into forward starting interest rate swaps to hedge the change in benchmark interest rates up through the date of the debt issuances. See Note 7 for information on the debt issued. For the nine months ended September 30, 2010, WPD (South Wales) recorded hedge ineffectiveness of $3 million in "Interest Expense" on the Statement of Income related to the forward-starting interest rate swaps.

WPDH Limited holds a net notional position in cross-currency swaps totaling $302 million to hedge the interest payments and principal of its U.S. dollar-denominated senior notes with maturity dates ranging from December 2017 to December 2028. For the three and nine months ended September 30, 2010 and 2009, no amounts were recorded related to hedge ineffectiveness.

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified to earnings. As a result of the expected net proceeds from the anticipated sale of certain non-core generation facilities, coupled with the monetization of certain full-requirement sales contracts, debt that had been planned to be issued by PPL Energy Supply in 2010 was no longer needed. As a result, hedge accounting associated with interest rate swaps entered into by PPL in anticipation of a debt issuance by PPL Energy Supply was discontinued. Net losses of $(29) million, or $(19) million after tax, were reclassified for the three and nine months ended September 30, 2010. For the nine months ended September 30, 2009, PPL reclassified a net after-tax gain of $2 million. PPL had no such reclassifications for the three months ended September 30, 2009. PPL Energy Supply had no such reclassifications for the three and nine months ended September 30, 2010 and 2009.

At September 30, 2010, the accumulated net unrealized after-tax losses on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months were $12 million for PPL and $4 million for PPL Energy Supply. Amounts are reclassified as the hedged interest payments are made.

Fair Value Hedges

PPL and PPL Energy Supply are exposed to changes in the fair value of their domestic and international debt portfolios. To manage this risk, PPL and PPL Energy Supply may enter into financial contracts to hedge fluctuations in the fair value of existing debt due to changes in benchmark interest rates. Amounts recognized in income include changes in the fair value of the derivative and related debt, and the amortization of gains and losses on previously closed out hedges. At September 30, 2010, PPL held contracts that range in maturity through 2047 and had a notional value of $749 million. PPL Energy Supply did not hold any such contracts at September 30, 2010. PPL and PPL Energy Supply did not recognize any gains or losses resulting from the ineffective portion of fair value hedges or from a portion of the hedging instrument being excluded from the assessment of hedge effectiveness for the three and nine months ended September 30, 2010 and 2009. PPL and PPL Energy Supply did not recognize any gains or losses from hedges of debt that no longer qualified as fair value hedges for the three and nine months ended September 30, 2010 and 2009.

Foreign Currency Risk

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

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

Cash Flow Hedges

PPL and PPL Energy Supply may enter into foreign currency derivatives associated with foreign currency-denominated debt and the exchange rate associated with firm commitments denominated in foreign currencies; however, at September 30, 2010, there were no existing contracts of this nature. Amounts previously classified in AOCI are reclassified as the hedged interest payments are made and as the related equipment is depreciated.

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified to earnings. There were no such reclassifications for the three and nine months ended September 30, 2010 and 2009.

Fair Value Hedges

PPL and PPL Energy Supply enter into foreign currency forward contracts to hedge the exchange rates associated with firm commitments denominated in foreign currencies; however, at September 30, 2010, there were no existing contracts of this nature. PPL and PPL Energy Supply did not recognize any gains or losses resulting from the ineffective portion of fair value hedges or from a portion of the hedging instrument being excluded from the assessment of hedge effectiveness for the three and nine months ended September 30, 2010 and 2009. Additionally, PPL and PPL Energy Supply did not recognize any gains or losses resulting from hedges of firm commitments that no longer qualified as fair value hedges for the three and nine months ended September 30, 2010 and 2009.

Net Investment Hedges

PPL and PPL Energy Supply may enter into foreign currency contracts to protect the value of a portion of their net investment in WPD. The total notional amount of the contracts outstanding at September 30, 2010 was £15 million (approximately $30 million based on contracted rates). The settlement dates of these contracts range from March 2011 through June 2011. At September 30, 2010, the fair value of these positions was a net asset of $6 million. For the nine months ended September 30, 2010, PPL and PPL Energy Supply recognized net investment hedge gains, after tax, of $4 million in the foreign currency translation adjustment component of OCI. PPL and PPL Energy Supply recorded an insignificant amount for the three months ended September 30, 2010. For the three and nine months ended September 30, 2009, PPL and PPL Energy Supply recognized net investment hedge gains (losses), after tax, of $2 million and $(5) million in the foreign currency translation adjustment component of OCI. At September 30, 2010, PPL and PPL Energy Supply had $14 million of accumulated net investment hedge gains, after tax, that were included in the foreign currency translation adjustment component of AOCI compared with $11 million of gains at December 31, 2009. See Note 11 for additional information.

Economic Activity

PPL and PPL Energy Supply may enter into foreign currency contracts as an economic hedge of anticipated earnings denominated in British pounds sterling. At September 30, 2010, the total exposure hedged through a combination of average rate forwards and average rate options was £60 million and the fair value of these positions was insignificant. These contracts had termination dates ranging from October 2010 to March 2011. Gains and losses, both realized and unrealized, on these contracts are included in "Other Income (Expense) - net" on the Statements of Income. PPL and PPL Energy Supply recorded net gains (losses) of $2 million and $(9) million for the three and nine months ended September 30, 2009. Such amounts for the three and nine months ended September 30, 2010 were insignificant. See Note 11 for additional information.

Accounting and Reporting

(PPL, PPL Energy Supply and PPL Electric)

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

PPL and its subsidiaries have elected not to offset net derivative positions in the financial statements. Accordingly, PPL and its subsidiaries do not offset such derivative positions against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(PPL)

The following tables present the fair value and location of derivative instruments recorded on the Balance Sheets.

	September 30, 2010								December 31, 2009
	Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments (a)				Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments (a)
		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Current:
Price Risk Management Assets/Liabilities (b):
Interest rate swaps	$	10	$	145					$	10
Cross-currency swaps		4		12						1	$	4
Foreign currency exchange contracts		6			$	1	$	1		8			$	2
Commodity contracts		785		38		1,445		1,552		741		219		1,395	$	1,279
Total current		805		195		1,446		1,553		760		223		1,397		1,279
Noncurrent:
Price Risk Management Assets/Liabilities (b):
Interest rate swaps		38		27						40
Cross-currency swaps		56								11
Foreign currency exchange contracts										5
Commodity contracts		738		10		790		802		578		118		640		464
Total noncurrent		832		37		790		802		634		118		640		464
Total derivatives	$	1,637	$	232	$	2,236	$	2,355	$	1,394	$	341	$	2,037	$	1,743

(a)		$354 million and $375 million of net gains associated with derivatives that were no longer designated as hedging instruments are recorded in AOCI at September 30, 2010 and December 31, 2009.
(b)		Represents the location on the Balance Sheet.

The after-tax balances of accumulated net gains (excluding net investment hedges) in AOCI were $921 million and $602 million at September 30, 2010 and December 31, 2009. The after-tax balances of accumulated net gains (losses) (excluding net investment hedges) in AOCI were $452 million and $(21) million at September 30, 2009 and December 31, 2008.

The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the three and nine months ended September 30, 2010.

				Gain (Loss) Recognized in Income on Derivative				Gain (Loss) Recognized in Income on Related Item
Derivatives in Fair Value Hedging Relationships	Hedged Items in Fair Value Hedging Relationships	Location of Gains (Losses) Recognized in Income		Three Months Ended		Nine Months Ended		Three Months Ended			Nine Months Ended

Interest rate swaps	Fixed rate debt	Interest expense	$	12	$	46	$	(1	)	$	(14	)

									Three Months Ended						Nine Months Ended
Derivative Relationships		Derivative Gain (Loss) Recognized in OCI (Effective Portion)					Location of Gains (Losses) Recognized in Income		Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)			Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivative Relationships		Three Months Ended			Nine Months Ended		Location of Gains (Losses) Recognized in Income
Cash Flow Hedges:
Interest rate swaps	$	(124	)	$	(225	)	Interest expense	$	(1	)				$	(2	)
							Other income (expense) - net		(30	)					(30	)
Cross-currency swaps		(6	)		40		Interest expense		1						2
							Other income (expense) - net		(19	)					19
Commodity contracts		360			789		Wholesale energy marketing		93		$	(8	)		469		$	(173	)
							Fuel		1						2
							Depreciation		1						2
							Energy purchases		(87	)		20			(398	)		2
Total	$	230		$	604			$	(41	)	$	12		$	64		$	(171	)
Net Investment Hedges:
Foreign exchange contracts	$	(1	)	$	4

Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivatives		Three Months Ended			Nine Months Ended

Foreign exchange contracts	Other income (expense) - net	$	(1	)	$	1
Commodity contracts	Unregulated retail electric and gas		10			22
	Wholesale energy marketing		61			384
	Net energy trading margins (a)		(11	)
	Fuel		10			(2	)
	Energy purchases		(378	)		(873	)
	Total	$	(309	)	$	(468	)

(a)

Differs from statement of income due to intra-month transactions that PPL defines as spot activity, which is not accounted for as a derivative.

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

				Gain (Loss) Recognized in Income on Derivative				Gain (Loss) Recognized in Income on Related Item
Derivatives in Fair Value Hedging Relationships	Hedged Items in Fair Value Hedging Relationships	Location of Gains (Losses) Recognized in Income		Three Months Ended		Nine Months Ended		Three Months Ended			Nine Months Ended

Interest rate swaps	Fixed rate debt	Interest expense	$	18	$	13	$	(7	)	$	16

								Three Months Ended						Nine Months Ended
Derivative Relationships		Derivative Gain (Loss) Recognized in OCI (Effective Portion)					Location of Gains (Losses) Recognized in Income		Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)			Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivative Relationships		Three Months Ended			Nine Months Ended		Location of Gains (Losses) Recognized in Income
Cash Flow Hedges:
Interest rate swaps	$	(3	)	$	40		Interest expense	$	(1	)				$	(3	)
							Other income (expense) - net								4
Cross-currency swaps		(4	)		(43	)	Interest expense		1						2
							Other income (expense) - net		(3	)					(18	)
Commodity contracts		162			626		Wholesale energy marketing		142		$	(121	)		286		$	(185	)
							Fuel		(7	)					(17	)		2
							Depreciation								1
							Energy purchases		(224	)		1			(447	)		(4	)
Total	$	155		$	623			$	(92	)	$	(120	)	$	(192	)	$	(187	)
Net Investment Hedges:
Foreign exchange contracts	$	3		$	(8	)

Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivatives		Three Months Ended			Nine Months Ended

Foreign exchange contracts	Other income (expense) - net	$	2		$	(9	)
Commodity contracts	Unregulated retail electric and gas		1			7
	Wholesale energy marketing		79			579
	Net energy trading margins (a)		4
	Fuel		(2	)		3
	Energy purchases		(158	)		(800	)
	Total	$	(74	)	$	(220	)

(a)

Differs from statement of income due to intra-month transactions that PPL defines as spot activity, which is not accounted for as a derivative.

(PPL Energy Supply)

The following tables present the fair value and location of derivative instruments recorded on the Balance Sheets.

	September 30, 2010								December 31, 2009
	Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments (a)				Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments (a)
		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Current:
Price Risk Management Assets/Liabilities (b):
Cross-currency swaps	$	4	$	12					$	1	$	4
Foreign currency exchange contracts		6			$	1	$	1		8			$	2
Commodity contracts		785		38		1,445		1,552		741		219		1,395	$	1,279
Total current		795		50		1,446		1,553		750		223		1,397		1,279
Noncurrent:
Price Risk Management Assets/Liabilities (b):
Cross-currency swaps		56								11
Foreign currency exchange contracts										5
Commodity contracts		738		10		790		802		578		118		640		464
Total noncurrent		794		10		790		802		594		118		640		464
Total derivatives	$	1,589	$	60	$	2,236	$	2,355	$	1,344	$	341	$	2,037	$	1,743

(a)		$354 million and $375 million of net gains associated with derivatives that were no longer designated as hedging instruments are recorded in AOCI at September 30, 2010 and December 31, 2009.
(b)		Represents the location on the balance sheet.

The after-tax balances of accumulated net gains (excluding net investment hedges) in AOCI were $1.0 billion and $573 million at September 30, 2010 and December 31, 2009. The after-tax balances of accumulated net gains (losses) (excluding net investment hedges) in AOCI were $438 million and $(12) million at September 30, 2009 and December 31, 2008.

The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the three and nine months ended September 30, 2010.

Gain (Loss) Recognized in

Income on Derivative

Gain (Loss) Recognized in

Income on Related Item

Derivatives in Fair Value Hedging Relationships

Hedged Items in Fair Value Hedging Relationships

Location of

Gains (Losses) Recognized in Income

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

Interest rate swaps

Fixed rate debt

Interest expense

							Three Months Ended						Nine Months Ended
Derivative Relationships		Derivative Gain (Loss) Recognized in OCI (Effective Portion)				Location of Gains (Losses) Recognized in Income		Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)			Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivative Relationships		Three Months Ended			Nine Months Ended	Location of Gains (Losses) Recognized in Income
Cash Flow Hedges:
Cross-currency swaps	$	(6	)	$	40	Interest expense	$	1					$	2
						Other income (expense) - net		(19	)					19
Commodity contracts		360			789	Wholesale energy marketing		93		$	(8	)		469		$	(173	)
						Fuel		1						2
						Depreciation								1
						Energy purchases		(87	)		20			(398	)		2
Total	$	354		$	829		$	(11	)	$	12		$	95		$	(171	)
Net Investment Hedges:
Foreign exchange contracts	$	(1	)	$	4

Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivatives		Three Months Ended			Nine Months Ended

Foreign exchange contracts	Other income (expense) - net	$	(1	)	$	1
Commodity contracts	Unregulated retail electric and gas		10			22
	Wholesale energy marketing		61			384
	Net energy trading margins (a)		(11	)
	Fuel		10			(2	)
	Energy purchases		(378	)		(873	)
	Total	$	(309	)	$	(468	)

(a)

Differs from statement of income due to intra-month transactions that PPL Energy Supply defines as spot activity, which is not accounted for as a derivative.

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

Gain (Loss) Recognized in

Income on Derivative

Gain (Loss) Recognized in

Income on Related Item

Derivatives in Fair Value Hedging Relationships

Hedged Items in Fair Value Hedging Relationships

Location of

Gains (Losses) Recognized in Income

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

Interest rate swaps

Fixed rate debt

Interest expense

								Three Months Ended						Nine Months Ended
Derivative Relationships		Derivative Gain (Loss) Recognized in OCI (Effective Portion)					Location of Gains (Losses) Recognized in Income		Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)			Gain (Loss) Reclassified from AOCI into Income (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivative Relationships		Three Months Ended			Nine Months Ended		Location of Gains (Losses) Recognized in Income
Cash Flow Hedges:
Cross-currency swaps	$	(4	)	$	(43	)	Interest expense	$	1					$	2
							Other income (expense) - net		(3	)					(18	)
Commodity contracts		162			626		Wholesale energy marketing		142		$	(121	)		286		$	(185	)
							Fuel		(7	)					(17	)		2
							Depreciation								1
							Energy purchases		(224	)		1			(447	)		(4	)
Total	$	158		$	583			$	(91	)	$	(120	)	$	(193	)	$	(187	)
Net Investment Hedges:
Foreign exchange contracts	$	3		$	(8	)

Derivatives Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Income on Derivatives		Three Months Ended			Nine Months Ended

Foreign exchange contracts	Other income (expense) - net	$	2		$	(9	)
Commodity contracts	Unregulated retail electric and gas		1			7
	Wholesale energy marketing		79			579
	Net energy trading margins (a)		4
	Fuel		(2	)		3
	Energy purchases		(158	)		(800	)
	Total	$	(74	)	$	(220	)

(a)

Differs from statement of income due to intra-month transactions that PPL Energy Supply defines as spot activity, which is not accounted for as a derivative.

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

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

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

To determine net liability positions, PPL and PPL Energy Supply use the fair value of each contract. The aggregate fair value of all derivative instruments with the credit contingent provisions described above that were in a net liability position at September 30, 2010 was $193 million for PPL and $101 million for PPL Energy Supply, of which both had posted collateral of $54 million in the normal course of business. At September 30, 2010, if the credit contingent provisions underlying these derivative instruments were triggered due to a credit downgrade below investment grade, PPL and PPL Energy Supply would have been required to post additional collateral of $278 million and $187 million to their counterparties, net of applicable receivables and payables.

15.

Goodwill

(PPL and PPL Energy Supply)

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

	Supply			International Delivery			Total

Balance at December 31, 2009 (a)	$	91		$	715		$	806
Allocation to discontinued operations (b)		(5	)					(5	)
Effect of foreign currency exchange rates					(45	)		(45	)
Balance at September 30, 2010 (a)	$	86		$	670		$	756

(a)		There were no accumulated impairment losses recorded.
(b)		Represents goodwill allocated to certain non-core generation facilities. See Note 8 for additional information related to the anticipated sales of these facilities.

16.	Asset Retirement Obligations

(PPL and PPL Energy Supply)

The changes in the carrying amounts of AROs were as follows.

Balance at December 31, 2009	$	426
Liabilities incurred		2
Accretion expense		25
Changes in estimated cash flow or settlement date		(100	)
Obligations settled		(12	)
Balance at September 30, 2010	$	341

The classification of AROs on the Balance Sheets was as follows.

	September 30, 2010		December 31, 2009

Current portion (a)	$	15	$	10
Long-term portion (b)		326		416
Total	$	341	$	426

(a)		Included in "Other current liabilities."
(b)		Included in "Asset retirement obligations."

The most significant ARO recorded by PPL and PPL Energy Supply relates to the decommissioning of the Susquehanna nuclear plant. In the third quarter of 2010, PPL Susquehanna completed a site-specific study to update the estimated cost to decommission each Susquehanna nuclear unit. Based on this study, which used a methodology consistent with the prior site-specific study, the decommissioning ARO liability and the associated long-lived asset were reduced by $103 million. The primary factor for this decline was the lower estimated inflation rate assumption used in the 2010 ARO calculation. The accrued nuclear decommissioning obligation was $266 million and $348 million at September 30, 2010 and December 31, 2009, and is included in "Asset retirement obligations" on the Balance Sheets.

Investments held by the NDT funds are legally restricted for purposes of settling PPL Susquehanna's ARO related to decommissioning the Susquehanna plant. The aggregate fair value of these investments was $579 million and $548 million at September 30, 2010 and December 31, 2009, and is included in "Nuclear plant decommissioning trust funds" on the Balance Sheets. See Notes 13 and 17 for additional information on the NDT funds.

17.	Available-for-Sale Securities

(PPL and PPL Energy Supply)

PPL and its subsidiaries classify auction rate securities and securities held by the NDT funds as available-for-sale. Available-for-sale securities are carried on the balance sheet at fair value. Unrealized gains and losses on these securities are reported, net of tax, in OCI or are recognized currently in earnings when a decline in fair value is determined to be other-than-temporary. The specific identification method is used to calculate realized gains and losses.

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

	September 30, 2010				December 31, 2009
		Amortized Cost		Gross Unrealized Gains		Amortized Cost		Gross Unrealized Gains
PPL
NDT funds:
Cash and cash equivalents	$	7			$	7
Equity securities:
U.S. large-cap		177	$	96		170	$	89
U.S. mid/small-cap		66		40		65		36
Debt securities:
U.S. Treasury		77		7		72		2
U.S. government sponsored agency		7		1		9
Municipality		65		2		63		2
Investment-grade corporate		30		3		28		1
Residential mortgage-backed securities						1
Receivables/payables, net		1				3
Total NDT funds		430		149		418		130
Auction rate securities		25				25
Total	$	455	$	149	$	443	$	130

PPL Energy Supply
NDT funds:
Cash and cash equivalents	$	7			$	7
Equity securities:
U.S. large-cap		177	$	96		170	$	89
U.S. mid/small-cap		66		40		65		36
Debt securities:
U.S. Treasury		77		7		72		2
U.S. government sponsored agency		7		1		9
Municipality		65		2		63		2
Investment-grade corporate		30		3		28		1
Residential mortgage-backed securities						1
Receivables/payables, net		1				3
Total NDT funds		430		149		418		130
Auction rate securities		20				20
Total	$	450	$	149	$	438	$	130

There were no securities with credit losses at September 30, 2010 and December 31, 2009.

The following table shows the scheduled maturity dates of debt securities held at September 30, 2010.

	Maturity Less Than 1 Year		Maturity 1-5 Years		Maturity 5-10 Years		Maturity in Excess of 10 Years		Total

PPL
Amortized cost	$	11	$	68	$	58	$	67	$	204
Fair value		11		72		63		71		217

PPL Energy Supply
Amortized cost	$	11	$	68	$	58	$	62	$	199
Fair value		11		72		63		66		212

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
PPL and PPL Energy Supply
Proceeds from sales of NDT securities (a)	$	15	$	22	$	83	$	163
Other proceeds from sales								150
Gross realized gains (b)		2		4		11		18
Gross realized losses (b)		1		1		4		14

(a)		These proceeds, along with deposits of amounts collected from customers, are used to pay income taxes and fees related to managing the trust. Remaining proceeds are reinvested in the trust. Collections from customers are no longer occurring in 2010.
(b)		Excludes the impact of other-than-temporary impairment charges recognized in the Statements of Income.

PPL CORPORATION AND SUBSIDIARIES

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

Overview

PPL is an energy and utility holding company with headquarters in Allentown, Pennsylvania. Refer to "Item 1. Business - Background" in PPL's 2009 Form 10-K for descriptions of its reportable segments, which are Supply, International Delivery and Pennsylvania Delivery. Through its subsidiaries, PPL is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in Pennsylvania and the U.K. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL's 2009 Form 10-K for a discussion of PPL's strategy and the risks and challenges that it faces in its business. See "Forward-Looking Information," Note 10 to the Financial Statements and the remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" and the rest of Item 7 in PPL's 2009 Form 10-K for more information concerning the material risks and uncertainties that PPL faces in its businesses and with respect to its future earnings and cash flows.

The following information should be read in conjunction with PPL's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL's 2009 Form 10-K. Terms and abbreviations are explained in the glossary. Dollars are in millions, except per share data, unless otherwise noted.

Pending Acquisition of E.ON U.S.

The PSA also contains certain customary termination rights for both PPL and E.ON US Investments, including a termination right for either party if the closing does not occur by April 28, 2011 (provided that either party may postpone such date to October 28, 2011 in the event that the only closing condition that remains to be satisfied is the receipt of regulatory approvals). In addition, E.ON US Investments has the right to terminate the PSA if PPL has failed to consummate the transaction when it was otherwise obligated to do so. Upon such termination, subject to certain conditions, PPL may be required to pay to E.ON US Investments a termination fee of $450 million.

E.ON U.S., through its public utility subsidiaries LG&E and KU, provides electric service to 941,000 customers, primarily in Kentucky, with some customers in Virginia and Tennessee. LG&E also distributes and sells natural gas to 321,000 customers in Kentucky. E.ON U.S. has 3,100 employees and owns and operates approximately 8,100 MW of regulated electric generation capacity.

The acquisition is expected to substantially rebalance the mix of PPL's regulated and unregulated business by increasing the regulated utility portion of its business, strengthen PPL's credit profile and enhance rate-regulated growth opportunities (as the regulated businesses make investments to improve infrastructure and customer reliability). The increase in regulated assets will provide earnings stability through regulated returns and the ability to recover costs of capital investments, in contrast to the competitive supply business where earnings and cash flows are subject to market conditions. In 2010, PPL projects 25% of its earnings will be provided by its regulated businesses and the remaining 75% provided by its unregulated business. In 2011, subsequent to the acquisition, PPL projects 55% to 60% of its earnings will be provided by its regulated businesses and the remainder will be provided by its unregulated business.

As part of the E.ON U.S. acquisition financing strategy, in September 2010, certain PPL Energy Supply subsidiaries signed definitive agreements to sell their interests in certain non-core generation facilities for cash proceeds of approximately $381 million. See "Discontinued Operations - Anticipated Sale of Certain Non-Core Generation Facilities" in Note 8 to the Financial Statements for additional information. Also, in July 2010, PPL Energy Supply monetized certain full-requirement sales contracts that resulted in cash proceeds of $249 million. See "Commodity Price Risk (Non-trading) - Monetization of Certain Full-Requirement Sales Contracts" in Note 14 to the Financial Statements for additional information.

In June 2010, PPL funded $3.5 billion of the total purchase price through the issuance of common stock and Equity Units, and in October 2010 borrowed under PPL Energy Supply's syndicated credit facility to partially fund PPL's pending acquisition of E.ON U.S. See Note 7 to the Financial Statements for additional information.

In June 2010, PPL closed into escrow two new $400 million four-year syndicated credit facilities intended to be entered into by LG&E and KU, subject to certain conditions precedent, upon completion of the acquisition. See Note 7 to the Financial Statements for additional information.

In July 2010, the Kentucky Public Service Commission approved rate adjustments totaling $189 million for LG&E and KU based on filings that were made prior to the announcement of PPL's pending acquisition of E.ON U.S. These rate adjustments were effective August 1, 2010.

During the three and nine months ended September 30, 2010, PPL incurred third-party acquisition-related costs including advisory, accounting and legal fees, of $4 million and $11 million, which were recorded in "Other Income (Expense) - net" on the Statement of Income. In addition, Bridge Facility costs of $45 million and $67 million were recorded in "Interest Expense" on the Statement of Income. See Note 7 for a discussion of costs incurred related to the June 2010 issuance of common stock and Equity Units.

Unless otherwise noted, the remainder of this Item 2 relates solely to PPL, exclusive of E.ON U.S. See "Part II, Item 1A. Risk Factors" for additional information on specific risks associated with this pending acquisition.

There is no impact from this pending acquisition or the related financing reflected in "Outlook" within "Results of Operations - Segment Results" for any of PPL's reportable segments .

Customer Choice in Pennsylvania

Under the Customer Choice Act, as part of a settlement approved by the PUC, PPL Electric agreed to provide electricity as a PLR at predetermined "capped" rates through 2009. To mitigate the risk that PPL Electric would not be able to obtain adequate energy supply at the "capped" rates, PPL Electric entered into full-requirement energy supply contracts with PPL EnergyPlus. Under these contracts, through 2009, PPL EnergyPlus supplied PPL Electric's entire PLR load at predetermined prices equal to the capped generation rates that PPL Electric was authorized to charge its customers. Effective January 1, 2010, PPL Electric's rates for generation supply as a PLR are no longer capped and the cost of electric generation is based on a competitive solicitation process.

When comparing the three and nine months ended September 30, 2010 with the same periods in 2009, certain line items on PPL's financial statements were impacted by the Customer Choice Act, Act 129 and other related issues. Overall, the expiration of generation rate caps had a significant positive impact on PPL's results of operations, financial condition and cash flows during 2010. This trend is expected to continue through the remainder of the year.

The primary impact of the expiration of generation rate caps is captured in PPL's domestic gross energy margins. See "Statement of Income Analysis" for an explanation of this non-GAAP financial measure. In 2010, PPL is selling the majority of its generation supply under various wholesale and retail contracts at prevailing market rates at the time the contracts were executed. In 2009, the majority of generation produced by PPL's generation plants was sold to PPL Electric's customers as PLR supply under predetermined capped rates.

Regarding PPL's domestic regulated electric delivery operations, the expiration of generation rate caps, the resulting competitive solicitations for power supply, the migration of customers to alternative suppliers, the Customer Choice Act and Act 129 had minimal impact on domestic gross delivery margins as approved recovery mechanisms allow for cost recovery of associated expenses, including the cost of energy provided as a PLR. However, PPL's 2010 domestic gross delivery margins were negatively impacted by the expiration of CTC recovery in December 2009. PPL's domestic regulated electricity delivery operations continue to remain the delivery provider for all customers in its service territory and charge a regulated rate for the service of delivering electricity.

See "Statement of Income Analysis - Margins - Domestic Gross Delivery Margins" for additional information.

Market Events

In the first half of 2009, financial and commodity market conditions generally increased PPL's exposure to credit risk; made obtaining new sources of bank and capital markets funding and issuing commercial paper more difficult and costly; and caused negative investment returns in the assets of PPL's defined benefit plans and the NDT funds. Since mid-2009, bank credit capacity has improved; the energy and financial markets in which PPL transacts, with the exception of the market for auction rate securities, are active; and the values of debt and equity securities in PPL's defined benefit plans and the NDT funds have improved.

PPL continues to be impacted in 2010 by higher costs of renewing existing or establishing new credit facilities and lower demand for electricity resulting from the impacts of economic conditions and customer shopping under full-requirement sales contracts.

Enactment of Financial Reform Legislation

In July 2010, the Dodd-Frank Act was signed into law. Of particular relevance to PPL, the Dodd-Frank Act includes provisions that require most over-the-counter derivative transactions to be executed through an exchange and to be cleared centrally. The Dodd-Frank Act, however, provides an exemption from mandatory clearing and exchange trading requirements for over-the-counter derivative transactions used to hedge commercial risk. Although the term "hedging commercial risk" is not defined in the Dodd-Frank Act, it is anticipated that transactions utilized by PPL should qualify if they are not entered into for speculative purposes. The Dodd-Frank Act also provides that the Commodity Futures Trading Commission may impose collateral and margin requirements for over-the-counter derivative transactions, including those that are used to hedge commercial risk. However, during drafting of the Dodd-Frank Act, certain members of Congress adopted report language and issued a public letter stating that it was not their intention to impose margin and collateral requirements on counterparties that utilize these transactions to hedge commercial risk. Final rules on major provisions in the Dodd-Frank Act, including imposition of collateral and margin requirements, will be established through rulemakings and, in most cases, will not take effect until 12 months after the date of enactment. PPL may be required to post additional collateral if they are subject to margin requirements as ultimately adopted in the implementing regulations of the Dodd-Frank Act. PPL will continue to evaluate the provisions of the Dodd-Frank Act and monitor developments related to its implementation. At this time, PPL cannot predict the impact that the new law or implementing its regulations will have on its business or operations, or the markets in which it transacts business.

Results of Operations

The following discussion begins with a summary of PPL's earnings. "Results of Operations" continues with a review of results by reportable segment and a description of key factors by segment that management expects may impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in principal items on PPL's Statements of Income, comparing the three and nine months ended September 30, 2010 with the same periods in 2009.

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

PPL presents tables analyzing changes in amounts between periods within "Segment Results" and "Statement of Income Analysis" on a constant U.K. foreign currency exchange rate basis, where applicable, in order to isolate the impact of the change in the exchange rate on the item being explained. Results computed on a constant U.K. foreign currency exchange rate basis are calculated by translating current year results at the prior year weighted average foreign currency exchange rate.

Earnings

Net income attributable to PPL and the related EPS were:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009

Net income attributable to PPL	$	248	$	20	$	583	$	254
EPS - basic	$	0.51	$	0.05	$	1.40	$	0.67
EPS - diluted	$	0.51	$	0.05	$	1.40	$	0.67

The changes in net income attributable to PPL from period to period were, in part, attributable to several items that management considers special. Details of these special items are provided within the review of each segment's earnings. The three and nine months ended September 30, 2010 were also negatively impacted by unallocated costs related to the pending acquisition of E.ON U.S. The majority of these costs are considered special items by management and are not included within any segment's results, as noted below.

Segment Results

Net income (loss) attributable to PPL by segment and for "Unallocated Costs" was:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Supply	$	153		$	(31	)	$	320		$	(12	)
International Delivery		93			24			227			173
Pennsylvania Delivery		36			27			89			93
Unallocated Costs (a)		(34	)					(53	)
Net income attributable to PPL	$	248		$	20		$	583		$	254

(a)

The three and nine months ended September 30, 2010, include $2 million and $8 million, after tax, of certain third-party acquisition-related costs, including advisory, accounting, and legal fees associated with the pending acquisition of E.ON U.S. that are recorded in "Other Income (Expense) - net" on the Statement of Income. The three and nine months ended September 30, 2010, also include $31 million and $44 million, after tax, of Bridge Facility costs that are recorded in "Interest Expense" on the Statement of Income. These costs are considered special items by management. See Notes 7 and 8 to the Financial Statements for additional information on the pending acquisition and related financing.

Supply Segment

The Supply segment primarily consists of the domestic energy marketing and trading activities, as well as the generation and development operations of PPL Energy Supply. In September 2010, certain PPL Energy Supply subsidiaries signed definitive agreements to sell their entire ownership interests in certain non-core generation facilities. The sale is expected to close in the fourth quarter of 2010, subject to the receipt of necessary regulatory approvals and third-party consents. The operating results of these facilities have been classified as Discontinued Operations. In 2010 and 2009, PPL Energy Supply subsidiaries also completed the sale of several businesses, which have been classified as Discontinued Operations. See Note 8 to the Financial Statements for additional information.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Energy revenues
External (a)	$	1,339		$	710		$	3,905		$	2,515
Intersegment		71			445			250			1,353
Energy-related businesses		98			108			286			297
Total operating revenues		1,508			1,263			4,441			4,165
Fuel and energy purchases
External (a)		779			898			2,512			2,894
Intersegment		1			19			2			59
Other operation and maintenance		199			181			728			635
Depreciation		65			52			189			152
Taxes, other than income		12			6			34			21
Energy-related businesses		96			104			276			286
Total operating expenses		1,152			1,260			3,741			4,047
Other Income (Expense) - net		(23	)		6			(14	)		40
Other-Than-Temporary Impairments								3			18
Interest Expense		63			45			170			138
Income Tax Expense (Benefit)		63			(7	)		154			2
Loss from Discontinued Operations		(53	)		(1	)		(38	)		(11	)
Noncontrolling Interest		1			1			1			1
Net Income (Loss) Attributable to PPL	$	153		$	(31	)	$	320		$	(12	)

(a)

Includes impact from energy-related economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information.

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Eastern U.S. non-trading margins	$	132		$	453
Western U.S. non-trading margins		2			8
Net energy trading margins		(15	)		(3	)
Other operation and maintenance		(7	)		(37	)
Depreciation		(8	)		(22	)
Other income (expense) - net					(7	)
Interest expense		(10	)		(13	)
Income taxes and other		31			37
Discontinued operations, net of special items (Note 8)		11			13
Special items		48			(97	)
	$	184		$	332

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

·	Other operation and maintenance increased for both periods primarily due to higher costs at eastern generation plants.

·	Depreciation increased for both periods primarily due to the completion of the Brunner Island environmental projects, which impacted depreciation expense primarily beginning in the second half of 2009.

·	Interest expense increased for both periods primarily due to higher average debt balances, primarily due to the June 2010 issuance of the Equity Units. The increase for the nine-month period was also impacted by lower capitalized interest, mainly due to the completion of the Brunner Island environmental projects.

·	Income taxes decreased for both periods primarily due to a lower effective tax rate in 2010, in part due to a release of tax reserves, a release of valuation allowances, investment tax credits and a tax benefit from the manufacturing deduction.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Adjusted energy-related economic activity, net (a)	$	4		$	(130	)	$	(115	)	$	(168	)
Sales of assets:
Long Island generation business (Note 8)											(34	)
Sundance indemnification								1
Impairments:
Adjustments - NDT investments (b)											(1	)
Impacts from emission allowances (c)		(2	)					(9	)		(15	)
Other asset impairments											(2	)
Pending E.ON U.S. acquisition-related costs:
Monetization of certain full-requirement sales contracts (d)		(27	)					(102	)
Anticipated sale of certain non-core generation facilities (Note 8)		(62	)					(62	)
Discontinued cash flow hedges for unissued debt (Note 8)		(19	)					(19	)
Workforce reduction (Note 9)											(6	)
Other:
Change in tax accounting method related to repairs (e)					(25	)					(25	)
Montana hydroelectric litigation (Note 10)		(1	)					(34	)
Health Care Reform - tax impact (Note 9)								(8	)
Total	$	(107	)	$	(155	)	$	(348	)	$	(251	)

(a)		See "Reconciliation of Economic Activity" below.
(b)		Represents other-than-temporary impairment charges on securities, including reversals of previous impairments when securities previously impaired were sold.
(c)		The nine months ended September 30, 2009 includes a pre-tax gain of $4 million related to the settlement of a dispute regarding the sale of certain annual nitrogen oxide allowance put options. Also, see Note 13 to the Financial Statements for information on impairments of sulfur dioxide emission allowances.
(d)		See "Components of Monetization of Certain Full-Requirement Sales Contracts" below.
(e)		Relates to a change in method of accounting for certain expenditures for tax purposes. See Note 5 for additional information.

Reconciliation of Economic Activity

The following table reconciles unrealized pre-tax gains (losses) from the table within "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements to the special item identified as "Adjusted energy-related economic activity, net."

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Operating Revenues
Unregulated retail electric and gas	$	8					$	16		$	2
Wholesale energy marketing		52		$	(307	)		(190	)		(67	)
Operating Expenses
Fuel		16			7			13			35
Energy purchases		(300	)		79			(418	)		(255	)
Energy-related economic activity (a)		(224	)		(221	)		(579	)		(285	)
Option premiums (b)		21						46
Adjusted energy-related economic activity		(203	)		(221	)		(533	)		(285	)
Less: Unrealized economic activity associated with the monetization of certain full-requirement sales contracts (c)		(208	)					(335	)
Adjusted energy-related economic activity, net - pre tax	$	5		$	(221	)	$	(198	)	$	(285	)

Adjusted energy-related economic activity, net - after tax	$	4		$	(130	)	$	(115	)	$	(168	)

(a)		The components of this item are from the table within "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements.
(b)		Adjustment for the net deferral and amortization of option premiums over the delivery period of the item that was hedged or upon realization. After-tax amounts for the three and nine months ended September 30, 2010 were $13 million and $27 million.
(c)		See "Components of Monetization of Certain Full-Requirement Sales Contracts" below.

Components of Monetization of Certain Full-Requirement Sales Contracts

The following table provides the components of the "Monetization of Certain Full-Requirements Sales Contracts" special item.

	Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010

Full-requirement sales contracts monetized (a)	$	32		$	(28	)
Economic activity related to the full-requirement sales contracts monetized		(79	)		(146	)
Monetization of certain full-requirement sales contracts, pre-tax (b)	$	(47	)	$	(174	)

Monetization of certain full-requirement sales contracts, after-tax	$	(27	)	$	(102	)

(a)		See "Commodity Price Risk (Non-trading) – Monetization of Certain Full-Requirement Sales Contracts" in Note 14 to the Financial Statements for additional information.
(b)		The three and nine-month periods include unrealized losses of $208 million and $335 million from the "Reconciliation of Economic Activity" table above. These amounts are reflected in "Wholesale energy marketing - Unrealized economic activity" and "Energy purchases - Unrealized economic activity" on the Statement of Income. Both periods include net realized gains of $161 million, which are reflected in "Wholesale energy marketing - Realized" and "Energy purchases - Realized" on the Statement of Income. This economic activity will continue to be realized through May 2013.

Outlook

Excluding special items, PPL projects higher earnings from its Supply segment in 2010 compared with 2009, primarily due to higher energy margins as a result of higher Eastern baseload generation pricing compared to the prices realized in 2009. This positive earnings driver is expected to be partially offset by higher operation and maintenance expenses, higher depreciation, and higher financing costs.

As described in Note 8 to the Financial Statements, a PPL Energy Supply subsidiary has entered into an agreement to sell its three remaining hydroelectric facilities to a coalition of government agencies and private groups. Upon completion of the pending sale, PPL Energy Supply will record an after-tax gain of between $14 million and $18 million. This after-tax gain will be reflected as a special item and will include contingent consideration to be received from the buyer of other hydroelectric facilities sold in November 2009. The after-tax gain decreases to between $7 million and $9 million in the event the sale of the three remaining facilities occurs after November 1, 2013.

International Delivery Segment

The International Delivery segment primarily includes the electric distribution operations of WPD.

International Delivery segment net income attributable to PPL was:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Utility revenues	$	163		$	165		$	538		$	496
Energy-related businesses		9			9			25			24
Total operating revenues		172			174			563			520
Other operation and maintenance		39			32			122			97
Depreciation		28			31			86			84
Taxes, other than income		12			16			39			42
Energy-related businesses		4			5			12			12
Total operating expenses		83			84			259			235
Other Income (Expense) - net					2			2			(9	)
Interest Expense		38			28			102			59
Income Tax Expense (Benefit)		(42	)		16			(23	)		20
Loss from Discontinued Operations					(24	)					(24	)
Net Income Attributable to PPL	$	93		$	24		$	227		$	173

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended
U.K.
Utility revenues	$	7		$	23
Other operation and maintenance		(5	)		(19	)
Other income (expense) - net		1
Interest expense		(9	)		(31	)
Income taxes		2			(23	)
Foreign currency exchange rates		(3	)		6
Other		3			2
U.S. income taxes		22			33
Other		1			5
Special items		50			58
	$	69		$	54

·	Higher U.K. utility revenues for the three-month period primarily due to a price increase in April 2010, partially offset by unfavorable changes in customer mix. Higher U.K. utility revenues for the nine-month period primarily due to price increases in April 2010 and 2009, partially offset by revised estimates of network electricity losses and unfavorable changes in customer mix.

·	Higher U.K. other operation and maintenance for both periods primarily due to higher pension expenses resulting from an increase in amortization of actuarial losses and a decrease in the discount rate.

·	Higher U.K. interest expense for both periods on the Index-linked Senior Unsecured Notes primarily due to higher inflation rates and higher interest expense related to the March 2010 debt issuance.

·	Higher U.K. income taxes for the nine-month period primarily due to favorable settlements of uncertain tax positions in 2009.

·	Changes in U.K. foreign currency exchange rates positively affected WPD earnings for the nine-month period and negatively affected WPD earnings for the three-month period. The weighted-average exchange rate for the British pound sterling was $1.52 and $1.55 for the three and nine months ended September 30, 2010, compared with $1.64 and $1.50 for the same periods in 2009.

·	Lower U.S. income taxes for both periods primarily from a favorable U.S. Tax Court ruling in 2010 on the creditability of the U.K. Windfall Profits Tax.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Foreign currency-related economic hedges - unrealized impacts (a)	$	(1	)	$	4		$	(2	)	$	(2	)
Sales of assets:
Latin American businesses (Note 8)					(24	)					(24	)
Asset impairments											(1	)
Workforce reduction (Note 9)											(2	)
Other:
Change in U.K. tax rate (Note 5)		19						19
U.S. Tax Court ruling (b)		12						12
Total	$	30		$	(20	)	$	29		$	(29	)

(a)		Represents unrealized gains (losses) on contracts that economically hedge anticipated earnings denominated in British pounds sterling.
(b)		Represents the net tax benefit recorded as a result of the U.S. Tax Court ruling that the U.K. Windfall Profits Tax is creditable for U.S. tax purposes, excluding the reversal of accrued interest. See Note 5 to the Financial Statements for additional information.

Outlook

Excluding special items, PPL projects lower earnings from its International Delivery segment in 2010 compared with 2009 as a result of higher financing costs, higher pension and operation and maintenance expenses, and higher income taxes. These negative factors are expected to be partially offset by higher utility revenues and favorable foreign currency effects.

Pennsylvania Delivery Segment

The Pennsylvania Delivery segment includes the regulated electric delivery operations of PPL Electric.

Pennsylvania Delivery segment net income attributable to PPL was:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Operating revenues
External	$	570	$	790	$	1,904	$	2,407
Intersegment		1		19		2		59
Total operating revenues		571		809		1,906		2,466
Energy purchases
External		229		30		848		93
Intersegment		71		445		250		1,353
Other operation and maintenance		126		103		377		307
Amortization of recoverable transition costs				73				227
Depreciation		34		33		101		96
Taxes, other than income		32		47		108		145
Total operating expenses		492		731		1,684		2,221
Other Income (Expense) - net				1		4		6
Interest Expense		24		31		74		91
Income Tax Expense		15		16		47		53
Net Income		40		32		105		107
Net Income Attributable to Noncontrolling Interests		4		5		16		14
Net Income Attributable to PPL	$	36	$	27	$	89	$	93

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Domestic gross delivery margins	$	6		$	5
Other operation and maintenance		(3	)		(19	)
Depreciation		(1	)		(3	)
Interest expense		4			10
Noncontrolling interest		1			(2	)
Income taxes and other		2			(1	)
Special items					6
	$	9		$	(4	)

·	See "Domestic Gross Delivery Margins" for an explanation of margins generated by PPL's domestic regulated electric delivery operations.

·	Other operation and maintenance increased for the three-month period primarily due to higher payroll-related costs due to increased staffing. Other operation and maintenance increased for the nine-month period primarily due to higher payroll-related costs due to increased staffing and higher vegetation management costs.

·	Interest expense decreased for both periods primarily due to long-term debt retirements in the third quarter of 2009.

The following after-tax amounts, which management considers special items, also impacted the Pennsylvania Delivery segment's earnings.

	Nine Months Ended September 30, 2009
Asset impairments	$	(1	)
Workforce reduction (Note 9)		(5	)
Total	$	(6	)

Outlook

Excluding special items, PPL projects lower earnings from its Pennsylvania Delivery segment in 2010 compared with 2009, primarily driven by higher operation and maintenance expenses and depreciation, partially offset by lower taxes and lower financing costs.

In March 2010, PPL Electric filed a request with the PUC to increase distribution rates by approximately $115 million. The proposed distribution revenue rate increase, to be effective January 1, 2011, would have resulted in a 2.4% increase over PPL Electric's projected 2010 revenues. In October 2010, the Administrative Law Judge recommended approval of a settlement filed by the parties that provides for a rate increase of $77.5 million, or 1.6% over PPL Electric's projected 2010 revenues, subject to the issuance of a final PUC order. The Administrative Law Judge addressed all issues, including revenue allocation, rate design, the purchase of receivables program and cost allocation methodology. The PUC is expected to act by year-end on all issues. PPL Electric cannot predict the outcome of this proceeding.

See Note 10 to the Financial Statements for a discussion of items that could impact future earnings, including Pennsylvania legislative and other regulatory activities.

Statement of Income Analysis --

Margins

Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP, as well as two non-GAAP financial measures: "Domestic Gross Energy Margins" and "Domestic Gross Delivery Margins."

·	"Domestic Gross Energy Margins" is a single financial performance measure of PPL's domestic energy non-trading and trading activities. In calculating this measure, the Supply segment's energy revenues are offset by the cost of fuel and energy purchases, and adjusted for other related items. This performance measure excludes utility revenues and includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus. In addition, PPL excludes from "Domestic Gross Energy Margins" energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of PPL's generation assets, full-requirement and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Also included in this energy-related economic activity is the ineffective portion of qualifying cash flow hedges, net losses on the monetization of certain full-requirement sales contracts and premium amortization associated with options. This economic activity is deferred, with the exception of the net losses on the full-requirement sales contracts that were monetized, and included in domestic gross energy margins over the delivery period that was hedged or upon realization. PPL believes that "Domestic Gross Energy Margins" provides another criterion to make investment decisions. This performance measure is used, in conjunction with other information, internally by senior management and the Board of Directors to manage its domestic energy non-trading and trading activities. PPL's management also uses "Domestic Gross Energy Margins" in measuring certain corporate performance goals used in determining variable compensation.

·	"Domestic Gross Delivery Margins" is a single financial performance measure of PPL's domestic regulated electric delivery operations, which includes transmission and distribution activities, including PLR supply. In calculating this measure, domestic regulated utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset. These mechanisms allow for full cost recovery of certain expenses; therefore, certain expenses and revenues offset with minimal impact on earnings. As a result, this measure represents the net revenues from PPL's domestic regulated electric delivery operations. This performance measure is used, in conjunction with other information, internally by senior management and the Board of Directors to manage its domestic regulated electric delivery operations. PPL believes that "Domestic Gross Delivery Margins" provides another criterion to make investment decisions.

"Domestic Gross Energy Margins" and "Domestic Gross Delivery Margins" are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to present the results of their energy non-trading and trading activities or domestic regulated electric delivery operations.

Domestic Gross Energy Margins

The following table reconciles "Operating Income" to "Domestic Gross Energy Margins" as defined by PPL.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Operating Income (a)	$	522		$	171		$	1,224		$	648
Adjustments:
Utility (a)		(732	)		(955	)		(2,438	)		(2,901	)
Energy-related businesses, net (b)		(7	)		(8	)		(23	)		(23	)
Other operation and maintenance (a)		366			316			1,229			1,039
Amortization of recoverable transition costs (a)					73						227
Depreciation (a)		127			116			376			332
Taxes, other than income (a)		56			69			181			208
Revenue adjustments (c)		(229	)		784			219			1,523
Expense adjustments (c)		576			(90	)		1,275			207
Domestic gross energy margins	$	679		$	476		$	2,043		$	1,260

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

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

	Three Months Ended September 30,
	2010			2009			Change
Revenue
Unregulated retail electric and gas (a)	$	116		$	34		$	82
Wholesale energy marketing (a)		1,244			669			575
Net energy trading margins (a)		(20	)		7			(27	)
Revenue adjustments (b)
Impact from energy-related economic activity (c)		(335	)		307			(642	)
PLR revenue from energy supplied to PPL Electric by PPL EnergyPlus (d)		71			445			(374	)
Revenues from Supply segment discontinued operations (e)		35			32			3
Total revenue adjustments		(229	)		784			(1,013	)
		1,111			1,494			(383	)
Expense
Fuel (a)		322			259			63
Energy purchases (a)		686			669			17
Expense adjustments (b)
Impact from energy-related economic activity (f)		(377	)		86			(463	)
External PLR energy purchases (g)		(228	)		(11	)		(217	)
Expenses from Supply segment discontinued operations (h)		12			8			4
Ancillary charges (i)		7			5			2
Gross receipts tax (j)		4						4
Other		6			2			4
Total expense adjustments		(576	)		90			(666	)
		432			1,018			(586	)
Domestic gross energy margins	$	679		$	476		$	203

	Nine Months Ended September 30,
	2010			2009			Change
Revenue
Unregulated retail electric and gas (a)	$	321		$	108		$	213
Wholesale energy marketing (a)		3,592			2,407			1,185
Net energy trading margins (a)		(4	)		2			(6	)
Revenue adjustments (b)
Impact from energy-related economic activity (c)		(126	)		65			(191	)
PLR revenue from energy supplied to PPL Electric by PPL EnergyPlus (d)		250			1,353			(1,103	)
Gains from sale of RECs (i)					1			(1	)
Revenues from Supply segment discontinued operations (e)		95			104			(9	)
Total revenue adjustments		219			1,523			(1,304	)
		4,128			4,040			88
Expense
Fuel (a)		810			700			110
Energy purchases (a)		2,550			2,287			263
Expense adjustments (b)
Impact from energy-related economic activity (f)		(498	)		(220	)		(278	)
External PLR energy purchases (g)		(846	)		(34	)		(812	)
Expenses from Supply segment discontinued operations (h)		27			16			11
Ancillary charges (i)		20			15			5
Gross receipts tax (j)		11						11
Other		11			16			(5	)
Total expense adjustments		(1,275	)		(207	)		(1,068	)
		2,085			2,780			(695	)
Domestic gross energy margins	$	2,043		$	1,260		$	783

(a)		As reported on the Statements of Income.
(b)		To include/exclude the impact of any revenues and expenses consistent with the way management reviews domestic gross energy margins internally.
(c)		See "Commodity Price Risk (Non-trading) – Economic Activity" in Note 14 to the Financial Statements for additional information. In addition, the three and nine months ended September 30, 2010 include a pre-tax gain of $18 million and $43 million related to the amortization of option premiums and a realized gain of $257 million related to the monetization of certain full-requirement sales contracts. These amounts are reflected in "Wholesale energy marketing – Realized" on the Statement of Income.
(d)		Included in "Utility" on the Statements of Income.
(e)		Represents the operating revenues of the Supply segment businesses classified as discontinued operations. See Note 8 to the Financial Statements for additional information.
(f)		See "Commodity Price Risk (Non-trading) – Economic Activity" in Note 14 to the Financial Statements for additional information. In addition, the three and nine months ended September 30, 2010 include a pre-tax gain of $3 million related to the amortization of option premiums, and a realized loss of $96 million related to the monetization of certain full-requirement sales contracts. These amounts are reflected in "Energy purchases – Realized" on the Statement of Income.
(g)		Included in "Energy purchases" on the Statements of Income.
(h)		Represents fuel costs and energy purchases associated with the anticipated sale of certain non-core generation facilities that are classified as discontinued operations. See Note 8 to the Financial Statements for additional information.
(i)		Included in "Other operation and maintenance" on the Statements of Income.
(j)		Included in "Taxes, other than income" on the Statement of Income.

Domestic Gross Energy Margins By Region

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

	Three Months Ended September 30,
	2010			2009		Change
Non-trading:
Eastern U.S.	$	611		$	385	$	226
Western U.S.		88			84		4
Net energy trading		(20	)		7		(27	)
Domestic gross energy margins	$	679		$	476	$	203

	Nine Months Ended September 30,
	2010			2009		Change
Non-trading:
Eastern U.S.	$	1,788		$	1,013	$	775
Western U.S.		259			245		14
Net energy trading		(4	)		2		(6	)
Domestic gross energy margins	$	2,043		$	1,260	$	783

Eastern U.S.

The increases for both periods were primarily due to significantly higher pricing in 2010 for eastern baseload generation of $267 million and $858 million compared with prices realized under the PLR contract with PPL Electric that expired at the end of 2009. Partially offsetting the increases for both periods were lower realized net margins from full-requirement sales contracts due to lower customer demand.

Western U.S.

The increases for both periods were primarily due to higher average prices, partially offset by lower volumes.

Net Energy Trading

The unfavorable variance for the three-month period was primarily due to lower trading margins related to power. The unfavorable variance for the nine-month period was primarily due to lower trading margins related to power, partially offset by higher trading margins related to FTRs.

Domestic Gross Delivery Margins

The following table reconciles "Operating Income" to "Domestic Gross Delivery Margins" as defined by PPL.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Operating Income (a)	$	522		$	171		$	1,224		$	648
Adjustments:
Unregulated retail electric and gas (a)		(116	)		(34	)		(321	)		(108	)
Wholesale energy marketing (a)		(1,244	)		(669	)		(3,592	)		(2,407	)
Net energy trading margins (a)		20			(7	)		4			(2	)
Energy-related businesses, net (b)		(7	)		(8	)		(23	)		(23	)
Fuel (a)		322			259			810			700
Energy purchases (a)		686			669			2,550			2,287
Other operation and maintenance (a)		366			316			1,229			1,039
Depreciation (a)		127			116			376			332
Taxes, other than income (a)		56			69			181			208
Revenue adjustments (c)		(234	)		(610	)		(788	)		(1,849	)
Expense adjustments (c)		(281	)		(65	)		(1,013	)		(196	)
Domestic gross delivery margins	$	217		$	207		$	637		$	629

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

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

	Three Months Ended September 30,
	2010			2009			Change
Revenue
Utility (a)	$	732		$	955		$	(223	)
Revenue adjustments (b)
WPD utility revenue (c)		(163	)		(165	)		2
PLR revenue from energy supplied to PPL Electric by PPL EnergyPlus (c)		(71	)		(445	)		374
Total revenue adjustments		(234	)		(610	)		376
		498			345			153
Expense
Amortization of recoverable transition costs (a)					73			(73	)
Expense adjustments (b)
External PLR energy purchases (d)		228			11			217
Gross receipts tax (e)		29			46			(17	)
Act 129 (f)		18						18
Other		6			8			(2	)
Total expense adjustments		281			65			216
		281			138			143
Domestic gross delivery margins	$	217		$	207		$	10

	Nine Months Ended September 30,
	2010			2009			Change
Revenue
Utility (a)	$	2,438		$	2,901		$	(463	)
Revenue adjustments (b)
WPD utility revenue (c)		(538	)		(496	)		(42	)
PLR revenue from energy supplied to PPL Electric by PPL EnergyPlus (c)		(250	)		(1,353	)		1,103
Total revenue adjustments		(788	)		(1,849	)		1,061
		1,650			1,052			598
Expense
Amortization of recoverable transition costs (a)					227			(227	)
Expense adjustments (b)
External PLR energy purchases (d)		846			34			812
Gross receipts tax (e)		101			141			(40	)
Act 129 (f)		55						55
Other		11			21			(10	)
Total expense adjustments		1,013			196			817
		1,013			423			590
Domestic gross delivery margins	$	637		$	629		$	8

(a)		As reported on the Statements of Income.
(b)		To include/exclude the impact of any revenues and expenses consistent with the way management reviews domestic gross delivery margins internally.
(c)		Included in "Utility" on the Statements of Income.
(d)		Included in "Energy purchases" on the Statements of Income. Excludes NUG purchases, the sales of which are not included in "Utility" revenue.
(e)		Included in "Taxes, other than income" on the Statements of Income.
(f)		Included in "Other operation and maintenance" on the Statement of Income.

Domestic Gross Delivery Margins by Component

Domestic gross delivery margins are generated through PPL's domestic regulated electric distribution activities, including PLR supply, and transmission activities.

	Three Months Ended September 30,
	2010		2009		Change

Distribution	$	170	$	168	$	2
Transmission		47		39		8
Domestic gross delivery margins	$	217	$	207	$	10

	Nine Months Ended September 30,
	2010		2009		Change

Distribution	$	506	$	523	$	(17	)
Transmission		131		106		25
Domestic gross delivery margins	$	637	$	629	$	8

Distribution

The increase for the three-month period was primarily due to favorable weather in 2010, partially offset by margins realized in 2009 related to the collection of CTC, which ended in December 2009.

The decrease for the nine-month period was primarily due to margins realized in 2009 related to the collection of CTC, which ended in December 2009.

Transmission

The increase for both periods was primarily due to the recovery of additional costs through a FERC tariff that utilizes a formula-based rate recovery mechanism.

Utility Revenues

The changes in utility revenues were attributable to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended
Domestic:
Retail electric revenue (a)	$	(221	)	$	(505	)
U.K.:
Electric delivery revenue		10			33
Foreign currency exchange rates		(12	)		9
	$	(223	)	$	(463	)

(a)

See "Domestic Gross Delivery Margins" above.

Higher U.K. electric delivery revenue for the three months ended September 30, 2010, compared with the same period in 2009, was mainly due to an increase in prices effective April 1, 2010, partially offset by unfavorable changes in customer mix.

Higher U.K. electric delivery revenue for the nine months ended September 30, 2010, compared with the same period in 2009, was mainly due to an increase in prices effective April 1, 2010 and 2009, partially offset by a revised estimate of network electricity losses and unfavorable changes in customer mix.

Other Operation and Maintenance

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Amortization of Act 129 costs (a)	$	18		$	55
Montana hydroelectric litigation (Note 10)		3			54
Defined benefit costs (b)		6			25
Costs at fossil/hydroelectric plants (c)		1			21
Other costs at Susquehanna nuclear plant		3			14
Outage costs at Susquehanna nuclear plant		5			11
Vegetation management costs					10
Payroll-related costs - PPL Electric		2			7
Workforce reduction (Note 9)					(22	)
Impairments and other impacts - emission allowances (d)		4			(10	)
Other - Domestic		10			21
Other - U.K.		(2	)		4
	$	50		$	190

(a)		Relates to costs associated with a PUC-approved energy efficiency and conservation plan. These costs are recovered in customer rates and substantially match the revenue recorded, therefore having minimal impact on earnings. See "Regulatory Issues - Pennsylvania Activities" in Note 10 to the Financial Statements for additional information on this plan. These costs are included in "Domestic Gross Delivery Margins" above.
(b)		Relates primarily to reductions in the discount rates used to determine net periodic defined benefit costs between 2009 and 2010.
(c)		Relates primarily to increased outage costs.
(d)		Relates to a $4 million higher impairment of sulfur dioxide emission allowances for the three-month period and a $15 million lower impairment of sulfur dioxide emission allowances for the nine-month period. See Note 13 to the Financial Statements for additional information. Partially offsetting the decrease for the nine-month period was a $5 million increase in the charge for the settlement of a dispute regarding the sale of certain annual nitrogen oxide allowance put options.

Depreciation

The changes in depreciation expense were due to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Additions to PP&E (a)	$	13		$	43
U.K. foreign currency exchange rates		(2	)		1
	$	11		$	44

(a)

Additions include the completion of the Brunner Island environmental projects in 2010 and 2009.

Taxes, Other Than Income

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Pennsylvania gross receipts tax (a)	$	(11	)	$	(28	)
Other		(2	)		1
	$	(13	)	$	(27	)

(a)

Primarily due to a decrease in electricity revenues as customers chose alternative suppliers in 2010 due to the expiration of generation rate caps. This tax is included in "Domestic Gross Energy Margins" and "Domestic Gross Delivery Margins" above.

Other Income (Expense) - net

See Note 12 to the Financial Statements for details.

Other-Than-Temporary Impairments

Other-than-temporary impairments recognized during the nine months ended September 30, 2010 were $3 million, compared with $18 million for the same period in 2009. This decrease was primarily due to stronger investment returns in the NDT funds caused by improved conditions within the financial markets.

Interest Expense

The changes in interest expense were due to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Bridge Facility costs related to the pending acquisition of E.ON U.S. (Notes 7 and 8)	$	45		$	67
Inflation adjustment on U.K. Index-linked Senior Unsecured Notes		3			24
Capitalized interest (a)		2			16
Short-term debt interest expense		8			11
Montana hydroelectric litigation (Note 10)		1			9
U.K. foreign currency exchange rates		(3	)
Long-term debt interest expense		9			(4	)
Other		2			2
	$	67		$	125

(a)

During the nine months ended September 30, 2009, $9 million was capitalized related to the Brunner Island environmental projects. The majority of these projects were completed in 2009.

Income Taxes

The changes in income taxes were due to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Higher pre-tax book income	$	112		$	189
Foreign tax reserve adjustments		(31	)		29
Health Care Reform					8
Federal and state tax reserve adjustments		(53	)		(67	)
Federal and state tax return adjustments		(26	)		(26	)
U.K. Finance Act adjustments		(19	)		(19	)
Domestic manufacturing deduction		(8	)		(13	)
U.S. income tax on foreign earnings net of foreign tax credit		(7	)		(10	)
Valuation allowance adjustments					(8	)
Investment tax credits		(4	)		(7	)
U.K. capital loss benefit		28			(6	)
Other		2			7
	$	(6	)	$	77

See Note 5 to the Financial Statements for additional information.

Discontinued Operations

See "Discontinued Operations" in Note 8 to the Financial Statements for information related to various 2010 and 2009 sales, including the anticipated sale of certain non-core generation facilities expected to occur in the fourth quarter of 2010.

Financial Condition

Liquidity and Capital Resources

PPL had the following at:

	September 30, 2010		December 31, 2009

Cash and cash equivalents	$	4,853	$	801
Short-term debt		181		639

The $4.1 billion increase in PPL's cash and cash equivalents position was primarily the net result of:

·	net proceeds of $2.4 billion from the issuance of common stock;
·	proceeds of $1.7 billion from the issuance of long-term debt and Equity Units;
·	$1.7 billion of cash provided by operating activities;
·	proceeds of $124 million from the sale of the Long Island generation business;
·	$980 million of capital expenditures;
·	the payment of $397 million of common stock dividends; and
·	a net decrease in short-term debt of $443 million (excluding the impact of U.K. foreign currency exchange rates).

Cash and cash equivalents at September 30, 2010 includes funds that will be used for the pending acquisition of E.ON U.S.

Auction Rate Securities

In 2010, PPL's investment in auction rate securities continues to be impacted by auction failures and the resulting inability to liquidate these securities. PPL held auction rate securities with an aggregate par value of $25 million at September 30, 2010 and December 31, 2009. PPL concluded that the fair value of auction rate securities approximated par value at September 30, 2010 and December 31, 2009. Because PPL intends and has the ability to hold these auction rate securities until they can be liquidated at par value, PPL believes that it does not have significant exposure to realize losses on these securities. Based upon the evaluation of available information, PPL believes these investments continue to be of high credit quality. Additionally, PPL does not anticipate having to sell these securities to fund operations. During the three and nine months ended September 30, 2010, PPL liquidated an insignificant amount of securities at par. See Note 13 to the Financial Statements for further discussion of auction rate securities.

Credit Arrangements

At September 30, 2010, PPL's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed		Letters of Credit Issued		Unused Capacity

PPL Energy Supply Domestic Credit Facilities (a)	$	3,725			$	233	$	3,492
PPL Electric Credit Facilities (b)		340				13		327
Total Domestic Credit Facilities (c)	$	4,065			$	246	$	3,819

WPDH Limited Credit Facility	₤	150	₤	121		n/a	₤	29
WPD (South West) Credit Facility		210				n/a		210
Total WPD Credit Facilities (d)	₤	360	₤	121		n/a	₤	239

(a)		In March 2010, PPL Energy Supply's 364-day $200 million bilateral credit facility was amended. The amendment included extending the expiration date to March 2013, thereby making it a three-year facility, and setting related fees based on the company's senior unsecured long-term debt rating. In June 2010, PPL Energy Supply closed into escrow a new $4 billion syndicated credit facility, expiring December 31, 2014, that, upon effectiveness, is intended to replace its 364-day $400 million syndicated credit facility, which expired in September 2010, and its $3.2 billion 5-year syndicated credit facility. In the third quarter of 2010, the escrowed facility was amended to provide PPL Energy Supply the ability to make the facility effective upon five business days written notice. In October 2010, PPL Energy Supply terminated the $3.2 billion 5-year syndicated credit facility and made the $4 billion syndicated credit facility effective. PPL Energy Supply subsequently borrowed $3.2 billion under the new credit facility in October 2010 in order to enable a subsidiary to make loans to certain affiliates to provide interim financing of amounts required by PPL to partially fund PPL's pending acquisition of E.ON U.S. Such borrowing bears interest at 2.26% and is expected to be refinanced by PPL through the issuance of long-term debt by affiliates and the use of internal funds.
(b)		Committed capacity includes a $150 million credit facility related to an asset-backed commercial paper program. In July 2010, PPL Electric and a subsidiary extended the expiration date of the credit agreement related to the asset-backed commercial paper program to July 2011. At September 30, 2010, based on accounts receivable and unbilled revenue pledged, $150 million was available for borrowing under the asset-backed credit facility. In June 2010, PPL Electric closed into escrow a new $200 million syndicated credit facility, expiring December 31, 2014, that, upon effectiveness, is intended to replace its existing 5-year syndicated credit facility. Subject to certain conditions, the new credit facility can become effective on the earliest of (i) December 31, 2010, (ii) the date on which the acquisition of E.ON U.S. is completed by PPL, or (iii) the date on which the purchase and sale agreement relating to the acquisition of E.ON U.S. has been terminated or expired or such acquisition has otherwise been abandoned by PPL. PPL Electric expects to make this facility effective on December 31, 2010.
(c)		The commitments under PPL's domestic credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 12% of the total committed capacity, when considering the October 2010 changes to PPL Energy Supply's credit facilities.
(d)		The commitments under WPD's credit facilities are provided by eight banks, with no one bank providing more than 25% of the total committed capacity.

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

Bridge Facility

Concurrently, and in connection with entering into the agreement to acquire E.ON U.S., PPL entered into a commitment letter with certain lenders pursuant to which, subject to the conditions set forth therein, the lenders committed to provide PPL with 364-day unsecured bridge financing of up to $6.5 billion, the proceeds of which, if drawn upon, must be used at closing (i) to fund the consideration for the acquisition and (ii) to pay certain fees and expenses in connection with the acquisition. In June 2010, the commitment of such lenders for the bridge financing was syndicated to a group of banks, including the lenders under the commitment letter. Upon the syndication of the commitment, PPL Capital Funding, as borrower, and PPL, as guarantor, entered into a $6.5 billion Bridge Facility.

In accordance with the terms of the Bridge Facility, the capacity of the Bridge Facility was permanently reduced after PPL's issuance of common stock and Equity Units in June 2010, as discussed in "Long-term Debt and Equity Securities" below, and as a result of the monetization of certain full-requirement sales contracts in the third quarter of 2010. At September 30, 2010 the capacity of the Bridge Facility was approximately $2.6 billion. See "Commodity Price Risk (Non-trading) - Monetization of Certain Full-Requirement Sales Contracts" in Note 14 for additional information on the monetization. In October 2010, the capacity of the Bridge Facility was reduced further to $300 million in connection with the October 2010 borrowing of $3.2 billion under PPL Energy Supply's $4 billion syndicated credit facility which is discussed above under "Credit Arrangements." The Bridge Facility, if drawn upon, will mature 364 days after closing of the acquisition. See Note 7 to the Financial Statements for additional information.

Long-term Debt and Equity Securities

In March 2010, WPD (South Wales) and WPD (South West) each issued £200 million of 5.75% Notes due 2040. WPD received net proceeds of £394 million (which equated to $593 million) from the combined debt issuances.

In April 2010, PPL Electric redeemed all five series of its outstanding preferred stock, with a par value in the aggregate of $51 million for $54 million, including accumulated dividends.

In June 2010, PPL Capital Funding's 6.85% Senior Notes due 2047 ceased being the covered debt under the Replacement Capital Covenant entered into by PPL and PPL Capital Funding in March 2007 in connection with the issuance of PPL Capital Funding's 2007 Series A Junior Subordinated Notes due 2067. As a result, the Replacement Capital Covenant terminated.

In June 2010, PPL raised a total of approximately $3.5 billion, net of underwriting discounts, through the sale of (i) 103.5 million shares of PPL common stock at a public offering price of $24.00 per share and (ii) 23 million Equity Units at a stated amount per unit of $50.00. PPL invested the net proceeds in U.S. government obligations, bank deposits and other highly-rated investments until needed to partially fund the acquisition of E.ON U.S. and pay certain acquisition-related fees and expenses.

In connection with the acquisition of E.ON U.S., acquired entities will be required to repay debt currently owed to certain E.ON U.S. affiliates. At the time of the acquisition, PPL expects to provide interim financing to such entities to facilitate this repayment. Subsequent to the acquisition of E.ON U.S., PPL expects the acquired entities to issue long-term debt securities to repay the interim financing incurred at acquisition close. The total amount of debt securities to be issued is expected to aggregate approximately $3.0 billion.

In August 2010, PPL Energy Supply elected to change the interest rate mode on the Exempt Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series 2009C due 2037 (PPL Energy Supply, LLC Project) that were issued by the PEDFA on behalf of PPL Energy Supply in 2009 from a commercial paper rate to a term rate of 3.00% for five years, effective in September 2010.

The Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023 that were issued by the PEDFA on behalf of PPL Electric in 2008 were remarketed in September 2010. Effective October 2010, the term rate on the bonds was set at 4.00% through maturity.

In October 2010, PPL Capital Funding repurchased $20 million of its 2007 Series A Junior Subordinated Notes due 2067 for $19 million, plus accrued interest.

See Note 7 to the Financial Statements for additional information about long-term debt and equity securities.

The Economic Stimulus Package

In April 2010, PPL Electric entered into an agreement with the DOE, in which the agency is to provide funding for one-half of a $38 million smart grid project. The project would use smart grid technology to strengthen reliability, save energy and improve electric service for 60,000 Harrisburg, Pennsylvania area customers. It would also provide benefits beyond the Harrisburg region, helping to speed power restoration across PPL Electric's 29-county service territory. Work on the project is progressing on schedule, and PPL Electric is receiving reimbursements under the grant for costs incurred. The project is scheduled to be completed by the end of September 2012.

Common Stock Dividends

Rating Agency Decisions

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

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

In prior periodic reports, PPL described its then-current debt ratings in connection with, and to facilitate, an understanding of its liquidity position. As a result of the passage of the Dodd-Frank Act and the attendant uncertainties relating to the extent to which issuers of non-asset backed securities may disclose credit ratings without being required to obtain rating agency consent to the inclusion of such disclosure, or incorporation by reference of such disclosure, in a registrant's registration statement or section 10(a) prospectus, PPL is limiting its credit rating disclosure to a description of the actions taken by the rating agencies with respect to PPL's ratings, but without stating what ratings have been assigned to PPL or its subsidiaries, or their securities. The ratings assigned by the rating agencies to PPL and its subsidiaries and their respective securities may be found, without charge, on each of the respective ratings agencies' websites, which ratings together with all other information contained on such rating agency websites is hereby explicitly not incorporated by reference in this report.

The rating agencies took the following actions related to PPL and its subsidiaries in 2010.

Moody's

In April 2010, Moody's took the following actions:

·	Revised the outlook for PPL, PPL Capital Funding and PPL Electric;
·	Lowered the issuer rating of PPL and the senior unsecured debt rating of PPL Capital Funding;
·	Lowered the rating of PPL Capital Funding's junior subordinated notes and PPL Electric's preferred securities;
·	Lowered the issuer rating of PPL Electric;
·	Affirmed the senior secured rating and commercial paper rating of PPL Electric; and
·	Affirmed the senior unsecured notes rating and the outlook of PPL Energy Supply.

Moody's stated in its press release that the revisions in the ratings for PPL, PPL Capital Funding, and PPL Electric, while reflective of PPL's announced agreement to acquire E.ON U.S., are driven more by weakening financial metrics and the outlooks that had been in place for PPL and PPL Electric for the past year.

In August 2010, Moody's affirmed all of PPL Energy Supply's ratings.

In October 2010, Moody’s affirmed the ratings for PPL and PPL Capital Funding following PPL’s receipt of FERC approval of its pending acquisition of E.ON U.S.

S&P

In April 2010, S&P took the following actions:

·	Revised the outlook of PPL, PPL Energy Supply and PPL Capital Funding;
·	Revised the outlook of WPDH Limited, WPD (South Wales) and WPD (South West); and
·	Affirmed its credit ratings for PPL, PPL Capital Funding, PPL Energy Supply, PPL Electric, WPDH Limited, WPD (South Wales) and WPD (South West).

S&P stated in its press release that the change to the outlook for PPL and PPL Energy Supply considers the greater regulated mix that will result from PPL acquiring E.ON U.S., resulting in a pro forma "strong" consolidated business risk profile. S&P also stated that the revision in the outlook for WPD is a reflection of the change to PPL's outlook and is not a result of any change in WPD's stand-alone credit profile.

In October 2010, S&P took the following actions:

·	Revised the outlook of PPL, PPL Capital Funding, PPL Energy Supply, and PPL Electric;
·	Raised the issuer rating of PPL and PPL Energy Supply;
·	Raised the senior unsecured and junior subordinated debt ratings of PPL Capital Funding;
·	Raised the senior unsecured debt rating of PPL Energy Supply;
·	Affirmed its credit ratings for PPL Electric.

S&P stated in its press release that the upgrades reflect S&P’s opinion of an improved credit profile of the consolidated company following the closing of PPL’s pending acquisition of E.ON U.S.

Fitch

In January 2010, as a result of implementing its revised guidelines for rating preferred stock and hybrid securities, Fitch lowered the rating of PPL Capital Funding's junior subordinated notes and lowered the ratings of PPL Electric's preferred stock and preference stock. Fitch stated in its press release that the new guidelines, which apply to instruments issued by companies in all sectors, typically resulted in downgrades of one notch for many instruments that provide for the ability to defer interest or dividend payments. Fitch stated that it has no reason to believe that deferral will be activated.

In April 2010, Fitch affirmed its credit ratings for PPL, PPL Capital Funding, PPL Energy Supply and PPL Electric and retained the outlook for these entities following PPL's announced agreement to acquire E.ON U.S.

In May 2010, Fitch affirmed its rating and issued an outlook for PPL Montana's Pass Through Certificates due 2020.

In October 2010, Fitch affirmed its credit ratings for and revised the outlook of WPDH Limited, WPD (South Wales) and WPD (South West).

Ratings Triggers

PPL and PPL Energy Supply have various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, tolling agreements, and interest rate and foreign currency instruments, which contain provisions requiring PPL and PPL Energy Supply to post additional collateral, or permit the counterparty to terminate the contract, if PPL's or PPL Energy Supply's credit rating were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at September 30, 2010. At September 30, 2010, if PPL's and PPL Energy Supply's credit ratings had been below investment grade, PPL would have been required to post an additional $494 million of collateral to counterparties for both derivative and non-derivative commodity and commodity-related contracts used in its generation, marketing and trading operations and interest rate and foreign currency contracts.

Capital Expenditures

The schedule below shows PPL's capital expenditure projections at September 30, 2010.

	Projected
	2010		2011		2012
Construction expenditures (a) (b)
Generating facilities	$	671	$	673	$	507
Transmission and distribution facilities		675		853		913
Environmental		63		19		99
Other		115		108		106
Total Construction Expenditures		1,524		1,653		1,625
Nuclear fuel		151		173		171
Total Capital Expenditures	$	1,675	$	1,826	$	1,796

(a)		Includes capitalized interest and AFUDC, which are expected to be approximately $190 million for the years 2010 through 2012.
(b)		Includes expenditures for certain intangible assets.

PPL's capital expenditure projections for the years 2010-2012 total $5.3 billion. Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions. This table has been revised from that which was presented in PPL's 2009 Form 10-K for changes in the timing of estimated expenditures related to the PJM-approved regional transmission line project. See Note 8 to the Financial Statements for additional information.

For additional information on PPL's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's 2009 Form 10-K.

Risk Management - Energy Marketing & Trading and Other

Market Risk

See Notes 13 and 14 to the Financial Statements for information about PPL's risk management objectives, valuation techniques and accounting designations.

The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of possible losses under normal market conditions at a given confidence level.

Commodity Price Risk (Non-trading)

PPL segregates its non-trading activities into two categories: hedge activity and economic activity. See Note 14 to the Financial Statements for additional information on hedge and economic activity. The net fair value of economic positions at September 30, 2010 and December 31, 2009, were net liabilities of $476 million and $77 million.

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Fair value of contracts outstanding at the beginning of the period	$	1,303		$	1,065		$	1,280		$	402
Contracts realized or otherwise settled during the period		(96	)		67			(330	)		267
Fair value of new contracts entered into during the period		3			68			10			124
Changes in fair value attributable to changes in valuation techniques (a)								(23	)
Other changes in fair value		144			(82	)		417			325
Fair value of contracts outstanding at the end of the period	$	1,354		$	1,118		$	1,354		$	1,118

(a)

At June 30, 2010, PPL used market bids to value certain full-requirement sales contracts previously valued using the income approach. See Note 14 to the Financial Statements for a discussion of the monetization of these contracts.

The following table segregates the net fair value of PPL's non-trading commodity derivative contracts at September 30, 2010 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

	Net Asset (Liability)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 4-5 Years		Maturity in Excess of 5 Years		Total Fair Value
Source of Fair Value
Prices quoted in active markets for identical instruments
Prices based on significant other observable inputs	$	506	$	804	$	17	$	13	$	1,340
Prices based on significant unobservable inputs		8		3		2		1		14
Fair value of contracts outstanding at the end of the period	$	514	$	807	$	19	$	14	$	1,354

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

Commodity Price Risk (Trading)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Fair value of contracts outstanding at the beginning of the period	$	4		$	(13	)	$	(6	)	$	(75	)
Contracts realized or otherwise settled during the period		(8	)		(11	)		(8	)		22
Fair value of new contracts entered into during the period		45			(5	)		47			30
Other changes in fair value		(39	)		17			(31	)		11
Fair value of contracts outstanding at the end of the period	$	2		$	(12	)	$	2		$	(12	)

PPL will reverse unrealized losses of approximately $2 million over the next three months as the transactions are realized.

The following table segregates the net fair value of PPL's trading commodity derivative contracts at September 30, 2010 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

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

VaR Models

PPL utilizes a VaR model to measure commodity price risk in domestic gross energy margins for its non-trading and trading portfolios. VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level. PPL calculates VaR using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level. The trading portfolio includes all speculative positions, regardless of the delivery period. PPL's non-trading portfolio includes PPL's entire portfolio, including generation, with delivery periods through the next 12 months. Given the company's conservative hedging program, PPL's non-trading VaR exposure is expected to be limited in the short-term. The VaR for PPL's portfolios using end-of-quarter results for the period was as follows:

	Trading VaR				Non-Trading VaR
	Sept. 30,		Dec. 31,		Sept. 30,		Dec. 31,
	2010		2009		2010		2009

95% Confidence Level, Five-Day Holding Period
Period End	$	8	$	3	$	6	$	8
Average for the Period		4		4		9		9
High		9		8		12		11
Low		1		1		4		8

Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the FTR positions at September 30, 2010 was an unrealized loss of $3 million and consisted of the following:

	2010		2011

Non-trading	$	1	$	2

Interest Rate Risk

PPL and its subsidiaries have issued debt to finance their operations, which exposes them to interest rate risk. PPL utilizes various financial derivative instruments to adjust the mix of fixed and floating interest rates in its debt portfolio, adjust the duration of its debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of PPL's debt portfolio due to changes in the absolute level of interest rates.

At September 30, 2010, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was insignificant.

PPL is also exposed to changes in the fair value of its domestic and international debt portfolios. PPL estimated that a 10% decrease in interest rates at September 30, 2010 would increase the fair value of its debt portfolio by $320 million.

At September 30, 2010, PPL had the following interest rate hedges outstanding:

	Exposure Hedged		Fair Value, Net - Asset (Liability) (a)			Effect of a 10% Adverse Movement in Rates (b)

Cash flow hedges
Interest rate swaps (c)	$	2,575	$	(171	)	$	(73	)
Cross-currency swaps (d)		302		48			(41	)
Fair value hedges
Interest rate swaps (e)		749		60			(4	)

(a)		Includes accrued interest, if applicable.
(b)		Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.
(c)		PPL utilizes various risk management instruments to reduce its exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL is exposed to changes in the fair value of these instruments, any changes in the fair value of these instruments are recorded in equity and then reclassified into earnings in the same period during which the item being hedged affects earnings. Sensitivities represent a 10% adverse movement in interest rates.
(d)		WPDH Limited uses cross-currency swaps to hedge the interest payments and principal of its U.S. dollar-denominated senior notes with maturity dates ranging from December 2017 to December 2028. While PPL is exposed to changes in the fair value of these instruments, any change in the fair value of these instruments is recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. Sensitivities represent a 10% adverse movement in both interest rates and foreign currency exchange rates.
(e)		PPL utilizes various risk management instruments to adjust the mix of fixed and floating interest rates in its debt portfolio. The change in fair value of these instruments, as well as the offsetting change in the value of the hedged exposure of the debt, is reflected in earnings. Sensitivities represent a 10% adverse movement in interest rates.

Foreign Currency Risk

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

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

At September 30, 2010, PPL had the following foreign currency hedges outstanding:

	Exposure Hedged		Fair Value, Net - Asset		Effect of a 10% Adverse Movement in Foreign Currency Exchange Rates (a)

Net investment hedges (b)	£	15	$	6	$	(2	)
Economic hedges (c)		60				(7	)

(a)		Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.
(b)		To protect the value of a portion of its net investment in WPD, PPL executed forward contracts to sell British pounds sterling. The settlement dates of these contracts range from March 2011 through June 2011.
(c)		To economically hedge the translation of 2010 and 2011 expected income denominated in British pounds sterling to U.S. dollars, PPL entered into a combination of average rate forwards and average rate options to sell British pounds sterling. The forwards and options have termination dates ranging from October 2010 through March 2011.

NDT Funds - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna nuclear plant. At September 30, 2010, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL's Balance Sheet. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its NDT policy statement. At September 30, 2010, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $40 million reduction in the fair value of the trust assets. See Notes 13 and 17 to the Financial Statements for additional information regarding the NDT funds.

Credit Risk

PPL Electric has standard Supply Master Agreements (the Agreements) for its bid solicitation process. PPL Electric applies these Agreements to all of its solicitations to procure PLR supply. See Note 10 to the Financial Statements for additional information on these solicitations. Under these Agreements, PPL Electric requires all suppliers to post collateral if their credit exposure exceeds an established credit limit. In the event a supplier defaults on its obligation, PPL Electric would be required to seek replacement power in the market. All incremental costs incurred by PPL Electric would be recoverable from customers in future rates.

At September 30, 2010, the majority of the successful bidders under all of the solicitations had an investment grade credit rating from S&P. Successful bidders who do not have a credit rating by S&P constitute an insignificant portion of PPL Electric's PLR supply, and are subject to a lower threshold for posting collateral. No successful bidders were required to post collateral under the Agreements at September 30, 2010. There is no instance under these Agreements in which PPL Electric is required to post collateral to its suppliers.

See Notes 13 and 14 to the Financial Statements and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL's 2009 Form 10-K for information on credit risk and credit concentration.

Foreign Currency Translation

During 2010 and 2009, the British pound sterling fluctuated in relation to the U.S. dollar. Changes in these exchange rates resulted in a foreign currency translation loss of $83 million for the nine months ended September 30, 2010, which primarily reflected a $223 million reduction to PP&E offset by a reduction of $140 million to net liabilities. Changes in these exchange rates resulted in a foreign currency translation gain of $93 million for the nine months ended September 30, 2009, which primarily reflected a $201 million increase to PP&E offset by an increase of $108 million to net liabilities. These adjustments resulting from translation are recorded in AOCI.

Related Party Transactions

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

Acquisitions, Development and Divestitures

See "Overview" above for information on PPL's pending acquisition of E.ON U.S., a limited liability company engaged, through its public utility subsidiaries LG&E and KU, in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas, primarily in Kentucky.

PPL is currently planning incremental capacity increases of 236 MW primarily at its existing generating facilities.

In 2010 and 2009, PPL sold its Long Island generation business and the majority of its Maine hydroelectric generation business. It is also in the process of selling the three remaining Maine hydroelectric facilities and certain other non-core generation facilities.

See Note 8 to the Financial Statements for additional information on these and other significant activities.

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

Environmental Matters

In June 2010, the EPA proposed two approaches to regulating the disposal and management of coal combustion residuals (CCR) under the Resource Conservation and Recovery Act (RCRA). CCRs include fly ash, bottom ash and scrubber wastes. In one approach, the EPA would regulate CCRs as a hazardous waste under Subtitle C of RCRA. PPL cannot predict at this time the final requirements of the EPA's CCR regulations and what impact, if any, they would have on PPL's facilities, but the costs to PPL could be significant.

See "Item 1. Business - Environmental Matters" in PPL's 2009 Form 10-K and Note 10 to the Financial Statements for a discussion of environmental matters.

New Accounting Guidance

See Note 2 to the Financial Statements for a discussion of new accounting guidance adopted.

Application of Critical Accounting Policies

PPL's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL, and require estimates or other judgments of matters inherently uncertain: price risk management, defined benefits, asset impairment, loss accruals, AROs, income tax uncertainties and regulatory assets. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's 2009 Form 10-K for a discussion of each critical accounting policy.

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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

Overview

PPL Energy Supply is an energy company with headquarters in Allentown, Pennsylvania. Refer to "Item 1. Business - Background" in PPL Energy Supply's 2009 Form 10-K for descriptions of its reportable segments, which are Supply and International Delivery. Through its subsidiaries, PPL Energy Supply is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in the U.K. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL Energy Supply's 2009 Form 10-K for a discussion of PPL Energy Supply's strategy and the risks and challenges that it faces in its business. See "Forward-Looking Information," Note 10 to the Financial Statements and the remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" and the rest of Item 7 in PPL Energy Supply's 2009 Form 10-K for more information concerning the material risks and uncertainties that PPL Energy Supply faces in its businesses and with respect to its future earnings and cash flows.

The following information should be read in conjunction with PPL Energy Supply's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL Energy Supply's 2009 Form 10-K. Terms and abbreviations are explained in the glossary. Dollars are in millions unless otherwise noted.

Customer Choice in Pennsylvania

Under the Customer Choice Act, as part of a settlement approved by the PUC, PPL Electric entered into full-requirement energy supply contracts with PPL EnergyPlus at predetermined "capped" rates through 2009. With the expiration of these contracts, in 2010 PPL EnergyPlus is selling the majority of the electricity produced by PPL Energy Supply's generation plants to third parties.

When comparing the three and nine months ended September 30, 2010 with the same periods in 2009, certain line items on PPL Energy Supply's financial statements were impacted by the expiration of the full-requirement energy supply contracts. Overall, the expiration of generation rate caps had a significant positive impact on PPL Energy Supply's results of operations, financial condition and cash flows during 2010. This trend is expected to continue through the remainder of the year.

The primary impact of the expiration of generation rate caps is captured in PPL Energy Supply's domestic gross energy margins. See "Statement of Income Analysis" for an explanation of this non-GAAP financial measure. In 2010, PPL Energy Supply is selling the majority of its generation supply under various wholesale and retail contracts at prevailing market rates at the time the contracts were executed. In 2009, the majority of generation produced by PPL Energy Supply's generation plants was sold to PPL Electric's customers as PLR supply under predetermined capped rates.

Market Events

In the first half of 2009, financial and commodity market conditions generally increased PPL Energy Supply's exposure to credit risk; made obtaining new sources of bank and capital markets funding and issuing commercial paper more difficult and costly; and caused negative investment returns in the assets of PPL Energy Supply's defined benefit plans and the NDT funds. Since mid-2009, bank credit capacity has improved; the energy and financial markets in which PPL Energy Supply transacts, with the exception of the market for auction rate securities, are active; and the values of debt and equity securities in PPL Energy Supply's defined benefit plans (including plans sponsored by PPL in which PPL Energy Supply participates) and the NDT funds have improved.

PPL Energy Supply continues to be impacted in 2010 by higher costs of renewing existing or establishing new credit facilities and lower demand for electricity resulting from the impacts of economic conditions and customer shopping under full-requirement sales contracts.

Enactment of Financial Reform Legislation

In July 2010, the Dodd-Frank Act was signed into law. Of particular relevance to PPL Energy Supply, the Dodd-Frank Act includes provisions that require most over-the-counter derivative transactions to be executed through an exchange and to be cleared centrally. The Dodd-Frank Act, however, provides an exemption from mandatory clearing and exchange trading requirements for over-the-counter derivative transactions used to hedge commercial risk. Although the term "hedging commercial risk" is not defined in the Dodd-Frank Act, it is anticipated that transactions utilized by PPL Energy Supply should qualify if they are not entered into for speculative purposes. The Dodd-Frank Act also provides that the Commodity Futures Trading Commission may impose collateral and margin requirements for over-the-counter derivative transactions, including those that are used to hedge commercial risk. However, during drafting of the Dodd-Frank Act, certain members of Congress adopted report language and issued a public letter stating that it was not their intention to impose margin and collateral requirements on counterparties that utilize these transactions to hedge commercial risk. Final rules on major provisions in the Dodd-Frank Act, including imposition of collateral and margin requirements, will be established through rulemakings and, in most cases, will not take effect until 12 months after the date of enactment. PPL Energy Supply may be required to post additional collateral if they are subject to margin requirements as ultimately adopted in the implementing regulations of the Dodd-Frank Act. PPL Energy Supply will continue to evaluate the provisions of the Dodd-Frank Act and monitor developments related to its implementation. At this time, PPL Energy Supply cannot predict the impact that the new law or implementing its regulations will have on its business or operations, or the markets in which it transacts business.

Results of Operations

The following discussion begins with a summary of PPL Energy Supply's earnings. "Results of Operations" continues with a review of results by reportable segment and a description of key factors by segment that management expects may impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in principal items on PPL Energy Supply's Statements of Income, comparing the three and nine months ended September 30, 2010 with the same periods in 2009.

PPL Energy Supply presents tables analyzing changes in amounts between periods within "Segment Results" and "Statement of Income Analysis" on a constant U.K. foreign currency exchange rate basis, where applicable, in order to isolate the impact of the change in the exchange rate on the item being explained. Results computed on a constant U.K. foreign currency exchange rate basis are calculated by translating current year results at the prior year weighted-average foreign currency exchange rate.

Earnings

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

Three Months Ended September 30,					Nine Months Ended September 30,
2010		2009			2010		2009

$	265	$	(16	)	$	551	$	144

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

Segment Results

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010		2009			2010		2009

Supply	$	172	$	(40	)	$	324	$	(29	)
International Delivery		93		24			227		173
Total	$	265	$	(16	)	$	551	$	144

Supply Segment

The Supply segment primarily consists of the domestic energy marketing and trading activities, as well as the generation and development operations of PPL Energy Supply. In September 2010, certain PPL Energy Supply subsidiaries signed definitive agreements to sell their entire ownership interests in certain non-core generation facilities. The sale is expected to close in the fourth quarter of 2010, subject to the receipt of necessary regulatory approvals and third-party consents. The operating results of these facilities have been classified as Discontinued Operations. In 2010 and 2009, PPL Energy Supply subsidiaries completed the sale of several businesses, which have been classified as Discontinued Operations. See Note 8 to the Financial Statements for additional information.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Energy revenues (a)	$	1,411		$	1,155		$	4,159		$	3,870
Energy-related businesses		97			104			278			288
Total operating revenues		1,508			1,259			4,437			4,158
Fuel and energy purchases (a)		782			917			2,519			2,953
Other operation and maintenance		212			194			765			677
Depreciation		61			49			177			141
Taxes, other than income		12			6			34			21
Energy-related businesses		95			101			269			280
Total operating expenses		1,162			1,267			3,764			4,072
Other Income (Expense) - net (b)		6			6			19			42
Other-Than-Temporary Impairments								3			18
Interest Expense (c)		46			44			148			132
Income Tax Expense (Benefit)		79			(11	)		178			(8	)
Loss from Discontinued Operations		(54	)		(4	)		(38	)		(14	)
Noncontrolling Interest		1			1			1			1
Net Income (Loss) Attributable to PPL Energy Supply	$	172		$	(40	)	$	324		$	(29	)

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

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Eastern U.S. non-trading margins	$	132		$	453
Western U.S. non-trading margins		2			8
Net energy trading margins		(15	)		(3	)
Other operation and maintenance		(7	)		(34	)
Depreciation		(7	)		(21	)
Other income (expense) - net					(6	)
Interest expense					(4	)
Income taxes and other		27			19
Discontinued operations, net of special items (Note 8)		13			16
Special items		67			(75	)
	$	212		$	353

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

·	Other operation and maintenance increased for both periods primarily due to higher costs at eastern generation plants.

·	Depreciation increased for both periods primarily due to the completion of the Brunner Island environmental projects, which impacted depreciation expense primarily beginning in the second half of 2009.

·	Income taxes decreased for both periods primarily due to a lower effective tax rate in 2010, in part due to a release of tax reserves, a release of valuation allowances, investment tax credits and a tax benefit from the manufacturing deduction.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Adjusted energy-related economic activity, net (a)	$	4		$	(130	)	$	(115	)	$	(168	)
Sales of assets:
Long Island generation business (Note 8)											(34	)
Sundance indemnification								1
Impairments:
Adjustments - NDT investments (b)											(1	)
Impacts from emission allowances (c)		(2	)					(9	)		(15	)
Other asset impairments											(2	)
Pending E.ON U.S. acquisition-related costs:
Monetization of certain full-requirement sales contracts (d)		(27	)					(102	)
Anticipated sale of certain non-core generation facilities (Note 8)		(62	)					(62	)
Workforce reduction (Note 9)											(6	)
Other:
Change in tax accounting method related to repairs (e)					(25	)					(25	)
Montana hydroelectric litigation (Note 10)		(1	)					(34	)
Health Care Reform - tax impact (Note 9)								(5	)
Total	$	(88	)	$	(155	)	$	(326	)	$	(251	)

(a)		See "Reconciliation of Economic Activity" below.
(b)		Represents other-than-temporary impairment charges on securities, including reversals of previous impairments when securities previously impaired were sold.
(c)		The nine months ended September 30, 2009 includes a pre-tax gain of $4 million related to the settlement of a dispute regarding the sale of certain annual nitrogen oxide allowance put options. Also, see Note 13 to the Financial Statements for information on impairments of sulfur dioxide emission allowances.
(d)		See "Components of Monetization of Certain Full-Requirement Sales Contracts" below.
(e)		Relates to a change in method of accounting for certain expenditures for tax purposes. See Note 5 for additional information.

Reconciliation of Economic Activity

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Operating Revenues
Unregulated retail electric and gas	$	8					$	16		$	2
Wholesale energy marketing		52		$	(307	)		(190	)		(67	)
Operating Expenses
Fuel		16			7			13			35
Energy purchases		(300	)		79			(418	)		(255	)
Energy-related economic activity (a)		(224	)		(221	)		(579	)		(285	)
Option premiums (b)		21						46
Adjusted energy-related economic activity		(203	)		(221	)		(533	)		(285	)
Less: Unrealized economic activity associated with the monetization of certain full-requirement sales contracts (c)		(208	)					(335	)
Adjusted energy-related economic activity, net - pre tax	$	5		$	(221	)	$	(198	)	$	(285	)

Adjusted energy-related economic activity, net - after tax	$	4		$	(130	)	$	(115	)	$	(168	)

(a)		The components of this item are from the table within "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements.
(b)		Adjustment for the net deferral and amortization of option premiums over the delivery period of the item that was hedged or upon realization. After-tax amounts for the three and nine months ended September 30, 2010 were $13 million and $27 million.
(c)		See "Components of Monetization of Certain Full-Requirement Sales Contracts" below.

Components of Monetization of Certain Full-Requirement Sales Contracts

The following table provides the components of the "Monetization of Certain Full-Requirements Sales Contracts" special item.

	Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010

Full-requirement sales contracts monetized (a)	$	32		$	(28	)
Economic activity related to the full-requirement sales contracts monetized		(79	)		(146	)
Monetization of certain full-requirement sales contracts, pre-tax (b)	$	(47	)	$	(174	)

Monetization of certain full-requirement sales contracts, after-tax	$	(27	)	$	(102	)

(a)		See "Commodity Price Risk (Non-trading) – Monetization of Certain Full-Requirement Sales Contracts" in Note 14 to the Financial Statements for additional information.
(b)		The three and nine-month periods include unrealized losses of $208 million and $335 million from the "Reconciliation of Economic Activity" table above. These amounts are reflected in "Wholesale energy marketing - Unrealized economic activity" and "Energy purchases - Unrealized economic activity" on the Statement of Income. Both periods include net realized gains of $161 million, which are reflected in "Wholesale energy marketing - Realized" and "Energy purchases - Realized" on the Statement of Income. This economic activity will continue to be realized through May 2013.

Outlook

Excluding special items, PPL Energy Supply projects higher earnings from its Supply segment in 2010 compared with 2009, primarily due to higher energy margins as a result of higher Eastern baseload generation pricing compared to the prices realized in 2009. This positive earnings driver is expected to be partially offset by higher operation and maintenance expenses, higher depreciation, and higher financing costs.

International Delivery Segment

The International Delivery segment primarily includes the electric distribution operations of WPD.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Utility revenues	$	163		$	165		$	538		$	496
Energy-related businesses		9			9			25			24
Total operating revenues		172			174			563			520
Other operation and maintenance		39			32			122			97
Depreciation		28			31			86			84
Taxes, other than income		12			16			39			42
Energy-related businesses		4			5			12			12
Total operating expenses		83			84			259			235
Other Income (Expense) - net					2			2			(9	)
Interest Expense		38			28			102			59
Income Tax Expense (Benefit)		(42	)		16			(23	)		20
Loss from Discontinued Operations					(24	)					(24	)
Net Income Attributable to PPL Energy Supply	$	93		$	24		$	227		$	173

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended
U.K.
Utility revenues	$	7		$	23
Other operation and maintenance		(5	)		(19	)
Other income (expense) - net		1
Interest expense		(9	)		(31	)
Income taxes		2			(23	)
Foreign currency exchange rates		(3	)		6
Other		3			2
U.S. income taxes		22			33
Other		1			5
Special items		50			58
	$	69		$	54

·	Higher U.K. utility revenues for the three-month period primarily due to a price increase in April 2010, partially offset by unfavorable changes in customer mix. Higher U.K. utility revenues for the nine-month period primarily due to price increases in April 2010 and 2009, partially offset by revised estimates of network electricity losses and unfavorable changes in customer mix.

·	Higher U.K. other operation and maintenance for both periods primarily due to higher pension expenses resulting from an increase in amortization of actuarial losses and a decrease in the discount rate.

·	Higher U.K. interest expense for both periods on the Index-linked Senior Unsecured Notes primarily due to higher inflation rates and higher interest expense related to the March 2010 debt issuance.

·	Higher U.K. income taxes for the nine-month period primarily due to favorable settlements of uncertain tax positions in 2009.

·	Changes in U.K. foreign currency exchange rates positively affected WPD earnings for the nine-month period and negatively affected WPD earnings for the three-month period. The weighted-average exchange rate for the British pound sterling was $1.52 and $1.55 for the three and nine months ended September 30, 2010, compared with $1.64 and $1.50 for the same periods in 2009.

·	Lower U.S. income taxes for both periods primarily from a favorable U.S. Tax Court ruling in 2010 on the creditability of the U.K. Windfall Profits Tax.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Foreign currency-related economic hedges - unrealized impacts (a)	$	(1	)	$	4		$	(2	)	$	(2	)
Sales of assets:
Latin American businesses (Note 8)					(24	)					(24	)
Asset impairments											(1	)
Workforce reduction (Note 9)											(2	)
Other:
Change in U.K. tax rate (Note 5)		19						19
U.S. Tax Court ruling (b)		12						12
Total	$	30		$	(20	)	$	29		$	(29	)

(a)		Represents unrealized gains (losses) on contracts that economically hedge anticipated earnings denominated in British pounds sterling.
(b)		Represents the net tax benefit recorded as a result of the U.S. Tax Court ruling that the U.K. Windfall Profits Tax is creditable for U.S. tax purposes, excluding the reversal of accrued interest. See Note 5 to the Financial Statements for additional information.

Outlook

Excluding special items, PPL Energy Supply projects lower earnings from its International Delivery segment in 2010 compared with 2009 as a result of higher financing costs, higher pension and operation and maintenance expenses, and higher income taxes. These negative factors are expected to be partially offset by higher utility revenues and favorable foreign currency effects.

Statement of Income Analysis --

Domestic Gross Energy Margins

Non-GAAP Financial Measure

The following discussion includes financial information prepared in accordance with GAAP, as well as a non-GAAP financial measure, "Domestic Gross Energy Margins." "Domestic Gross Energy Margins" is a single financial performance measure of PPL Energy Supply's domestic energy non-trading and trading activities. In calculating this measure, the Supply segment's energy revenues are offset by the cost of fuel and energy purchases, and adjusted for other related items. In addition, PPL Energy Supply excludes from "Domestic Gross Energy Margins" energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of PPL Energy Supply's generation assets, full-requirement and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Also included in this energy-related economic activity is the ineffective portion of qualifying cash flow hedges, net losses on the monetization of certain full-requirement sales contracts and premium amortization associated with options. This economic activity is deferred, with the exception of the net losses on the full-requirement sales contracts that were monetized, and included in domestic gross energy margins over the delivery period that was hedged or upon realization. PPL Energy Supply believes that "Domestic Gross Energy Margins" provides another criterion to make investment decisions. This performance measure is used, in conjunction with other information, internally by senior management and the Board of Directors of PPL to manage the domestic energy non-trading and trading activities. PPL's management also uses "Domestic Gross Energy Margins" in measuring certain PPL corporate performance goals used in determining variable compensation.

"Domestic Gross Energy Margins" is not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to present the results of their energy non-trading and trading activities. The following table reconciles "Operating Income" to "Domestic Gross Energy Margins" as defined by PPL Energy Supply.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Operating Income (a)	$	435		$	82		$	977		$	371
Adjustments:
Utility (a)		(163	)		(165	)		(538	)		(496	)
Energy-related businesses, net (b)		(7	)		(7	)		(22	)		(20	)
Other operation and maintenance (a)		251			226			887			774
Depreciation (a)		89			80			263			225
Taxes, other than income (a)		24			22			73			63
Revenue adjustments (c)		(300	)		339			(31	)		170
Expense adjustments (c)		350			(101	)		434			173
Domestic gross energy margins	$	679		$	476		$	2,043		$	1,260

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

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

	Three Months Ended September 30,
	2010			2009		Change
Revenue
Wholesale energy marketing (a)	$	1,244		$	669	$	575
Wholesale energy marketing to affiliate (a)		71			445		(374	)
Unregulated retail electric and gas (a)		116			34		82
Net energy trading margins (a)		(20	)		7		(27	)
Revenue adjustments (b)
Impact from energy-related economic activity (c)		(335	)		307		(642	)
Revenues from Supply segment discontinued operations (d)		35			32		3
Total revenue adjustments		(300	)		339		(639	)
		1,111			1,494		(383	)
Expense
Fuel (a)		322			259		63
Energy purchases (a)		459			639		(180	)
Energy purchases from affiliate (a)		1			19		(18	)
Expense adjustments (b)
Impact from energy-related economic activity (e)		(377	)		86		(463	)
Expenses from Supply segment discontinued operations (f)		12			8		4
Ancillary charges (g)		7			5		2
Gross receipts tax (h)		4					4
Other		4			2		2
Total expense adjustments		(350	)		101		(451	)
		432			1,018		(586	)
Domestic gross energy margins	$	679		$	476	$	203

	Nine Months Ended September 30,
	2010			2009			Change
Revenue
Wholesale energy marketing (a)	$	3,592		$	2,407		$	1,185
Wholesale energy marketing to affiliate (a)		250			1,353			(1,103	)
Unregulated retail electric and gas (a)		321			108			213
Net energy trading margins (a)		(4	)		2			(6	)
Revenue adjustments (b)
Impact from energy-related economic activity (c)		(126	)		65			(191	)
Gains from sale of RECs (g)					1			(1	)
Revenues from Supply segment discontinued operations (d)		95			104			(9	)
Total revenue adjustments		(31	)		170			(201	)
		4,128			4,040			88
Expense
Fuel (a)		810			700			110
Energy purchases (a)		1,707			2,194			(487	)
Energy purchases from affiliate (a)		2			59			(57	)
Expense adjustments (b)
Impact from energy-related economic activity (e)		(498	)		(220	)		(278	)
Expenses from Supply segment discontinued operations (f)		27			16			11
Ancillary charges (g)		20			15			5
Gross receipts tax (h)		11						11
Other		6			16			(10	)
Total expense adjustments		(434	)		(173	)		(261	)
		2,085			2,780			(695	)
Domestic gross energy margins	$	2,043		$	1,260		$	783

(a)		As reported on the Statements of Income.
(b)		To include/exclude the impact of any revenues and expenses consistent with the way management reviews domestic gross energy margins internally.
(c)		See "Commodity Price Risk (Non-trading) – Economic Activity" in Note 14 to the Financial Statements for additional information. In addition, the three and nine months ended September 30, 2010 include a pre-tax gain of $18 million and $43 million related to the amortization of option premiums and a realized gain of $257 million related to the monetization of certain full-requirement sales contracts. These are reflected in "Wholesale energy marketing – Realized" on the Statement of Income.
(d)		Represents the operating revenues of the Supply segment businesses classified as discontinued operations. See Note 8 to the Financial Statements for additional information.
(e)		See "Commodity Price Risk (Non-trading) – Economic Activity" in Note 14 to the Financial Statements for additional information. In addition, the three and nine months ended September 30, 2010 include a pre-tax gain of $3 million related to the amortization of option premiums, and a realized loss of $96 million related to the monetization of certain full-requirement sales contracts. These amounts are reflected in "Energy purchases – Realized" on the Statement of Income.
(f)		Represents fuel costs and energy purchases associated with the anticipated sale of certain non-core generation facilities that are classified as discontinued operations. See Note 8 to the Financial Statements for additional information.
(g)		Included in "Other operation and maintenance" on the Statements of Income.
(h)		Included in "Taxes, other than income" on the Statement of Income.

Domestic Gross Energy Margins By Region

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

	Three Months Ended September 30,
	2010			2009		Change
Non-trading:
Eastern U.S.	$	611		$	385	$	226
Western U.S.		88			84		4
Net energy trading		(20	)		7		(27	)
Domestic gross energy margins	$	679		$	476	$	203

	Nine Months Ended September 30,
	2010			2009		Change
Non-trading:
Eastern U.S.	$	1,788		$	1,013	$	775
Western U.S.		259			245		14
Net energy trading		(4	)		2		(6	)
Domestic gross energy margins	$	2,043		$	1,260	$	783

Eastern U.S.

Western U.S.

The increases for both periods were primarily due to higher average prices, partially offset by lower volumes.

Net Energy Trading

Utility Revenues

The changes in utility revenues were attributable to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

U.K. electric delivery revenue	$	10		$	33
U.K. foreign currency exchange rates		(12	)		9
	$	(2	)	$	42

Other Operation and Maintenance

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Montana hydroelectric litigation (Note 10)	$	3		$	54
Defined benefit costs (a)		7			26
Costs at fossil/hydroelectric plants (b)		1			21
Other costs at Susquehanna nuclear plant		3			14
Outage costs at Susquehanna nuclear plant		5			11
Workforce reduction (Note 9)					(13	)
Impairments and other impacts - emission allowances (c)		4			(10	)
Other - Domestic		4			6
Other - U.K.		(2	)		4
	$	25		$	113

(a)		Relates primarily to reductions in the discount rates used to determine net periodic defined benefit costs between 2009 and 2010.
(b)		Relates primarily to increased outage costs.
(c)		Relates to $4 million higher impairment of sulfur dioxide emission allowances for the three-month period and a $15 million lower impairment of sulfur dioxide emission allowances for the nine-month period. See Note 13 to the Financial Statements for additional information. Partially offsetting the decrease for the nine-month period was a $5 million increase in the charge for the settlement of a dispute regarding the sale of certain annual nitrogen oxide allowance put options.

Depreciation

The changes in depreciation expense were due to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Additions to PP&E (a)	$	11		$	37
U.K. foreign currency exchange rates		(2	)		1
	$	9			38

(a)

Additions include the completion of the Brunner Island environmental projects in 2010 and 2009.

Taxes, Other Than Income

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Pennsylvania gross receipts tax (a)	$	4		$	11
Other		(2	)		(1	)
	$	2		$	10

(a)

Primarily due to an increase in electricity revenues as customers chose alternative suppliers in 2010 due to the expiration of generation rate caps. This tax is included in "Domestic Gross Energy Margins" above.

Other Income (Expense) - net

See Note 12 to the Financial Statements for details.

Other-Than-Temporary Impairments

Interest Expense

The changes in interest expense were due to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Inflation adjustment on U.K. Index-linked Senior Unsecured Notes	$	3		$	24
Capitalized interest (a)		2			15
Short-term debt interest expense		8			12
Montana hydroelectric litigation (Note 10)		1			9
Long-term debt interest expense		1			(1	)
U.K. foreign currency exchange rates		(3	)
	$	12		$	59

(a)

During the nine months ended September 30, 2009, $9 million was capitalized related to the Brunner Island environmental projects. The majority of these projects were completed in 2009.

Income Taxes

The changes in income taxes were due to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Higher pre-tax book income	$	145		$	237
Foreign tax reserve adjustments		(31	)		29
Health Care Reform					5
Federal and state tax reserve adjustments		(48	)		(54	)
Federal and state tax return adjustments		(26	)		(26	)
U.K. Finance Act adjustments		(19	)		(19	)
Domestic manufacturing deduction		(8	)		(13	)
U.S. income tax on foreign earnings, net of foreign tax credit		(7	)		(10	)
Investment tax credits		(4	)		(7	)
U.K. capital loss benefit		28			(6	)
Other		2			7
	$	32		$	143

See Note 5 to the Financial Statements for additional information.

Discontinued Operations

Financial Condition

Liquidity and Capital Resources

PPL Energy Supply had the following at:

	September 30, 2010		December 31, 2009

Cash and cash equivalents	$	4,442	$	245
Short-term debt		181		639

The $4.2 billion increase in PPL Energy Supply's cash and cash equivalents position was primarily the net result of:

·	contributions from Member of $3.5 billion;
·	$1.6 billion of cash provided by operating activities;
·	proceeds of $600 million from the issuance of long-term debt;
·	proceeds of $124 million from the sale of the Long Island generation business;
·	$716 million of capital expenditures;
·	distributions to Member of $512 million; and
·	a net decrease in short-term debt of $443 million (excluding the impact of U.K. foreign currency exchange rates).

The cash contributions received from its member relate to the funds received by PPL in June 2010 from the issuance of common stock and Equity Units. These funds were invested by a subsidiary of PPL Energy Supply until they were returned to its member in October 2010 to be available to partially fund PPL's acquisition of E.ON U.S. and pay certain acquisition-related fees and expenses.

Auction Rate Securities

In 2010, PPL Energy Supply's investment in auction rate securities continues to be impacted by auction failures and the resulting inability to liquidate these securities. PPL Energy Supply held auction rate securities with an aggregate par value of $20 million at September 30, 2010 and December 31, 2009. PPL Energy Supply concluded that the fair value of auction rate securities approximated par value at September 30, 2010 and December 31, 2009. Because PPL Energy Supply intends and has the ability to hold these auction rate securities until they can be liquidated at par value, PPL Energy Supply believes that it does not have significant exposure to realize losses on these securities. Based upon the evaluation of available information, PPL Energy Supply believes these investments continue to be of high credit quality. Additionally, PPL Energy Supply does not anticipate having to sell these securities to fund operations. During the three and nine months ended September 30, 2010, PPL Energy Supply liquidated an insignificant amount of securities at par. See Note 13 to the Financial Statements for further discussion of auction rate securities.

Credit Arrangements

At September 30, 2010, PPL Energy Supply's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed		Letters of Credit Issued		Unused Capacity

PPL Energy Supply Domestic Credit Facilities (a)	$	3,725			$	233	$	3,492

WPDH Limited Credit Facility	₤	150	₤	121		n/a	₤	29
WPD (South West) Credit Facility		210				n/a		210
Total WPD Credit Facilities (b)	₤	360	₤	121		n/a	₤	239

(a)		In March 2010, PPL Energy Supply's 364-day $200 million bilateral credit facility was amended. The amendment included extending the expiration date to March 2013, thereby making it a three-year facility, and setting related fees based on the company's senior unsecured long-term debt rating. In June 2010, PPL Energy Supply closed into escrow a new $4 billion syndicated credit facility, expiring December 31, 2014, that, upon effectiveness, is intended to replace its 364-day $400 million syndicated credit facility, which expired in September 2010, and its $3.2 billion 5-year syndicated credit facility. In the third quarter of 2010, the escrowed facility was amended to provide PPL Energy Supply the ability to make the facility effective upon five business days written notice. In October 2010, PPL Energy Supply terminated the $3.2 billion 5-year syndicated credit facility and made the $4 billion syndicated credit facility effective. PPL Energy Supply subsequently borrowed $3.2 billion under the new credit facility in October 2010 in order to enable a subsidiary to make loans to certain affiliates to provide interim financing of amounts required by PPL to partially fund PPL's pending acquisition of E.ON U.S. Such borrowing bears interest at 2.26% and is expected to be repaid subsequent to the closing of PPL's acquisition of E.ON U.S through the issuance of long-term debt by certain affiliates. The commitments under PPL Energy Supply's domestic credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 12% of the total committed capacity, when considering the October 2010 changes to PPL Energy Supply's credit facilities.
(b)		The commitments under WPD's credit facilities are provided by eight banks, with no one bank providing more than 25% of the total committed capacity.

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

Long-term Debt

In August 2010, PPL Energy Supply elected to change the interest rate mode on the Exempt Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series 2009C due 2037 (PPL Energy Supply, LLC Project) that were issued by the PEDFA on behalf of PPL Energy Supply in 2009 from a commercial paper rate to a term rate of 3.00% for five years, effective in September 2010.

The Economic Stimulus Package

Rating Agency Decisions

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

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

In prior periodic reports, PPL Energy Supply described its then-current debt ratings in connection with, and to facilitate, an understanding of its liquidity position. As a result of the passage of the Dodd-Frank Act and the attendant uncertainties relating to the extent to which issuers of non-asset backed securities may disclose credit ratings without being required to obtain rating agency consent to the inclusion of such disclosure, or incorporation by reference of such disclosure, in a registrant's registration statement or section 10(a) prospectus, PPL Energy Supply is limiting its credit rating disclosure to a description of the actions taken by the rating agencies with respect to PPL Energy Supply's ratings, but without stating what ratings have been assigned to PPL Energy Supply or its subsidiaries, or their securities. The ratings assigned by the rating agencies to PPL Energy Supply and its subsidiaries and their respective securities may be found, without charge, on each of the respective ratings agencies' websites, which ratings together with all other information contained on such rating agency websites is, hereby, explicitly not incorporated by reference in this report.

The rating agencies took the following actions related to PPL Energy Supply and its subsidiaries in 2010.

Moody's

Following PPL's announced agreement to acquire E.ON U.S., Moody's affirmed its senior unsecured notes credit rating and outlook for PPL Energy Supply in April 2010.

In August 2010, Moody's affirmed all of PPL Energy Supply's ratings.

S&P

Following PPL's announced agreement to acquire E.ON U.S., S&P took the following actions in April 2010:

·	Revised the outlook of PPL Energy Supply;
·	Revised the outlook of WPDH Limited, WPD (South Wales) and WPD (South West); and
·	Affirmed its credit ratings for PPL Energy Supply, WPDH Limited, WPD (South Wales) and WPD (South West).

S&P stated in its press release that the change to the outlook for PPL Energy Supply considers the greater regulated mix that will result from PPL acquiring E.ON U.S., resulting in a pro forma "strong" consolidated business risk profile for PPL. S&P also stated that the revision in the outlook for WPD is a reflection of the change to PPL's outlook and is not a result of any change in WPD's stand-alone credit profile.

Following PPL’s receipt of FERC approval of its pending acquisition of E.ON U.S., S&P took the following actions in October 2010:

·	Revised the outlook for PPL Energy Supply;
·	Raised the issuer rating of PPL Energy Supply;
·	Raised the senior unsecured debt rating of PPL Energy Supply.

Fitch

Following PPL's announced agreement to acquire E.ON U.S., Fitch affirmed its credit ratings and outlook for PPL Energy Supply in April 2010.

In May 2010, Fitch affirmed its rating and issued an outlook for PPL Montana's Pass Through Certificates due 2020.

In October 2010, Fitch affirmed its credit ratings for and revised the outlook of WPDH Limited, WPD (South Wales) and WPD (South West).

Ratings Triggers

PPL Energy Supply has various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, tolling agreements, and interest rate and foreign currency instruments, which contain provisions requiring PPL Energy Supply to post additional collateral, or permit the counterparty to terminate the contract, if PPL Energy Supply's credit rating were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at September 30, 2010. At September 30, 2010, if PPL Energy Supply's credit rating had been below investment grade, PPL Energy Supply would have been required to post an additional $402 million of collateral to counterparties for both derivative and non-derivative commodity and commodity-related contracts used in its generation, marketing and trading operations and interest rate and foreign currency contracts.

For additional information on PPL Energy Supply's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's 2009 Form 10-K.

Risk Management - Energy Marketing & Trading and Other

Market Risk

See Notes 13 and 14 to the Financial Statements for information about PPL Energy Supply's risk management objectives, valuation techniques and accounting designations.

Commodity Price Risk (Non-trading)

PPL Energy Supply segregates its non-trading activities into two categories: hedge activity and economic activity. See Note 14 to the Financial Statements for additional information on hedge and economic activity. The net fair value of economic positions at September 30, 2010 and December 31, 2009, were net liabilities of $476 million and $77 million.

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Fair value of contracts outstanding at the beginning of the period	$	1,303		$	1,065		$	1,280		$	402
Contracts realized or otherwise settled during the period		(96	)		67			(330	)		267
Fair value of new contracts entered into during the period		3			68			10			124
Changes in fair value attributable to changes in valuation techniques (a)								(23	)
Other changes in fair value		144			(82	)		417			325
Fair value of contracts outstanding at the end of the period	$	1,354		$	1,118		$	1,354		$	1,118

(a)

At June 30, 2010, PPL Energy Supply used market bids to value certain full-requirement sales contracts previously valued using the income approach. See Note 14 to the Financial Statements for a discussion of the monetization of these contracts.

The following table segregates the net fair value of PPL Energy Supply's non-trading commodity derivative contracts at September 30, 2010 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

	Net Asset (Liability)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 4-5 Years		Maturity in Excess of 5 Years		Total Fair Value
Source of Fair Value
Prices quoted in active markets for identical instruments
Prices based on significant other observable inputs	$	506	$	804	$	17	$	13	$	1,340
Prices based on significant unobservable inputs		8		3		2		1		14
Fair value of contracts outstanding at the end of the period	$	514	$	807	$	19	$	14	$	1,354

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

Commodity Price Risk (Trading)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Fair value of contracts outstanding at the beginning of the period	$	4		$	(13	)	$	(6	)	$	(75	)
Contracts realized or otherwise settled during the period		(8	)		(11	)		(8	)		22
Fair value of new contracts entered into during the period		45			(5	)		47			30
Other changes in fair value		(39	)		17			(31	)		11
Fair value of contracts outstanding at the end of the period	$	2		$	(12	)	$	2		$	(12	)

PPL Energy Supply will reverse unrealized losses of approximately $2 million over the next three months as the transactions are realized.

The following table segregates the net fair value of PPL Energy Supply's trading commodity derivative contracts at September 30, 2010 based on whether the fair value was determined by prices quoted in active markets for identical instruments or other more subjective means.

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

VaR Models

PPL Energy Supply utilizes a VaR model to measure commodity price risk in domestic gross energy margins for its non-trading and trading portfolios. VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level. PPL Energy Supply calculates VaR using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level. The trading portfolio includes all speculative positions, regardless of the delivery period. PPL Energy Supply's non-trading portfolio includes PPL Energy Supply's entire portfolio, including generation, with delivery periods through the next 12 months. Given the company's conservative hedging program, PPL Energy Supply's non-trading VaR exposure is expected to be limited in the short-term. The VaR for PPL Energy Supply's portfolios using end-of-quarter results for the period was as follows:

	Trading VaR				Non-Trading VaR
	Sept. 30,		Dec. 31,		Sept. 30,		Dec. 31,
	2010		2009		2010		2009

95% Confidence Level, Five-Day Holding Period
Period End	$	8	$	3	$	6	$	8
Average for the Period		4		4		9		9
High		9		8		12		11
Low		1		1		4		8

	2010		2011

Non-trading	$	1	$	2

Interest Rate Risk

PPL Energy Supply and its subsidiaries have issued debt to finance their operations, which exposes them to interest rate risk. PPL and PPL Energy Supply utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in PPL Energy Supply's debt portfolio, adjust the duration of its debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of PPL Energy Supply's debt portfolio due to changes in the absolute level of interest rates.

At September 30, 2010, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Energy Supply is also exposed to changes in the fair value of its domestic and international debt portfolios. PPL Energy Supply estimated that a 10% decrease in interest rates at September 30, 2010 would increase the fair value of its debt portfolio by $218 million.

At September 30, 2010, PPL Energy Supply had the following interest rate hedges outstanding:

	Exposure Hedged		Fair Value, Net - Asset (a)		Effect of a 10% Adverse Movement in Rates (b)
Cash flow hedges
Interest rate swaps (c)
Cross-currency swaps (d)	$	302	$	48	$	(41	)
Fair value hedges
Interest rate swaps (e)

(a)		Includes accrued interest, if applicable.
(b)		Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.
(c)		PPL and PPL Energy Supply utilize various risk management instruments to reduce PPL Energy Supply's exposure to the expected future cash flow variability of PPL Energy Supply's debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL Energy Supply is exposed to changes in the fair value of these instruments, any changes in the fair value of these instruments are recorded in equity and then reclassified into earnings in the same period during which the item being hedged affects earnings. Sensitivities represent a 10% adverse movement in interest rates.
(d)		WPDH Limited uses cross-currency swaps to hedge the interest payments and principal of its U.S. dollar-denominated senior notes with maturity dates ranging from December 2017 to December 2028. While PPL Energy Supply is exposed to changes in the fair value of these instruments, any change in the fair value of these instruments is recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. Sensitivities represent a 10% adverse movement in both interest rates and foreign currency exchange rates.
(e)		PPL and PPL Energy Supply utilize various risk management instruments to adjust the mix of fixed and floating interest rates in PPL Energy Supply's debt portfolio. The change in fair value of these instruments, as well as the offsetting change in the value of the hedged exposure of the debt, is reflected in earnings. Sensitivities represent a 10% adverse movement in interest rates.

Foreign Currency Risk

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

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

At September 30, 2010, PPL Energy Supply had the following foreign currency hedges outstanding:

	Exposure Hedged		Fair Value, Net - Asset		Effect of a 10% Adverse Movement in Foreign Currency Exchange Rates (a)

Net investment hedges (b)	£	15	$	6	$	(2	)
Economic hedges (c)		60				(7	)

(a)		Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.
(b)		To protect the value of a portion of PPL Energy Supply's net investment in WPD, PPL executed forward contracts to sell British pounds sterling. The settlement dates of these contracts range from March 2011 through June 2011.
(c)		To economically hedge the translation of 2010 and 2011 expected income denominated in British pounds sterling to U.S. dollars, PPL entered into a combination of average rate forwards and average rate options to sell British pounds sterling. The forwards and options have termination dates ranging from October 2010 through March 2011.

NDT Funds - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna nuclear plant. At September 30, 2010, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL Energy Supply's Balance Sheet. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its NDT policy statement. At September 30, 2010, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $40 million reduction in the fair value of the trust assets. See Notes 13 and 17 to the Financial Statements for additional information regarding the NDT funds.

Credit Risk

See Notes 13 and 14 to the Financial Statements and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL Energy Supply's 2009 Form 10-K for information on credit risk and credit concentration.

Foreign Currency Translation

Related Party Transactions

PPL Energy Supply is not aware of any material ownership interests or operating responsibility by senior management of PPL Energy Supply in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with PPL Energy Supply. See Note 11 to the Financial Statements for additional information on related party transactions.

Acquisitions, Development and Divestitures

PPL Energy Supply is currently planning incremental capacity increases of 236 MW primarily at its existing generating facilities.

In 2010 and 2009, PPL Energy Supply sold its Long Island generation business and the majority of its Maine hydroelectric generation business. It is also in the process of selling the three remaining Maine hydroelectric facilities and certain other non-core generation facilities.

See Note 8 to the Financial Statements for additional information on these and other significant activities.

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

Environmental Matters

In June 2010, the EPA proposed two approaches to regulating the disposal and management of coal combustion residuals (CCR) under the Resource Conservation and Recovery Act (RCRA). CCRs include fly ash, bottom ash and scrubber wastes. In one approach, the EPA would regulate CCRs as a hazardous waste under Subtitle C of RCRA. PPL Energy Supply cannot predict at this time the final requirements of the EPA's CCR regulations and what impact, if any, they would have on PPL Energy Supply's facilities, but the costs to PPL Energy Supply could be significant.

See "Item 1. Business - Environmental Matters" in PPL Energy Supply's 2009 Form 10-K and Note 10 to the Financial Statements for a discussion of environmental matters.

New Accounting Guidance

See Note 2 to the Financial Statements for a discussion of new accounting guidance adopted.

Application of Critical Accounting Policies

PPL Energy Supply's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Energy Supply, and require estimates or other judgments of matters inherently uncertain: price risk management, defined benefits, asset impairment, loss accruals, AROs and income tax uncertainties. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's 2009 Form 10-K for a discussion of each critical accounting policy.

PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES

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

Overview

PPL Electric is an electricity delivery service provider in eastern and central Pennsylvania with headquarters in Allentown, Pennsylvania. Refer to "Item 1. Business - Background" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL Electric's 2009 Form 10-K for a description of its business, discussion of its strategy, and the risks and challenges that it faces in its business. See "Forward-Looking Information," Note 10 to the Financial Statements and the remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" and the rest of Item 7 in PPL Electric's 2009 Form 10-K for more information concerning the material risks and uncertainties that PPL Electric faces in its business and with respect to its future earnings and cash flows.

The following information should be read in conjunction with PPL Electric's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL Electric's 2009 Form 10-K. Terms and abbreviations are explained in the glossary. Dollars are in millions unless otherwise noted.

Customer Choice in Pennsylvania

Under the Customer Choice Act, as part of a settlement approved by the PUC, PPL Electric agreed to provide electricity as a PLR at predetermined "capped" rates through 2009. To mitigate the risk that PPL Electric would not be able to obtain adequate energy supply at the "capped" rates, PPL Electric entered into full-requirement energy supply contracts with PPL EnergyPlus, an affiliate. Under these contracts, through 2009, PPL EnergyPlus supplied PPL Electric's entire PLR load at predetermined prices equal to the capped generation rates that PPL Electric was authorized to charge its customers. Effective January 1, 2010, PPL Electric's rates for generation supply as a PLR are no longer capped and the cost of electric generation is based on a competitive solicitation process.

When comparing the three and nine months ended September 30, 2010 with the same periods in 2009, certain line items on PPL Electric's financial statements were impacted by the expiration of generation rate caps, the resulting competitive solicitations for power supply, the migration of customers to alternative suppliers, the Customer Choice Act and Act 129. These items had minimal impact on PPL Electric's domestic gross delivery margins as approved recovery mechanisms allow for cost recovery of associated expenses, including the cost of energy provided as a PLR. However, PPL Electric's 2010 domestic gross delivery margins were negatively impacted by the expiration of CTC recovery in December 2009. PPL Electric continues to remain the delivery provider for all customers in its service territory and charges a regulated rate for the service of delivering electricity.

See "Statement of Income Analysis - Domestic Gross Delivery Margins" for additional information.

Market Events

In the first half of 2009, financial and commodity market conditions generally increased PPL Electric's exposure to credit risk; made obtaining new sources of bank and capital markets funding and issuing commercial paper more difficult and costly; and caused negative investment returns in the assets of defined benefit plans sponsored by PPL. Since mid-2009, bank credit capacity has improved, and the values of debt and equity securities in defined benefit plans sponsored by PPL have improved. PPL Electric continues to be impacted in 2010 by higher costs of renewing existing or establishing new credit facilities.

Results of Operations

The following discussion begins with a summary of PPL Electric's earnings. "Results of Operations" continues with a description of key factors that management expects may impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in principal items on PPL Electric's Statements of Income, comparing the three and nine months ended September 30, 2010 with the same periods in 2009.

Earnings

Net income available to PPL was:

Three Months Ended September 30,				Nine Months Ended September 30,
2010		2009		2010		2009

$	36	$	27	$	89	$	93

The after-tax changes in net income available to PPL between these periods were due to the following factors, including several special items that management considers significant. Details of the special items are shown below.

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Domestic gross delivery margins	$	6		$	5
Other operation and maintenance		(3	)		(19	)
Depreciation		(1	)		(3	)
Interest expense		4			10
Distributions on preferred securities		1			(2	)
Income taxes and other		2			(1	)
Special items					6
	$	9		$	(4	)

·	See "Domestic Gross Delivery Margins" for an explanation of margins generated by PPL Electric's domestic regulated electric delivery operations.

·	Other operation and maintenance increased for the three-month period primarily due to higher payroll-related costs due to increased staffing. Other operation and maintenance increased for the nine-month period primarily due to higher payroll-related costs due to increased staffing and higher vegetation management costs.

·	Interest expense decreased for both periods primarily due to long-term debt retirements in the third quarter of 2009.

The following after-tax amounts, which management considers special items, also impacted earnings.

	Nine Months Ended September 30, 2009
Asset impairments	$	(1	)
Workforce reduction (Note 9)		(5	)
Total	$	(6	)

Outlook

Excluding special items, PPL Electric projects lower earnings in 2010 compared with 2009, primarily driven by higher operation and maintenance expenses and depreciation, partially offset by lower taxes and lower financing costs.

See Note 10 to the Financial Statements for a discussion of items that could impact future earnings, including Pennsylvania legislative and other regulatory activities.

Statement of Income Analysis --

Domestic Gross Delivery Margins

Non-GAAP Financial Measure

The following discussion includes financial information prepared in accordance with GAAP, as well as a non-GAAP financial measure, "Domestic Gross Delivery Margins." "Domestic Gross Delivery Margins" is a single financial performance measure of PPL Electric's domestic regulated electric delivery operations, which includes transmission and distribution activities, including PLR supply. In calculating this measure, domestic regulated utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset. These mechanisms allow for full cost recovery of certain expenses; therefore, certain expenses and revenues offset with minimal impact on earnings. As a result, this measure represents the net revenues from PPL Electric's domestic regulated electric delivery operations. This performance measure is used, in conjunction with other information, internally by senior management and PPL's Board of Directors to manage its domestic regulated electric delivery operations. PPL Electric believes that "Domestic Gross Delivery Margins" provides another criterion to make investment decisions.

"Domestic Gross Delivery Margins" is not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to present the results of their domestic regulated electric delivery operations. The following table reconciles "Operating Income" to "Domestic Gross Delivery Margins" as defined by PPL Electric.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009

Operating Income (a)	$	79		$	78		$	222		$	245
Adjustments:
Other operation and maintenance (a)		126			103			377			307
Depreciation (a)		34			33			101			96
Taxes, other than income (a)		32			47			108			145
Expense adjustments (b)		(54	)		(54	)		(171	)		(164	)
Domestic gross delivery margins	$	217		$	207		$	637		$	629

(a)		As reported on the Statements of Income.
(b)		The components of these adjustments are detailed in the tables below.

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

	Three Months Ended September 30,
	2010		2009		Change
Revenue
Retail electric (a)	$	570	$	790	$	(220	)
Wholesale electric to affiliate (a)		1		19		(18	)
		571		809		(238	)
Expense
Energy purchases (a)		229		30		199
Energy purchases from affiliate (a)		71		445		(374	)
Amortization of recoverable transition costs (a)				73		(73	)
Expense adjustments (b)
Gross receipts tax (c)		29		46		(17	)
Act 129 (d)		18				18
Other		7		8		(1	)
Total expense adjustments		54		54
		354		602		(248	)
Domestic gross delivery margins	$	217	$	207	$	10

	Nine Months Ended September 30,
	2010		2009		Change
Revenue
Retail electric (a)	$	1,904	$	2,407	$	(503	)
Wholesale electric to affiliate (a)		2		59		(57	)
		1,906		2,466		(560	)
Expense
Energy purchases (a)		848		93		755
Energy purchases from affiliate (a)		250		1,353		(1,103	)
Amortization of recoverable transition costs (a)				227		(227	)
Expense adjustments (b)
Gross receipts tax (c)		101		141		(40	)
Act 129 (d)		55				55
Other		15		23		(8	)
Total expense adjustments		171		164		7
		1,269		1,837		(568	)
Domestic gross delivery margins	$	637	$	629	$	8

(a)		As reported on the Statements of Income.
(b)		To include/exclude the impact of any revenues and expenses consistent with the way management reviews domestic gross delivery margins internally.
(c)		Included in "Taxes, other than income" on the Statements of Income.
(d)		Included in "Other operation and maintenance" on the Statement of Income.

Domestic Gross Delivery Margins by Component

Domestic gross delivery margins are generated through PPL Electric's domestic regulated electric distribution activities, including PLR supply, and transmission activities.

	Three Months Ended September 30,
	2010		2009		Change

Distribution	$	170	$	168	$	2
Transmission		47		39		8
Domestic gross delivery margins	$	217	$	207	$	10

	Nine Months Ended September 30,
	2010		2009		Change

Distribution	$	506	$	523	$	(17	)
Transmission		131		106		25
Domestic gross delivery margins	$	637	$	629	$	8

Distribution

The increase for the three-month period was primarily due to favorable weather in 2010, partially offset by margins realized in 2009 related to the collection of CTC, which ended in December 2009.

The decrease for the nine-month period was primarily due to margins realized in 2009 related to the collection of CTC, which ended in December 2009.

Transmission

The increase for both periods was primarily due to the recovery of additional costs through a FERC tariff that utilizes a formula-based rate recovery mechanism.

Other Operation and Maintenance

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

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Amortization of Act 129 costs (a)	$	18		$	55
Vegetation management costs					10
Payroll-related costs		2			7
PUC-reportable storm costs, net of insurance recovery					5
Allocation of certain corporate service costs		3			4
Workforce reduction (Note 9)					(9	)
Ancillary charges (b)		(3	)		(9	)
Other		3			7
	$	23		$	70

(a)		Relates to costs associated with a PUC-approved energy efficiency and conservation plan. These costs are recovered in customer rates and substantially match the revenue recorded, therefore having minimal impact on earnings. See "Regulatory Issues - Pennsylvania Activities" in Note 10 to the Financial Statements for additional information on this plan. These costs are included in "Domestic Gross Delivery Margins" above.
(b)		These charges are assessed to load serving entities (LSE). In 2010, PPL Electric is not billed directly for these charges. The individual PLR generation suppliers incur these costs and bill PPL Electric as part of the bundled price of PLR supply, and are now reflected in energy purchases. In 2009, PPL Electric was considered the LSE.

Depreciation

Depreciation increased by $5 million for the nine months ended September 30, 2010, compared with the same period in 2009, primarily due to PP&E additions.

Taxes, Other Than Income

Taxes, other than income decreased by $15 million and $37 million for the three and nine months ended September 30, 2010, compared with the same periods in 2009. The decreases were primarily due to lower gross receipts tax due to a decrease in electricity revenues as customers chose alternative suppliers in 2010 due to the expiration of generation rate caps.

Financing Costs

Financing costs, which consist of "Interest Expense" and "Distributions on Preferred Securities," decreased by $8 million and $15 million for the three and nine months ended September 30, 2010, compared with the same periods in 2009. The decrease for both periods was primarily due to long-term debt retirements in the third quarter of 2009. The decrease for the nine-month period was partially offset by a premium paid to redeem all of PPL Electric's preferred stock in the second quarter of 2010.

Income Taxes

The changes in income taxes were due to:

	Sept. 30, 2010 vs. Sept. 30, 2009
	Three Months Ended			Nine Months Ended

Federal and state tax reserve adjustments	$	(4	)	$	(5	)
Higher (lower) pre-tax book income		3			(1	)
	$	(1	)	$	(6	)

See Note 5 to the Financial Statements for additional information.

Financial Condition

Liquidity and Capital Resources

PPL Electric had the following at:

	September 30, 2010		December 31, 2009

Cash and cash equivalents	$	297	$	485

The $188 million decrease in PPL Electric's cash and cash equivalents position was primarily the net result of:

·	$251 million of capital expenditures;
·	$54 million for the redemption of preferred stock;
·	the payment of $62 million of dividends on common stock and preferred securities;
·	$127 million provided by operating activities; and
·	$55 million of contributions from PPL.

Credit Arrangements

At September 30, 2010, PPL Electric's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

	Committed Capacity		Borrowed	Letters of Credit Issued		Unused Capacity

5-year Syndicated Credit Facility (a)	$	190		$	13	$	177
Asset-backed Credit Facility (b)		150			n/a		150
Total PPL Electric Credit Facilities	$	340		$	13	$	327

(a)		In June 2010, PPL Electric closed into escrow a new $200 million syndicated credit facility, expiring December 31, 2014, that, upon effectiveness, is intended to replace its existing 5-year Syndicated Credit Facility. Subject to certain conditions, the new credit facility can become effective on the earliest of (i) December 31, 2010, (ii) the date on which the acquisition of E.ON U.S. is completed by PPL, or (iii) the date on which the purchase and sale agreement relating to the acquisition of E.ON U.S. has been terminated or expired or such acquisition has otherwise been abandoned by PPL. PPL Electric expects to make this facility effective on December 31, 2010. The commitments under the existing credit facility are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 18% of the total committed capacity.
(b)		In July 2010, PPL Electric and the subsidiary extended the expiration date of the credit agreement related to the asset-backed commercial paper program to July 2011. At September 30, 2010, based on accounts receivable and unbilled revenue pledged, $150 million was available for borrowing.

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

Long-term Debt and Equity Securities

In April 2010, PPL Electric redeemed all five series of its outstanding preferred stock, with a par value in the aggregate of $51 million for $54 million, including accumulated dividends.

In September 2010, the Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023 that were issued by the PEDFA on behalf of PPL Electric in 2008 were remarketed. Effective October 2010, the term rate on the bonds was set at 4.00% through maturity.

See Note 7 to the Financial Statements for additional information.

The Economic Stimulus Package

Rating Agency Decisions

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

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

In prior periodic reports, PPL Electric described its then-current debt ratings in connection with, and to facilitate, an understanding of its liquidity position. As a result of the passage of the Dodd-Frank Act and the attendant uncertainties relating to the extent to which issuers of non-asset backed securities may disclose credit ratings without being required to obtain rating agency consent to the inclusion of such disclosure, or incorporation by reference of such disclosure, in a registrant's registration statement or section 10(a) prospectus, PPL Electric is limiting its credit rating disclosure to a description of the actions taken by the rating agencies with respect to PPL Electric's ratings, but without stating what ratings have been assigned to PPL Electric or its securities. The ratings assigned by the rating agencies to PPL Electric and its respective securities may be found, without charge, on each of the respective ratings agencies' websites, which ratings together with all other information contained on such rating agency websites is, hereby, explicitly not incorporated by reference in this report.

The rating agencies took the following actions related to PPL Electric in 2010.

Moody's

In April 2010, Moody's took the following actions:

·	Revised the outlook for PPL Electric;
·	Lowered the rating of PPL Electric's preferred securities;
·	Lowered the issuer rating of PPL Electric; and
·	Affirmed the senior secured rating and commercial paper rating of PPL Electric.

Moody's stated in its press release that the revision in the rating for PPL Electric, while reflective of PPL's announced agreement to acquire E.ON U.S., is driven more by weakening financial metrics and the outlooks that had been in place for PPL and PPL Electric for the past year.

S&P

In April 2010, S&P affirmed its credit rating for PPL Electric following PPL's announced agreement to acquire E.ON U.S.

In October 2010, S&P affirmed its credit ratings for PPL Electric and revised the outlook on PPL Electric.

Fitch

In January 2010, as a result of implementing its revised guidelines for rating preferred stock and hybrid securities, Fitch lowered the ratings of PPL Electric's preferred stock and preference stock. Fitch stated in its press release that the new guidelines, which apply to instruments issued by companies in all sectors, typically resulted in downgrades of one notch for many instruments that provide for the ability to defer interest or dividend payments. Fitch stated that it has no reason to believe that deferral will be activated.

In April 2010, Fitch affirmed its credit ratings and outlook for PPL Electric following PPL's announced agreement to acquire E.ON U.S.

Capital Expenditures

The schedule below shows PPL Electric's capital expenditure projections at September 30, 2010.

		Projected
		2010		2011		2012
Construction expenditures (a) (b)
Transmission and distribution facilities	$	355	$	495	$	528
Other		48		38		39
Total Capital Expenditures	$	403	$	533	$	567

(a)		Includes AFUDC, which is expected to be approximately $34 million for the years 2010 through 2012.
(b)		Includes expenditures for certain intangible assets.

PPL Electric's capital expenditure projections for the years 2010-2012 total $1.5 billion. Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions. This table has been revised from that which was presented in PPL Electric's 2009 Form 10-K for changes in the timing of estimated expenditures related to the PJM-approved regional transmission line project. See Note 8 to the Financial Statements for additional information.

For additional information on PPL Electric's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's 2009 Form 10-K.

Risk Management

Market Risk

Commodity Price and Volumetric Risk - PLR Contracts

PPL Electric is exposed to market price and volumetric risks from its obligation as PLR. The PUC has approved a cost recovery mechanism that allows PPL Electric to pass through to customers the cost associated with fulfilling its PLR obligation. This cost recovery mechanism substantially eliminates PPL Electric's exposure to market price risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement energy supply contracts for its customers. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which exposes it to interest rate risk. PPL Electric had no potential exposure to increased interest expense at September 30, 2010. PPL Electric estimated that a 10% decrease in interest rates at September 30, 2010 would increase the fair value of its debt portfolio by $66 million.

Credit Risk

See Notes 13 and 14 to the Financial Statements and "Risk Management - Credit Risk" in PPL Electric's 2009 Form 10-K for additional information on credit risk and credit concentration.

Related Party Transactions

PPL Electric is not aware of any material ownership interests or operating responsibility by senior management of PPL Electric in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with PPL Electric. See Note 11 to the Financial Statements for additional information on related party transactions.

Environmental Matters

See "Item 1. Business - Environmental Matters" in PPL Electric's 2009 Form 10-K and Note 10 to the Financial Statements for a discussion of environmental matters.

New Accounting Guidance

See Note 2 to the Financial Statements for a discussion of new accounting guidance adopted.

Application of Critical Accounting Policies

PPL Electric's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Electric, and require estimates or other judgments of matters inherently uncertain: defined benefits, loss accruals, income tax uncertainties and regulatory assets. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's 2009 Form 10-K for a discussion of each critical accounting policy.

PPL CORPORATION

PPL ENERGY SUPPLY, LLC

PPL ELECTRIC UTILITIES CORPORATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

PPL Corporation

(a)		Evaluation of disclosure controls and procedures.

		The registrant's principal executive officer and principal financial officer, based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of September 30, 2010, the registrant's disclosure controls and procedures are effective to ensure that material information relating to the registrant and its consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officer, to allow for timely decisions regarding required disclosure.

(b)		Change in internal controls over financial reporting.

		The registrant's principal executive officer and principal financial officer have concluded that there were no changes in the registrant's internal control over financial reporting during the registrant's third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

Item 4(T). Controls and Procedures

PPL Energy Supply, LLC and PPL Electric Utilities Corporation

(a)		Evaluation of disclosure controls and procedures.

		The registrants' principal executive officers and principal financial officers, based on their evaluation of the registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of September 30, 2010, the registrants' disclosure controls and procedures are effective to ensure that material information relating to the registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.

(b)		Change in internal controls over financial reporting.

		The registrants' principal executive officers and principal financial officers have concluded that there were no changes in the registrants' internal control over financial reporting during the registrants' third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrants' internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For additional information regarding various pending administrative and judicial proceedings involving regulatory, environmental and other matters, which information is incorporated by reference into this Part II, see:

·		"Item 3. Legal Proceedings" in PPL's, PPL Energy Supply's and PPL Electric's 2009 Form 10-K; and
·		Note 10 of the registrants' "Combined Notes to Condensed Consolidated Financial Statements" in Part I of this report.

Item 1A. Risk Factors

PPL Corporation

The risk factors discussed below are related to PPL's pending Acquisition of E.ON U.S., as described in Note 8 to the Financial Statements. They should be read in conjunction with and update and supplement the risk factors disclosed in PPL's "Item 1A. Risk Factors" of the 2009 Form 10-K. If completed, the Acquisition may not achieve its intended results. PPL has entered into the Acquisition agreement with the expectation that the Acquisition will result in various benefits. Achieving the anticipated benefits is subject to a number of uncertainties, including whether the business can be operated in the manner PPL intends and whether PPL's costs to finance the Acquisition will be consistent with our expectations. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues generated by the combined company and diversion of management's time and energy. We will be subject to business uncertainties while the Acquisition is pending . The preparation required to complete the Acquisition may place a significant burden on management and internal resources. The additional demands on management and any difficulties encountered in completing the transaction and with the transition and integration process could affect our internal resources and financial results. The Acquisition will expose us to additional risks and uncertainties with respect to the acquired businesses and their operations. We expect that the Acquisition will rebalance our business mix to a greater percentage of regulated operations. While we believe this should mitigate our exposure to downturns in the wholesale power markets, it will increase our coal-based generation portfolio and our dependence on rate-of-return regulation. Although we are already exposed to risks relating to use of coal and rate-of-return regulation, the Acquisition will increase these risks. The acquired businesses will generally be subject to similar risks that we are subject to in our existing businesses, particularly our supply and distribution segments (as the acquired businesses are integrated and both generate and deliver power). In addition, they will be subject to the following additional risks:

·		Their profitability will depend largely on their ability to recover costs from customers and changes in circumstances or in the regulatory environment that may impair their ability to recover costs from customers or achieve a certain rate of return.

·		Rising energy prices could negatively impact these businesses. Higher fuel costs could significantly impact results of operations, particularly if there is a reduction in customer demand or an increase in bad debt expense, which could also have a material impact on their results of operations.

·		Their natural gas distribution activities involve numerous risks that may result in accidents and other operating costs. There are inherent in natural gas distribution activities a variety of hazards and operating risks, such as leaks, fires and mechanical problems, which could cause financial losses and exposure, significant damage to property, environmental pollution and impairment of operations.

·		Environmental costs and liabilities associated with aspects of the acquired businesses may differ from those of our existing business, including with respect to natural gas distribution and certain former operations, as well as with governmental and other third-party proceedings.

Failure to complete the Acquisition could negatively affect PPL's stock price as well as our future business and financial results. If the Acquisition is not completed, PPL will be subject to a number of risks, including, but not limited to:

·		We may be required to pay E.ON US Investments, under specified circumstances set forth in the Purchase and Sale Agreement, a termination fee of $450 million.

·		We must pay costs related to the Acquisition including, among others, legal, accounting, advisory, financing fees, filing and printing costs, whether the Acquisition is completed or not.

·		We could be subject to litigation related to the failure to complete the Acquisition or other factors, which may adversely affect our business, financial results and stock price.

We will incur significant transaction and Acquisition-related costs in connection with the financing of the Acquisition, and may be unable to complete alternative financing before closing. We expect to incur, until the closing of the Acquisition, significant non-recurring costs associated with the financing of the Acquisition, including obtaining and maintaining the committed bridge financing that assures our ability to pay the Acquisition purchase price. In addition, we will be subject to numerous market risks in connection with our plan to raise alternative financing to fund the purchase price of the Acquisition prior to closing, including risks related to general economic conditions, changes in the marketplace of the costs of capital and of the demand for securities of the types we will seek to offer to raise the alternative financing. In the event less than the entire Acquisition purchase price is available to us at the time of closing, we will be required to draw under the Bridge Facility in order to complete the Acquisition, and the costs to do so are likely to be significant.

PPL Energy Supply, LLC and PPL Electric Utilities Corporation

There have been no material changes to PPL Energy Supply's and PPL Electric's risk factors from those disclosed in "Item 1A. Risk Factors" of the 2009 Form 10-K.

Item 6. Exhibits

10(a)	-	Purchase and Sale Agreement, dated as of September 9, 2010, by and between PPL Holtwood, LLC and LSP Safe Harbor Holdings, LLC (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 13, 2010)
10(b)	-	Purchase and Sale Agreement, dated as of September 9, 2010, by and between PPL Generation, LLC and Harbor Gen Holdings, LLC (Exhibit 10.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 13, 2010)
10(c)	-	$4,000,000,000 Revolving Credit Agreement, dated as of October 19, 2010, among PPL Energy Supply, LLC, the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender (Exhibit 10.1 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated October 21, 2010)
12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
12(b)	-	PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
12(c)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2010, filed by the following officers for the following companies:

31(a)	-	James H. Miller for PPL Corporation
31(b)	-	Paul A. Farr for PPL Corporation
31(c)	-	James H. Miller for PPL Energy Supply, LLC
31(d)	-	Paul A. Farr for PPL Energy Supply, LLC
31(e)	-	David G. DeCampli for PPL Electric Utilities Corporation
31(f)	-	Vincent Sorgi for PPL Electric Utilities Corporation

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2010, furnished by the following officers for the following companies:

32(a)	-	James H. Miller for PPL Corporation
32(b)	-	Paul A. Farr for PPL Corporation
32(c)	-	James H. Miller for PPL Energy Supply, LLC
32(d)	-	Paul A. Farr for PPL Energy Supply, LLC
32(e)	-	David G. DeCampli for PPL Electric Utilities Corporation
32(f)	-	Vincent Sorgi for PPL Electric Utilities Corporation

*101.INS		XBRL Instance Document for PPL Corporation
*101.SCH		XBRL Taxonomy Extension Schema for PPL Corporation
*101.CAL		XBRL Taxonomy Extension Calculation Linkbase for PPL Corporation
*101.DEF		XBRL Taxonomy Extension Definition Linkbase for PPL Corporation
*101.LAB		XBRL Taxonomy Extension Label Linkbase for PPL Corporation
*101.PRE		XBRL Taxonomy Extension Presentation Linkbase for PPL Corporation

* - XBRL information will be considered to be furnished, not filed, for the first two years of a company's submission of XBRL information.

SIGNATURES

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

	PPL Corporation
	(Registrant)

	PPL Energy Supply, LLC
	(Registrant)

	PPL Electric Utilities Corporation
	(Registrant)



Date: October 29, 2010	/s/ Vincent Sorgi
	Vincent Sorgi
	Vice President and Controller
	(Chief Accounting Officer)