PPL Corporation Form 10-Q June 30, 2002

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RhGIDEwUKIo3mIBmw1EvKU/0qnnnaaCGDn7g7OFzCG0VAKmqCaXZsUz70h2gBmS3 +yv7iB9Q8L3sJs4zc3lOrw== 0000922224-02-000024.txt : 20020813 0000922224-02-000024.hdr.sgml : 20020813 20020813110849 ACCESSION NUMBER: 0000922224-02-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL CORP CENTRAL INDEX KEY: 0000922224 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 232758192 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11459 FILM NUMBER: 02728314 BUSINESS ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 181011179 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101-1179 FORMER COMPANY: FORMER CONFORMED NAME: PP&L RESOURCES INC DATE OF NAME CHANGE: 19941123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL ELECTRIC UTILITIES CORP CENTRAL INDEX KEY: 0000317187 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 230959590 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00905 FILM NUMBER: 02728315 BUSINESS ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101-1179 FORMER COMPANY: FORMER CONFORMED NAME: PP & L INC DATE OF NAME CHANGE: 19970912 FORMER COMPANY: FORMER CONFORMED NAME: PP&L INC DATE OF NAME CHANGE: 19970912 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL ENERGY SUPPLY LLC CENTRAL INDEX KEY: 0001161976 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-74794 FILM NUMBER: 02728316 BUSINESS ADDRESS: STREET 1: TWO NORTH NINETH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL MONTANA LLC CENTRAL INDEX KEY: 0001127712 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-50350 FILM NUMBER: 02728317 BUSINESS ADDRESS: STREET 1: 303 NORTH BROADWAY STREET 2: STE 400 CITY: BILLINGS STATE: MT ZIP: 59101 BUSINESS PHONE: 4068695108 MAIL ADDRESS: STREET 1: 303 NORTH BROADWAY STREET 2: STE 400 CITY: BILLINGS STATE: MT ZIP: 59101 10-Q 1 ppl10q_6-02.htm PPL CORPORATION 10-Q JUNE 30, 2002 PPL Corporation Form 10-Q June 30, 2002

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 period ended June 30, 2002

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

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

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

333-74794	PPL Energy Supply, LLC (Exact name of Registrant as specified in its charter) (Delaware) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-3074920

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

333-50350	PPL Montana, LLC (Exact name of Registrant as specified in its charter) (Delaware) 303 North Broadway - Suite 400 Billings, MT 59101 (406) 237-6900	54-1928759

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has 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
PPL Montana, LLC	Yes X	No

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, 147,468,950 shares outstanding at July 31, 2002, excluding 30,993,637 shares held as treasury stock

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

PPL Electric Utilities Corporation	Common stock, no par value, 78,029,863 shares outstanding and all held by PPL Corporation at July 31, 2002, excluding 79,270,519 shares held as treasury stock

PPL Montana, LLC	PPL Corporation indirectly holds all of the member interests in PPL Montana, LLC.

PPL Energy Supply, LLC and PPL Montana, LLC meet the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format.

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

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PPL CORPORATION
PPL ENERGY SUPPLY, LLC
PPL ELECTRIC UTILITIES CORPORATION
PPL MONTANA, LLC

FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002

Table of Contents

GLOSSARY OF TERMS AND ABBREVIATIONS

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

APA - Asset Purchase Agreement.

APB - Accounting Principles Board.

BG&E - Baltimore Gas & Electric Company.

CEMAR - Companhia Energética do Maranhão, a Brazilian electric distribution company in which PPL Global has a majority ownership interest.

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

CO₂ - carbon dioxide.

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

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

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

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

It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. Those terms determine the amount of the settlement or settlements, and, in some cases, whether or not a settlement is required.
If it is an option-based contract, it has an initial net investment equal to the fair value of the option component. If it is not an option-based contract, it requires an initial net investment that is less than five percent of the fully prepaid amount.
Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement.

DIG - Derivatives Implementation Group.

DRIP - Dividend Reinvestment Plan.

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

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

EPS - earnings (loss) per share.

ESOP - Employee Stock Ownership Plan.

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

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

Griffith Energy - Griffith Energy LLC, a 600 MW gas-fired station in Kingman, Arizona, which is jointly owned by subsidiaries of PPL Generation and Duke Energy Corporation.

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

ICP - Incentive Compensation Plan.

ICPKE - Incentive Compensation Plan for Key Employees.

IRS - Internal Revenue Service, in the U.S. Department of Treasury.

ISO - Independent System Operator.

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

kWh - kilowatthour, basic unit of electrical energy.

LIBOR - London Interbank Offered Rate.

Mirant - Mirant Corporation, formerly Southern Energy Inc., a diversified energy company based in Atlanta. PPL Global and Mirant jointly own WPDH Limited.

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 Energy.

MPSC - Montana Public Service Commission.

MW - megawatt.

MWh - megawatthour.

NorthWestern Energy - NorthWestern Energy, L.L.C., a Montana limited liability company that acquired Montana Power's electricity delivery business in the first quarter of 2002, including Montana Power's rights and obligations under existing contracts with PPL Montana.

NO_x - nitrogen oxide.

NPDES - National Pollutant Discharge Elimination System.

NRC (Nuclear Regulatory Commission) - federal agency that regulates operation of nuclear power facilities.

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

PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical equipment up to the late-1970s. Now classified as a hazardous chemical.

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

PJM (PJM Interconnection, LLC) - operator of the electric transmission network and electric energy market in the mid-Atlantic region of the U.S.

PLR (Provider of Last Resort) - PPL Electric providing electricity to retail customers within its delivery territory who have chosen not to shop for electricity under the Customer Choice Act.

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

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

PPL Capital Funding Trust I - a Delaware statutory business trust created to issue PEPS Units, whose common securities are held by PPL.

PPL Capital Trust - a Delaware statutory business trust created to issue Preferred Securities, whose common securities are held by PPL Electric.

PPL Capital Trust II - a Delaware statutory business trust created to issue Preferred Securities, whose common securities are held by PPL Electric.

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, which is a subsidiary of PPL and the parent company of PPL Energy Supply.

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

PPL Energy Supply - PPL Energy Supply, LLC, the parent company of PPL Generation, PPL EnergyPlus, PPL Global and other subsidiaries. Formed in November 2000, PPL Energy Supply is a subsidiary of PPL Energy Funding.

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

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

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

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

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

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

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

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

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

PPL Wallingford - PPL Wallingford LLC, a 225 MW gas-fired station in Wallingford, Connecticut, and a subsidiary of PPL Generation.

Preferred Securities - Company-obligated mandatorily redeemable preferred securities issued by PPL Capital Trust, PPL Capital Trust II and PPL Capital Funding Trust I, holding solely debentures of PPL Electric in the case of PPL Capital Trust and PPL Capital Trust II, and solely debentures of PPL Capital Funding in the case of PPL Capital Funding Trust I.

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

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

PURTA - Public Utility Realty Tax Act.

RMC - Risk Management Committee.

SCR - selective catalytic reduction, a pollution control process.

SEC - Securities and Exchange Commission.

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

SO₂ - sulfur dioxide.

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

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

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

WPD (South Wales) - Western Power Distribution (South Wales) plc, a Welsh 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, formerly WPD 1953 Limited, a jointly-owned subsidiary of PPL Global and Mirant. WPDH Limited owns WPD Holdings U.K., which owns WPD (South West) and WPD (South Wales).

WPDL - Western Power Distribution Limited, a wholly-owned subsidiary of WPD Investment Holdings Limited, which is a jointly-owned subsidiary of PPL Global and Mirant. WPDL owns 100% of the common shares of Hyder.

Forward-looking Information

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

market demand and prices for energy, capacity and fuel;
weather variations affecting customer energy usage;
competition in retail and wholesale power markets;
the effect of any business or industry restructuring;
the profitability and liquidity of PPL and its subsidiaries;
new accounting requirements or new interpretations or applications of existing requirements;
operation of existing facilities and operating costs;
environmental conditions and requirements;
system conditions and operating costs;
development of new projects, markets and technologies;
performance of new ventures;
political, regulatory or economic conditions in states, regions or countries where PPL or its subsidiaries conduct business;
receipt and renewals of necessary governmental approvals;
impact of state or federal investigations applicable to PPL and its subsidiaries and the energy industry;
capital market conditions and decisions regarding capital structure;
stock price performance;
securities and credit ratings;
foreign exchange rates;
new state or federal legislation;
national or regional economic conditions, including any potential effects arising from the September 11, 2001 terrorist attacks in the U.S. and any consequential hostilities; and
the commitments and liabilities of PPL and its subsidiaries.

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

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

PPL CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

In the opinion of PPL, the unaudited financial statements that follow reflect all adjustments necessary to present fairly the Condensed Consolidated Balance Sheet as of June 30, 2002 and December 31, 2001, and the Condensed Consolidated Statement of Income, the Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated Statement of Shareowners' Common Equity and Comprehensive Income for the periods ended June 30, 2002 and 2001.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except per share data)
			Three Months Ended June 30,					Six Months Ended June 30,
			2002			2001		2002			2001

Operating Revenues
	Utility		$	742		$	695	$	1,547		$	1,522
	Unregulated retail electric and gas			42			104		91			243
	Wholesale energy marketing and trading			352			431		620			889
	Energy related businesses			165			181		318			323

	Total			1,301			1,411		2,576			2,977

Operating Expenses
	Operation
		Fuel		128			127		274			314
		Energy purchases		343			427		602			823
		Other		186			192		377			376
		Amortization of recoverable transition costs		50			55		103			126
	Maintenance			82			94		144			148
	Depreciation			64			67		126			133
	Taxes, other than income			47			39		98			80
	Energy related businesses			146			162		272			275
	Other charges
		Write-down of international energy projects		94					100
		Workforce reduction		74					74

	Total			1,214			1,163		2,170			2,275

Operating Income				87			248		406			702
Other Income - net				6			6		11			12
Interest Expense				100			88		197			192

Income (Loss) Before Income Taxes and Minority Interest				(7	)		166		220			522
Income Taxes				4			35		66			161
Minority Interest				1			1		2			3

Income (Loss) Before Cumulative Effect of a Change in Accounting Principle				(12	)		130		152			358

Cumulative Effect of a Change in Accounting Principle									(150	)

Income (Loss) Before Dividends and Distributions on Preferred Securities				(12	)		130		2			358
Dividends and Distributions - Preferred Securities				15			13		32			19

Net Income (Loss)			$	(27	)	$	117	$	(30	)	$	339

Earnings (Loss) Per Share of Common Stock
	Basic		$	(0.18	)	$	0.80	$	(0.20	)	$	2.33
	Diluted		$	(0.18	)	$	0.80	$	(0.20	)	$	2.31

Dividends Declared per Share of Common Stock			$	0.36		$	0.265	$	0.72		$	0.53

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

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2002			2001

Net Cash Provided by Operating Activities			$	19		$	197

Cash Flows From Investing Activities
	Expenditures for property, plant and equipment			(248	)		(207	)
	Investment in generating assets and electric energy projects			(256	)		(190	)
	Decrease in notes receivable from affiliates						210
	Other investing activities - net			(19	)		(3	)

		Net cash used in investing activities		(523	)		(190	)

Cash Flows From Financing Activities
	Issuance of company-obligated mandatorily redeemable preferred securities						575
	Retirement of company-obligated mandatorily redeemable preferred securities			(100	)
	Issuance of common stock			20			42
	Retirement of long-term debt			(191	)		(355	)
	Payment of common and preferred dividends			(127	)		(90	)
	Net increase (decrease) in short-term debt			163			(473	)
	Other financing activities - net			(1	)		(24	)

		Net cash used in financing activities		(236	)		(325	)

Net Decrease In Cash and Cash Equivalents				(740	)		(318	)
Cash and Cash Equivalents at Beginning of Period				933			480

Cash and Cash Equivalents at End of Period			$	193		$	162

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

CONDENSED CONSOLIDATED BALANCE SHEET

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)

June 30,
2002

December 31,
2001

Assets

Current Assets

Cash and cash equivalents

193

933

Accounts receivable (less reserve: 2002, $124; 2001, $121)

635

539

Unbilled revenues

218

248

Fuel, materials and supplies - at average cost

237

251

Prepayments

114

Deferred income taxes

Price risk management assets

111

123

Other

102

116

1,701

2,330

Investments

Investment in unconsolidated affiliates - at equity

646

586

Investment in unconsolidated affiliates - at cost

120

114

Nuclear plant decommissioning trust fund

281

276

Other

1,065

999

Property, Plant and Equipment - net

Electric plant in service

Transmission and distribution

2,677

2,566

Generation

2,521

2,464

General

311

310

5,509

5,340

Construction work in progress

315

181

Nuclear fuel

116

127

Electric plant

5,940

5,648

Gas and oil plant

199

196

Other property

109

103

6,248

5,947

Regulatory and Other Noncurrent Assets

Recoverable transition costs

2,069

2,172

Other

1,111

1,118

3,180

3,290

12,194

12,566

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

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2002			December 31, 2001

Liabilities and Equity

Current Liabilities
	Short-term debt	$	281		$	118
	Long-term debt		566			498
	Above market NUG contracts		76			87
	Accounts payable		376			558
	Taxes		42			138
	Interest		59			61
	Dividends		62			51
	Price risk management liabilities		112			106
	Other		206			213

			1,780			1,830

Long-term Debt			4,882			5,081

Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		1,500			1,449
	Above market NUG contracts		390			493
	Other		927			911

			2,817			2,853


Commitments and Contingent Liabilities

Minority Interest			38			38

Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures			725			825

Preferred Stock
	With sinking fund requirements		31			31
	Without sinking fund requirements		51			51

			82			82

Shareowners' Common Equity
	Common stock		2			2
	Capital in excess of par value		1,976			1,956
	Treasury stock		(836	)		(836	)
	Earnings reinvested		887			1,023
	Accumulated other comprehensive loss		(120	)		(251	)
	Capital stock expense and other		(39	)		(37	)

			1,870			1,857

		$	12,194		$	12,566

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

CONDENSED CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY AND COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Three Months Ended June 30,						Six Months Ended June 30,
				2002			2001			2002			2001

Common stock at beginning of period				$	2		$	2		$	2		$	2

Common stock at end of period					2			2			2			2

Capital in excess of par value at beginning of period					1,975			1,919			1,956			1,895
		Common stock issued (a)			1			18			20			42

Capital in excess of par value at end of period					1,976			1,937			1,976			1,937

Treasury stock at beginning of period					(836	)		(836	)		(836	)		(836	)

Treasury stock at end of period					(836	)		(836	)		(836	)		(836	)

Earnings reinvested at beginning of period					967			1,182			1,023			999
		Net income (loss) (b)			(27	)		117			(30	)		339
		Cash dividends declared on common stock			(53	)		(39	)		(106	)		(78	)

Earnings reinvested at end of period					887			1,260			887			1,260

Accumulated other comprehensive loss at beginning of period					(255	)		(253	)		(251	)		(36	)
		Foreign currency translation adjustments (b) (c)			136			(46	)		144			(71	)
		Unrealized loss on available-for-sale securities (b)			(1	)		(1	)		(2	)		(3	)
		Unrealized gain (loss) on qualifying derivatives (b) (d)						225			(11	)		35

Accumulated other comprehensive loss at end of period					(120	)		(75	)		(120	)		(75	)

Capital stock expense and other at beginning of period					(39	)		(12	)		(37	)		(12	)
		Issuance costs and other charges to issue PEPS Units						(24	)					(24	)
		Other									(2	)

Capital stock expense and other at end of period					(39	)		(36	)		(39	)		(36	)

Total Shareowners' Common Equity				$	1,870		$	2,252		$	1,870		$	2,252

Common stock shares at beginning of period (a)					147,122			145,623			146,580			145,041
		Common stock issued through the ESOP, DRIP, ICP, ICPKE and structured equity program			43			410			585			992

Common stock shares at end of period					147,165			146,033			147,165			146,033

(a)	In thousands. $.01 par value, 390 million shares authorized. Each share entitles the holder to one vote on any question presented to any shareowners' meeting.
(b)	Statement of Comprehensive Income:
	Net income (loss)			$	(27	)	$	117		$	(30	)	$	339
	Other comprehensive income (loss):
			Foreign currency translation adjustments, net of tax (benefit) of $(4), $(3), $(10), $(13)		136			(46	)		144			(71	)
			Unrealized loss on available-for-sale securities, net of tax (benefit) of $(1), $0, $(1), $(2)		(1	)		(1	)		(2	)		(3	)
			Unrealized gain (loss) on qualifying derivatives, net of tax (benefit) of $149, $(7), $17					225			(11	)		35

			Total other comprehensive income (loss)		135			178			131			(39	)

	Comprehensive Income			$	108		$	295		$	101		$	300

(c)	Includes a $94 million credit for the write-off of the CEMAR cumulative translation adjustment in June 2002. See Note 14 for additional information.
(d)	Includes a $(182) million cumulative effect of a change in accounting principle from the adoption of SFAS 133 on January 1, 2001.

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

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PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

In the opinion of PPL Energy Supply, the unaudited financial statements that follow reflect all adjustments necessary to present fairly the Condensed Consolidated Balance Sheet as of June 30, 2002 and December 31, 2001, and the Condensed Consolidated Statement of Income, the Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated Statement of Member's Equity and Comprehensive Income for the periods ended June 30, 2002 and 2001.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Three Months Ended June 30,				Six Months Ended June 30,
			2002		2001		2002			2001

Operating Revenues
	Wholesale energy marketing and trading		$	352	$	433	$	620		$	889
	Wholesale energy marketing to affiliates			339		305		708			639
	Utility			109		101		212			212
	Unregulated retail electric and gas			42		103		91			243
	Energy related businesses			164		170		315			306

	Total			1,006		1,112		1,946			2,289

Operating Expenses
	Operation
		Fuel		109		106		221			245
		Energy purchases		286		370		484			700
		Energy purchases from affiliates		40		53		86			98
		Other operation and maintenance		197		215		387			388
		Transmission		6		15		13			34
	Depreciation			39		42		76			85
	Taxes, other than income			10		12		19			24
	Energy related businesses			136		146		251			240
	Other charges
		Write-down of international energy projects		94				100
		Workforce reduction		40				40

	Total			957		959		1,677			1,814

Operating Income				49		153		269			475

Other Income - net				12		18		21			32

Interest Expense				19		2		36			2

Interest Expense with Affiliate						3		1			26

Income Before Income Taxes and Minority Interest				42		166		253			479

Income Taxes				32		41		97			151

Minority Interest				1		1		2			3

Income Before Cumulative Effect of a Change in Accounting Principle				9		124		154			325

Cumulative Effect of a Change in Accounting Principle								(150	)

Net Income			$	9	$	124	$	4		$	325

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

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2002			2001

Net Cash Provided by (Used in) Operating Activities			$	(36	)	$	72

Cash Flows From Investing Activities
	Expenditures for property, plant and equipment			(157	)		(131	)
	Investment in generating assets and electric energy projects			(256	)		(190	)
	Net decrease in notes receivable from affiliates			152			262
	Other investing activities - net			(17	)		8

		Net cash used in investing activities		(278	)		(51	)


Cash Flows From Financing Activities
	Retirement of long-term debt			(10	)		(21	)
	Contributions from Member			5			1,567
	Distributions to Member			(552	)		(324	)
	Net increase (decrease) in short-term debt			165			(78	)
	Net decrease in short-term debt payable to affiliates						(1,191	)
	Other financing activities - net			(3	)

		Net cash used in financing activities		(395	)		(47	)


Net Decrease In Cash and Cash Equivalents				(709	)		(26	)
Cash and Cash Equivalents at Beginning of Period				815			130

Cash and Cash Equivalents at End of Period			$	106		$	104


Non-cash contributions from Member:
	Intercompany notes and accounts receivable					$	920

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

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

			June 30, 2002		December 31, 2001
Assets

Current Assets
	Cash and cash equivalents		$	106	$	815
	Accounts receivable (less reserve: 2002, $102; 2001, $100)			393		343
	Unbilled revenues			118		114
	Accounts receivable from affiliates			184		113
	Notes receivable from affiliates			153		305
	Fuel, materials and supplies - at average cost			203		209
	Price risk management assets			107		123
	Other			125		100

				1,389		2,122

Investments
	Investment in unconsolidated affiliates - at equity			646		586
	Investment in unconsolidated affiliates - at cost			120		114
	Note receivable from affiliates			90		90
	Nuclear plant decommissioning trust fund			281		276
	Other			4		7

				1,141		1,073

Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		535		465
		Generation		2,521		2,464
		General		119		122

				3,175		3,051
	Construction work in progress			279		146
	Nuclear fuel			116		127

		Electric plant		3,570		3,324
	Gas and oil plant			24		23
	Other property			74		71

				3,668		3,418

Other Noncurrent Assets				541		548

			$	6,739	$	7,161

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

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

	June 30, 2002		December 31, 2001

Liabilities and Equity

Current Liabilities
Short-term debt	$	281	$	118
Long-term debt		37		24
Accounts payable		313		493
Accounts payable to affiliates		24		47
Above market NUG contracts		76		87
Taxes		49		94
Collateral on PLR energy supply to affiliate		68
Deferred revenue on PLR energy supply to affiliate		12		11
Price risk management liabilities		108		97
Other		140		165

		1,108		1,136

Long-term Debt		745		737

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits		160		55
Above market NUG contracts		390		493
Nuclear plant decommissioning		290		294
Deferred revenue on PLR energy supply to affiliate		75		79
Other		374		357

		1,289		1,278


Commitments and Contingent Liabilities


Minority Interest		38		38

Member's Equity		3,559		3,972

	$	6,739	$	7,161

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

CONDENSED CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)


				Three Months Ended June 30,						Six Months Ended June 30,
				2002			2001			2002			2001

Member's Equity at beginning of period				$	3,742		$	3,255		$	3,972		$	2,577
	Member contributions				4			1,567			5			2,486
	Net income (a)				9			124			4			325
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments (a) (b)			136			(46	)		144			(71	)
		Unrealized gain (loss) on qualifying derivatives (a) (c)			(1	)		218			(14	)		33
	Distributions to Member				(331	)					(552	)		(232	)

Member's Equity at end of period				$	3,559		$	5,118		$	3,559		$	5,118



(a)	Statement of Comprehensive Income:
	Net income			$	9		$	124		$	4		$	325
	Other comprehensive income (loss):
			Foreign currency translation adjustments, net of tax (benefit) of $(4), $(3), $(10), $(13)		136			(46	)		144			(71	)
			Unrealized loss on qualifying derivatives, net of tax (benefit) of $(1), $147, $(10), $23		(1	)		218			(14	)		33

	Total other comprehensive income (loss)				135			172			130			(38	)

	Comprehensive Income			$	144		$	296		$	134		$	287

(b)	Includes a $94 million credit for the write-off of the CEMAR cumulative translation adjustment in June 2002. See Note 14 for additional information.
(c)	Includes a $(182) million cumulative effect of a change in accounting principle from the adoption of SFAS 133 on January 1, 2001.

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

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PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

In the opinion of PPL Electric, the unaudited financial statements that follow reflect all adjustments necessary to present fairly the Condensed Consolidated Balance Sheet as of June 30, 2002 and December 31, 2001, and the Condensed Consolidated Statement of Income, the Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated Statement of Shareowner's Common Equity and Comprehensive Income for the periods ended June 30, 2002 and 2001.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)


			Three Months Ended June 30,					Six Months Ended June 30,
			2002			2001		2002		2001

Operating Revenues
	Retail electric		$	595		$	558	$	1,236	$	1,192
	Retail electric to affiliate			8			6		13		11
	Wholesale electric			6			7		13		17
	Wholesale electric to affiliate			40			43		82		88
	Energy related businesses			2			11		4		17

	Total			651			625		1,348		1,325

Operating Expenses
	Operation
		Energy purchases		51			44		105		89
		Energy purchases from affiliate		339			300		708		634
		Other		61			62		116		121
		Amortization of recoverable transition costs		50			55		103		126
	Maintenance			16			13		27		26
	Depreciation			23			22		46		45
	Taxes, other than income			38			27		79		55
	Energy related businesses			1			10		3		16
	Workforce reduction			33					33

	Total			612			533		1,220		1,112

Operating Income				39			92		128		213

Other Income - net				2			1		7		5

Interest Expense				53			52		109		114

Income (Loss) Before Income Taxes				(12	)		41		26		104

Income Taxes (Benefit)				(9	)		13		3		36

Income (Loss) Before Dividends on Preferred Securities				(3	)		28		23		68

Dividends - Preferred Securities				5			7		11		13

Net Income (Loss)			$	(8	)	$	21	$	12	$	55


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

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2002			2001

Net Cash Provided by Operating Activities			$	82		$	155

Cash Flows From Investing Activities
	Expenditures for property, plant and equipment			(86	)		(65	)
	Net decrease in notes receivable from parent and affiliates			270			70
	Other investing activities - net			3			(10	)

		Net cash provided by (used in) investing activities		187			(5	)

Cash Flows From Financing Activities
	Retirement of long-term debt			(171	)		(329	)
	Retirement of company-obligated mandatorily redeemable preferred securities			(100	)
	Deposit of funds for the retirement of long-term debt						(5	)
	Payment of common and preferred dividends			(42	)		(37	)
	Redemption of preferred stock						(1	)
	Net decrease in short-term debt						(40	)

		Net cash used in financing activities		(313	)		(412	)

Net Decrease in Cash and Cash Equivalents				(44	)		(262	)
Cash and Cash Equivalents at Beginning of Period				79			267

Cash and Cash Equivalents at End of Period			$	35		$	5

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

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

			June 30, 2002		December 31, 2001
Assets

Current Assets
	Cash and cash equivalents		$	35	$	79
	Accounts receivable (less reserve: 2002, $21; 2001, $19)			206		179
	Unbilled revenues			99		131
	Accounts receivable from affiliates			23		18
	Notes receivable from affiliates			80		350
	Income tax receivable			35		35
	Prepayments			55		4
	Prepayment on PLR energy supply from affiliate			12		11
	Deferred income taxes			43		41
	Collateral on PLR energy supply from affiliate			68
	Other			35		35

				691		883

Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		2,142		2,101
		General		184		183

				2,326		2,284
	Construction work in progress			37		32

		Electric plant		2,363		2,316
	Other property			3		3

				2,366		2,319

Regulatory and Other Noncurrent Assets
	Recoverable transition costs			2,069		2,172
	Prepayment on PLR energy supply from affiliate			75		79
	Other			450		468

				2,594		2,719

			$	5,651	$	5,921

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

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

		June 30, 2002			December 31, 2001

Liabilities and Equity

Current Liabilities
	Long-term debt	$	269		$	274
	Accounts payable		32			34
	Accounts payable to affiliates		159			122
	Taxes		48			74
	Interest		35			34
	Other		52			46

			595			584

Long-term Debt			3,019			3,185

Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		750			757
	Other		141			132

			891			889


Commitments and Contingent Liabilities

Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures			150			250

Preferred Stock
	With sinking fund requirements		31			31
	Without sinking fund requirements		51			51

			82			82

Shareowner's Common Equity
	Common stock		1,476			1,476
	Additional paid-in capital		51			51
	Treasury stock		(912	)		(912	)
	Earnings reinvested		315			332
	Capital stock expense and other		(16	)		(16	)

			914			931

		$	5,651		$	5,921

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

CONDENSED CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY AND COMPREHENSIVE INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

			Three Months Ended June 30,						Six Months Ended June 30,
			2002			2001			2002			2001

Common stock at beginning of period			$	1,476		$	1,476		$	1,476		$	1,476

Common stock at end of period				1,476			1,476			1,476			1,476

Additional paid-in capital at beginning of period				51			55			51			55

Additional paid-in capital at end of period				51			55			51			55

Treasury stock at beginning of period				(912	)		(632	)		(912	)		(632	)

Treasury stock at end of period				(912	)		(632	)		(912	)		(632	)

Earnings reinvested at beginning of period				333			304			332			277
	Net income (loss) (b)			(8	)		21			12			55
	Cash dividends declared on common stock			(10	)		(24	)		(29	)		(31	)

Earnings reinvested at end of period				315			301			315			301

Accumulated other comprehensive income (loss) at beginning of period
	Unrealized loss on qualifying derivatives (b)						(1	)					(1	)

Accumulated other comprehensive loss at end of period							(1	)					(1	)

Capital stock expense and other at beginning of period				(16	)		(16	)		(16	)		(16	)

Capital stock expense and other at end of period				(16	)		(16	)		(16	)		(16	)

Total Shareowner's Common Equity			$	914		$	1,183		$	914		$	1,183

Common stock shares at beginning of period (a)				78,030			102,230			78,030			102,230

Common stock shares at end of period				78,030			102,230			78,030			102,230

(a)	In thousands. No par value. 170 million shares authorized. All common shares of PPL Electric stock are owned by PPL.
(b)	Statement of Comprehensive Income:
	Net income (loss)		$	(8	)	$	21		$	12		$	55
	Other comprehensive loss:
		Unrealized loss on qualifying derivatives, net of tax (benefit) of $0, $(1)					(1	)					(1	)

		Total other comprehensive loss					(1	)					(1	)

	Comprehensive Income (Loss)		$	(8	)	$	20		$	12		$	54

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

PPL MONTANA, LLC AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

In the opinion of PPL Montana, the unaudited financial statements that follow reflect all adjustments necessary to present fairly the Condensed Consolidated Balance Sheet as of June 30, 2002 and December 31, 2001, and the Condensed Consolidated Statement of Income, the Condensed Consolidated Statement of Cash Flows and the Condensed Consolidated Statement of Member's Equity and Comprehensive Income for the periods ended June 30, 2002 and 2001.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)


			Three Months Ended June 30,				Six Months Ended June 30,
			2002		2001		2002		2001

Operating Revenues
	Wholesale energy marketing and trading		$	56	$	76	$	105	$	226
	Wholesale energy marketing to affiliate			13		23		30		55
	Other							1		1

	Total			69		99		136		282

Operating Expenses
	Operation
		Fuel		6		5		14		14
		Energy purchases		17		17		22		34
		Other operation and maintenance		31		29		54		49
		Transmission		1		2		3		5
	Depreciation			2		2		5		5
	Taxes, other than income			4		5		8		8

	Total			61		60		106		115

Operating Income				8		39		30		167

Other Income - net				1		1		1		2

Interest Expense				2		2		3		4

Income Before Income Taxes				7		38		28		165

Income Taxes				3		15		11		65

Net Income			$	4	$	23	$	17	$	100

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

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2002			2001

Net Cash Provided by Operating Activities			$	20		$	123

Cash Flows From Investing Activities
	Proceeds from sale of property, plant and equipment						1
	Expenditures for property, plant and equipment			(13	)		(12	)

		Net cash used in investing activities		(13	)		(11	)

Cash Flows From Financing Activities
	Repayments on revolving line of credit			(14	)
	Borrowings on revolving line of credit			10
	Distribution to Member						(167	)

		Net cash used in financing activities		(4	)		(167	)

Net Increase (Decrease) in Cash and Cash Equivalents				3			(55	)
Cash and Cash Equivalents at Beginning of Period				24			79

Cash and Cash Equivalents at End of Period			$	27		$	24

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

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2002		December 31, 2001

Assets

Current Assets
	Cash and cash equivalents	$	27	$	24
	Accounts receivable (less reserve: 2002, $47; 2001, $47)		25		22
	Accounts receivable from joint owners		7		6
	Accounts receivable from affiliates		2		4
	Fuel, materials and supplies - at average cost		6		6
	Price risk management assets		13		14
	Deferred income taxes		8		4
	Prepayments and other		5		4

			93		84

Noncurrent Assets
	Property, plant and equipment - net		433		425
	Deferred income taxes		18		20
	Other		122		122

			573		567

		$	666	$	651

Liabilities and Equity

Current Liabilities
	Accounts payable	$	55	$	36
	Accounts payable to Member		14		11
	Revolving line of credit		40		44
	Accrued expenses		22		14
	Price risk management liabilities		5		4
	Wholesale energy commitments		2		13

			138		122

Noncurrent Liabilities
	Employee benefit obligations		17		16
	Wholesale energy commitments		63		65
	Other		23		27

			103		108

Commitments and Contingent Liabilities

Member's Equity			425		421

		$	666	$	651

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

CONDENSED CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME
PPL Montana, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)


				Three Months Ended June 30,					Six Months Ended June 30,
				2002		2001			2002			2001

Member's Equity at beginning of period				$	420	$	248		$	421		$	453
	Net income (a)				4		23			17			100
	Other comprehensive income (loss), net of tax
		Unrealized gain (loss) on qualifying derivatives (a) (b)			1		183			(13	)		1
	Distribution to Member						(67	)					(167	)

Member's Equity at end of period				$	425	$	387		$	425		$	387


(a)	Statement of Comprehensive Income:
	Net income			$	4	$	23		$	17		$	100
	Other comprehensive income (loss):
			Unrealized gain (loss) on qualifying derivatives, net of tax (benefit) of $0, $117, $(9), $0		1		183			(13	)		1

			Total other comprehensive income (loss)		1		183			(13	)		1

	Comprehensive Income			$	5	$	206		$	4		$	101

(b)	Includes a $(156) million cumulative effect of a change in accounting principle from adoption of SFAS 133 on January 1, 2001.

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

Combined Notes to Condensed Consolidated Financial Statements

Terms and abbreviations appearing in Combined Notes to Condensed Consolidated Financial Statements are explained in the glossary.

Interim Financial Statements
(PPL, PPL Energy Supply, PPL Electric and PPL Montana)

Certain information in footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S., has been condensed or omitted in this Form 10-Q under the rules and regulations of the SEC. These financial statements should be read in conjunction with the financial statements and notes included in each company's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001.

Certain amounts in the June 30, 2001 and December 31, 2001 financial statements have been reclassified to conform to the presentation in the June 30, 2002 financial statements.
Summary of Significant Accounting Policies

The following accounting policy disclosures represent updates to the "Summary of Significant Accounting Policies" footnote in each company's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001.

Utility Revenue

(PPL and PPL Energy Supply)

The Statement of Income "Operating Revenues - Utility" line item contains operating revenues from domestic and international rate regulated delivery operations. This revenue was previously reported as "Retail electric and gas" and "Wholesale energy marketing and trading" by PPL and as "Retail electric and gas" by PPL Energy Supply.

Independent System Operator

(PPL, PPL Energy Supply and PPL Electric)

Certain PPL subsidiaries participate in the PJM in several roles. Certain PPL subsidiaries also participate in the New England Power Pool (NEPOOL) and the New York ISO (NYISO) in a less significant way. In PJM, PPL EnergyPlus is a marketer, a load-serving entity to its customer-choice customers, and a buyer for PPL's Pennsylvania generation subsidiaries. PPL Electric is a transmission owner and provider of last resort load in PJM. In NEPOOL, PPL EnergyPlus is a marketer and a buyer for PPL's New England generating assets. In the NYISO, PPL EnergyPlus acts as a marketer. PPL Electric does not participate in NEPOOL or NYISO.

A function of interchange accounting is to "match" participants' MWh entitlements (generation plus scheduled bilateral purchases) against their MWh obligations (load plus scheduled bilateral sales) during every hour of every day. If the net result during any given hour is an entitlement, the participant is credited with a spot market sale to the ISO at the respective market price for that hour; if the net result is an obligation, the participant is charged with a spot market purchase from the ISO at the respective market price for that hour. ISO purchases and sales are not allocated to individual customers.

PPL records the hourly net sales and purchases in its financial statements as sales to and purchases from the respective ISOs, in accordance with FERC and industry accounting.

Segment and Related Information

(PPL and PPL Energy Supply)

PPL's reportable segments are Supply, Delivery and International. The Supply segment primarily consists of the domestic energy marketing, domestic generation and domestic development operations of PPL Energy Supply. The Delivery segment includes the regulated electric and gas delivery operations of PPL Electric and PPL Gas Utilities. The International segment includes PPL Global's responsibility for the acquisition, development, ownership and operation of international energy projects. The majority of PPL Global's international investments are located in the U.K., Chile and El Salvador.

PPL Energy Supply's reportable segments are Supply and International. The International segment at the PPL Energy Supply level is consistent with the International segment at the PPL level. The Supply segment information reported at the PPL Energy Supply level will not agree with the Supply segment information reported at the PPL level. Additional Supply segment functions, including telecommunications, exist at PPL that are outside of PPL Energy Supply. Furthermore, certain income items, including PLR revenue and certain interest income, exist at the PPL Energy Supply level, but are eliminated in consolidation at the PPL level. Finally, certain expense items are fully allocated to the segments at the PPL level only.

Segments include direct charges, as well as an allocation of indirect corporate costs, for services provided by PPL Services. These service costs include functions such as financial, legal, human resources and information services.

See Note 9 for a discussion of the PLR contracts between PPL Electric and PPL EnergyPlus. PPL EnergyPlus' sales to PPL Electric, to meet PPL Electric's PLR load, are included in the Supply segment of PPL Energy Supply. PPL Electric's sales of this electricity to its PLR customers are included in the Delivery segment of PPL. There are no intersegment revenues for PPL or PPL Energy Supply.

Previously reported information has been reclassified to conform to the current presentation. Changes from previous reports include the allocation of interest expense to segments, and the reporting of PLR revenues at PPL in the Delivery segment rather than in the Supply segment. Financial data for the segments are as follows (millions of dollars):

(PPL)

		Three Months Ended June 30,					Six Months Ended June 30,
		2002			2001		2002			2001

Income Statement Data

Revenues from external customers
	Supply	$	514		$	607	$	943		$	1,239
	International		153			140		294			303
	Delivery		634			664		1,339			1,435

			1,301			1,411		2,576			2,977
Net Income (Loss)
	Supply		58			78		174			239
	International (a)		(77	)		18		(222	)		38
	Delivery		(8	)		21		18			62

		$	(27	)	$	117	$	(30	)	$	339

		June 30, 2002		December 31, 2001
Balance Sheet Data
Total assets
	Supply	$	4,687	$	4,720
	International		1,736		1,749
	Delivery		5,771		6,097

		$	12,194	$	12,566

(a)	The International segment includes the "Cumulative Effect of a Change in Accounting Principle" recorded in March 2002. See Note 12 for additional information. The international segment also includes the write-downs of the CEMAR investment described in Note 14.

(PPL Energy Supply)

		Three Months Ended June 30,					Six Months Ended June 30,
		2002			2001		2002			2001

Income Statement Data

Revenues from external customers
	Supply	$	853		$	972	$	1,652		$	1,986
	International		153			140		294			303

			1,006			1,112		1,946			2,289

Net Income
	Supply		86			106		226			287
	International (a)		(77	)		18		(222	)		38

		$	9		$	124	$	4		$	325

		June 30, 2002		December 31, 2001
Balance Sheet Data
Total assets
	Supply	$	5,003	$	5,412
	International		1,736		1,749

		$	6,739	$	7,161

(a)	The International segment includes the "Cumulative Effect of a Change in Accounting Principle" recorded in March 2002. See Note 12 for additional information. The international segment also includes the write-downs of the CEMAR investment described in Note 14.

Investment in Unconsolidated Affiliates - at Equity

(PPL and PPL Energy Supply)

Investments in unconsolidated affiliates accounted for under the equity method by both PPL and PPL Energy Supply were $646 million and $586 million at June 30, 2002 and December 31, 2001. The most significant investment was PPL Global's investment in WPDH Limited, which was $406 million at June 30, 2002 and $328 million at December 31, 2001. At June 30, 2002, PPL Global had a 51% equity ownership interest in WPDH Limited, but shared joint control with Mirant. The respective Shareholders' Agreements provide for PPL Global and Mirant each to elect four directors to the Board, with majority Board approval generally required for significant operating and financial decisions, including but not limited to:

issuance, purchase, redemption, reorganization or reduction of share capital or any equity security;
alteration of any of the provisions of the articles of association;
petition for the appointment of an administrator or liquidator or invite any person to appoint an administrative receiver;
fundamentally change the nature of the business;
make any election in respect of UK Corporation Tax which would have a material adverse effect on one shareholder but not on the other;
declare dividends; and
incur additional indebtedness if to do so would result in a reduction of the company's credit rating to below that of investment grade.

Accordingly, PPL Global accounts for its investment in WPDH Limited (and other investments where it has majority ownership but lacks voting control) under the equity method of accounting.

Summarized below is information from the financial statements of unconsolidated affiliates accounted for under the equity method, underlying the amounts included in PPL's and PPL Energy Supply's consolidated financial statements (millions of dollars):

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001

Income Statement Data
Revenues	$	172	$	156	$	350	$	332
Operating Income		114		80		211		167
Net Income		52		65		81		144

	June 30, 2002		December 31, 2001

Balance Sheet Data
Current Assets	$	1,235	$	612
Noncurrent Assets		4,792		5,517
Current Liabilities		423		502
Noncurrent Liabilities		3,974		3,955

Earnings Per Share

(PPL)

Basic EPS is calculated by dividing "Net Income (Loss)" on the Statement of Income by the weighted average number of common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock. Potentially dilutive securities consist of stock options granted under the incentive compensation plans, stock units representing common stock granted under directors compensation programs and PEPS Units.

Preferred dividends are included in net income in the computation of basic and diluted EPS.

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

			Three Months Ended June 30,					Six Months Ended June 30,
			2002			2001		2002			2001

(Millions of Dollars or Thousands of Shares)

Income (Numerator)
Net Income (Loss) - before cumulative effect of a change in accounting principle			$	(27	)	$	117	$	120		$	339
	Cumulative effect of a change in accounting principle								(150	)

Net Income (Loss)			$	(27	)	$	117	$	(30	)	$	339

Shares (Denominator)
Shares for Basic EPS				147,149			145,901		146,927			145,608
Add: Incremental shares:
		Stock options					730		275			794
		Stock units					69		73			69

Shares for Diluted EPS				147,149			146,700		147,275			146,471

		Three Months Ended June 30,					Six Months Ended June 30,
		2002			2001		2002			2001

(Millions of Dollars or Thousands of Shares)

Basic EPS
Net Income (Loss) - before cumulative effect of a change in accounting principle		$	(0.18	)	$	0.80	$	0.82		$	2.33
	Cumulative effect of a change in accounting principle							(1.02	)

Net Income (Loss)		$	(0.18	)	$	0.80	$	(0.20	)	$	2.33

Diluted EPS
Net Income (Loss) - before cumulative effect of a change in accounting principle		$	(0.18	)	$	0.80	$	.82		$	2.31
	Cumulative effect of a change in accounting principle							(1.02	)

Net Income (Loss)		$	(0.18	)	$	0.80	$	(0.20	)	$	2.31

In May 2001, PPL issued 23 million PEPS Units that contain a purchase contract component for PPL's common stock. The PEPS Units will only be dilutive if the average price of PPL's common stock exceeds $65.03 for any period. Therefore, they were excluded from the diluted EPS calculations for the three and six months ended June 30, 2002 and June 30, 2001.

Stock options to purchase 3,058,000 PPL common shares and 67,000 directors stock units for the three months ended June 30, 2002 were not included in that period's computation of diluted EPS. Since PPL had a loss before the cumulative effect of a change in accounting principle, the effect would have been antidilutive.

Stock options to purchase 879,000 PPL common shares for the six months ended June 30, 2002 were not included in that period's computation of diluted EPS because the exercise price of the options was greater than the average market price of the common shares. Therefore, the effect would have been antidilutive.

Credit Arrangements, Financing Activities and Leases

Credit Arrangements

(PPL, PPL Energy Supply and PPL Electric)

In order to enhance liquidity, and as a credit back-stop to their respective commercial paper programs, PPL Electric maintains a $400 million 364-day credit facility maturing in June 2003 (replacing a similar facility that had expired in June 2002) and PPL Energy Supply maintains three credit facilities: a $300 million 364-day credit facility maturing in June 2003, a $500 million three-year credit facility maturing in June 2004, and a $300 million three-year credit facility maturing in June 2005 (the two $300 million credit facilities replace a $600 million 364-day credit facility which expired in June 2002). At June 30, 2002, no borrowings were outstanding under any of these facilities. Both PPL Electric and PPL Energy Supply have the ability to cause lenders to issue letters of credit under their respective facilities. At June 30, 2002, PPL Electric had no letters of credit outstanding under its facility and PPL Energy Supply had $17 million of letters of credit outstanding under its $500 million facility.

(PPL, PPL Energy Supply and PPL Montana)

PPL Montana maintains a $100 million three-year credit facility maturing in November 2002 to meet its liquidity needs and to provide for the issuance of up to $75 million in letters of credit. At June 30, 2002, PPL Montana had outstanding borrowings of $40 million and had outstanding letters of credit of $35 million under this facility. Additionally, PPL Montana had maintained a $150 million credit facility which matured in April 2002, designed for the sole purpose of issuing letters of credit. This facility was not renewed.

(PPL, PPL Energy Supply, PPL Electric and PPL Montana)

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, PPL Electric and PPL Montana are separate legal entities. These subsidiaries are not liable for the debts of PPL Energy Supply, PPL Electric and PPL Montana. Accordingly, creditors of PPL Energy Supply, PPL Electric and PPL Montana 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, PPL Electric and PPL Montana 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, PPL Electric or PPL Montana absent a specific contractual undertaking by that parent to pay the creditors of its subsidiaries or as required by applicable law or regulation.

Financing Activities

(PPL)

In February 2002, PPL Capital Funding repurchased $10 million, par value, of its medium-term notes, 7.75% Series due 2005, at a market value of $11 million.

During the first quarter of 2002, PPL issued $13 million of common stock in small amounts on a periodic basis under its Structured Equity Shelf Program.

(PPL and PPL Energy Supply)

At June 30, 2002, PPL Energy Supply had $155 million of commercial paper outstanding. As of June 30, 2002, some foreign subsidiaries of PPL Energy Supply had short-term borrowings from banks of $86 million that are non-recourse to PPL Energy Supply.

(PPL and PPL Electric)

In May 2002, PPL Electric:

retired $11 million of its outstanding First Mortgage Bonds, 8-1/2% Series due 2022, at par value, through the maintenance and replacement fund provisions of the 1945 First Mortgage Bond Indenture;
retired $28 million of its outstanding First Mortgage Bonds, 7-3/4% Series due May 2002, at par value; and
instructed the property trustee of PPL Capital Trust to redeem, at par value, all of the $100 million of outstanding 8.20% Preferred Securities due 2027 that were previously issued by PPL Capital Trust.

During the first six months of 2002, PPL Transition Bond Company made principal payments on bonds totaling $132 million.

At June 30, 2002, there was no commercial paper or bank borrowings outstanding for PPL Electric.

(PPL Energy Supply)

During the six months ended June 2002, PPL Energy Supply distributed $552 million to its parent company, PPL Energy Funding.

Leases

(PPL, PPL Energy Supply and PPL Montana)

Colstrip Generating Plant

In July 2000, PPL Montana sold its interest in the Colstrip generating plant to owner lessors who are leasing the assets back to PPL Montana under four 36-year operating leases. PPL Montana leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, through four non-cancelable operating leases. These leases provide two renewal options based on the economic useful life of the generation assets. The amount outstanding under these leases at June 30, 2002 was $334 million. There is no residual value guarantee in these Montana leases. However, upon an event of default or an event of loss, the lessee could be required to pay a termination value of amounts sufficient to allow the lessor to repay amounts owing on the lessor notes and make the lessor whole for its equity investment and anticipated return on investment. The events of default include payment defaults, breaches of representations of covenants, acceleration of other indebtedness of PPL Montana, change in control of PPL Montana and certain bankruptcy events.

(PPL and PPL Energy Supply)

Cancellation of Lease for Turbine Generator Units and Related Equipment

In November 2000, a PPL Global subsidiary entered into a $555 million operating lease arrangement for turbine generator units and related equipment (SCRs, transformers and spare engines). In June 2002, this operating lease was cancelled in connection with the decision in December 2001 to cancel several development projects. Prior to terminating the lease, certain equipment under this lease was either purchased by a PPL Global subsidiary or sold to another lessor.

University Park and Sundance

In May 2001, a PPL Global subsidiary entered into a $1.06 billion operating lease arrangement, as lessee, for the development, construction and operation of several commercial power generation facilities. In February 2002, in connection with the December 2001 decision to cancel several development projects, the available commitment under this lease was reduced to approximately $700 million to cover only two projects located in University Park, Illinois, and Sundance, Arizona. In July 2002, these facilities were substantially completed and the initial lease term commenced. The lease terminates in June 2008. At the end of the lease term, the lessee has the option to extend the lease or purchase the facilities. If the lessee does not choose either of these options, then it will guarantee a residual value of up to $545 million based on an estimated total lessors' investment of $657 million for both projects combined. If the financing is terminated early as a result of significant environmental damage, or an event of default, the lessee could be obligated to pay up to 100% of the lessors' investment in the facilities. These events of default include, subject to certain exceptions, payment or judgment defaults, breach of representations or covenants, defaults in other indebtedness, termination of the financing documents or loss of a required approval. The obligations of the lessee under this lease, including payment obligations, have been guaranteed by PPL Energy Supply.

Lower Mt. Bethel

In December 2001, a PPL Global subsidiary entered into an operating lease arrangement, as lessee, for $455 million for the development, construction and operation of a 600 MW gas-fired combined-cycle generation facility located in Lower Mt. Bethel Township, Northampton County, Pennsylvania. The initial lease term is approximately 10 years beginning on the date of commercial operation which is expected to occur in early 2004. At the end of the lease term, the lessee has the option to extend the lease or purchase the facility. If the lessee does not choose either of these options, then it will guarantee a residual value estimated to be up to $321 million. The lessee could be obligated to pay up to 100% of the lessors' investment and other obligations in the facilities if the financing is terminated early as a result of a loss, destruction or condemnation of the project, or in an event of default. These events of default during the construction period include a violation of environmental law, material environmental damage, revocation or failure to obtain environmental approval, defaults arising out of any fraudulent act, illegal act, misapplication of funds or willful misconduct, or if a bankruptcy event occurs. These events of default during the lease term include, subject to certain exceptions, payment or judgment defaults, breach of representations or covenants, defaults in other indebtedness, termination of the financing documents, or violations of environmental law, material environmental damage or loss of a required environmental approval. The total exposure as a result of any of these events of default occurring is estimated to be up to $330 million as of June 30, 2002. The maximum exposure is estimated to be up to $565 million as of the commencement of the lease based on current market conditions. The obligations of the lessee under this lease, including payment obligations, have been guaranteed by PPL Energy Supply.

Under the terms of this lease financing, PPL Martins Creek, which operates the adjacent Martins Creek facility, will provide water services for the Lower Mt. Bethel facility. PPL Martins Creek and the owner/lessor have entered into a water services agreement, which is still subject to the approval of the trustee for the debtholders of the lease financing and a majority of the debtholders. PPL Martins Creek is currently in discussions with the trustee and the debtholders regarding the water services agreement. In addition, the Air Quality Plan Approval issued by the Pennsylvania DEP for construction of the Lower Mt. Bethel facility has been appealed by the New Jersey DEP to the Pennsylvania DEP Environmental Hearing Board. The PPL Global subsidiary involved in this lease financing has joined with the Pennsylvania DEP in opposing this appeal. Finally, in August 2002, the Northampton County Court of Common Pleas issued a decision concerning the permissible noise levels from the Lower Mt. Bethel facility when it becomes operational. Specifically, the court's decision addressed the noise measurement criteria and the point at which the noise levels are to be measured. PPL is currently evaluating the court's decision. The Lower Mt. Bethel facility is expected to be operational in 2004. PPL cannot predict the outcome of these various matters or their ultimate impact on the development of the Lower Mt. Bethel facility, on PPL or on PPL Energy Supply, but such impact may be material.

Dividend Restrictions

(PPL, PPL Energy Supply and PPL Montana)

The PPL Montana Colstrip lease places certain restrictions on PPL Montana's ability to declare dividends. At this time, PPL believes that these covenants will not limit PPL Montana's ability to operate as desired and will not affect PPL's ability to meet any of its cash obligations. Certain of PPL Global's international subsidiaries also have financing arrangements which limit their ability to pay dividends. However, PPL does not, at this time, expect that any of such limitations would significantly impact its ability to meet its cash obligations.

Acquisitions, Development and Divestitures

(PPL and PPL Energy Supply)

Domestic Generation Projects

PPL Global is currently completing the negotiation of a Project Coordination Agreement with the Village of Freeport, New York, which allows for the development and construction of a single LM-6000 simple-cycle facility at a site adjacent to the Village of Freeport's existing Power Plant No. 2. The facility is projected to begin commercial operation in the summer of 2003. The cost of PPL's unit is estimated to be approximately $50 - $55 million. Negotiations are also proceeding with respect to a Site Lease, a Project Interconnection Agreement and a Shared Facilities Agreement. In addition, negotiations for the sale of power from the facility to the Long Island Power Authority under a ten-year Power Purchase Agreement are proceeding. These agreements are subject to approval of the respective governing boards, various regulatory approvals, and agreement on satisfactory definitive documentation.

In addition, in December 2001, PPL Global made a decision to cancel approximately 2,100 MW of previously planned generation development in Pennsylvania and Washington state. These projects were in the early stage of development and would have had an estimated capital cost of approximately $1.3 billion. The charge for cancellation of these generation projects, which was primarily due to cancellation fees under turbine purchase contracts, was approximately $150 million, and was reported on the 2001 Statement of Income as "Cancellation of generation projects," a component of "Other Charges." At June 30, 2002, PPL Global had completed payment of the cancellation fees.
Commitments and Contingent Liabilities

(PPL, PPL Energy Supply, PPL Electric and PPL Montana)

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

Wholesale Energy Commitments (PPL, PPL Energy Supply and PPL Montana)

As part of the purchase of generation assets from Montana Power, PPL Montana agreed to supply electricity under two wholesale transition service agreements with Montana Power to serve its retail load not served by other providers or provided by Montana Power's remaining generation. The first agreement expired in December 2001, and the second agreement expired in June 2002. In addition, as part of its purchase of the generation assets from Montana Power, PPL Montana assumed a power purchase agreement and another power sales agreement. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $118 million as the estimated fair value of these agreements at the acquisition date. The liability is being amortized over the terms of the agreements as adjustments to "Wholesale energy marketing and trading" revenues and "Energy purchases" on the Statement of Income. The unamortized balance of the liability at June 30, 2002 was $65 million and is included on the Balance Sheet in "Deferred Credits and Other Noncurrent Liabilities - Other" for PPL, in "Current Liabilities - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other" for PPL Energy Supply and in "Wholesale energy commitments" for PPL Montana.

On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern Energy an aggregate of 450 MW of energy to be supplied by PPL Montana. Under this five-year agreement, PPL EnergyPlus will supply 300 MW of around-the-clock electricity and 150 MW of on-peak electricity.

Liability for Above Market NUG Contracts (PPL, PPL Energy Supply and PPL Electric)

In 1998, PPL Electric recorded a loss accrual for above market contracts with NUGs of $854 million, due to its generation business being deregulated. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy purchases" on the Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment, effective July 1, 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. At June 30, 2002, the remaining liability associated with the above market NUG contracts was $466 million.

In the first quarter of 2002, PPL Energy Supply paid $50 million to terminate the liability outstanding under an energy contract with one of the NUGs. The liability associated with this NUG contract was $75 million. The excess of the liability over the payment resulted in a $25 million credit to "Energy purchases" on the Statement of Income.

Commitments - Acquisitions and Development Activities (PPL and PPL Energy Supply)

PPL Global and its subsidiaries have outstanding purchase commitments with respect to domestic construction projects. At June 30, 2002, PPL Global and its subsidiaries had approximately $89 million of such commitments.

Commitments - Leases (PPL and PPL Energy Supply)

See "Leases" in Note 6 for additional information on residual value guarantees under operating lease arrangements.

Sales to California Independent System Operator and to Other Pacific Northwest Purchasers (PPL, PPL Energy Supply and PPL Montana)

Through its subsidiaries, PPL has made approximately $18 million of sales to the California ISO, of which $17 million has not been paid to PPL subsidiaries. Given the myriad of electricity supply problems presently faced by the California electric utilities and the California ISO, PPL cannot predict whether or when it will receive payment. As of June 30, 2002, PPL has fully reserved for possible underrecoveries of payments for these sales.

Litigation arising out of the California electricity supply situation has been filed at the FERC and in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these proceedings allege abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, among other things, and seek price caps on wholesale sales in California and other western power markets, refunds of excess profits allegedly earned on these sales of energy, and other relief, including treble damages and attorneys' fees. Certain of PPL's subsidiaries have intervened in the FERC proceedings in order to protect their interests, but have not been named by any plaintiffs in any of the court actions alleging abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws. However, in April 2002, PPL Montana was named by a defendant in a consolidated court proceeding, which combined into one master proceeding several of the lawsuits alleging antitrust violations and unfair trade practices. Specifically, one of the original generators being sued by the various plaintiffs in the consolidated court proceeding filed a cross-complaint against 30 other generators and power marketers, including PPL Montana. This generator denies that any unlawful, unfair or fraudulent conduct occurred or caused any harm to the plaintiffs, and explains that the plaintiffs' claims are completely barred by federal law. Nonetheless, this generator alleges that it filed its complaint against the other generators and power marketers in order to assist the court in resolving the proceeding and asserts that if it is found liable, the other generators and power marketers, including PPL Montana, caused, contributed to and/or participated in the plaintiffs' alleged losses. This litigation, originally brought in state court in California, has been removed to federal court in California.

In addition, PPL Montana has been named as a defendant in a declaratory judgment action initiated by the State of California to prevent certain members of the California Power Exchange from seeking compensation for the state's seizure of certain energy contracts. PPL Montana is a member of the California Power Exchange, but it has no energy contracts with or through the California Power Exchange and has not sought compensation in connection with the state's seizure.

Attorneys general in several western states, including California, have begun investigations related to the electricity supply situation in California and other western states. The FERC has determined that all sellers of energy into markets operated by the California ISO and the California Power Exchange, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001 and has initiated an evidentiary hearing concerning refund amounts. The FERC also is considering whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana during the period December 2000 through June 2001. The FERC Administrative Law Judge assigned to the Pacific Northwest proceeding has recommended that no refunds be ordered for such sales into the Pacific Northwest. The FERC presently is considering this recommendation. The FERC has been conducting an additional investigation of alleged price manipulation in power markets in California and the western U.S. In connection with this investigation, the FERC has served several sets of data requests on sellers of energy in those markets, including PPL Montana. PPL Montana sold only a small amount of electricity into the California market during 2000 and 2001 and currently is not selling into that market. In its response to a FERC data request concerning PPL Montana's California trading strategies, PPL Montana explained that it did not engage in the type of California trading strategies that have been attributed to Enron. In responses to FERC data requests concerning whether PPL Montana and PPL EnergyPlus engaged in so-called "wash trades" in the western U.S., PPL Montana and PPL EnergyPlus explained that they have not, and do not, engage in such trades.

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

MPSC Order (PPL, PPL Energy Supply and PPL Montana)

In June 2001, the MPSC issued an order (MPSC Order) in which it found that Montana Power must continue to provide electric service to its customers at tariffed rates until its transition plan under the Montana Electricity Utility Industry Restructuring and Customer Choice Act is finally approved, and that purchasers of generating assets from Montana Power must provide electricity to meet Montana Power's full load requirements at prices to Montana Power that reflect costs calculated as if the generating assets had not been sold. PPL Montana purchased Montana Power's interests in two coal-fired plants and 11 hydroelectric units in 1999, and NorthWestern Energy purchased Montana Power's electricity delivery business in the first quarter of 2002.

In July 2001, PPL Montana filed a complaint against the MPSC with the U.S. District Court in Helena, Montana, challenging the MPSC Order. In its complaint, PPL Montana asserted, among other things, that the Federal Power Act preempts states from exercising regulatory authority over the sale of electricity in wholesale markets, and requested the court to declare the MPSC action preempted, unconstitutional and void. In addition, the complaint requested that the MPSC be enjoined from seeking to exercise any authority, control or regulation of wholesale sales from PPL Montana's generating assets. In March 2002, the District Court dismissed PPL Montana's lawsuit on procedural grounds, ruling that the Eleventh Amendment to the U.S. Constitution prevented PPL Montana from bringing the action in federal court. The District Court noted that the action could be filed in a state court in Montana. PPL Montana has appealed the District Court's ruling to the United States Court of Appeals for the Ninth Circuit. In July 2002, the MPSC filed an unopposed motion for summary disposition of the appeal, requesting the Ninth Circuit to reverse the District Court's ruling and send the case back to the District Court in light of a recent Eleventh Amendment decision by the U.S. Supreme Court. The Ninth Circuit has not yet acted on the MPSC's unopposed motion.

At this time, PPL Montana cannot predict the outcome of the proceedings related to the MPSC Order, what actions the MPSC, the Montana Legislature or any other governmental authority may take on these or related matters, or the ultimate impact on PPL, PPL Energy Supply and PPL Montana of any of these matters.

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

In August 2001, a purported class-action lawsuit was filed by a group of shareholders of Montana Power against Montana Power, the directors of Montana Power, certain unnamed advisors and consultants of Montana Power and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to and participated in a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. In November 2001, PPL Montana and the other defendants filed a motion to dismiss the plaintiffs' complaint on the basis that it fails to state a claim upon which relief may be granted, and the plaintiffs filed a motion for the lawsuit to be certified by the court as a class-action. In August 2002, the court denied this motion to dismiss, except as to certain matters not relating to PPL Montana, and granted the plaintiffs' motion for certification of the lawsuit as a class-action. PPL Montana cannot predict the outcome of this matter.

Employee Litigation (PPL Energy Supply and PPL Montana)

In April 2000, three employees at PPL Montana's Colstrip facility were burned when an equipment fault in Colstrip Unit 1 caused electrical arcing. In May 2000, the injured employees and their spouses filed litigation for their injuries in Montana district court against Montana Power. PPL Montana was subsequently named as a party defendant to the litigation. In April 2002, PPL Montana filed a pleading, naming Montana Power, seeking indemnification for any damages assessed against PPL Montana. In June 2002, PPL Montana settled this litigation and its indemnification claims against Montana Power pursuant to a settlement agreement with the plaintiffs and Montana Power.

PJM Market Monitor Report (PPL, PPL Energy Supply and PPL Electric)

In November 2001, the PJM Market Monitor publicly released a report prepared for the PUC entitled "Capacity Market Questions" relating to the pricing of installed capacity in the PJM daily market during the first quarter of 2001. The report concludes that PPL EnergyPlus (identified in the report as "Entity 1") was able to exercise market power to raise the market-clearing price above the competitive level during that period. PPL EnergyPlus does not agree with the Market Monitor's conclusions that it exercised market power; in addition, the Market Monitor acknowledged in his report that PJM's standards and rules did not prohibit PPL EnergyPlus' conduct. In November 2001, the PUC issued an Investigation Order directing its Law Bureau to conduct an investigation into the PJM capacity market and the allegations in the Market Monitor's report. In June 2002, the PUC issued an investigation report alleging, among other things, that PPL had "unfairly manipulated electricity markets in early 2001," and that "there was an unlawful exercise of market power and market rules gaming by PPL" that was damaging to wholesale and retail electricity markets in Pennsylvania. The PUC stated that it was not authorized to, and was not attempting to, adjudicate the merits of PPL's defenses to these charges, but has referred the matter to the U.S. Department of Justice -- Antitrust Division, or DOJ, the FERC and the Pennsylvania Attorney General. PPL had previously responded to certain information requests of the DOJ in connection with a civil investigative demand regarding capacity transactions in the PJM, and PPL has agreed to provide the Office of the Pennsylvania Attorney General with any information that it provided to the DOJ. In addition, in July 2002, PPL appealed the PUC order to the Commonwealth Court of Pennsylvania. Although PPL believes that the PUC's report is inaccurate, that its conclusions are groundless, and that PPL acted ethically and legally, in compliance with all applicable laws and regulations, PPL cannot predict the outcome or extent of any investigations, litigation or other proceedings related to this matter.

FERC Market-based Rates (PPL and PPL Energy Supply)

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

FERC Notice of Proposed Rulemaking (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

On July 31, 2002, the FERC issued a Notice of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design." The proposed rule is currently available for public comment, with a final rule expected in late 2002. The FERC plans to begin implementing the final rule by July 31, 2003. This far-reaching proposed rule purports to establish uniform transmission rules and establish a standard market design by, among other things:

enacting standard transmission tariffs and uniform market mechanisms,
monitoring and mitigating "market power,"
managing transmission congestion through pricing and tradable financial rights,
requiring independent operational control over transmission facilities,
forming state advisory committees on regional transmission organizations and resource adequacy, and
exercising FERC jurisdiction over all transmission service.

This proposed rule may have a significant impact on PPL and its subsidiaries. PPL is evaluating this new proposal, but cannot predict, at this time, what impact any final rule will have on PPL.

Energy Supply to Energy West Resources, Inc. (PPL Energy Supply and PPL Montana)

In July 2001, PPL Montana filed an action in state court and a responsive pleading in federal court, both related to a breach of contract by Energy West Resources, Inc. (Energy West), a Great Falls, Montana-based energy aggregator. PPL Montana is seeking a judgment that Energy West violated the terms of the contract under which it supplies energy to Energy West and should pay damages of at least $7.5 million. All litigation in this matter has been consolidated in the U. S. District Court for the District of Montana, Great Falls Division, and is proceeding in that forum. PPL Montana cannot predict the ultimate outcome of these proceedings.

Montana Hydroelectric Initiative (PPL, PPL Energy Supply and PPL Montana)

In July 2002, the Montana Secretary of State certified, in accordance with applicable statutes, that a proposed Montana Hydroelectric Security Act initiative had received sufficient signatures to be placed on the November 2002 statewide ballot. Among the stated purposes of the initiative is to create an elected Montana public power commission to determine whether purchasing hydroelectric dams in Montana is in the public interest. Such a commission could decide to acquire any or all of the hydroelectric dams owned by PPL Montana either pursuant to a negotiated purchase or an acquisition at fair market value through the power of condemnation. PPL Montana has declared its opposition to, and intends to vigorously oppose, the initiative. PPL Montana, in addition to several other Montana groups and individuals, has filed a lawsuit in Montana state court alleging that the initiative violates the Montana state constitution and should not be included on the November 2002 statewide ballot. At this time, PPL, PPL Energy Supply and PPL Montana cannot predict whether the legal challenge to the initiative will be successful, whether it would pass if on the ballot or what impact, if any, the measure might ultimately have upon PPL Montana or its hydroelectric operations.

Montana Hydroelectric License Contingencies (PPL Montana)

PPL Montana has 11 hydroelectric facilities and one storage reservoir licensed by the FERC pursuant to the Federal Power Act under long-term licenses which expire on varying dates from 2009 through 2040. Pursuant to Section 8(e) of the Federal Power Act, the FERC approved the transfer from Montana Power of all pertinent licenses, and any amendments thereto, for the ownership and operation of these facilities purchased by PPL Montana.

The Kerr Dam Project license was jointly issued by the FERC to Montana Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation in 1985, and required Montana Power to hold and operate the project for 30 years. The license required Montana Power, and subsequently PPL Montana as a result of the purchase of the Kerr Dam from Montana Power, to continue to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife and the habitat. Such implementation will require payments totaling approximately $6 million between 2002 to 2020.

Colstrip Transmission System (PPL, PPL Energy Supply and PPL Montana)

PPL Global was party to separate APAs with Portland General Electric Company (PGE) and Puget Sound Energy, Inc. (PSE) to purchase their respective interests in the Colstrip Units and certain related transmission assets and rights. The interested parties mutually agreed to terminate the APAs.

The Montana Power APA, previously assigned to PPL Montana by PPL Global, includes a provision concerning the purchase by PPL Montana of a portion of NorthWestern Energy's interest in the 500-kilovolt Colstrip Transmission System (CTS) for $97 million. PPL Montana is currently in discussions with NorthWestern Energy regarding the purchase of the CTS and the claims that PPL Montana believes it has against NorthWestern Energy arising from the Montana Power APA and related agreements. Notwithstanding these ongoing discussions, on August 5, 2002, NorthWestern Energy filed, but has not yet served, a lawsuit against PPL Montana in Montana state court seeking specific performance of PPL Montana's purchase of the CTS or, alternatively, damages for breach of contract. PPL cannot predict the outcome of the ongoing discussions, whether PPL Montana will be served with the lawsuit or the outcome of the litigation filed by NorthWestern Energy.

Nuclear Insurance (PPL and PPL Energy Supply)

PPL Susquehanna is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PPL Susquehanna is also a member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience. Effective April 1, 2002, this maximum assessment increased from $20 million to $40 million, to increase the insurer's capacity to cover catastrophic losses.

PPL Susquehanna's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $9.5 billion under provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price Anderson Amendments Act of 1988, PPL Susquehanna could be assessed up to $176 million per incident, payable at $20 million per year.

Environmental Matters

Air (PPL, PPL Energy Supply and PPL Montana)

The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions in the U.S. PPL's subsidiaries are in substantial compliance with the Clean Air Act.

The Bush administration and certain members of Congress have made proposals regarding possible amendments to the Clean Air Act. These amendments could require significant further reductions in NO_x, SO₂ and mercury and could possibly require measures to limit CO₂.

The Pennsylvania DEP has finalized regulations requiring further seasonal (May-June) NO_x reductions to 80% from 1990 levels starting in 2003. These further reductions are based on the requirements of the Northeast Ozone Transport Region Memorandum of Understanding and two EPA ambient ozone initiatives: the September 1998 EPA State Implementation Plan (SIP) call (i.e., EPA's requirement for states to revise their SIPs) issued under Section 110 of the Clean Air Act, requiring reductions from 22 eastern states, including Pennsylvania; and the EPA's approval of petitions filed by Northeastern states, requiring reductions from sources in 12 Northeastern states and Washington D.C., including PPL sources. The EPA's SIP-call was substantially upheld by the D.C. Circuit Court of Appeals on challenge. Although the Court extended the implementation deadline to May 2004, the Pennsylvania DEP has not changed its rules accordingly. PPL expects to achieve the 2003 NO_x reductions with the recent installation of SCR technology on the Montour units, and the planned installation of SCR technology on a Brunner Island unit.

The EPA has also developed new standards for ambient levels of ozone and fine particulates in the U.S. These standards have been upheld following court challenges. The new particulates standard may require further reductions in SO₂ and year-round NO_x reductions commencing in 2010-2012 at SIP-call levels in Pennsylvania for certain PPL subsidiaries, and at slightly less stringent levels in Montana. The revised ozone standard is not expected to have a material effect on facilities of PPL subsidiaries.

Under the Clean Air Act, the EPA has been studying the health effects of hazardous air emissions from power plants and other sources in order to determine what emissions should be regulated, and has determined that mercury emissions must be regulated. The EPA may determine that other hazardous air emissions from power plants should be regulated. In this regard, the EPA is expected to develop mercury regulations by 2004.

In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation and commenced enforcement activities against other utilities. Although the EPA has threatened to continue expanding its enforcement actions, the future direction of the "New Source" requirements is presently unclear. Therefore, at this time, PPL is unable to predict whether such EPA enforcement actions will be brought with respect to any of its affiliates' plants. However, the EPA regional offices that regulate plants in Pennsylvania (Region III) and Montana (Region VIII) have indicated an intention to issue information requests to all utilities in their jurisdiction. The Region VIII office issued such a request to PPL Montana's Corette plant in 2000 and the Region III office issued such a request to PPL Generation's Martins Creek plant in 2002. PPL and its subsidiaries have responded to the Corette information request and are in the process of responding to the Martins Creek information request. PPL cannot presently predict what, if any, action the EPA might take in this regard. Should the EPA or any state initiate one or more enforcement actions against PPL or its subsidiaries, compliance with any such enforcement actions could result in additional capital and operating expenses in amounts which are not now determinable, but which could be significant.

The EPA is also proposing to revise its regulations in a way that will require power plants to meet "New Source" performance standards and/or undergo "New Source" review for many maintenance and repair activities that are currently exempt.

The New Jersey DEP and some New Jersey residents have raised environmental concerns with respect to the Martins Creek plant, particularly with respect to SO₂ emissions. PPL Martins Creek is discussing these concerns with the New Jersey DEP. The cost of addressing New Jersey's SO₂concerns and opacity issues is not now determinable but could be significant.

The Air Quality Plan Approval issued by the Pennsylvania DEP for construction of the Lower Mt. Bethel facility has been appealed by the New Jersey DEP to the Pennsylvania DEP Environmental Hearing Board. The PPL Global subsidiary involved in the Lower Mt. Bethel lease financing has joined with the Pennsylvania DEP in opposing this appeal. In addition, in August 2002, the Northampton County Court of Common Pleas issued a decision concerning the permissible noise levels from the Lower Mt. Bethel facility when it becomes operational. Specifically, the court's decision addressed the noise measurement criteria and the point at which the noise levels are to be measured. PPL is currently evaluating the court's decision. The Lower Mt. Bethel facility is expected to be operational in 2004. PPL cannot predict the outcome of these matters or their ultimate impact on the Lower Mt. Bethel facility, on PPL or on PPL Energy Supply, but such impact may be material.

Water/Waste (PPL, PPL Energy Supply and PPL Montana)

The final NPDES permit for the Montour plant contains stringent limits for iron discharges. The results of a toxic reduction study show that additional water treatment facilities or operational changes are needed at this station. A plan for these changes was submitted and has been approved by the Pennsylvania DEP. PPL Energy Supply estimates that the cost of the treatment facilities will be under $3 million.

A final NPDES permit has been issued to the Brunner Island generating plant. The permit contains a provision requiring further studies on the thermal impact of the cooling water discharge from the plant. Depending on the outcome of these studies, the plant could be subject to capital and operating costs that are not now determinable, but which could be significant.

The EPA has significantly tightened the water quality standard for arsenic. The revised standard may require several PPL subsidiaries to further treat wastewater and/or take abatement action at their power plants, the cost of which is not now determinable, but which could be significant.

The EPA recently finalized requirements for new or modified water intake structures. These requirements will affect where generating facilities are built, will establish intake design standards, and could lead to requirements for cooling towers at new and modified power plants. Another new rule, expected to be finalized in 2003, will address existing structures. Each of these rules could impose significant operating costs on PPL subsidiaries, which are not now determinable, but which could be significant.

Superfund and Other Remediation

(PPL and PPL Electric)

In 1995, PPL Electric entered into a consent order with the Pennsylvania DEP to address a number of sites where it may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; and oil or other contamination which may exist at some of PPL Electric's former generating facilities. As of June 30, 2002, work has been completed on over 80% of the sites included in the consent order.

In 1996, PPL Gas Utilities entered into a similar consent order with the Pennsylvania DEP to address a number of sites where subsidiaries of PPL Gas Utilities may be liable for remediation. The sites primarily include former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities are also investigating the potential for any mercury contamination from gas meters and regulators. Accordingly, PPL Gas Utilities and Pennsylvania DEP have agreed to add 72 meter/regulation sites to the consent order and had addressed five of these sites by June 30, 2002.

At June 30, 2002, PPL Electric and PPL Gas Utilities had accrued approximately $5 million and $10 million, representing the estimated amounts they will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above.

(PPL, PPL Energy Supply and PPL Montana)

In conjunction with its 1999 sale of generating assets to PPL Montana, Montana Power prepared a Phase I and Phase II Environmental Site Assessment. The assessment identifies approximately $7 million of future capital expenditures through the year 2020 related to various groundwater remediation issues. Additional capital expenditures could be required in amounts which are not now determinable, but which could be significant.

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

Under the Montana Power APA, PPL Montana is indemnified by Montana Power for any pre-acquisition environmental liabilities. However, this indemnification is conditioned on certain circumstances and subject to certain limitations set forth in the Montana Power APA, including circumstances under which PPL Montana and Montana Power would share in certain costs. As a result of the acquisition by NorthWestern Energy of Montana Power's electricity delivery business, PPL Montana may need to pursue any such indemnification claims against NorthWestern Energy.

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.

General

(PPL and PPL Energy Supply)

Certain of PPL's affiliates have electric distribution operations in the U.K. and Latin America. PPL believes that these operations are in compliance in all material respects with all applicable laws and government regulations to protect the environment. PPL is not aware of any material administrative proceeding against these companies with respect to any environmental matter.

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

(PPL, PPL Energy Supply, PPL Electric and PPL Montana)

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

Credit Support

(PPL and PPL Energy Supply)

PPL and PPL Energy Supply provide certain guarantees for their subsidiaries. PPL has guaranteed fully and unconditionally all of the debt of its wholly-owned subsidiary, PPL Capital Funding, which at June 30, 2002, consisted of $1.3 billion of medium-term notes. At June 30, 2002, PPL has guaranteed certain obligations under power purchase and sales agreements of PPL EnergyPlus for $43 million and certain obligations of other subsidiaries, totaling $37 million. As of June 30, 2002, PPL Energy Supply had guaranteed certain obligations of its subsidiaries totaling $754 million.

(PPL Electric)

At June 30, 2002, PPL Electric provided a guarantee in the amount of $7 million in support of Safe Harbor Water Power Corporation, in which PPL Electric had an ownership interest prior to the corporate realignment. PPL Holtwood now has this ownership interest.

Related Party Transactions

PLR Contracts (PPL Energy Supply and PPL Electric)

PPL Electric has power sales agreements with PPL EnergyPlus, effective January 1, 2002, to supply all of PPL Electric's PLR load through 2009. Under these contracts, PPL EnergyPlus will provide electricity at the pre-determined capped prices that PPL Electric is authorized to charge its PLR customers. For the three and six months ended June 30, 2002, these sales totaled $339 million and $708 million, including nuclear decommissioning recovery and amortization of an up-front contract payment. For the three and six months ended June 30, 2001, these sales totaled $300 million and $634 million, including nuclear decommissioning recovery, under the previous PLR contract. These sales are included in the Statement of Income as "Energy purchases from affiliate" by PPL Electric and as "Wholesale energy marketing to affiliates" revenues by PPL Energy Supply.

Under the current PLR contracts, PPL Electric is required to make performance assurance deposits with PPL EnergyPlus when the market price of electricity is less than the contract price by more than its contract collateral threshold. Conversely, PPL EnergyPlus is required to make performance assurance deposits with PPL Electric when the market price of electricity is greater than the contract price by more than its contract collateral threshold. PPL Electric's deposit with PPL EnergyPlus was $68 million at June 30, 2002. This deposit is shown on the Balance Sheets as "Collateral on PLR energy supply to/from affiliate," a current asset of PPL Electric and a current liability of PPL Energy Supply. PPL Energy Supply pays interest equal to the three-month LIBOR plus 3% on this deposit, which is included in the Statement of Income as "Interest Expense with Affiliate."

NUG Purchases (PPL Energy Supply and PPL Electric)

PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates and then sells the electricity at the same price to PPL EnergyPlus. For the three months ended June 30, 2002 and 2001, these NUG purchases totaled $40 million and $43 million and for the six months ended June 30, 2002 and 2001 were $82 million and $88 million. These amounts are included in the Statement of Income as "Wholesale electric to affiliate" revenues by PPL Electric, and as "Energy purchases from affiliates" by PPL Energy Supply.

Montana Retail Supply (PPL Montana)

PPL Montana has a memorandum of understanding (MOU) with PPL EnergyPlus regarding the supply of energy to satisfy PPL EnergyPlus' obligations under its retail contracts, which expires on December 31, 2002. Under the MOU, energy sales to PPL EnergyPlus for the three months ended June 30, 2002 and 2001 were $13 million and $23 million and for the six months ended June 30, 2002 and 2001 were $30 million and $55 million. These amounts are included in "Wholesale energy marketing to affiliate" revenues on the Statement of Income.

Brokering and Contract Management Agreement (PPL Montana)

Under a wholesale sales brokering and contract management agreement between PPL Montana and PPL EnergyPlus, PPL Montana paid PPL EnergyPlus $2 million and $1 million for the three months ended June 30, 2002 and 2001. For the six months ended June 30, 2002 and 2001, the payments were $4 million and $2 million. PPL Montana records this expense as "Other operation and maintenance" on the Statement of Income.

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

Corporate functions such as financial, legal, human resources and information services were transferred to PPL Services in the corporate realignment. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that is not directly charged to PPL subsidiaries is allocated to certain of the subsidiaries based on the relative capital invested by PPL in these subsidiaries. PPL Services allocated the following charges to PPL Energy Supply, PPL Electric and PPL Montana (in millions):

		Three Months Ended June 30,				Six Months Ended June 30,
		2002		2001		2002		2001

Direct expenses
	PPL Energy Supply	$	23	$	20	$	43	$	36
	PPL Electric		14		17		28		33
	PPL Montana		3		1		4		2
Overhead costs
	PPL Energy Supply		6		3		13		12
	PPL Electric		7		6		13		11
	PPL Montana		3		1		5		2

Intercompany Borrowings

(PPL Energy Supply)

PPL, through PPL Capital Funding and other subsidiaries, provides certain funding and credit support for PPL Energy Supply and its subsidiaries. Such funding includes loans that are due on demand with interest charged at a rate based on PPL Capital Funding's short-term borrowing rate. PPL Energy Supply had no notes payable to affiliates at June 30, 2002 or December 31, 2001 and consequently had no intercompany interest expense in 2002 related to intercompany borrowings.

PPL Energy Supply, through its financing subsidiary PPL Investment Corporation, had notes receivable from affiliates of PPL totaling $243 million and $395 million at June 30, 2002 and December 31, 2001. Interest earned on loans to affiliates was $6 million and $11 million for the three months ended June 30, 2002 and 2001, and was $11 million and $19 million for the six months ended June 30, 2002 and 2001.

(PPL Electric)

In December 2001, PPL Electric made two loans from excess cash to PPL Energy Funding in the aggregate principal amount of $350 million. One loan was a demand promissory note in the original principal amount of $150 million requiring interest to be paid monthly at an annual interest rate of 4.0%. The other loan was a one-year term promissory note in the original principal amount of $200 million requiring interest to be paid monthly at an annual interest rate of 6.5%. The outstanding balance of these loans at June 30, 2002 was $80 million. Intercompany interest income was $1 million for the three months ended June 30, 2002 and 2001, and was $5 million for the six months ended June 30, 2002 and 2001.

Derivative Instruments and Hedging Activities

(PPL, PPL Energy Supply and PPL Montana)

Fair Value Hedges

PPL Energy Supply and PPL Montana enter into financial or physical contracts to hedge a portion of the fair value of firm commitments of forward electricity sales. These contracts range in maturity through 2007. Additionally, PPL and PPL Energy Supply enter into financial contracts to hedge fluctuations in the market value of existing debt issuances. For the three and six months ended June 30, 2002, PPL and PPL Energy Supply recognized an immaterial amount from the ineffective portion of fair value hedges and did not recognize any gains or losses from firm commitments that no longer qualified as fair value hedges. For these same periods PPL Montana did not recognize any gains or losses from the ineffective portion of fair value hedges or from firm commitments that no longer qualified as fair value hedges. For the three and six months ended June 30, 2001, PPL, PPL Energy Supply and PPL Montana did not recognize any gains or losses from the ineffective portion of fair value hedges or from firm commitments that no longer qualified as fair value hedges.

Cash Flow Hedges

PPL Energy Supply and PPL Montana enter into financial and physical contracts, including forwards, futures and swaps, to hedge the price risk associated with electric, gas and oil commodities. Additionally, PPL enters into financial interest rate swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. These contracts and swaps, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, range in maturity through 2022. PPL also enters into foreign currency forward contracts to hedge exchange rates associated with firm commitments denominated in foreign currencies and to hedge the net investment of foreign operations. These forward contracts range in maturity through 2003.

The after-tax impact on the financial statements of PPL and PPL Energy Supply resulting from cash flow hedge ineffectiveness was insignificant for the three and six months ended June 30, 2002, and was an after-tax gain of $3 million for the three and six months ended June 30, 2001.

Cash flow hedges may be discontinued because it is probable that the original forecasted transaction will not occur by the end of the originally specified time period. Reclassifications for the three and six months ended June 30, 2002 were insignificant. As a result of an unplanned outage in 2001 and changes in economic conditions, PPL Energy Supply and PPL Montana discontinued certain cash flow hedges, resulting in the following gain/(loss) reclassifications (millions of dollars):

	Three Months Ended June 30, 2001		Six Months Ended June 30, 2001
PPL	$	7	$	(10	)
PPL Energy Supply		7		(10	)
PPL Montana		7		7

As of June 30, 2002, the deferred net gain, after-tax, on derivative instruments in accumulated other comprehensive income expected to be reclassified into earnings during the next twelve months (excluding derivative activities of equity investments) was $5 million, $7 million, and $6 million for PPL, PPL Energy Supply and PPL Montana, respectively.

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

		Three Months Ended June 30, 2002			Six Months Ended June 30, 2002
PPL
	Beginning accumulated derivative gain	$	12		$	23
	Net change associated with current period hedging activities and other					(8	)
	Net change associated with C15 accounting change (a)		(3	)		(6	)
	Net change from reclassification into earnings		3			3

	Ending accumulated derivative gain	$	12		$	12

PPL Energy Supply
	Beginning accumulated derivative gain	$	34		$	47
	Net change associated with current period hedging activities and other		(2	)		(11	)
	Net change associated with C15 accounting change (a)		(3	)		(6	)
	Net change from reclassification into earnings		4			3

	Ending accumulated derivative gain	$	33		$	33

PPL Montana
	Beginning accumulated derivative gain	$	19		$	33
	Net change associated with current period hedging activities and other		(2	)		(13	)
	Net change from reclassification into earnings		3

	Ending accumulated derivative gain	$	20		$	20

(a)

On June 27, 2001, the FASB cleared DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Option-Type Contracts and Forward Contracts in Electricity," which extends the normal purchases and normal sales exception to electricity purchase and sale agreements meeting certain criteria. The mark-to-market value recorded in accumulated other comprehensive income as of June 30, 2001 is being amortized through the original delivery term of the contracts.

Implementation Issues

In December 2001, the FASB revised guidance on DIG Issue C16, "Scope Exceptions: Applying the Normal Purchases and Normal Sales Exception to Contracts that Combine a Forward Contract and a Purchased Option Contract." Issue C16 provides additional guidance on the classification and application of SFAS 133 relating to purchases and sales of electricity utilizing forward contracts and options, as well as the eligibility of fuel contracts for the normal purchases and normal sales exception. The revised guidance was effective April 1, 2002. PPL had no financial statement impact from the revised guidance on fuel contracts classified as normal.

EITF 02-3, Accounting for Contracts Involved in Trading and Risk Management Activities

In June 2002, the FASB's EITF adopted the position that revenues from energy trading contracts must be reported "net" in financial statements for periods ending after June 30, 2002. The EITF requires that all comparative financial statements for interim periods or years should be restated (reclassified) to conform to this consensus. Although this new accounting guidance will require changes to certain line items in the financial statements, it will not impact PPL's overall financial position or earnings. Rather, the portion of PPL's revenues from wholesale energy marketing and trading will be netted against expenses from energy purchases that represent energy trading activities. PPL has not yet quantified the financial statement impact from this revised guidance.

Credit Concentration

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

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

At June 30, 2002, PPL had a credit exposure of $332 million to energy trading partners. Four counterparties accounted for 63% of this exposure. No other individual counterparty accounted for more than 2% of the exposure. Each of the four primary counterparties has an investment grade credit rating from Standard & Poor's.

At June 30, 2002, PPL Energy Supply had a credit exposure of $550 million to energy trading partners. Five counterparties accounted for 78% of this exposure. No other individual counterparty accounted for more than 1% of the exposure. The largest exposure, $218 million, was to PPL Electric, under the long-term contract to provide PPL Electric's PLR load. PPL Electric has posted collateral in an amount of $68 million related to this exposure in accordance with its contract with PPL Energy Supply. The other four counterparties have an investment grade credit rating from Standard & Poor's.

At June 30, 2002, PPL Montana had a credit exposure of $164 million to energy trading partners. Three counterparties accounted for 95% of this exposure. No other individual counterparty accounted for more than 2% of the exposure. Each of the three primary counterparties has an investment grade credit rating from Standard & Poor's.

With the exception of one counterparty, a government agency, PPL, PPL Energy Supply and PPL Montana have the right to request collateral from each of these counterparties in the event their credit rating falls below investment grade. It is also the policy of PPL, PPL Energy Supply and PPL Montana to enter into netting agreements with all of its counterparties to minimize credit exposure.

Other Income - Net

(PPL)

The breakdown of PPL's Other Income was as follows (millions of dollars):

		Three Months Ended June 30,				Six Months Ended June 30,
		2002		2001		2002		2001

Other Income
	Interest income	$	4	$	2	$	9	$	6
	Equity earnings						1		(1	)
	Misc. other income		4		8		8		17

	Total		8		10		18		22

Other Deductions
	Misc. other deductions		2		4		7		10

Other Income - net		$	6	$	6	$	11	$	12

(PPL Energy Supply)

The breakdown of PPL Energy Supply's Other Income was as follows (millions of dollars):

		Three Months Ended June 30,				Six Months Ended June 30,
		2002		2001		2002		2001

Other Income
	Affiliated interest income	$	6	$	11	$	11	$	19
	Interest income		3		1		5		3
	Equity earnings		1		1		2		2
	Misc. other income		4		7		6		14

	Total		14		20		24		38

Other Deductions
	Misc. other deductions		2		2		3		6

Other Income - net		$	12	$	18	$	21	$	32

(PPL Electric)

The breakdown of PPL Electric's Other Income was as follows (millions of dollars):

		Three Months Ended June 30,				Six Months Ended June 30,
		2002		2001		2002		2001

Other Income
	Affiliated interest income	$	1	$	1	$	5	$	5
	Interest income		1		1		2		2
	Misc. other income						1

	Total		2		2		8		7

Other Deductions
	Misc. other deductions				1		1		2

Other Income - net		$	2	$	1	$	7	$	5

Goodwill and Other Intangible Assets

In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which eliminates the amortization of goodwill and other acquired intangible assets with indefinite economic useful lives. SFAS 142 requires an annual impairment test of goodwill at the reporting unit level. A reporting unit is a segment or one level below a segment (referred to as a component). Intangible assets other than goodwill that are not subject to amortization are also required to undergo an annual impairment test. PPL and its subsidiaries adopted SFAS 142 on January 1, 2002. Previously reported information has been restated to conform to the current presentation. The following information is disclosed in accordance with SFAS 142.

Acquired Intangible Assets

(PPL)

The carrying amount and the accumulated amortization of acquired intangible assets were as follows (millions of dollars):

	June 30, 2002					December 31, 2001
	Carrying Amount		Accumulated Amortization			Carrying Amount		Accumulated Amortization
Emission allowances	$	50				$	36
Land and transmission rights		241		$	88		247		$	86
Licenses and other		32			4		31			4

	$	323		$	92	$	314		$	90

Current intangible assets are included in "Current Assets - Other," and long-term intangible assets are included in "Regulatory and Other Noncurrent Assets - Other" on the Balance Sheet.

Amortization expense was approximately $1 million and $2 million for the three and six months ended June 30, 2002. Estimated amortization expense for the years 2003 through 2007 is $5 million per year.

(PPL Energy Supply)

The carrying amount and the accumulated amortization of acquired intangible assets were as follows (millions of dollars):

	June 30, 2002					December 31, 2001
	Carrying Amount		Accumulated Amortization			Carrying Amount		Accumulated Amortization

Emission allowances	$	50				$	36
Land and transmission rights		49		$	14		49		$	13
Licenses and other		32			4		31			4

	$	131		$	18	$	116		$	17

Current intangible assets are included in "Current Assets - Other," and long-term intangible assets are included in "Other Noncurrent Assets" on the Balance Sheet.

Amortization expense was approximately $1 million for the three and six months ended June 30, 2002. Estimated amortization expense for the years 2003 through 2007 is $2 million per year.

(PPL Electric)

The carrying amount and the accumulated amortization of acquired intangible assets were as follows (millions of dollars):

	June 30, 2002					December 31, 2001
	Carrying Amount		Accumulated Amortization			Carrying Amount		Accumulated Amortization

Land and transmission rights	$	191		$	73	$	197		$	72

Intangible assets are included in "Regulatory and Other Noncurrent Assets - Other" on the Balance Sheet.

Amortization expense was approximately $1 million for the three and six months ended June 30, 2002. Estimated amortization expense for the years 2003 through 2007 is $2 million per year.

(PPL Montana)

The carrying amount and the accumulated amortization of acquired intangible assets were as follows (millions of dollars):

	June 30, 2002			December 31, 2001
	Carrying Amount		Accumulated Amortization	Carrying Amount		Accumulated Amortization

Emission allowances	$	19		$	19
Licenses and other		15			15

	$	34		$	34

Current intangible assets are included in "Prepayments and other," and long-term intangible assets are included in "Noncurrent Assets - Other" on the Balance Sheet.

Amortization expense was immaterial for the three and six months ended June 30, 2002. Estimated amortization expense is immaterial for each of the years 2003 through 2007.

Goodwill

(PPL and PPL Energy Supply)

The changes in the carrying amounts of goodwill by segment were as follows (millions of dollars):

		PPL Energy Supply										PPL
		Supply		International			Total			Delivery(a)		Total

Balance as of January 1, 2002		$	72	$	257		$	329		$	55	$	384
Goodwill acquired			12		5			17					17
Effect of foreign exchange rates					7			7					7
Impairment losses					(150	)		(150	)				(150	)

Balance as of June 30, 2002		$	84	$	119		$	203		$	55	$	258

(a)	The Delivery segment is not part of PPL Energy Supply.

Goodwill is included in other noncurrent assets on the Balance Sheet.

The reporting units of the Supply, Delivery and International segments completed the transition impairment test in the first quarter of 2002. A transition goodwill impairment loss of $150 million was recognized in the Latin American reporting unit within the International segment, and is reported as a "Cumulative Effect of a Change in Accounting Principle" on the Statement of Income. The fair value of the reporting unit was estimated using the expected present value of future cash flows.

The following table reconciles reported earnings from prior periods to earnings adjusted to exclude the amortization expense related to goodwill and equity method goodwill that will no longer be recorded in accordance with SFAS 142.

(PPL)

	Three Months Ended June 30,					Six Months Ended June 30,
	2002			2001		2002			2001

(Millions of Dollars, except per share data)
Reported net income (loss)	$	(27	)	$	117	$	(30	)	$	339
Add back: Goodwill amortization					3					7
Add back: Equity method goodwill amortization					1					2

Adjusted net income (loss)	$	(27	)	$	121	$	(30	)	$	348

Basic EPS:
Reported net income (loss)	$	(0.18	)	$	0.80	$	(0.20	)	$	2.33
Goodwill amortization					0.02					0.05
Equity method goodwill amortization					0.01					0.01

Adjusted net income (loss)	$	(0.18	)	$	0.83	$	(0.20	)	$	2.39

Diluted EPS:
Reported net income (loss)	$	(0.18	)	$	0.80	$	(0.20	)	$	2.31
Goodwill amortization					0.02					0.05
Equity method goodwill amortization					0.01					0.01

Adjusted net income (loss)	$	(0.18	)	$	0.83	$	(0.20	)	$	2.37

(PPL Energy Supply)

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001

(Millions of Dollars)
Reported net income	$	9	$	124	$	4	$	325
Add back: Goodwill amortization				3				6
Add back: Equity method goodwill amortization				1				2

Adjusted net income	$	9	$	128	$	4	$	333

(PPL Electric and PPL Montana)

PPL Electric and PPL Montana had no goodwill at June 30, 2002 and December 31, 2001. The adoption of SFAS 142 would not have affected prior period earnings of PPL Electric and PPL Montana.

Reconciliation of Prior Annual Periods to Exclude Amortization

(PPL and PPL Energy Supply)

The following table reconciles reported earnings from prior annual periods to earnings adjusted to exclude the amortization expense related to goodwill and equity method goodwill that will no longer be recorded in accordance with SFAS 142. PPL and PPL Energy Supply were not affected by changes in amortization periods for other intangible assets.

	PPL
	For the Years Ended December 31,
	2001		2000		1999

Reported net income before extraordinary items and cumulative effect of a change in accounting principle	$	169	$	487	$	478
Add back: Goodwill amortization		13		11		8
Add back: Equity method goodwill amortization		3		3		5

Adjusted net income before extraordinary items and cumulative effect of a change in accounting principle	$	185	$	501	$	491

Reported net income	$	179	$	498	$	432
Add back: Goodwill amortization		13		11		8
Add back: Equity method goodwill amortization		3		3		5

Adjusted net income	$	195	$	512	$	445

	PPL
	For the Years Ended December 31,
	2001		2000		1999

Basic EPS:
Reported net income before extraordinary items and cumulative effect of a change in accounting principle	$	1.16	$	3.38	$	3.14
Goodwill amortization		0.09		0.07		0.06
Equity method goodwill amortization		0.02		0.02		0.03

Adjusted net income before extraordinary items and cumulative effect of a change in accounting principle	$	1.27	$	3.47	$	3.23

Reported net income	$	1.23	$	3.45	$	2.84
Goodwill amortization		0.09		0.07		0.06
Equity method goodwill amortization		0.02		0.02		0.03

Adjusted net income	$	1.34	$	3.54	$	2.93

Diluted EPS:
Reported net income before extraordinary items and cumulative effect of a change in accounting principle	$	1.15	$	3.37	$	3.14
Goodwill amortization		0.09		0.07		0.06
Equity method goodwill amortization		0.02		0.02		0.03

Adjusted net income before extraordinary items and cumulative effect of a change in accounting principle	$	1.26	$	3.46	$	3.23

Reported net income	$	1.22	$	3.44	$	2.84
Goodwill amortization		0.09		0.07		0.06
Equity method goodwill amortization		0.02		0.02		0.03

Adjusted net income	$	1.33	$	3.53	$	2.93

	PPL Energy Supply
	For the Years Ended December 31,
	2001		2000		1999

Reported net income (loss) before extraordinary items and cumulative effect of a change in accounting principle	$	171	$	242	$	(35	)
Add back: Goodwill amortization		12		9		7
Add back: Equity method goodwill amortization		3		3		5

Adjusted net income (loss) before extraordinary items and cumulative effect of a change in accounting principle	$	186	$	254	$	(23	)


Reported net income (loss)	$	174	$	242	$	(35	)
Add back: Goodwill amortization		12		9		7
Add back: Equity method goodwill amortization		3		3		5

Adjusted net income (loss)	$	189	$	254	$	(23	)

(PPL Electric and PPL Montana)

PPL Electric and PPL Montana had no goodwill at December 31, 2001, 2000 and 1999. The adoption of SFAS 142 would not have affected prior period earnings of PPL Electric and PPL Montana.

New Accounting Standards

(PPL, PPL Energy Supply, PPL Electric and PPL Montana)

SFAS 143

In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," on the accounting for obligations associated with the retirement of long-lived assets. SFAS 143 requires a liability to be recognized in the financial statements for retirement obligations meeting specific criteria. Measurement of the initial obligation is to approximate fair value, with an equivalent amount recorded as an increase in the value of the capitalized asset. The asset will be depreciated in accordance with normal depreciation policy and the liability will be increased, with a charge to the income statement, until the obligation is settled. SFAS 143 is effective for fiscal years beginning after June 15, 2002. PPL and its subsidiaries are currently in the process of identifying asset retirement obligations. The potential impact of adopting SFAS 143 is not yet determinable, but may be material.

SFAS 144

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss only if the carrying amount is not recoverable from undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. For long-lived assets to be disposed of, SFAS 144 establishes a single accounting model based on the framework established in SFAS 121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. SFAS 144 also broadens the reporting of discontinued operations. PPL and its subsidiaries adopted SFAS 144 on January 1, 2002, with no material impact on the financial statements.

SFAS 145

In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The most relevant provision of SFAS 145 is the rescission of SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt - An Amendment of APB Opinion No. 30," which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result of the rescission, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. The provisions of SFAS 145 related to the rescission of SFAS 4 shall be applied in fiscal years beginning after May 15, 2002, with early application encouraged. The adoption of SFAS 145 will not have a material impact on PPL or its subsidiaries.

SFAS 146

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, with earlier application encouraged. The adoption of SFAS 146 will not have a material impact on PPL or its subsidiaries, but may impact future disposal or exit activities.

EITF 02-3

See Note 10 for a discussion of EITF 02-3 and the potential impact of adoption.
Write-down of International Energy Projects

(PPL and PPL Energy Supply)

At December 31, 2001, PPL Global estimated that the long-term viability of its CEMAR investment was jeopardized and that there was minimal probability of positive future cash flows. See PPL's Note 22 and PPL Energy Supply's Note 21 to the Financial Statements included in each company's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001 for additional information. At that time, PPL Global recorded an impairment loss in the carrying value of its net assets in CEMAR, an increase in its valuation allowance in deferred tax assets, and a credit to "Minority Interest" on the Statement of Income. The net result of these transactions was a $217 million charge to earnings.

At March 31, 2002, PPL Global recorded a further impairment loss in the carrying value of its net assets in CEMAR of approximately $4 million, after-tax. The pre-tax charge was $6 million, and was recorded as a charge to "Write-down of international energy projects" on the Statement of Income.

PPL had been working with governmental authorities in Brazil and CEMAR's creditors on a plan to return the company to financial stability. That plan included CEMAR's request for a rate-increase review, which Brazilian regulators denied in June 2002. PPL viewed the rate-increase review as a critical step in restoring CEMAR to financial stability. While CEMAR has the capability to appeal the regulator's denial, PPL puts a low probability on the chances of any appeal succeeding. Given the regulator's denial of the rate-increase review and the current financial condition of CEMAR, PPL has made a decision to exit the investment. PPL Global's remaining portion of its CEMAR investment, primarily related to its foreign currency translation adjustments balance, was written-off as of June 30, 2002. The $94 million charge was recorded in "Write-down of international energy projects" on the Statement of Income.

In July 2002, PPL announced a proposal to sell all of its 90% equity interest in CEMAR to Franklin Park Energy, LLC. The sale is subject to regulatory approval of Brazil's National Electric Energy Agency and other customary conditions. The purchase and sale agreement may be terminated by either party if closing on the sale does not occur by August 15, 2002. If the sale is not consummated, PPL expects that CEMAR would consider filing for bankruptcy under Brazilian law. PPL cannot predict what position the Brazilian regulator, CEMAR's creditors or others may take in connection with these matters or the ultimate outcome of these matters.

As a result of its financial difficulties, CEMAR has failed to pay certain of its creditors for obligations when due. In addition, CEMAR is not in compliance with the financial covenants in its 150 million Brazilian reals (approximately $56 million) debenture indenture for the year ended December 31, 2001, and for the quarter ended March 31, 2002. CEMAR has reached agreement with the required majority of debenture holders on a waiver for the failure to meet certain financial covenants through measurement periods ending September 30, 2002.
Workforce Reduction

(PPL, PPL Energy Supply and PPL Electric)

In an effort to improve operational efficiency and reduce costs, PPL announced a workforce reduction in June 2002 that eliminated 598 employees, or about 7% of PPL's U.S. workforce, at a cost of $74 million. The program was broad-based and impacted virtually all employee groups except certain positions that are key to providing high-quality service to PPL's electricity delivery customers. Linemen, electricians and line foremen, for example, were not affected by the reductions.

PPL recorded the cost of the program as a one-time charge of $74 million included in the Statement of Income as "Workforce reduction." This charge reduced net income by $43 million after taxes, or 29 cents per share of common stock. Annual savings in operating expenses associated with the workforce reduction are estimated to be approximately $50 million. The program provides for enhanced early retirement benefits and/or one-time special pension separation allowances based on an employee's age and years of service. These features of the program will be paid primarily from the PPL Retirement Plan pension trust and increased PPL's pension liability by $65 million. The remaining $9 million of costs relate primarily to severance payments and outplacement costs which will be paid by PPL, and are included on the Balance Sheet in "Current Liabilities."

PPL Energy Supply eliminated 195 employees and recorded a one-time charge of $40 million, which after taxes reduced net income by $23 million. Included in the charge was a $10 million allocation of the costs associated with the elimination of employees of PPL Services.

PPL Electric eliminated 260 employees and recorded a one-time charge of $33 million, which after taxes reduced net income by $19 million. Included in the charge was a $6 million allocation of the costs associated with the elimination of employees of PPL Services.

PPL CORPORATION AND SUBSIDIARIES

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

This discussion should be read in conjunction with the Financial Statements and Combined Notes to Condensed Consolidated Financial Statements included in Item 1 above, and with the section entitled "Review of the Financial Condition and Results of Operations" in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary.

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income, comparing the three and six months ended June 30, 2002, to the comparable periods in 2001.

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

Earnings

Net income (loss) and the related EPS were as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2002			2001		2002			2001

Net income (loss)
(millions of dollars)	$	(27	)	$	117	$	(30	)	$	339
EPS - basic	$	(0.18	)	$	0.80	$	(0.20	)	$	2.33
EPS - diluted	$	(0.18	)	$	0.80	$	(0.20	)	$	2.31

Net income in 2002 was impacted by three unusual items as shown below. Refer to specific notes to the Financial Statements for discussion of these items.

		Three Months Ended June 30,					Six Months Ended June 30,
		2002			2001		2002			2001

(Millions of dollars)
Net income (loss) - actual		$	(27	)	$	117	$	(30	)	$	339
Unusual items (net of tax):
	SFAS 142 goodwill impairment (Note 12)							(150	)
	Write-down of investment in CEMAR (Note 14)		(94	)				(98	)
	Workforce reduction (Note 15)		(43	)				(43	)

Net income from core operations		$	110		$	117	$	261		$	339

Core earnings declined by $7 million and $78 million for the three and six months ended June 30, 2002, compared to the same periods in 2001. These decreases were primarily due to (after-tax earnings impacts noted in millions of dollars):

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended

Lower wholesale energy margins		$	(26	)	$	(87	)
Lower unregulated retail energy margins			(11	)		(33	)
Lower delivery revenues (net of CTC/ITC amortization)			(2	)		(13	)
PPL Global earnings (a)			4			(5	)
Earnings from synfuel projects (b)			(3	)		3
Higher regulated retail energy margins			30			61
Other - net			1			(4	)

		$	(7	)	$	(78	)


(a)	The increase for the three months ended was due to the discontinuance of goodwill amortization and lower development spending. The decrease for the six months ended was due to higher interest on Latin American debt and lower operating results at equity affiliates, offset by the discontinuance of goodwill amortization and a favorable termination settlement on a cancelled domestic development project.
(b)	The decrease for the three months ended was due to $4 million less in tax credits. (The second quarter of 2001 included additional tax credits which had been deferred pending the receipt of a private letter ruling from the IRS.) The increase for the six months ended was due to higher sales volumes.

PPL expects that the current low level of wholesale energy prices will adversely impact margins for the remainder of this year, and could continue to do so beyond 2002. Based upon current energy price levels, there is a risk that PPL may be unable to recover its investment in new gas-fired generation facilities. Under generally accepted accounting principles, PPL does not believe that there is an impairment charge to be recorded at this time. PPL is unable to predict the ultimate earnings impact of this issue, based upon energy price levels, applicable accounting rules and other factors, but such impact may be material.

PPL also expects that it will incur quarterly operating losses from CEMAR until such time as it exits its investment in CEMAR. See Note 14 to the Financial Statements for information on PPL Global's investment in CEMAR. See "Financial Condition - Liquidity" for a discussion of a possible charge related to PPL Capital Funding's 7.70% Reset Put Securities due 2007.

Domestic Energy Margins

The following tables provide summary data regarding changes in domestic gross margins of wholesale and retail energy for the three and six months ended June 30, 2002, compared with the same periods in 2001 (millions of dollars):

				June 30, 2002 vs. June 30, 2001
				Three Months Ended			Six Months Ended

Utility revenues				$	47		$	25
Unregulated retail electric and gas revenues					(62	)		(152	)
Wholesale energy marketing and trading revenues					(79	)		(269	)
Other revenue adjustments (a)					(1	)		50

	Total revenues				(95	)		(346	)

Fuel					1			(40	)
Purchased power					(84	)		(221	)
Other cost adjustments (a)								16

	Total cost of sales				(83	)		(245	)

			Domestic gross energy margins	$	(12	)	$	(101	)

(a)		Adjusted to exclude the impact of any revenues and costs not associated with domestic energy margins, in particular, revenues and costs related to the international operations of PPL Global and the domestic delivery operations of PPL Electric and PPL Gas Utilities.

Changes in Gross Domestic Energy Margins By Customer:

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended


Wholesale - Eastern U.S.		$	(24	)	$	(44	)
Wholesale - Western U.S.			(20	)		(106	)
Unregulated retail			(19	)		(55	)
Regulated retail			51			104

	Domestic gross energy margins	$	(12	)	$	(101	)

Gross margin calculations are dependent on the allocation of fuel and purchased power costs to the customer segments. That allocation is based on hourly MWh consumption levels compared to hourly MWh supply costs. Any costs specific to a customer segment are charged to that customer segment.

Wholesale - Eastern U.S.

East wholesale margins were lower for the three and six months ended June 30, 2002, compared to the same periods in 2001, primarily due to lower wholesale prices. Average wholesale prices for the three months ended June 30, 2002 were $16/MWh lower than those realized in the same period in 2001. As a result, wholesale revenues were lower by $17 million, despite a 36% increase in wholesale sales. Because of the higher levels of sales, costs were $7 million higher. Average wholesale prices for the year-to-date June 30, 2002 were $12/MWh lower than those realized for the same period in 2001, thereby providing $106 million less in revenues. Partially offsetting this decline were higher volumes of sales, which added $36 million to revenues and a buyout of a NUG contract, which reduced power purchases by $25 million.

Wholesale - Western U.S.

West wholesale margins were lower for the three and six months ended June 30, 2002, compared to the same periods in 2001, primarily due to significantly lower wholesale prices. Average wholesale prices for the three and six months ended June 30, 2002, were $43/MWh and $85/MWh lower than those realized for the same periods in 2001. Lower wholesale prices for the three and six months ended June 30, 2002 account for $76 million and $248 million of margin reductions. These reductions were offset by higher volumes of $56 million and $142 million, due in part to the commercial operations of Griffith Energy.

Unregulated Retail

Unregulated retail margins were lower for the three and six months ended June 30, 2002, compared to the same periods in 2001. These declines were primarily due to lower revenues resulting from the expiration of contracts which were not renewed in the East and to significantly lower retail prices in the West. However, the declines were partially offset by an increase in the number of customers. For the three and six months ended June 30, 2002, lower prices account for $18 million and $57 million of margin reductions.

Regulated Retail

Regulated retail margins in the East were higher for the three and six months ended June 30, 2002, compared to the same periods in 2001. For the three months ended June 30, 2002, increased sales volumes improved margins by $11 million. Higher average sales prices, caused by changes in usage among customer classes, improved margins by $13 million. Finally, lower supply costs in 2002, due to lower purchased power costs, lower fuel costs and increased generating unit availability, improved margins by $27 million. For the six months ended June 30, 2002, increased sales volumes improved margins by $25 million. Higher average prices, caused by changes in usage among customer classes, improved margins by $25 million. Finally, lower supply costs in 2002, due to lower purchased power costs, lower fuel costs and increased generating unit availability, improved margins by $52 million.

Operating Revenues

Utility

The increase (decrease) in utility revenues was attributable to the following (millions of dollars):

			June 30, 2002 vs. June 30, 2001
			Three Months Ended			Six Months Ended

Electric Revenue
	PPL Electric:
		Electric delivery	$	4		$	(24	)
		PLR electric generation supply		37			73
		Other					(3	)
	PPL Global:
		Electric delivery		8
	Other			(2	)		(5	)

				47			41

Gas Revenue
	PPL Gas Utilities						(16	)

			$	47		$	25

The increase in utility operating revenues in both periods was primarily due to PPL Electric's higher revenues from providing electric generation supply as a PLR. During the past 12 months, about 80% to 90% of kWh in PPL Electric's service territory that had been served by alternate suppliers under the Customer Choice Act have returned to PPL Electric as the supplier. Because the bulk of the shoppers returned to PPL Electric as their supplier in July 2001, there should not be similar levels of increase for the remainder of the year.

The $8 million increase in PPL Global's revenue in the three months ended June 30, 2002, compared to the same period in 2001 was due to an increase in the volume of deliveries in Brazil, Chile and El Salvador.

Both PPL Gas Utilities' revenues and PPL Electric's delivery revenues were lower in the six months ended June 30, 2002, compared with the same period in 2001. The PPL Electric delivery revenue decrease was primarily due to lower sales volume of 3.3%, due to mild winter weather in the first quarter of 2002 and adverse economic conditions. The PPL Gas Utilities' decrease was primarily due to lower sales volumes of 1.3 million dekatherms, or 17%. This was also due to mild winter weather.

Unregulated Retail Electric and Gas

The decrease in revenues from unregulated retail electric and gas operations was attributable to the following (millions of dollars):

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended

PPL EnergyPlus:
	Retail electric	$	(60	)	$	(146	)
	Retail gas		(2	)		(6	)

		$	(62	)	$	(152	)

The decrease in electric generation supply in both periods was primarily due to lower sales volumes, reflecting the expiration of certain PPL EnergyPlus contracts with existing customers and an increased emphasis on competing in wholesale markets.

Wholesale Energy Marketing and Trading

The increase (decrease) in revenues from wholesale energy marketing and trading activities was attributable to the following (millions of dollars):

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended

Eastern U.S. markets
	Bilateral/Spot market	$	(68	)	$	(107	)
	Cost-based		(14	)		(31	)
	Gas & oil		7			(45	)

			(75	)		(183	)
Western U.S. markets			(4	)		(86	)

		$	(79	)	$	(269	)

The decrease in eastern U.S. markets in both periods was attributable to lower bilateral/spot market revenues primarily due to lower prices, partially offset by higher volumes. A decline in prices adversely impacted revenues by $138 million and $167 million for the three and six months ended June 30, 2002, compared to the same periods in 2001. Partially offsetting the price decline were increased volumes which had a positive effect on revenues of $70 million and $60 million for the three and six months ended June 30, 2002, compared to the same periods in 2001. This was the result of PPL EnergyPlus' increasing emphasis on competing in the wholesale markets. Also, contributing to the decrease was the expiration of capacity and energy agreements (cost-based) with BG&E.

Gas and oil revenues decreased for the six months ended June 30, 2002, compared to the same period in 2001. This decrease was primarily due to significantly lower prices in the first quarter of 2002, which impacted revenues by $28 million, and lower volumes with a revenue impact of $17 million.

The decrease in western U.S. markets in both periods was due to a decline in wholesale energy prices from the high prices experienced during the energy supply shortage in the western U.S. in the first half of 2001. In June 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. as a result of the California energy crisis. These price controls have had the effect of significantly lowering spot and forward energy prices in the western U.S. See Note 8 to the Financial Statements for further discussion on the California situation.

Fuel

Fuel costs decreased by $40 million for the six months ended June 30, 2002, compared with the same period in 2001.

Electric fuel costs decreased by $24 million for the six months ended June 30, 2002, compared with the same period in 2001. After eliminating $3 million for PPL Wallingford, which began operations at the end of December 2001 and $4 million for Griffith Energy, which began operations in January 2002, electric fuel costs decreased by $31 million in the first half of 2002. The decrease was attributed to $30 million in lower generation in the east's oil/gas fired stations due to reduced plant usage due to more favorable energy prices on the open market.

The cost of natural gas and propane decreased by $16 million for the six months ended June 30, 2002, compared with the same period in 2001. The decrease reflects $18 million in lower gas purchases due to milder weather and $8 million in lower off-system purchases due to a decrease in per unit gas prices, which was offset by $10 million in higher purchased gas costs.

PPL subsidiaries have entered into new coal supply agreements in 2002 that will provide a large percentage of coal requirements of their coal-fired generating plants. For PPL's eastern U.S. coal-fired generating plants, the new agreements, together with the existing agreements, secure 95%, 79%, 54%, 34% and 20% of the expected coal requirements for 2002 through 2006. For PPL's western U.S. coal-fired generating plants, the new agreements, together with the existing agreements, secure 100% of the 2002 and 2003 requirements and 92% of the 2004 through 2006 expected coal requirements.

Energy Purchases

The increase (decrease) in energy purchases was attributable to the following (millions of dollars):

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended

Domestic
	Eastern U.S. markets	$	(87	)	$	(218	)
	Western U.S. markets		1			(8	)
International			2			5

		$	(84	)	$	(221	)

The decreases in the eastern U.S. markets were primarily due to the following (millions of dollars):

	June 30, 2002 vs. June 30, 2001
	Three Months Ended			Six Months Ended

Gains on long-term forward transactions	$	(60	)	$	(62	)
Lower wholesale electricity prices		(7	)		(47	)
Lower wholesale electricity volumes		(19	)		(6	)
Gain on NUG contract buy-out					(25	)
Lower gas purchases for trading					(49	)
Lower gas purchases for retail					(16	)
Other - net		(1	)		(13	)

	$	(87	)	$	(218	)

Other Operation Expenses

Other operation expenses decreased by $6 million for the three months ended June 30, 2002, compared to the same period in 2001. This decrease was primarily due to a $6 million delay in outage related activities at the Susquehanna generating station and $3 million of pension income in 2002 due to the adoption of double corridor accounting.

During the second quarter of 2002, the workforce reduction (see "Workforce Reduction" discussion below) and union-negotiated benefit enhancements had a significant impact on PPL's primary pension plan, increasing the benefit obligation by $140 million. As a result of these changes, PPL remeasured its net periodic pension cost for that plan, which included recognition of asset losses totaling $153 million as of June 30, 2002 due to weakened financial markets. These combined events decreased the funded status of PPL's pension plan by approximately $290 million.

Through June 30, 2002, PPL recorded approximately $20 million of pension income. As a result of the events and remeasurements previously discussed, PPL expects to record approximately $9 million of pension income in the second half of 2002 for a full year total of $29 million. PPL expects to continue to record pension income in 2003, but at lower levels due to the above events and continued weakness in the financial markets.

Maintenance

Maintenance expenses decreased by $12 million for the three months ended June 30, 2002, compared to the same period in 2001. This decrease was primarily due to $13 million of higher costs incurred in the second quarter of 2001 for the Susquehanna generating station refueling outage and additional overtime and contractor costs to improve plant equipment reliability.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs decreased by $23 million for the six months ended June 30, 2002, compared with the same period in 2001. This decrease was primarily due to $19 million of lower ITC amortization in 2002 as a result of lower billed ITC revenues. Billed ITC revenues were lower as a result of the decrease in electricity delivery sales and lower ITC rates.

Taxes, Other Than Income

Taxes, other than income, increased by $8 million and $18 million during the three and six months ended June 30, 2002, compared with the same periods in 2001. These changes were primarily due to an increase in the revenue-neutral reconciliation (RNR) tax component of the effective Pennsylvania gross receipts tax rate in January 2002. The RNR, which adjusts the base gross receipts tax rate of 4.4%, was enacted as part of the Customer Choice Act as a tax revenue replacement component to recoup losses to the Commonwealth of Pennsylvania that may result from the restructuring of the electric industry. Changes in gross receipts tax do not significantly affect earnings as they are substantially recovered through customer rate revenues.

Write-down of International Energy Projects

See Note 14 to the Financial Statements for additional information on a $6 million charge in the three months ended March 31, 2002 and a $94 million charge in the three months ended June 30, 2002 to reflect additional write-downs of PPL Global's investment in CEMAR.

Workforce Reduction

See Note 15 to the Financial Statements for information regarding the $74 million charge recorded in June 2002.

Financing Costs

Interest expense increased by $12 million for the three months ended June 30, 2002, compared with the same period in 2001. This increase was primarily the net effect of an $18 million increase in interest on long-term debt, partially offset by a $7 million decrease in interest on short-term debt. The increase in interest on long-term debt reflects the issuance of $800 million of senior secured bonds by PPL Electric, $500 million of senior unsecured notes by PPL Energy Supply and debt issued by PPL Global's consolidated affiliates. A portion of these proceeds was used to pay down commercial paper balances, which decreased short-term interest expense.

Dividends and distributions on preferred securities increased by $13 million for the six months ended June 30, 2002, compared with the same period in 2001. This increase was due to a $15 million increase in distributions on the PEPS Units, issued in the second quarter of 2001, offset by a $2 million decrease in preferred stock dividends due to redemptions and retirements of preferred stock and preferred securities.

Income Taxes

Income taxes decreased by $31 million for the three months ended June 30, 2002, compared to the same period in 2001. The change was primarily due to lower pre-tax book income, resulting in a $70 million reduction in income taxes. This decrease was offset by $33 million of deferred income tax valuation allowances recorded on PPL's investment in CEMAR and a $4 million reduction in the amount of federal synfuel tax credits recognized.

Income taxes decreased by $95 million for the six months ended June 30, 2002, compared to the same period in 2001. The change was primarily due to lower pre-tax book income, resulting in a $126 million reduction in income taxes, offset by $33 million of deferred income tax valuation allowances recorded on PPL's investment in CEMAR.

Change in Accounting Principle

PPL adopted SFAS 142, "Goodwill and Other Intangible Assets," on January 1, 2002. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL conducted a transition impairment analysis in the first quarter of 2002 and recorded a transition goodwill impairment charge of $150 million, which was reported as a "Cumulative Effect of a Change in Accounting Principle" on the Statement of Income. See Note 12 to the Financial Statements for additional information on the adoption of SFAS 142.

Financial Condition

Liquidity

At June 30, 2002, PPL had $193 million in cash and cash equivalents and $281 million of short-term debt. At December 31, 2001, PPL had $933 million in cash and cash equivalents and $118 million of short-term debt. The decrease in net cash position from December resulted from less cash provided from operating activities due primarily to the effect of $150 million of turbine cancellation payments, a $50 million payment to terminate the outstanding liability under an energy purchase contract with a NUG, mild weather and seasonal cash outflows that normally occur in the first half of each year (such as the prepayment of the Pennsylvania gross receipts tax). In addition, PPL incurred one-time acquisition costs of approximately $105 million for certain generation equipment it purchased from two lessor trusts in the first half of 2002, and $151 million of additional project development costs. PPL and its subsidiaries also retired $291 million of securities in the first half of 2002.

In the second quarter of 2002, PPL filed a universal shelf registration statement with the SEC for the issuance of up to $950 million in various securities. Subject to market conditions, PPL currently plans to issue approximately $200 million of common stock and a lesser amount of equity-linked securities during the third quarter of 2002 under this registration statement. PPL expects to use the proceeds of these issuances to retire other securities, for general corporate purposes, including the repayment of short-term debt, and to provide liquidity.

PPL Capital Funding currently has outstanding 7.70% Reset Put Securities due 2007 in the aggregate principal amount of $200 million, which are subject to remarketing in the fourth quarter of 2002. If the securities are remarketed, their term would be extended for an additional five years to the final maturity date in 2007, and the interest rate on the securities would be reset at a rate equal to 6.115% plus a credit spread based on PPL Capital Funding's credit profile at the time of remarketing. To the extent that the actual five-year U.S. Treasury rate (the "Treasury Rate"), at the time of remarketing is less than 6.115%, PPL Capital Funding would incur an effective incremental cost of funds over the subsequent five-year period approximately equal to the difference between 6.115% and the actual Treasury Rate. On August 6, 2002, the Treasury Rate was 3.26%. If the remarketing fails, which could occur due to a number of reasons beyond PPL Capital Funding's control, or if PPL Capital Funding elects not to remarket these securities, PPL would incur a pre-tax charge to earnings during the third or fourth quarter of 2002. Based on the Treasury Rate on August 6, 2002, the amount of this pre-tax charge would be approximately $25 million. However, at this time, PPL cannot predict whether it will incur a charge in 2002, or if it does incur a charge, the amount of such charge.

For additional information on PPL's liquidity, see Item 7, "Review of the Financial Condition and Results of Operations," in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001.

Energy Marketing and Trading Activities

Through PPL EnergyPlus, PPL sells and purchases, and PPL Montana sells, physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. Because of the generating assets PPL owns or controls, the majority of PPL's energy transactions qualify for accrual or hedge accounting. In addition, PPL enters into financial contracts to hedge the price risk associated with its electricity, gas and oil positions. At June 30, 2002, PPL had net assets of $20 million related to its energy hedging activities.

Certain transactions, however, meet the definition of trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." These trading activities include physical and financial energy contracts, such as forwards, futures, options, and swaps that do not qualify for hedge accounting or were entered into to profit from market fluctuations. Trading activities also include certain transactions for capacity and ancillary products, such as transmission congestion credits (TCCs) and fixed transmission rights (FTRs).

In June 2002, the FASB's EITF adopted the position in EITF 02-3, which addresses accounting for contracts involved in trading and risk management activities, that revenues from energy trading contracts must be reported "net" in financial statements for periods ending after June 30, 2002. The EITF requires that all comparative financial statements should be restated (reclassified) to conform to this consensus. Although this new accounting guidance will require changes to certain line items in the financial statements, it will not impact PPL's overall financial position or earnings. Rather, the portion of PPL's revenues from wholesale energy marketing and trading will be netted against expenses from energy purchases that represent energy trading activities. PPL has not yet quantified the financial statement impact from this revised guidance.

PPL's trading contracts mature at various times through 2006. The following chart sets forth the gains/(losses) in the net fair market value of PPL's trading contracts for the following periods (millions of dollars):

	June 30, 2002
	Three Months Ended			Six Months Ended

Fair value of contracts outstanding at the beginning of the period	$	7
Contracts realized or otherwise settled during the period		2		$	(1	)
Fair value of new contracts when entered into during the period		(5	)		(7	)
Other changes in fair values		(3	)		9

Fair value of contracts outstanding at the end of the period	$	1		$	1

During the six months ended June 30, 2002, PPL reversed net gains of approximately $1 million related to contracts entered into prior to January 1, 2002. This amount does not reflect intra-year contracts that were entered into and settled during the period.

As of June 30, 2002, the net loss on PPL's trading activities expected to be recognized in earnings during the next three months is approximately $3 million.

The following chart segregates estimated fair values of PPL's trading portfolio at June 30, 2002 based on whether the fair values are determined by quoted market prices or other more subjective means (millions of dollars):

	Fair Value of Contracts at June 30, 2002
	Gains/(Losses)
	Maturity less than 1 year				Maturity 1-3 years			Maturity 4-5 years	Maturity in excess of 5 years	Total fair value

Source of Fair Value
Prices actively quoted
Prices provided by other external sources		$	4			$	3				$	7
Prices based on models and other valuation methods			(6	)								(6	)

Fair value of contracts outstanding at the end of the period		$	(2	)		$	3				$	1

For additional information on PPL's Energy Marketing and Trading Activities, see Item 7, "Review of the Financial Condition and Results of Operations," in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001.

Related Party Transactions

PPL is not aware of any material ownership interests or operating responsibility by senior management of PPL or its subsidiaries in outside partnerships, including leasing transactions with special-purpose entities, or other entities doing business with PPL.

Acquisitions and Development

From time-to-time, PPL and its subsidiaries are involved in negotiations with third parties regarding acquisitions, joint ventures and other arrangements which may or may not result in definitive agreements. See Note 7 to the Financial Statements for information regarding recent acquisitions and development activities.

At June 30, 2002, PPL Global had domestic generation projects, either announced or under development, which would provide more than 2,200 MW of additional generation. Subsequently, the Sundance, University Park, Edgewood and Shoreham projects began commercial operation, which added 1,150 MW to PPL's generation capacity.

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

Financing Activities

See Note 6 to the Financial Statements for a discussion of financing activities.

Cash Flow

Cash and cash equivalents decreased by $422 million more during the six months ended June 30, 2002, compared with the same period in 2001. The reasons for this change were:

a $178 million decrease in cash provided by operating activities, primarily due to a decrease in operating income, higher prepayment of Pennsylvania gross receipts tax, $150 million of turbine cancellation payments, and a $50 million payment to terminate an energy purchase contract with a NUG;
a $333 million increase in cash used in investing activities, in part due to an increase of $107 million in capital expenditures. Also, there were no repayments of loans by affiliated companies in 2002; and

an $89 million decrease in cash used in financing activities primarily due to a $59 million reduction in retirements of long-term debt and preferred securities.

Environmental Matters

See Note 8 to the Financial Statements for a discussion of environmental matters.

Critical Accounting Policies

PPL's financial condition and results of operations are necessarily impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL and require estimates or other judgments of matters inherently uncertain: price risk management, pension and other postretirement benefits, asset impairment, leasing and contingencies. See Item 7, "Review of the Financial Condition and Results of Operations," in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001 for a discussion of each critical accounting policy. For an additional discussion of the impact of the workforce reduction on pension and other postretirement benefits, see Note 15 to the Financial Statements and "Other Operation Expenses" in Results of Operations. For an additional discussion of the impact of the CEMAR write-down on asset impairment, see Note 14 to the Financial Statements.

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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

The following analysis of the financial condition and results of operations of PPL Energy Supply is abbreviated, as PPL Energy Supply meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q. This discussion should be read in conjunction with the Financial Statements and Combined Notes to Condensed Consolidated Financial Statements included in Item 1 above, and with the section entitled "Review of the Financial Condition and Results of Operations" in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary.

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income, comparing the three and six months ended June 30, 2002, to the comparable periods in 2001.

Earnings

Net income in 2002 was impacted by three unusual items as shown below. Refer to specific Notes to the Financial Statements for discussion of these items.

		Three Months Ended June 30,					Six Months Ended June 30,
		2002			2001		2002			2001

(Millions of dollars)
Net income - actual		$	9		$	124	$	4		$	325
Unusual items (net of tax):
	SFAS 142 goodwill impairment (Note 12)							(150	)
	Write-down of investment in CEMAR (Note 14)		(94	)				(98	)
	Workforce reduction (Note 15)		(23	)				(23	)

Net income from core operations		$	126		$	124	$	275		$	325

Core earnings increased by $2 million for the three months ended June 30, 2002, compared to the same period in 2001. Core earnings decreased by $50 million for the six months ended June 30, 2002, compared to the same period in 2001. These changes in core earnings were primarily due to (after-tax earnings impacts noted in millions of dollars):

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended


Lower wholesale energy margins		$	(26	)	$	(87	)
Lower unregulated retail energy margins			(11	)		(33	)
PPL Global earnings (a)			4			(5	)
Earnings from synfuel projects (b)			(3	)		3
Higher regulated retail energy margins			30			61
Lower transmission and depreciation expenses			6			17
Other - net			2			(6	)

		$	2		$	(50	)


(a)	The increase for the three months ended was due to the discontinuance of goodwill amortization and lower development spending. The decrease for the six months ended was due to higher interest on Latin American debt and lower operating results at equity affiliates, offset by the discontinuance of goodwill amortization and a favorable termination settlement on a cancelled domestic development project.
(b)	The decrease for the three months ended was due to $4 million less in tax credits. (The second quarter of 2001 included additional tax credits which had been deferred pending the receipt of a private letter ruling from the IRS.) The increase for the six months ended was due to higher sales volumes.

PPL Energy Supply expects that the current low level of wholesale energy prices will adversely impact margins for the remainder of this year, and could continue to do so beyond 2002. Based upon current energy price levels, there is a risk that PPL Energy Supply may be unable to recover its investment in new gas-fired generation facilities. Under generally accepted accounting principles, PPL Energy Supply does not believe that there is an impairment charge to be recorded at this time. PPL Energy Supply is unable to predict the ultimate earnings impact of this issue, based upon energy price levels, applicable accounting rules and other factors, but such impact may be material.

PPL Energy Supply also expects that it will incur quarterly operating losses from CEMAR until such time as it exits its investment in CEMAR. See Note 14 to the Financial Statements for information on PPL Global's investment in CEMAR.

Domestic Energy Margins

				June 30, 2002 vs. June 30, 2001
				Three Months Ended			Six Months Ended

Wholesale energy marketing and trading revenues				$	(47	)	$	(200	)
Unregulated retail electric and gas revenues					(61	)		(152	)

	Total revenues				(108	)		(352	)

Fuel					3			(24	)
Purchased power					(97	)		(228	)
Other cost adjustments (a)					(2	)		1

	Total cost of sales				(96	)		(251	)

			Domestic gross energy margins	$	(12	)	$	(101	)


(a)		Adjusted to exclude the impact of any costs not associated with domestic energy margins, in particular, costs related to the international operations of PPL Global.

Changes in Gross Domestic Energy Margins By Customer:

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended

Wholesale - Eastern U.S.		$	(24	)	$	(44	)
Wholesale - Western U.S.			(20	)		(106	)
Unregulated retail			(19	)		(55	)
Regulated retail			51			104

	Domestic gross energy margins	$	(12	)	$	(101	)

Wholesale - Eastern U.S.

East wholesale margins were lower for the three and six months ended June 30, 2002, compared to the same periods in 2001, primarily due to lower wholesale prices. Average wholesale prices for the second quarter 2002 were $16/MWh lower than those realized in the same period in 2001. As a result, wholesale revenues were lower by $17 million, despite a 36% increase in wholesale sales. Because of the higher levels of sales, costs were $7 million higher. Average wholesale prices for the year-to-date June 30, 2002 were $12/MWh lower than those realized for the same period in 2001, thereby providing $106 million less in revenues. Partially offsetting this decline were higher volumes of sales, which added $36 million to revenues and a buyout of a NUG contract, which reduced power purchases by $25 million.

Wholesale - Western U.S.

West wholesale margins were lower for the three and six months ended June 30, 2002, compared to the same periods in 2001, primarily due to significantly lower wholesale prices. Average wholesale prices for the three and six months ended June 30, 2002, were $43/MWh and $85/MWh lower than those realized for the same periods in 2001. Lower wholesale prices for the three and six months ended June 30, 2002 account for about $76 million and $248 million of margin reductions. These reductions were offset by higher volumes of $56 million and $142 million, due in part to the commercial operations of Griffith Energy.

Unregulated Retail

Regulated Retail

Operating Revenues

Wholesale Energy Marketing and Trading

The decrease in revenues from wholesale energy marketing and trading activities was attributable to the following (millions of dollars):

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended

Eastern U.S. markets
	Bilateral/Spot market	$	(68	)	$	(107	)
	Cost-based		(14	)		(31	)
	Gas & oil		7			(45	)

			(75	)		(183	)
Western U.S. markets			(6	)		(86	)

		$	(81	)	$	(269	)

Gas and oil revenues in eastern U.S. markets decreased for the six months ended June 30, 2002, compared to the same period in 2001. This decrease was primarily due to significantly lower prices in the first quarter of 2002, which impacted revenues by $28 million, and lower volumes with a revenue impact of $17 million.

Wholesale Energy Marketing to Affiliates

The increase (decrease) in revenues from wholesale energy marketing activities to affiliates was attributable to the following (millions of dollars):

	June 30, 2002 vs. June 30, 2001
	Three Months Ended			Six Months Ended

Sales to PPL Electric (PLR)	$	39		$	74
Sales to PPL Gas Utilities		(5	)		(5	)

	$	34		$	69

PPL EnergyPlus has a power sales agreement to supply PPL Electric's entire PLR load, so PPL Energy Supply's wholesale electric sales to affiliate are a direct reflection of PPL Electric's success as a PLR. During the past 12 months, about 80% to 90% of kWh in PPL Electric's service territory that had been served by alternate suppliers under the Customer Choice Act have returned to PPL Electric as the supplier. Therefore, there was a corresponding increase in PPL Energy Supply's wholesale sales to PPL Electric. Because the bulk of the shoppers returned to PPL Electric as their supplier in July 2001, there should not be similar levels of increase for the remainder of the year.

Utility

PPL Energy Supply's utility operations consist of the delivery of electricity by PPL Global subsidiaries. The $8 million increase in utility revenue in the three months ended June 30, 2002, compared to the same period in 2001 was due to an increase in the volume of deliveries in Brazil, Chile and El Salvador.

Unregulated Retail Electric and Gas

The decrease in revenues from unregulated retail electric and gas operations was attributable to the following (millions of dollars):

	June 30, 2002 vs. June 30, 2001
	Three Months Ended			Six Months Ended

Retail Electric	$	(60	)	$	(146	)
Retail Gas		(1	)		(6	)

	$	(61	)	$	(152	)

The decrease in operating revenues from unregulated retail electric operations was primarily due to the expiration of certain PPL EnergyPlus contracts with existing customers and increased emphasis on competing in wholesale markets.

PPL EnergyPlus experienced lower retail gas revenues in the six months ended June 30, 2002, compared with the same period in 2001, primarily due to milder weather.

Fuel

Fuel costs decreased by $24 million in the six months ended June 30, 2002, compared with the same period in 2001. After eliminating $3 million for PPL Wallingford, which began operations at the end of December 2001, and $4 million for Griffith Energy, which began operations in January 2002, fuel costs decreased by $31 million in the first half of 2002. The decrease was attributed to $30 million in lower generation in the east's oil/gas fired stations due to reduced plant usage due to more favorable energy prices on the open market.

PPL Energy Supply subsidiaries have entered into new coal supply agreements in 2002 that will provide a large percentage of coal requirements of their coal-fired generating plants. For PPL Energy Supply's eastern U.S. coal-fired generating plants, the new agreements, together with the existing agreements, secure 95%, 79%, 54%, 34% and 20% of the expected coal requirements for 2002 through 2006. For PPL Energy Supply's western U.S. coal-fired generating plants, the new agreements, together with the existing agreements, secure 100% of the 2002 and 2003 requirements and 92% of the 2004 through 2006 expected coal requirements.

Energy Purchases

The increase (decrease) in energy purchases was attributed to the following (millions of dollars):

		June 30, 2002 vs. June 30, 2001
		Three Months Ended			Six Months Ended

Domestic
	Eastern U.S. markets	$	(87	)	$	(214	)
	Western U.S. markets		1			(7	)
International			2			5

		$	(84	)	$	(216	)

The decreases in the eastern U.S. markets were primarily due to the following (millions of dollars):

	June 30, 2002 vs. June 30, 2001
	Three Months Ended			Six Months Ended

Gains on long-term forward transactions	$	(60	)	$	(62	)
Lower wholesale electricity prices		(7	)		(47	)
Lower wholesale electricity volumes		(28	)		(6	)
Gain on NUG contract buy-out					(25	)
Lower gas purchases for trading					(49	)
Lower gas purchases for retail					(16	)
Other - net		8			(9	)

	$	(87	)	$	(214	)

Energy Purchases from Affiliates

The decrease in energy purchases from affiliates was attributable to the following (millions of dollars):

	June 30, 2002 vs. June 30, 2001
	Three Months Ended			Six Months Ended


Purchases of gas	$	(9	)	$	(6	)
Purchases of NUG electricity		(4	)		(6	)

	$	(13	)	$	(12	)

The decrease in gas purchases from PPL Gas Utilities was due to a decrease in gas trading activities by PPL EnergyPlus. Purchases of NUG energy are the result of PPL EnergyPlus' contract to buy from PPL Electric the electricity that PPL Electric purchases under contracts with NUGs. (See Note 9 to the Financial Statements for a discussion of the NUG purchase contract.) With the termination in February 2002 of its NUG contract with Foster Wheeler, PPL Electric purchased less NUG energy, and therefore had less electricity to sell to PPL EnergyPlus.

Other Operation and Maintenance

Other operation and maintenance expenses decreased by $18 million for the three months ended June 30, 2002, compared to the same period in 2001. The decrease was primarily due to $22 million of lower costs at the Susquehanna generating station. Of this, $13 million were higher costs incurred in the second quarter of 2001 for the refueling outage and additional overtime and contractor costs to improve plant equipment reliability and $6 million resulted from a delay in outage related activities.

During the second quarter of 2002, the workforce reduction, (see "Workforce Reduction" discussion below) and union negotiated benefit enhancements had a significant impact on PPL's primary pension plan, increasing the benefit obligation by $140 million. As a result of these changes, PPL remeasured its net periodic pension cost for that plan, which included recognition of asset losses totaling $153 million as of June 30, 2002 due to weakened financial markets. These combined events decreased the funded status of PPL's pension plan by approximately $290 million. PPL Energy Supply participates in that plan and is allocated approximately 35% of the obligations of that plan.

Through June 30, 2002, PPL Energy Supply was allocated approximately $7 million of pension income. As a result of the events and remeasurements previously discussed, PPL Energy Supply will be allocated approximately $3 million of pension income in the second half of 2002 for a full year total of $10 million. PPL expects to continue to record pension income in 2003, but at lower levels due to the above events and continued weakness in the financial markets.

Transmission

Transmission expense decreased by $9 million for the three months ended June 30, 2002, compared with the same period in 2001. The decrease was attributed to $5 million in lower wholesale energy purchases needed to meet wholesale trading activity and $3 million in lower energy purchases due to a decrease in retail sales by PPL EnergyPlus.

Transmission expense decreased by $21 million for the six months ended June 30, 2002, compared with the same period in 2001. The decrease was attributed to $11 million in lower wholesale energy purchases needed to meet wholesale trading activity and $8 million in lower energy purchases due to a decrease in retail sales by PPL EnergyPlus.

Depreciation

Depreciation decreased by $9 million for the six months ended June 30, 2002, compared to the same period in 2001. This decrease was primarily the result of:

$8 million due to the extension of the depreciable life of the Susquehanna station by 20 years;
$4 million due to PPL Global's write-down of CEMAR assets in 2001, resulting in no depreciation on these assets in 2002; and
$5 million due to a decrease in PPL Global's goodwill amortization, which is no longer being recorded effective January 1, 2002.

These decreases were partially offset by an increase of $7 million due to depreciation of the PPL Wallingford facility, which began in January 2002, and higher depreciation at several facilities due to plant upgrades and installation of SCR technology.

Write-down of International Energy Projects

Workforce Reduction

See Note 15 to the Financial Statements for information regarding the $40 million charge recorded in June 2002.

Other Income - net

Other income decreased by $11 million for the six months ended June 30, 2002, compared with the same period in 2001. The primary reasons for this decrease were an $8 million decrease in affiliated interest income, which was a result of less intercompany loans to affiliates in 2002, and a decrease of $5 million in miscellaneous other income due to lower miscellaneous income from PPL Global affiliates.

Interest Expense

Total interest expense increased by $14 million and $9 million for the three and six months ended June 30, 2002, compared with the same periods in 2001. The source of borrowing has changed between the two years. In 2001, the interest was on short-term borrowings, primarily with affiliated companies. Interest expense in 2002 reflects long-term debt issuances. PPL Energy Supply issued $500 million of senior unsecured notes in October 2001 and PPL Global subsidiaries issued long-term debt in 2001.

Income Taxes

Income taxes decreased by $9 million for the three months ended June 30, 2002, compared to the same period in 2001. The change was primarily due to lower pre-tax book income, resulting in a $48 million reduction in income taxes. This decrease was offset by $33 million of deferred income tax valuation allowances recorded on the PPL Energy Supply's investment in CEMAR and a $4 million reduction in the amount of federal synfuel tax credits recognized.

Income taxes decreased by $54 million for the six months ended June 30, 2002, compared to the same period in 2001. The change was primarily due to lower pre-tax book income, resulting in a $91 million reduction in income taxes, offset by $33 million of deferred income tax valuation allowances recorded on PPL Energy Supply's investment in CEMAR.

Change in Accounting Principle

PPL Energy Supply adopted SFAS 142, "Goodwill and Other Intangible Assets," on January 1, 2002. SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization. PPL Energy Supply conducted a transition impairment analysis in the first quarter of 2002 and recorded a transition goodwill impairment charge of $150 million, which was reported as a "Cumulative Effect of a Change in Accounting Principle" on the Statement of Income. See Note 12 to the Financial Statements for additional information on the adoption of SFAS 142.

Acquisitions and Development

From time-to-time, PPL Energy Supply and its subsidiaries are involved in negotiations with third parties regarding acquisitions, joint ventures and other arrangements which may or may not result in definitive agreements. See Note 7 to the Financial Statements for information regarding recent acquisitions and development activities.

Critical Accounting Policies

PPL Energy Supply's financial condition and results of operations are necessarily impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Energy Supply, and require estimates or other judgments of matters inherently uncertain: price risk management, pension and other postretirement benefits, asset impairment, leasing and contingencies. See Item 7, "Review of the Financial Condition and Results of Operations," in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001, for a discussion of each critical accounting policy. For an additional discussion of the impact of the workforce reduction on pension and other postretirement benefits, see Note 15 to the Financial Statements and "Other Operation and Maintenance" in Results of Operations. For an additional discussion of the impact of the CEMAR write-down on asset impairment, see Note 14 to the Financial Statements.

PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES

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

This discussion should be read in conjunction with the Financial Statements and Combined Notes to Condensed Consolidated Financial Statements included in Item 1 above, and with the section entitled "Review of the Financial Condition and Results of Operations" in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary.

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income, comparing the three and six months ended June 30, 2002, to the comparable periods in 2001.

Earnings

Net income in 2002 was impacted by the workforce reduction charge, as described in Note 15 to the Financial Statements.

		Three Months Ended June 30,					Six Months Ended June 30,
		2002			2001		2002			2001

(Millions of dollars)
Net income (loss) - actual		$	(8	)	$	21	$	12		$	55
Unusual item (net of tax):
	Workforce reduction (Note 15)		(19	)				(19	)

Net income from core operations		$	11		$	21	$	31		$	55

The decline in core earnings of $10 million and $24 million for the three and six months ended June 30, 2002, compared to the same periods in 2001, was primarily due to (after-tax earnings impacts noted in millions of dollars):

	June 30, 2002 vs. June 30, 2001
	Three Months Ended			Six Months Ended

Higher energy purchase costs including amortization of up-front payment on PLR contract	$	(2	)	$	(3	)
PJM ancillary service expense		(6	)		(13	)
Lower delivery revenues (net of CTC/ITC amortization)		(2	)		(13	)
Lower other operating costs		3			1
Other - net		(3	)		4

	$	(10	)	$	(24	)

Operating Revenues

Retail Electric

The increase (decrease) in revenues from retail electric operations was attributable to the following (millions of dollars):

	June 30, 2002 vs. June 30, 2001
	Three Months Ended			Six Months Ended

Electric delivery	$	4		$	(25	)
PLR electric generation supply		37			73
Other		(4	)		(4	)

	$	37		$	44

The increase in operating revenues from retail electric operations in both periods was primarily due to higher revenues from providing electric generation supply as a PLR. During the past 12 months, about 80% to 90% of kWh in PPL Electric's service territory that had been served by alternate suppliers under the Customer Choice Act have returned to PPL Electric as the supplier. Because the bulk of the shoppers returned to PPL Electric as their supplier in July of 2001, there should not be similar levels of increase for the remainder of the year.

Revenues from delivery of electricity decreased for the six months ended June 30, 2002, compared to the same period in 2001. This reflected a 3.3% decrease in deliveries of electricity, primarily due to milder winter weather in the first quarter of 2002 and adverse economic conditions.

Wholesale Electric to Affiliate

PPL Electric has a contract to sell to PPL EnergyPlus the electricity that PPL Electric purchases under contracts with NUGs. With the termination in February 2002 of its NUG contract with Foster Wheeler, PPL Electric purchased less NUG energy, and therefore had less electricity to sell to PPL EnergyPlus.

Energy Purchases

Energy purchases increased by $7 million for the three months ended June 30, 2002, compared with the same period in 2001. This increase includes $10 million in service costs from PJM needed to support the increase in return of customers to PPL Electric as their PLR. Effective January 1, 2002, PPL Electric began incurring the cost of certain ancillary services in connection with its power supply contract with PPL EnergyPlus. (See Note 9 to the Financial Statements for a discussion of the power supply contract.) These costs were offset by a $4 million decrease in NUG purchases due to the termination of an energy purchase contract with a NUG in February 2002.

Energy purchases increased by $16 million for the six months ended June 30, 2002, compared with the same period in 2001. This increase includes $22 million in service costs from PJM needed to support the increase in return of customers to PPL Electric as their PLR. These costs were offset by a $6 million decrease in NUG purchases due to the termination of an energy purchase contract with a NUG in February 2002.

Energy Purchases from Affiliate

Energy purchases from affiliate increased by $39 million and $74 million for the three and six months ended June 30, 2002, compared with the same periods in 2001. These increases reflect higher purchases under the power supply contract with PPL EnergyPlus needed to support a higher PLR load, due to the return of customers to PPL Electric as their PLR. See Note 9 to the Financial Statements for a discussion of the power supply contract.

Amortization of Recoverable Transition Costs

Taxes, Other Than Income

Taxes other than income increased by $11 million and $24 million during the three and six months ended June 30, 2002, compared to the same periods in 2001. These changes were primarily due to an increase in the revenue-neutral reconciliation (RNR) tax component of the effective Pennsylvania gross receipts tax rate in January 2002. The RNR, which adjusts the base gross receipts tax rate of 4.4%, was enacted as part of the Customer Choice Act as a tax revenue replacement component to recoup losses to the Commonwealth of Pennsylvania that may result from the restructuring of the electric industry. Changes in gross receipts tax do not significantly affect earnings, as they are substantially recovered through customer rate revenues.

Workforce Reduction

See Note 15 to the Financial Statements for information regarding the $33 million charge recorded in June 2002.

Income Taxes

Income taxes decreased by $22 and $33 million for the three and six months ended June 30, 2002, compared to the same periods in 2001, as a result of lower pre-tax book income.

Financial Condition

Liquidity

At June 30, 2002, PPL Electric had $35 million of cash and cash equivalents and no short-term debt. At December 31, 2001, PPL Electric had $79 million of cash and cash equivalents and no short-term debt. The decrease in cash position from December resulted from the retirement of $271 million of long-term debt and capital expenditures of $86 million, partially offset by a $270 million repayment of a notes receivable from an affiliate and cash provided from operating activities.

For additional information on PPL Electric's liquidity, see Item 7, "Review of the Financial Condition and Results of Operations," in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001.

Related Party Transactions

PPL Electric is not aware of any material ownership interests or operating responsibility by senior management of PPL Electric or its subsidiaries in outside partnerships or other entities doing business with PPL Electric.

For additional information on related party transactions, see Note 9 to the Financial Statements.

Cash Flow

Cash and cash equivalents decreased by $218 million less during the six months ended June 30, 2002, compared with the same period in 2001. The reasons for this change were:

a $73 million decrease in cash provided by operating activities, primarily due to lower net income, and payment of collateral to PPL EnergyPlus under the power supply contract;

a $192 million increase in cash provided by investing activities, primarily due to the repayment of notes receivable from parent and affiliates which was $200 million greater during the six months ended June 30, 2002; and
a $99 million decrease in cash used in financing activities, primarily due to a $198 million reduction in retirements of long-term and short-term debt. These decreases were offset by the retirement of $100 million of preferred securities.

Environmental Matters

See Note 8 to the Financial Statements for a discussion of environmental matters.

Critical Accounting Policies

PPL Electric's financial condition and results of operations are necessarily impacted by the methods, assumptions and estimates used in the application of critical accounting policies. Accounting policies for pensions and other postretirement benefits and for contingencies are particularly important to the financial condition or results of operations of PPL Electric, and require estimates or other judgments of matters inherently uncertain. See Item 7, "Review of the Financial Condition and Results of Operations," in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001, for a discussion of each critical accounting policy. For an additional discussion of the impact of the workforce reduction on pension and other postretirement benefits, see Note 15 to the Financial Statements.

PPL MONTANA, LLC AND SUBSIDIARIES

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

The following analysis of the results of operations and financial condition of PPL Montana is abbreviated as PPL Montana meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q. This discussion should be read in conjunction with the Financial Statements and Combined Notes to Condensed Consolidated Financial Statements included in Item 1 above, and with the section entitled "Review of the Financial Condition and Results of Operations" in PPL Montana's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary.

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income, comparing the six months ended June 30, 2002, to the comparable period in 2001.

Earnings

Net income decreased by $83 million for the six months ended June 30, 2002, compared with the same period in 2001. The decrease was primarily due to lower wholesale prices in the western U.S.

Operating Revenues

Operating revenues decreased by $146 million for the six months ended June 30, 2002, compared with the same period in 2001. The decrease was primarily due to a decline in wholesale energy prices from the high prices experienced in the first half of 2001, resulting from an energy supply shortage in the western U.S. The decrease in power prices resulted in a decrease in revenues of $190 million, while an increase in volume sold resulted in an increase in revenues of $44 million.

In June 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. as a result of the California energy crisis. These price controls have had the effect of significantly lowering spot and forward energy prices in the western U.S. See Note 8 to the Financial Statements for further discussion on the California situation.

Operating Expense

Operating expenses decreased by $9 million during the six months ended June 30, 2002, compared with the same period in 2001. Operating expenses consist mainly of expenses for fuel, energy purchases, transmission tariffs, plant operations and maintenance, lease rental payments, and general and administrative expenses. The decrease was primarily due to a $12 million decrease in energy purchases, related to the decreased power costs in the western U.S. during the first half of 2002. The decrease in power prices resulted in a $33 million decrease in energy purchases, while an increase in volumes purchased resulted in an increase in energy purchases of $21 million.

Generation increased by 211 million kWh during the six months ended June 30, 2002, compared with the same period in 2001. This increase was primarily the result of higher hydroelectric generation caused by improved water flows in the first half of 2002.

Critical Accounting Policies

PPL Montana's financial condition and results of operations are necessarily 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 Montana, and require estimates or other judgments of matters inherently uncertain: price risk management, leasing and contingencies. See Item 7, "Review of the Financial Condition and the Results of Operations," in PPL Montana's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001, for a discussion of each critical accounting policy.

PPL CORPORATION AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk-Sensitive Instruments

PPL actively manages the market risk inherent in its commodity, debt, and foreign currency and equity positions, as detailed in Note 10 to the Financial Statements. PPL has a comprehensive risk management policy to manage the risk exposures related to counterparty credit, energy prices, interest rates and foreign currency exchange rates. An RMC comprised of senior officers oversees the risk management function. Nonetheless, adverse changes in commodity prices, interest rates, foreign currency exchange rates and equity prices may result in losses in earnings, cash flows and/or fair values. The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions, due to reliance on 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 reasonably possible losses.

Commodity Price Risk

PPL uses various methodologies to simulate forward price curves in the energy markets to estimate the size and probability of changes in market value resulting from commodity price movements. The methodologies require several key assumptions, including selection of confidence levels, the holding period of the commodity positions and the depth and applicability to future periods of historical commodity price information.

As of June 30, 2002, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of its non-hedge portfolio by $5 million. A similar adverse movement in market prices would have decreased the value of its hedge portfolio by approximately $126 million at June 30, 2002. However, the change in the value of the hedge portfolio would have been substantially offset by an increase in the value of the underlying commodity, the electricity generated, because these contracts serve to reduce the market risk inherent in the generation of electricity. In addition to commodity price risk associated with PPL's trading portfolio and any unhedged positions in its non-trading portfolio, PPL's commodity positions are also subject to operational and event risks including, among others, increases in load demand, decreases in hydro availability and forced outages at power plants.

PPL's risk management program is designed to manage the risks associated with market fluctuations in the price of electricity, fuel and fuel-related costs. PPL's risk management policy and programs include risk identification and risk limits management, with measurement and controls for daily monitoring. PPL has entered into forward, option and tolling contracts that require physical delivery of the commodity, as well as futures, exchange-for-physical transactions and other financial contracts (such as swap agreements where settlement is generally based on the difference between a fixed-price and an index-based price for the underlying commodity). PPL expects to continue to use these contracts.

PPL enters into contracts to hedge the impact of market fluctuations on PPL's energy-related assets, liabilities and other contractual arrangements. PPL also executes these contracts to take advantage of market opportunities. As a result, PPL may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated.

Interest Rate Risk

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

At June 30, 2002, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $3 million.

PPL is also exposed to changes in the fair value of its debt portfolio. At June 30, 2002, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was $126 million.

PPL utilizes various risk management instruments to reduce its exposure to adverse interest rate movements for future anticipated financings. While PPL is exposed to changes in the fair value of these instruments, they are designed such that an economic loss in value should generally be offset by interest rate savings at the time the future anticipated financing is completed. At June 30, 2002, PPL estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, was approximately $11 million. See Note 10 to the Financial Statements for a discussion of financial derivative instruments outstanding at June 30, 2002.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities and net investments.

During the first quarter of 2001, PPL entered into contracts for the forward purchase of 51 million euros to pay for certain equipment in 2002 and 2003. The estimated value of these forward purchases as of June 30, 2002, being the amount PPL would receive to terminate them, was $2 million.

During the second quarter of 2002, PPL executed three forward sale transactions, maturing in December 2002, for 12 million British pounds sterling to hedge the net investment in WPDH Limited. The estimated value of these agreements as of June 30, 2002, being the amount PPL would have to pay to terminate them, was insignificant.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of June 30, 2002, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL's Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At June 30, 2002, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $17 million reduction in the fair value of the trust assets.

PPL Electric's 1998 restructuring settlement agreement provides for the collection of authorized nuclear decommissioning costs through the CTC. Additionally, PPL Electric is permitted to seek recovery from customers of up to 96% of certain increases in these costs. Under the power supply agreements between PPL Electric and PPL EnergyPlus, these revenues are passed on to PPL EnergyPlus. Similarly, these revenues are passed on to PPL Susquehanna under a power supply agreement between PPL EnergyPlus and PPL Susquehanna. These revenues are used to fund the trusts.

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Sensitive Instruments

PPL Energy Supply actively manages the market risk inherent in its commodity, debt, and foreign currency and equity positions as detailed in Note 10 to the Financial Statements. PPL Energy Supply has a comprehensive risk management policy to manage the risk exposures related to counterparty credit, energy prices, interest rates and foreign currency exchange rates. An RMC comprised of senior officers of PPL oversees the risk management function. Nonetheless, adverse changes in commodity prices, interest rates, foreign currency exchange rates and equity prices may result in losses in earnings, cash flows and/or fair values. The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions, due to reliance on 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 reasonably possible losses.

Commodity Price Risk

PPL Energy Supply uses various methodologies to simulate forward price curves in the energy markets to estimate the size and probability of changes in market value resulting from commodity price movements. The methodologies require several key assumptions, including selection of confidence levels, the holding period of the commodity positions, and the depth and applicability to future periods of historical commodity price information.

As of June 30, 2002, PPL Energy Supply estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of its non-hedge portfolio by $5 million. A similar adverse movement in market prices would have decreased the value of its hedge portfolio by approximately $126 million. However, the change in the value of the hedge portfolio would have been substantially offset by an increase in the value of the underlying commodity, the electricity generated, because these contracts serve to reduce the market risk inherent in the generation of electricity. In addition to commodity price risk associated with PPL Energy Supply's trading portfolio and any unhedged positions in its non-trading portfolio, PPL Energy Supply's commodity positions are also subject to operational and event risks including, among others, increases in load demand, decreases in hydro availability and forced outages at power plants.

PPL Energy Supply's risk management program is designed to manage the risks associated with market fluctuations in the price of electricity, fuel and fuel-related costs. PPL Energy Supply's risk management policy and programs include risk identification and risk limits management, with measurement and controls for daily monitoring. PPL Energy Supply has entered into forward, option, and tolling contracts that require physical delivery of the commodity, as well as futures, exchange-for-physical transactions and other financial contracts (such as swap agreements where settlement is generally based on the difference between a fixed price and an index-based price for the underlying commodity). PPL Energy Supply expects the use of these contracts to be ongoing.

PPL Energy Supply enters into contracts to hedge the impact of market fluctuations on PPL Energy Supply's energy-related assets, liabilities and other contractual obligations. PPL Energy Supply also executes these contracts to take advantage of market opportunities. As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated.

Commodity Price Risk - PLR Contracts

PPL Electric and PPL EnergyPlus have power supply agreements under which PPL EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement) energy and capacity to fulfill PPL Electric's PLR obligation through 2009. As a result, PPL Electric has shifted any electric price risk relating to its PLR obligation to PPL EnergyPlus for 2002 through 2009.

Interest Rate Risk

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

At June 30, 2002, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $3 million.

PPL Energy Supply is also exposed to changes in the fair value of its debt portfolio. At June 30, 2002, PPL Energy Supply estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was $22 million.

PPL utilizes various risk management instruments to reduce PPL Energy Supply's exposure to adverse interest rate movements for future anticipated financings. While PPL Energy Supply is exposed to changes in the fair value of these instruments, they are designed such that any economic loss in value should be offset by interest rate savings at the time the future anticipated financing is completed. At June 30, 2002, PPL Energy Supply had not entered into any such instruments.

See Note 10 to the Financial Statements for a discussion of financial derivative instruments outstanding at June 30, 2002.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities and net investments.

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of June 30, 2002, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL Energy Supply's Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At June 30, 2002, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $17 million reduction in the fair value of the trust assets.

PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Sensitive Instruments

Commodity Price Risk

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which increases its interest rate risk. PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was an insignificant amount at June 30, 2002.

PPL Electric is also exposed to changes in the fair value of its debt portfolio. At June 30, 2002 PPL Electric estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $56 million.

PPL MONTANA, LLC AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Sensitive Instruments

PPL Montana actively manages the market risk inherent in its business. PPL Montana has adopted a comprehensive risk management policy to manage risk exposures related to energy prices, and through PPL, interest rates and counterparty credit. An RMC comprised of senior officers of PPL oversees the risk management function. Nonetheless, adverse changes in commodity prices and interest rates may result in losses in earnings, cash flows and/or fair values. The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions, due to reliance on model assumptions. As a result, actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of reasonably possible losses.

Commodity Price Risk

PPL Montana uses various methodologies to simulate forward price curves in the energy markets to estimate the size and probability of changes in market value resulting from commodity price movements. The methodologies require several key assumptions, including selection of confidence levels, the holding period of the commodity positions and the depth and applicability to future periods of historical commodity price information.

PPL Montana estimated that a 10% adverse movement in market prices across the markets PPL Montana operates in, and across all time periods, would have decreased the value of the hedge portfolio by approximately $66 million at June 30, 2002. A similar adverse movement in market prices would have decreased the value of the non-hedge portfolio by an insignificant amount at June 30, 2002. However, the change in the value of the hedge portfolio would have been substantially offset by an increase in the value of the underlying commodity, the electricity generated, because these contracts serve to reduce the market risk inherent in the generation of electricity. In addition to commodity price risk associated with PPL Montana's trading portfolio and any unhedged positions in its non-trading portfolio, PPL Montana's commodity positions are also subject to operational and event risks including, among others, increases in load demand, decreases in hydro availability and forced outages at generating plants.

PPL Montana's risk management program is designed to manage the risks associated with market fluctuations in the price of electricity. PPL Montana's risk management policy and programs include risk identification and risk limits management, with measurement and controls for daily risk monitoring. PPL Montana has entered into forward contracts that require physical delivery of electricity and derivative financial instruments, consisting mainly of financial swaps where settlement is generally based on the difference between a fixed-price and an index-based price for the underlying commodity.

Interest Rate Risk

PPL Montana may use borrowings to provide funds for its operations. PPL Montana may utilize various financial derivative products and risk management techniques to adjust the mix of fixed and floating-rate interest rates in its debt portfolio and thereby reduce its exposure to adverse interest rate movements. PPL Montana had $40 million in borrowings outstanding as of June 30, 2002, and its interest rate risk was not significant.

PPL CORPORATION
PPL ENERGY SUPPLY, LLC
PPL ELECTRIC UTILITIES CORPORATION
PPL MONTANA, LLC AND SUBSIDIARIES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

General

See Item 3 "Legal Proceedings" in PPL's, PPL Energy Supply's, PPL Electric's and PPL Montana's Annual Report to the SEC on Form 10-K for the year ended December 31, 2001 and Note 8 of the companies' "Combined Notes to Condensed Consolidated Financial Statements" in Part I of this report 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.

Tax Assessment Appeals

Pursuant to changes in PURTA, enacted in 1999, PPL subsidiaries have filed a number of tax assessment appeals in various Pennsylvania counties where PPL facilities are located. These appeals challenge existing local tax assessments, which now comprise the basis for payment of the PURTA tax on PPL's properties. Also, as of January 1, 2000, generation facilities are no longer taxed under PURTA, and these local assessments will be used directly to determine local real estate tax liability for PPL's power plants. In July 1999, PPL filed retroactive appeals for tax years 1998 and 1999, as permitted by the new law, as well as prospective appeals for 2000, as permitted under normal assessment procedures. Additional prospective appeals were filed in 2000 for the 2001 tax year and in 2001 for the 2002 tax year. It is anticipated that assessment appeals will now be an annual occurrence.

Hearings on the pending appeals were held by the boards of assessment appeals in each county, and decisions have now been rendered by most counties. To the extent the appeals were denied or PPL was not otherwise satisfied with the results, PPL filed further appeals from the board decisions with the appropriate county Courts of Common Pleas.

Of all the pending proceedings, the most significant appeal concerns the assessed value of the Susquehanna nuclear station. The county assessment of the Susquehanna station indicated a market value of $3.9 billion. Based on this value, the annual local taxes for the Susquehanna station would have been about $70 million. However, PPL was able to reach a settlement with the local taxing authorities in December 2000, for tax years 2000 and 2001. This settlement will result in the payment of annual local taxes of about $3 million. PPL and the local taxing authorities also reached a settlement concerning the 1998 and 1999 tax years which, if effectuated, would not result in any additional PURTA tax liability for PPL. This portion of the settlement with the local tax authorities is subject, however, to the outcome of claims asserted by certain intervenors which are described below.

In August 2000, over PPL's objections, the court permitted Philadelphia City and County, the Philadelphia School District and the Southeastern Pennsylvania Transportation Authority (SEPTA) (collectively, the "Philadelphia parties") to intervene in the case. The Philadelphia parties have intervened because they believe a change in the assessment of the plant will affect the amount they would collect under PURTA for the tax years 1998 and 1999. As part of the change in the law, the local real estate assessment determines what the 1998 and 1999 PURTA payments by PPL will be. In November 2000, the Philadelphia parties submitted their own appraisal report, which indicates that the taxable fair market value of the Susquehanna station under PURTA for 1998 and 1999 is approximately $2.3 billion. Based on this appraisal, PPL would have to pay up to an extra $213 million in PURTA taxes for tax years 1998 and 1999.

PPL's appeal of the Susquehanna station assessment for 1998 and 1999 was decided in PPL's favor by the Luzerne County Court of Common Pleas. The Philadelphia parties appealed this decision to the Commonwealth Court and PPL cross-appealed on the issue of the right of the Philadelphia parties to intervene. As a result of these proceedings and potential appeals, a final determination of market value and the associated tax liability for 1998 and 1999 may not occur for several years.

Item 4. Submission of Matters to a Vote of Security Holders

	At PPL's Annual Meeting of Shareowners held on April 26, 2002, the shareowners:

	(1)	Elected the two nominees for the office of director. The vote for all nominees was 114,994,066. The votes for individual nominees were as follows:

					Number of Votes
					For			Withhold Authority
	Frederick M. Bernthal				114,994,066			2,390,719
	John R. Biggar				115,493,150			1,891,635

	The vote to withhold authority for all nominees was 1,461,310.

	(2)		Ratified the appointment of PricewaterhouseCoopers LLP as independent auditors for the year ended December 31, 2002. The vote was 113,482,318 in favor and 2,741,632 against, with 1,160,835 abstaining.

	At PPL Electric's Annual Meeting of Shareowners held on April 22, 2002, the shareowners:

	(1)		Elected all nine nominees for the office of director. The vote for all nominees was 78,029,863. The votes for individual nominees were as follows:

						Number of Votes for
				John R. Biggar			78,029,863
				Michael E. Bray			78,029,863
				Paul T. Champagne			78,029,863
				Dean A. Christiansen			78,029,863
				Lawrence E. De Simone			78,029,863
				Robert J. Grey			78,029,863
				William F. Hecht			78,029,863
				James H. Miller			78,029,863
				Roger L. Petersen			78,029,863

	The vote to withhold authority for all nominees was 0.


Item 6. Exhibits and Reports on Form 8-K

	(a)	Exhibits

		10(a) - PPL Energy Supply $300 Million 364-Day Credit Agreement
		10(b) - PPL Energy Supply $300 Million Three-Year Credit Agreement
		10(c) - PPL Electric $400 Million 364-Day Credit Agreement
		12(a) - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
		12(b), 12(c) and 12(d) - Computation of Ratio of Earnings to Fixed Charges
		99(a) - Certificate of PPL's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(b) - Certificate of PPL's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(c) - Certificate of PPL Energy Supply's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(d) - Certificate of PPL Energy Supply's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(e) - Certificate of PPL Electric's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(f) - Certificate of PPL Electric's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(g) - Certificate of PPL Montana's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(h) - Certificate of PPL Montana's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(b)	Reports on Form 8-K

		Report dated April 24, 2002 - PPL
		Item 5.	Other Events
			Reported earnings for the first quarter of 2002 and confirmed earnings forecast for 2002.

		Item 7.	Financial Statements and Exhibits
			Press release regarding PPL's results for the first quarter of 2002 and earnings forecast for 2002.

		Report dated June 19, 2002 - PPL, PPL Energy Supply and PPL Electric
		Item 5.	Other Events
			Announced the costs of a productivity enhancement program associated with employee separations. PPL expects to record a consolidated non-cash charge against second quarter earnings of approximately $75 million. PPL Electric and PPL Energy Supply expect to record primarily non-cash charges against second quarter earnings of approximately $34 million and $40 million, respectively.

		Item 7.	Financial Statements and Exhibits
			Press release regarding PPL's productivity enhancement program.

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)

PPL Montana, LLC

(Registrant)

Date: August 13, 2002 /s/  John R. Biggar

John R. Biggar

Executive Vice President and

Chief Financial Officer

(PPL Corporation)

(principal financial officer)

/s/  James E. Abel

James E. Abel

Treasurer

(PPL Energy Supply, LLC)

(principal financial officer)

/s/  Joseph J. McCabe

Joseph J. McCabe

Vice President and Controller

(PPL Electric Utilities Corporation)

(principal accounting officer)

/s/  Craig D. Bartholomew

Craig D. Bartholomew

Controller

(PPL Montana, LLC)

(principal accounting officer)

EX-10 3 ppl10q_6-02ex10a.htm $300 MILLION 364-DAY Exhibit 10(a)

EXHIBIT 10(a)

EXECUTION COPY

$300,000,000

364-DAY CREDIT AGREEMENT

dated as of June 25, 2002

among

PPL ENERGY SUPPLY, LLC,

THE LENDERS FROM TIME TO TIME PARTY HERETO,

WACHOVIA BANK, NATIONAL ASSOCIATION
as Administrative Agent and Issuing Lender,

CITIBANK, N.A.,
as Syndication Agent,

WACHOVIA SECURITIES, INC.

and

SALOMON SMITH BARNEY, INC.
as Co-Lead Arrangers

and

BANK ONE, N.A.,

BARCLAYS BANK PLC,
and

JPMORGAN CHASE BANK,
as Documentation Agents

CREDIT AGREEMENT (this "Agreement") dated as of June 25, 2002 among PPL ENERGY SUPPLY, LLC, the LENDERS party hereto from time to time, WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent and Issuing Lender, CITIBANK, N.A., as Syndication Agent, WACHOVIA SECURITIES, INC. and SALOMON SMITH BARNEY, INC., as Co-Lead Arrangers and Bank One, N.A., Barclays Bank PLC and JPMorgan Chase Bank, as Documentation Agents.

PPL ENERGY SUPPLY, LLC, a Delaware limited liability company (together with its successors, the "Borrower"), has requested and the Lenders (as hereinafter defined) have agreed to provide credit facilities to the Borrower in an aggregate principal amount of up to $300,000,000 for the purposes and on the terms and conditions set out in this Agreement.

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. All capitalized terms used in this Agreement or in any Appendix, Schedule or Exhibit hereto which are not otherwise defined herein or therein shall have the respective meanings set forth below.

"Additional Commitment Lender" has the meaning set forth in Section 2.07(c)(iii).

"Additional Letter of Credit" means any letter of credit issued under this Agreement by Wachovia Bank, National Association, as Issuing Lender, on or after the Closing Date.

"Adjusted London Interbank Offered Rate" means, for any Interest Period, a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the nearest 1/100th of 1%) by dividing (i) the London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.

"Administrative Agent" means Wachovia Bank, National Association, in its capacity as administrative agent for the Lenders hereunder and under the other Loan Documents, and its successor or successors in such capacity.

"Administrative Questionnaire" means, with respect to each Lender, an administrative questionnaire in the form provided by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Lender.

"Affiliates" means, with respect to any Person, any other Person who is directly or indirectly controlled by or under common control with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through the ownership of stock or its equivalent, by contract or otherwise.

"Agent" means the Administrative Agent, the Syndication Agent or the Documentation Agents, and "Agents" means any two or more of them.

"Agreement" means this Credit Agreement, as amended, restated supplemented or modified from time to time.

"Applicable Lending Office" means, with respect to any Lender, (i) in the case of its Base Rate Loans, its Base Rate Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.

"Applicable Percentage" means, for purposes of calculating (i) the applicable interest rate for any day for any Base Rate Loans or Euro-Dollar Loans, (ii) the applicable rate for the Commitment Fee for any day for purposes of Section 2.06(a) or (iii) the applicable rate for the Letter of Credit Fee for any day for purposes of Section 2.06(b), the appropriate applicable percentage set forth below corresponding to the then current highest Borrower's Ratings; provided, that, in the event a rating differential of more than one level exists, the Borrower's Ratings shall be deemed to be one level above the lower of the two ratings:

	Borrower's Ratings (S&P/Moody's)	Applicable Percentage for Commitment Fees	Applicable Percentage for Base Rate Loans	Applicable Percentage for Euro-Dollar Loans and Letter of Credit Fees
Category A:	A-/A3 or higher	.100%	0%	.625%
Category B	BBB+/Baa1	.125%	0%	.750%
Category C:	BBB/Baa2	.150%	0%	.875%
Category D:	BBB-/Baa3	.225%	.125%	1.125%
Category E:	BB+/Ba1 or lower or unrated	.275%	.500%	1.500%

; provided, further, that if the Borrower elects to convert the Loans to a Term Loan pursuant to Section 2.07(d), each percentage set forth above under "Applicable Percentage for Euro-Dollar Loans and Letter of Credit Fees" shall increase by 25 basis points (.25%) from and after the Conversion Date.

"Applicable Utilization Fee" means on any day the appropriate applicable percentage set forth below corresponding to (a) the percentage of the aggregate of the Lenders' Revolving Commitments outstanding represented by the aggregate Loans plus the aggregate Letter of Credit Liabilities outstanding on such day and (b) the then current highest Borrower Rating; provided, that, in the event a rating differential of more than one level exists, the Borrower's Ratings shall be deemed to be one level above the lower of the two ratings:

	Ratings (S&P/Moody's)	Usage > 33% of Total Commitments
Category A	A-/A3 or higher	.125%
Category B	BBB+/Baa1	.125%
Category C	BBB/Baa2	.250%
Category D	BBB-/Baa3	.250%
Category E	BB+/Ba1 or lower or unrated	.250%

; provided, further, that if the Borrower elects to convert the outstanding Revolving Loans to a Term Loan pursuant to Section 2.07(d), the Applicable Utilization Fee in effect from time to time will be due and payable by the Borrower from and after the Conversion Date without regard to the percentage of the aggregate Lender's Revolving Commitments represented by the aggregate Loans outstanding from time to time.

"Asset Sale" shall mean any sale of any assets, including by way of the sale by the Borrower or any of its Subsidiaries of equity interests in such Subsidiaries.

"Assignee" has the meaning set forth in Section 9.06(c).

"Assignment and Assumption Agreement" means an Assignment and Assumption Agreement, substantially in the form of attached Exhibit C, under which an interest of a Lender hereunder is transferred to an Eligible Assignee pursuant to Section 9.06(c).

"Availability Period" means the period from and including the Closing Date to but excluding the Revolving Termination Date.

"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended, or any successor statute.

"Base Rate" means for any day a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day.

"Base Rate Borrowing" means a Borrowing comprised of Base Rate Loans.

"Base Rate Lending Office" means, as to each Lender, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Base Rate Lending Office) or such other office as such Lender may hereafter designate as its Base Rate Lending Office by notice to the Borrower and the Administrative Agent.

"Base Rate Loan" means a Loan in respect of which interest is computed on the basis of the Base Rate plus the Applicable Percentage, if any, with respect to Base Rate Loans.

"Borrower" is defined in the Recital.

"Borrower's Rating" means the senior unsecured long-term debt rating of the Borrower from Moody's or S&P.

"Borrowing" means a group of Loans of a single Type made by the Lenders on a single date and, in the case of a Euro-Dollar Borrowing, having a single Interest Period.

"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina and New York, New York are authorized by law to close; provided, that, when used in Article III with respect to any action taken by or with respect to any Issuing Lender, the term "Business Day" shall not include any day on which commercial banks are authorized by law to close in the jurisdiction where the office at which such Issuing Lender books any Letter of Credit is located; and provided, further, that when used with respect to any borrowing of, payment or prepayment of principal of or interest on, or the Interest Period for, a Euro-Dollar Loan, or a notice by the Borrower with respect to any such borrowing payment, prepayment or Interest Period, the term "Business Day" shall also mean that such day is a day on which commercial banks are open for international business (including dealings in Dollar deposits) in London.

"Capital Lease" means any lease of property which, in accordance with GAAP, should be capitalized on the lessee's balance sheet.

"Capital Lease Obligations" means, with respect to any Person, all obligations of such Person as lessee under Capital Leases, in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP.

"Change of Control" means (i) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of 25% or more of the outstanding shares of voting stock of PPL Corporation or its successors or (ii) the failure at any time of PPL Corporation or its successors to own 80% or more of the outstanding shares of the Voting Stock in the Borrower.

"Closing Date" means the date, not later than June 25, 2002, on which the Administrative Agent determines that the conditions specified in or pursuant to Section 4.01 have been satisfied.

"Commitment" means, with respect to any Lender, the commitment of such Lender to make Revolving Loans, or convert Revolving Loans into a Term Loan pursuant to Section 2.07(d), as the case may be, under this Agreement as set forth in the Commitment Appendix and to purchase participations in Letters of Credit pursuant to Article III hereof.

"Commitment Appendix" means the Appendix attached under this Agreement identified as such.

"Commitment Fee" has the meaning set forth in Section 2.06(a).

"Consolidated Capitalization" shall mean the sum of, without duplication, (A) the Consolidated Debt of the Borrower, (B) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of the Borrower and minority interests recorded on the Borrower's consolidated financial statements (excluding therefrom the effect of all unrealized gains and losses reported under Financial Accounting Standards Board Statement No. 133 in connection with forward contracts, futures contracts or other derivatives or commodity hedging agreements for the future delivery of electricity or capacity), (C) up to an aggregate amount of $100,000,000 of Hybrid Preferred Securities and (D) up to an aggregate amount of $100,000,000 of Equity-Linked Securities, except that for purposes of calculating Consolidated Capitalization of the Borrower, Consolidated Debt of the Borrower shall exclude Non-Recourse Debt and Consolidated Capitalization of the Borrower shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Debt.

"Consolidated Cash Interest Expense" means, for any period, the amount of Consolidated Interest Expense actually paid in cash.

"Consolidated Debt" means the consolidated Debt of the Borrower and its Consolidated Subsidiaries (determined in accordance with GAAP), except that for purposes of this definition (a) Consolidated Debt of the Borrower shall exclude Non-Recourse Debt and (b) Consolidated Debt of the Borrower shall exclude (i) up to an aggregate amount of $100,000,000 of Hybrid Preferred Securities and (ii) up to an aggregate amount of $100,000,000 of Equity-Linked Securities.

"Consolidated Funds From Operations" means, for any period (a) Consolidated Net Income for such period, plus (b) Consolidated Interest Expense, plus (c) the amount of each non-cash item added to net income in determining Consolidated Operating Cash Flow for such period (including, without limitation, any non-cash item of expense, charge, provision or loss, but excluding any amounts added in respect of changes in current asset accounts and current liability accounts), minus (d) the amount of each non-cash item subtracted from net income in determining Consolidated Operating Cash Flow for such period (including, without limitation, any non-cash item of revenue, gain or income, but excluding any amounts subtracted in respect of changes in current asset accounts and current liability accounts).

"Consolidated Interest Expense" means, for any period, the gross interest expense (including, without limitation, that attributable to Capital Leases Obligations or a Synthetic Lease) of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis for such period. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received by the Borrower with respect to Interest Rate Protection Agreements, but without giving effect to the write-off of expenses associated with the termination of Interest Rate Protection Agreements.

"Consolidated Net Income" means, for any period, the net income (or net loss) of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis for such period.

"Consolidated Operating Cash Flow" means, for any period, the Borrower's net cash provided (used in) operating activities, as determined in accordance with GAAP and reflected in the Borrower's consolidated statement of cash flows in the Borrower's consolidated financial statements delivered to each of the Lenders pursuant to Section 6.01, and any corresponding measure of net cash provided (used in) operating activities as the Borrower may provide in any future consolidated financial statements to be delivered to each of the Lenders pursuant to Section 6.01.

"Consolidated Subsidiary" means with respect to any Person at any date any Subsidiary of such Person or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date in accordance with GAAP.

"Continuing Lender" means with respect to any event described in Section 2.07(b) or 2.07(c), a Lender which is neither a Retiring Lender nor a Non-extending Lender, respectively, and "Continuing Lenders" means any two or more of such Continuing Lenders.

"Conversion Date" means the date selected by the Borrower to convert the outstanding Revolving Loans into a Term Loan pursuant to Section 2.07(d).

"Corporation" means a corporation, association, company, joint stock company, limited liability company, partnership or business trust.

"Credit Event" means a Borrowing or the issuance, renewal or extension of a Letter of Credit.

"Current Revolving Termination Date" has the meaning set forth in Section 2.07(c)(i).

"Debt" of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person with respect to deposits or advances of any kind, (iii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iv) all Guarantees by such Person of Debt of others, (v) all Capital Lease Obligations and Synthetic Leases of such Person, (vi) all obligations of such Person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the net amount that would be payable upon the acceleration, termination or liquidation thereof) and (vii) all obligations of such Person as an account party in respect of letters of credit and bankers' acceptances; provided, however, that "Debt" of such Person does not include (a) obligations of such Person under any installment sale, conditional sale or title retention agreement or any other agreement relating to obligations for the deferred purchase price of property or services (b) obligations under agreements relating to the purchase and sale of any commodity, including any power sale or purchase agreements, any commodity hedge or derivative (regardless of whether any such transaction is a "financial" or physical transaction), (c) any trade obligations or other obligations of such Person incurred in the ordinary course of business or (d) obligations of such Person under any lease agreement (including any lease intended as security) that is not a Capital Lease or a Synthetic Lease.

"Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

"Defaulting Lender" means at any time any Lender with respect to which a Lender Default is in effect at such time.

"Disclosure Qualification" means that (i) no representation, warranty or covenant is made with respect to any information concerning the Agent, any Lender any other lender or collateral agent, any direct or indirect members of, or any Affiliates or agents or other representatives of any of the foregoing, (ii) no representation, warranty or covenant is made with respect to the terms or effects of or any Person's (other than the Borrower's) rights or obligations under any agreement or document and (iii) any representation, warranty or covenant that is stated to be subject to the Disclosure Qualification in any materials provided to Lenders is subject to the foregoing clauses (i) to (ii) and to the additional qualifications, assumptions and disclaimers set forth in such materials.

"Documentation Agents" means Bank One, N.A., Barclays Bank PLC and JPMorgan Chase Bank, in their capacity as documentation agent for the Lenders under this Agreement and under the other Loan Documents, and their respective successors or successors in such capacity.

"Dollars" and the sign "$" means lawful money of the United States of America.

"Effective Date" means the date this Agreement becomes effective in accordance with Section 9.08.

"Eligible Assignee" means (i) a commercial bank organized under the laws of the United States and having a combined capital and surplus of at least $100,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000; provided, that such bank is acting through a branch or agency located and licensed in the United States; or (iii) a Person that is primarily engaged in the business of commercial banking and that is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933, as amended) and is (A) a Subsidiary of a Lender, (B) a Subsidiary of a Person of which a Lender is a Subsidiary or (C) a Person of which a Lender is a Subsidiary.

"Environmental Laws" means any and all federal, state and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses or other written governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes.

"Environmental Liabilities" means all liabilities (including anticipated compliance costs) in connection with or relating to the business, assets, presently or previously owned, leased or operated property, activities (including, without limitation, off-site disposal) or operations of the Borrower or any of its Subsidiaries, whether vested or unvested, contingent or fixed, actual or potential, which arise under or relate to matters covered by Environmental Laws.

"Equity-Linked Securities" means any securities of the Borrower or any of its Subsidiaries which are convertible into, or exchangeable for, equity securities of the Borrower, such Subsidiary or PPL Corporation, including any securities issued by any of such Persons which are pledged to secure any obligation of any holder to purchase equity securities of the Borrower, any of its Subsidiaries or PPL Corporation.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

"ERISA Group" means the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code.

"Euro-Dollar Lending Office" means, as to each Lender, its office, branch or Affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or Affiliate of such Lender as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

"Euro-Dollar Borrowing" means a Borrowing comprised of Euro-Dollar Loans.

"Euro-Dollar Loan" means a Loan in respect of which interest is computed on the basis of the Adjusted London Interbank Offered Rate pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation.

"Euro-Dollar Reserve Percentage" of any Lender for the Interest Period of any LIBOR Rate Loan means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including "Eurocurrency Liabilities" (as defined in Regulation D). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

"Event of Default" has the meaning set forth in Section 7.01.

"Existing Credit Agreement" means the $600,000,000 364-Day Revolving Credit Agreement dated as of June 26, 2001 among the Borrower, PPL Corporation, as Guarantor of the obligations of the Borrower, Wachovia Bank, National Association (successor by merger to First Union National Bank), as Administrative Agent and Issuing Lender, Citibank, N.A., as Syndication Agent, Barclays Bank PLC, Westdeutsche Landesbank Girozentrale, New York Branch and Bank One, N.A., as Documentation Agents, and the lenders from time to time party thereto, as amended through the date hereof.

"Existing Debt" means the Debt outstanding on the Closing Date and listed on Schedule 6.15 hereto.

"Existing Letters of Credit" means the letters of credit issued before the Closing Date pursuant to the Existing Credit Agreement and listed in attached Schedule 3.01, and "Existing Letter of Credit" means any one of them.

"Existing Synthetic Lease Financing" means each of the following lease financings existing as of the date hereof, whether or not such financing constitutes a "Synthetic Lease" within the meaning of this Agreement: (i) the Lower Mount Bethel project, (ii) the lease financing involving PPL Large Scale Distributed Generation, LLC and (iii) the lease financing involving PPL Large Scale Distributed Generation II, LLC.

"Extension Letter" means a letter from the Borrower to the Administrative Agent requesting an extension of the Revolving Termination Date substantially in the form of Exhibit A-4 hereto.

"Federal Funds Rate" means for any day the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average of quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent.

"Fee Letter" means the letter designated as such dated as of May 8, 2002 by the Administrative Agent and Wachovia Securities, as Co-Lead Arranger and Sole Book Manager, addressed to and acknowledged and agreed to by the Borrower.

"Financial Projections" means (a) any forward looking statement (within the meaning of the Securities Act of 1933 and the rules and regulations thereunder) and (b) any "prospective financial statement, financial forecast or financial projection" (as defined in guidelines published by the American Institute of Certified Public Accountants).

"Fronting Fee" has the meaning set forth in Section 2.06(b).

"GAAP" means United States generally accepted accounting principles applied on a consistent basis.

"Governmental Authority" means any federal, state or local government, authority, agency, central bank, quasi-governmental authority, court or other body or entity, and any arbitrator with authority to bind a party at law.

"Group of Loans" means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Loans which are Euro-Dollar Loans of the same Type having the same Interest Period at such time; provided, that, if a Loan of any particular Lender is converted to or made as a Base Rate Loan pursuant to Sections 2.14 or 2.17, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made.

"Guarantee" of or by any person means any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Debt of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Debt, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt of the payment of such Debt or (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

"Hazardous Substances" means any toxic, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

"Hybrid Preferred Securities" means any trust preferred securities, or deferrable interest subordinated debt with a maturity of at least 20 years, in each case similar to PPL Electric Utilities Corporation's existing Trust Preferred Securities (TOPrS), issued by the Borrower, or any business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly owned Subsidiaries) at all times by the Borrower or any of its Subsidiaries, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of the Borrower or a Subsidiary of the Borrower, as the case may be, and (B) payments made from time to time on the subordinated debt.

"Indemnitee" has the meaning set forth in Section 9.03(b).

"Interest Period" means with respect to each Euro-Dollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Conversion/Continuation and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided, that:

(i) any Interest Period which would otherwise end on a day which is not a Business Day shall, subject to clauses (iii) and (iv) below, be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Business Day of a calendar month;

(iii) if any Interest Period includes a date on which a payment of principal of the Loans is required (based on circumstances existing at the first day of such Interest Period) to be made under Section 2.08 but does not end on such date, then (x) the principal amount (if any) of each Euro-Dollar Loan required to be repaid on such date shall have an Interest Period ending on such date and (y) the remainder (if any) of each such Euro-Dollar Loan shall have an Interest Period determined as set forth above; and

(iv) no Interest Period shall end after the Revolving Termination Date or the Term Loan Maturity Date, as applicable.

"Interest Rate Protection Agreements" means any agreement providing for an interest rate swap, cap or collar, or any other financial agreement designed to protect against fluctuations in interest rates.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute.

"Issuing Lender" means (i) Wachovia Bank, National Association, in its capacity as an issuer of Letters of Credit under Section 3.02, and its successor or successors in such capacity and (ii) each Lender listed in Schedule 3.01 hereto as the issuer of an Existing Letter of Credit.

"Lender" means each bank or other lending institution listed in the Commitment Appendix as having a Revolving Commitment, each Eligible Assignee that becomes a Lender pursuant to Section 9.06(c) and their respective successors and shall include, as the context may require and each Issuing Lender in such capacity.

"Lender Default" means (i) the failure (which has not been cured) of any Lender to make available any Loan or any reimbursement for a drawing under a Letter of Credit which in either case it is obligated to make available under the terms and conditions of this Agreement or (ii) a Lender having notified the Administrative Agent and the Borrower that such Lender does not intend to comply with its obligations under Article II following the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority.

"Letter of Credit" means an Existing Letter of Credit or an Additional Letter of Credit, and "Letters of Credit" means any combination of the foregoing.

"Letter of Credit Commitment" means the lesser of (i) $150,000,000 and (ii) the aggregate Revolving Commitment.

"Letter of Credit Fee" has the meaning set forth in Section 2.06(b).

"Letter of Credit Liabilities" means, for any Lender at any time, the product derived by multiplying (i) the sum, without duplication, of (A) the aggregate amount that is (or may thereafter become) available for drawing under all Letters of Credit outstanding at such time plus (B) the aggregate unpaid amount of all Reimbursement Obligations outstanding at such time by (ii) the quotient derived by dividing such Lender's Revolving Commitment by the aggregate of the Revolving Commitments of all Revolving Lenders.

"Letter of Credit Request" has the meaning set forth in Section 3.03.

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance intended to confer or having the effect of conferring upon a creditor a preferential interest.

"Loan" means a Base Rate Loan or a Euro-Dollar Loan, and "Loans" means any combination of the foregoing.

"Loan Documents" means this Agreement and the Revolving Notes, collectively.

"London Interbank Offered Rate" means, for any Euro-Dollar Loan for any Interest Period, the interest rate for deposits in Dollars for a period of time comparable to such Interest Period which appears on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period; provided, however, if more than one rate is specified on Telerate page 3750, the applicable rate shall be the arithmetic means of all such rates. If for any reason such rate is not available, the term "London Interbank Offered Rate" means for any Interest Period, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period of time comparable to such Interest Period; provided, however, that if more than one such rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). If for any reason the London interbank offered rate is not available on either Telerate page 3750 or Reuters Screen LIBO Page, the term "London Interbank Offered Rate" means for any Interest Period, the rate per annum at which deposits in Dollars are offered to Wachovia Bank, National Association in the London interbank market at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of Wachovia Bank, National Association to which such Interest Period is to apply and for a period of time comparable to such Interest Period.

"Mandatory Letter of Credit Borrowing" has the meaning set forth on Section 3.09

"Margin Stock" means "margin stock" as such term is defined in Regulation U.

"Material Adverse Effect" means (i) any material adverse effect upon the business, assets, financial condition or operations of the Borrower or the Borrower and its Subsidiaries, taken as a whole; (ii) a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement, the Revolving Notes or the other Loan Documents or (iii) a material adverse effect on the validity or enforceability of this Agreement, the Revolving Notes or any of the other Loan Documents.

"Material Debt" means Debt (other than the Revolving Notes) of the Borrower and/or one or more of its Restricted Subsidiaries in an a principal or face amount exceeding $40,000,000.

"Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000.

"Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

"Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.

"New Lender" means with respect to any event described in Section 2.07(b), an Eligible Assignee which becomes a Lender hereunder as a result of such event, and "New Lenders" means any two or more of such New Lenders.

"Non-Defaulting Lender" means each Lender other than a Defaulting Lender, and "Non-Defaulting Lenders" means any two or more of such Lenders.

"Non-Extending Lender" has the meaning set forth in Section 2.07(c)(i).

"Non-Recourse Debt" shall mean Debt that is non-recourse to the Borrower or any Restricted Subsidiary.

"Non-U.S. Lender" has the meaning set forth in Section 2.16(e).

"Notice of Borrowing" has the meaning set forth in Section 2.02

"Notice of Conversion/Continuation" has the meaning set forth in Section 2.05(d)(ii).

"Notice of Term Loan Conversion" has the meaning set forth in Section 2.07(d).

"Obligations" means:

(i) all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any Loan, fees payable or Reimbursement Obligation under, or any Revolving Note issued pursuant to, this Agreement or any other Loan Document;

(ii) all other amounts now or hereafter payable by the Borrower and all other obligations or liabilities now existing or hereafter arising or incurred (including, without limitation, any amounts which accrue after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the part of the Borrower pursuant this Agreement or any other Loan Document;

(iii) all expenses of the Agents as to which such Agents have a right to reimbursement under Section 9.03(a) hereof or under any other similar provision of any other Loan Document; and

(iv) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 9.03 hereof or under any other similar provision of any other Loan Document;

together in each case with all renewals, modifications, consolidations or extensions thereof.

"Other Taxes" has the meaning set forth in Section 2.16(b).

"Parent" means PPL Corporation, a Pennsylvania corporation, and its successors.

"Participant" has the meaning set forth in Section 9.06(b).

"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

"Permitted Business" with respect to any Person means a business that is the same or similar to the business of the Borrower or any Subsidiary as of the date hereof, or any business reasonably related thereto.

"Person" means an individual, a corporation, a partnership, an association, a limited liability company, a trust or an unincorporated association or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

"Plan" means at any time an employee pension benefit plan (including a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (I) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

"Prime Rate" means the rate of interest publicly announced by Wachovia Bank, National Association in Charlotte, North Carolina from time to time as its Prime Rate.

"Quarterly Date" means the last Business Day of each March, June, September and December.

"Refinanced Agreements" means the Existing Credit Agreement and all instruments, documents and agreements relating thereto, in all cases as in effect on the Closing Date.

"Register" has the meaning set forth in Section 9.06(e).

"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as amended, or any successor regulation.

"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as amended, or any successor regulation.

"Reimbursement Obligations" means at any time all obligations of the Borrower to reimburse the Issuing Lenders pursuant to Section 3.07 for amounts paid by the Issuing Lenders in respect of drawings under Letters of Credit, including any portion of any such obligation to which a Lender has become subrogated pursuant to Section 3.09.

"Replacement Date" has the meaning set forth in Section 2.07(b).

"Replacement Lender" has the meaning set forth in Section 2.07(b).

"Required Lenders" means at any time Non-Defaulting Lenders having at least 51% of the aggregate amount of the Revolving Commitments of all Non-Defaulting Lenders or, if the Revolving Commitments shall have been terminated, having at least 51% of the aggregate amount of the Revolving Outstandings of the Non-Defaulting Lenders at such time.

"Restricted Subsidiary" means each Subsidiary listed on Schedule 5.12 and each other Subsidiary designated by the Borrower as a "Restricted Subsidiary" in writing to the Administrative Agent; provided, that, each Restricted Subsidiary shall be a direct Wholly-Owned Subsidiary of the Borrower or a Restricted Subsidiary.

"Retiring Lender" means a Lender that ceases to be a Lender hereunder pursuant to the operation of Section 2.07(b).

"Revolving" means, when used with respect to (I) a Lender's Commitment, such Lender's Revolving Commitment, as such Revolving Commitment may be reduced from time to time pursuant to Sections 2.07, 2.08 or 9.06(c) or increased from time to time pursuant to Section 9.06(c), (ii) a Borrowing, a Borrowing made by the Borrower under Section 2.01, as identified in the Notice of Borrowing with respect thereto, or a Mandatory Letter of Credit Borrowing, (iii) a Loan, a Loan made under Section 2.01; provided, that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Conversion/Continuation, the term "Revolving Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be, and (iv) a Revolving Note, a promissory note, substantially in the form of Exhibit B hereto, issued at the request of a Lender evidencing the obligation of the Borrower to repay outstanding Revolving Loans.

"Revolving Outstandings" means at any time, with respect to any Lender, the sum of (I) the aggregate principal amount of such Lender's outstanding Revolving Loans plus (ii) the aggregate amount of such Lender's outstanding Letter of Credit Liabilities.

"Revolving Termination Date" means the date 364 days from the date of this Agreement (or, if such day is not a Business Day, the next preceding Business Day) or such later date to which the Revolving Termination Date may from time to time be extended pursuant to Section 2.07(c) or such earlier date upon which the Revolving Commitments shall have been terminated in their entirety in accordance with this Agreement.

"SEC" means the Securities and Exchange Commission.

"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., a New York corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

"Special Purpose Subsidiary" means any Wholly-Owned Subsidiary (regardless of the form of organization) of the Borrower formed solely for the purpose of, and which engages in no other activities except those necessary for, effecting financings related to Synthetic Leases.

"Standby Letter of Credit" has the meaning set forth in Section 3.02.

"Subsidiary" means, any Corporation a majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the Borrower or one or more other Subsidiaries of the Borrower.

"Syndication Agent" means Citibank, N.A., in its capacity as syndication agent for the Lenders hereunder and under the other Loan Documents, and its successor or successors in such capacity.

"Synthetic Lease" means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP.

"Taxes" has the meaning set forth in Section 2.16(a).

"Term Loan" has the meaning set forth in Section 2.07(d).

"Term Loan Maturity Date" means the date 364 days after the Conversion Date.

"Type", when used in respect of any Loan or Borrowing, shall refer to the rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined.

"Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (I) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

"United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

"Voting Stock" means stock (or other interests) of a Corporation having ordinary voting power for the election of directors, managers or trustees thereof, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

"Wachovia Securities" Wachovia Securities, Inc., successor by merger to First Union Securities, Inc.

"Wholly-Owned Subsidiary" means, with respect to any Person at any date, any Subsidiary of such Person all of the Voting Stock of which (except directors' qualifying shares) are at the time directly or indirectly owned by such Person.

ARTICLE II

THE CREDITS

Section 2.01 Commitments to Lend. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Revolving Loans to the Borrower pursuant to this Section 2.01 from time to time during the Availability Period in amounts such that its Revolving Outstandings shall not exceed its Revolving Commitment; provided, that, immediately after giving effect to each such Revolving Loan, the aggregate Revolving Outstandings of all Lenders shall not exceed the aggregate amount of the Revolving Commitments of all Lenders. Each Revolving Borrowing (other than Mandatory Letter of Credit Borrowings) shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Revolving Commitments) and shall be made from the several Lenders ratably in proportion to their respective Revolving Commitments. Within the foregoing limits and subject to Section 2.07(d), the Borrower may borrow under this Section 2.01, repay, or, to the extent permitted by Section 2.09, prepay, Revolving Loans and reborrow under this Section 2.01.

Section 2.02 Notice of Borrowings. The Borrower shall give the Administrative Agent notice substantially in the form of Exhibit A-1 hereto (a "Notice of Borrowing") not later than (a) 11:30 A.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 12:00 Noon (Charlotte, North Carolina time) on the third Business Day before each Euro-Dollar Borrowing, specifying:

(i) the date of such Borrowing, which shall be a Business Day;

(ii) the aggregate amount of such Borrowing;

(iii) the initial Type of the Loans comprising such Borrowing; and

(iv) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Notwithstanding the foregoing, no more than 6 Groups of Euro-Dollar Loans shall be outstanding at any one time, and any Loans which would exceed such limitation shall be made as Base Rate Loans.

Section 2.03 Notice to Lenders; Funding of Loans.

(a) Notice to Lenders. Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of such Lender's ratable share (if any) of the Borrowing referred to in the Notice of Borrowing, and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b) Funding of Loans. Not later than (a) 1:00 P.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 12:00 Noon (Charlotte, North Carolina time) on the date of each Euro-Dollar Borrowing, each Lender participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article IV has not been satisfied, the Administrative Agent shall apply any funds so received in respect of Revolving Loans available to the Borrower at the Administrative Agent's address not later than (a) 3:00 P.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 2:00 P.M. (Charlotte, North Carolina time) on the date of each Euro-Dollar Borrowing.

(c) Funding By the Administrative Agent in Anticipation of Amounts Due from the Lenders. Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing (except in the case of a Base Rate Borrowing, in which case prior to the time of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such share available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.05, in the case of the Borrower, and (ii) the Federal Funds Rate, in the case of such Lender. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Loan included in such Borrowing for purposes of this Agreement.

(d) Obligations of Lenders Several. The failure of any Lender to make a Loan required to be made by it as part of any Borrowing hereunder shall not relieve any other Lender of its obligation, if any, hereunder to make any Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on such date of Borrowing.

Section 2.04 Noteless Agreement; Evidence of Indebtedness.

(a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(b) The Administrative Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (c) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof.

(c) The entries maintained in the accounts maintained pursuant to paragraphs (a) and (b) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms.

(d) Any Lender may request that its Revolving Loans be evidenced by a Revolving Note. In such event, the Borrower shall prepare, execute and deliver to such Lender a Revolving Note payable to the order of such Lender. Thereafter, the Revolving Loans evidenced by such Revolving Note and interest thereon shall at all times (including after any assignment pursuant to Section 9.06(b)) be represented by one or more Revolving Notes payable to the order of the payee named therein or any assignee pursuant to Section 9.06(b), except to the extent that any such Lender or assignee subsequently returns any such Revolving Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (a) and (b) above.

Section 2.05 Interest Rates.

(a) Interest Rate Options. The Loans shall, at the option of the Borrower and except as otherwise provided herein, be incurred and maintained as, or converted into, one or more Base Rate Loans or Euro-Dollar Loans.

(b) Base Rate Loans. Each Loan which is made as, or converted into, a Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made as, or converted into, a Base Rate Loan until it becomes due or is converted into a Loan of any other Type, at a rate per annum equal to the sum of the Base Rate for such day plus the Applicable Percentage, if any, for Base Rate Loans for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date such Base Rate Loan is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day.

(c) Euro-Dollar Loans. Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Adjusted London Interbank Offered Rate for such Interest Period plus the Applicable Percentage for Euro-Dollar Loans for such day plus the Applicable Utilization Fee for such day, if any; provided, that if any Euro-Dollar Loan or any portion thereof shall, as a result of clause (iii) of the definition of Interest Period, have an Interest Period of less than one month, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the sum of (A) the Adjusted London Interbank Offered Rate applicable to such Loan at the date such payment was due plus (B) the Applicable Percentage for Euro-Dollar Loans for such day plus (C) the Applicable Utilization Fee, if any, (or, if the circumstance described in Section 2.13 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day).

(d) Method of Electing Interest Rates.

(i) Subject to Section 2.05(a), the Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, with respect to each Group of Loans, the Borrower shall have the option (A) to convert all or any part of (y) so long as no Default or Event of Default is in existence on the date of conversion, outstanding Base Rate Loans to Euro-Dollar Loans and (z) outstanding Euro-Dollar Loans to Base Rate Loans; provided, that in each case that the amount so converted shall be equal to $10,000,000 or any larger multiple of $1,000,000, or (B) upon the expiration of any Interest Period applicable to outstanding Euro-Dollar Loans, so long as no Default or Event of Default is in existence on the date of continuation, to continue all or any portion of such Loans equal to $10,000,000 and any larger multiple of $1,000,000 in excess of that amount as Euro-Dollar Loans. The Interest Period of any Base Rate Loan converted to a Euro-Dollar Loan pursuant to clause (A) above shall commence on the date of such conversion. The succeeding Interest Period of any Euro-Dollar Loan continued pursuant to clause (B) above shall commence on the last day of the Interest Period of the Loan so continued. Euro-Dollar Loans may only be converted on the last day of the then current Interest Period applicable thereto or on the date required pursuant to Section 2.17.

(ii) The Borrower shall deliver a written notice of each such conversion or continuation (a "Notice of Conversion/Continuation") to the Administrative Agent no later than (A) 12:00 Noon (Charlotte, North Carolina time) at least three Business Days before the date of the proposed conversion to, or continuation of, a Euro-Dollar Loan and (B) 11:30 A.M. (Charlotte, North Carolina time) on the day of a conversion to a Base Rate Loan. A written Notice of Conversion/Continuation shall be substantially in the form of Exhibit A-2 attached hereto and shall specify: (A) the Group of Loans (or portion thereof) to which such notice applies, (B) the proposed conversion/continuation date (which shall be a Business Day), (C) the aggregate amount of the Loans being converted/continued, (D) an election between the Base Rate and the Adjusted London Interbank Offered Rate and (E) in the case of a conversion to, or a continuation of, Euro-Dollar Loans, the requested Interest Period. Upon receipt of a Notice of Conversion/Continuation, the Administrative Agent shall give each Lender prompt notice of the contents thereof and such Lender's pro rata share of all conversions and continuations requested therein. If no timely Notice of Conversion/Continuation is delivered by the Borrower as to any Euro-Dollar Loan, and such Loan is not repaid by the Borrower at the end of the applicable Interest Period, such Loan shall be converted automatically to a Base Rate Loan on the last day of the then applicable Interest Period.

(e) Determination and Notice of Interest Rates. The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Lenders of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. Any notice with respect to Euro-Dollar Loans shall, without the necessity of the Administrative Agent so stating in such notice, be subject to adjustments in the Applicable Percentage applicable to such Loans after the beginning of the Interest Period applicable thereto. When during an Interest Period any event occurs that causes an adjustment in the Applicable Percentage applicable to Loans to which such Interest Period is applicable, the Administrative Agent shall give prompt notice to the Borrower and the Lenders of such event and the adjusted rate of interest so determined for such Loans, and its determination thereof shall be conclusive in the absence of manifest error.

Section 2.06 Fees.

(a) Commitment Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender a fee (the "Commitment Fee") for each day at a rate per annum equal to the Applicable Percentage for the Commitment Fee for such day. The Commitment Fee shall accrue from and including the Effective Date to but excluding the last day of the Availability Period on the amount by which such Lender's Revolving Commitment exceeds the sum of its Revolving Outstandings on such day, and shall be payable on the last day of each March, June, September and December and on the Revolving Termination Date.

(b) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent a fee (the "Letter of Credit Fee") for each day at a rate per annum equal to the Applicable Percentage for the Letter of Credit Fee for such day plus the Applicable Utilization Fee for such day, if any. The Letter of Credit Fee shall accrue from and including the Effective Date to but excluding the last day of the Availability Period on the aggregate amount available for drawing under any Letters of Credit outstanding on such day and shall be payable for the account of the Lenders ratably in proportion to their participations in such Letter(s) of Credit. In addition, the Borrower shall pay to each Issuing Lender a fee (the "Fronting Fee") in respect of each Letter of Credit issued by such Issuing Lender computed at the rate of .125% per annum on the average amount available for drawing under such Letter(s) of Credit. Fronting Fees shall be due and payable quarterly in arrears on each Quarterly Date and upon the first day after the Revolving Termination Date upon which no Letters of Credit remain outstanding. In addition, the Borrower agrees to pay to each Issuing Lender, upon each issuance of, payment under, and/or amendment of, a Letter of Credit, such amount as shall at the time of such issuance, payment or amendment be the administrative charges and expenses which such Issuing Lender is customarily charging for issuances of, payments under, or amendments to letters of credit issued by it.

(c) Payments. Except as otherwise provided in this Section 2.06, accrued fees under this Section 2.06 in respect of Loans and Letter of Credit Liabilities shall be payable quarterly in arrears on each Quarterly Date, on the last day of the Availability Period and, if later, on the date the Loans and Letter of Credit Liabilities shall be repaid in their entirety. Fees paid hereunder shall not be refundable under any circumstances.

Section 2.07 Adjustments of Commitments.

(a) Optional Termination or Reductions of Commitments (Pro-Rata). The Borrower may, upon at least three Business Days' notice to the Administrative Agent, (i) terminate the Revolving Commitments, if there are no Revolving Outstandings at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Revolving Commitments in excess of the aggregate Revolving Outstandings. Upon receipt of any such notice, the Administrative Agent shall promptly notify the Lenders. If the Revolving Commitments are terminated in their entirety, all accrued fees shall be payable on the effective date of such termination.

(b) Optional Termination of Commitments (Non-Pro-Rata). If (i) any Lender has demanded compensation or indemnification pursuant to Sections 2.13, 2.14, 2.15 or 2.16, (ii) the obligation of any Lender to make Euro-Dollar Loans has been suspended pursuant to Section 2.14 or (iii) any Lender is a Defaulting Lender, the Borrower shall have the right, if no Default or Event of Default then exists, to replace such Lender with one or more Eligible Assignees (which may be one or more of the Continuing Lenders) (each a "Replacement Lender" and, collectively, the "Replacement Lenders") reasonably acceptable to the Administrative Agent. The replacement of a Retiring Lender pursuant to this Section 2.07(b) shall be effective on the tenth Business Day (the "Replacement Date") following the date of notice of such replacement to the Retiring Lender and each Continuing Lender through the Administrative Agent, subject to the satisfaction of the following conditions:

(i) the Replacement Lender shall have satisfied the conditions to assignment and assumption set forth in Section 9.06(c) (with all fees payable pursuant to Section 9.06(c) to be paid by the Borrower) and, in connection therewith, the Replacement Lender(s) shall pay:

(A) to the Retiring Lender an amount equal in the aggregate to the sum of (x) the principal of, and all accrued but unpaid interest on, all outstanding Loans of the Retiring Lender, (y) all unpaid drawings that have been funded by (and not reimbursed to) the Retiring Lender under Section 3.10, together with all accrued but unpaid interest with respect thereto and (z) all accrued but unpaid fees owing to the Retiring Lender pursuant to Section 2.07; and

(B) to the Issuing Lenders an amount equal to the aggregate amount owing by the Retiring Lender to the Issuing Lenders as reimbursement pursuant to Section 3.09, to the extent such amount was not theretofore funded by such Retiring Lender; and

(ii) the Borrower shall have paid to the Administrative Agent for the account of the Retiring Lender an amount equal to all obligations owing to the Retiring Lender by the Borrower pursuant to this Agreement and the other Loan Documents (other than those obligations of the Borrower referred to in clause (i)(A) above).

On the Replacement Date, each Replacement Lender that is a New Lender shall become a Lender hereunder, and the Retiring Lender shall cease to constitute a Lender hereunder; provided, that the provisions of this Agreement (including, without limitation, the provisions of Sections 2.11, 2.15, 2.16 and 9.03) shall continue to govern the rights and obligations of a Retiring Lender with respect to any Loans made, any Letters of Credit issued or any other actions taken by such Retiring Lender while it was a Lender.

In lieu of the foregoing, upon express written consent of a majority of the Continuing Lenders, the Borrower shall have the right to terminate the Revolving Commitment of a Retiring Lender in full. Upon payment by the Borrower to the Administrative Agent for the account of the Retiring Lender of an amount equal to the sum of (i) the aggregate principal amount of all Loans and Letter of Credit Liabilities held by the Retiring Lender and (ii) all accrued interest, fees and other amounts owing to the Retiring Lender hereunder, including, without limitation, all amounts payable by the Borrower to the Retiring Lender under Sections 2.11, 2.15, 2.16 or 9.03, such Retiring Lender shall cease to constitute a Lender hereunder; provided, that the provisions of this Agreement (including, without limitation, the provisions of Sections 2.11, 2.15, 2.16 and 9.03) shall continue to govern the rights and obligations of a Retiring Lender with respect to any Loans made, any Letters of Credit issued or any other actions taken by such Retiring Lender while it was a Lender.

(b) Optional Extensions of Commitments.

(i) The Borrower may, by sending an Extension Letter to the Administrative Agent (in which case the Administrative Agent shall promptly deliver a copy to each of the Lenders), not less than 30 days and not more than 60 days prior to the Revolving Termination Date then in effect (the "Current Revolving Termination Date"), request that the Lenders extend the Revolving Termination Date so that it will occur 364 days after the Current Revolving Termination Date. Each Lender, acting in its sole discretion, shall, by notice to the Administrative Agent given not less than 15 days and not more than 30 days prior to the Current Revolving Termination Date, advise the Administrative Agent in writing whether or not such Lender agrees to such extension (each Lender that so advises the Administrative Agent that it will not extend the Revolving Termination Date being referred to herein as a "Non-extending Lender"); provided, that any Lender that does not advise the Administrative Agent by the 15th day prior to the Current Revolving Termination Date shall be deemed to be a Non-extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to agree.

(ii) (A) If Lenders holding Revolving Commitments that aggregate at least 51% of the aggregate Commitments of the Lenders on or prior to the 15th day prior to the Current Revolving Termination Date shall not have agreed to extend the Revolving Termination Date, then the Current Revolving Termination Date shall not be so extended and the outstanding principal balance of all loans and other amounts payable hereunder shall be payable on the Current Revolving Termination Date. (B) If (and only if) Lenders holding Revolving Commitments that aggregate at least 51% of the aggregate Commitment of the Lenders on or prior to the 15th day prior to the Current Revolving Termination Date shall have agreed to extend the Revolving Termination Date, then the Revolving Termination Date applicable to the Lenders that are Continuing Lenders shall be the day that is 364 days after the Current Revolving Termination Date. In the event of such extension, the Commitment of each Non-extending Lender shall terminate on the Current Revolving Termination Date, all Loans and other amounts payable hereunder to such Non-extending Lenders shall become due and payable on the Current Revolving Termination Date and the aggregate Commitment of the Lenders hereunder shall be reduced by the aggregate Commitments of Non-extending Lenders so terminated on and after such Current Revolving Termination Date.

(iii) In the event that the conditions of clause (B) of paragraph (ii) above have been satisfied, the Borrower shall have the right on or before the Current Revolving Termination Date, at its own expense, to require any Non-extending Lender to transfer and assign without recourse or representation (except as to title and the absence of Liens created by it) (in accordance with and subject to the restrictions contained in § 9.06(c)) all its interests, rights and obligations under this Agreement (including with respect to any Letter of Credit Liabilities) to one or more Eligible Assignees (which may include any Lender) (each, an "Additional Commitment Lender"); provided, that (x) such Additional Commitment Lender, if not already a Lender hereunder, shall be subject to the approval of the Administrative Agent (not to be unreasonably withheld), (y) such assignment shall become effective as of the Current Revolving Termination Date and (z) the Additional Commitment Lender shall pay to such Non-extending Lender in immediately available funds on the effective date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Non-extending Lender hereunder and all other amounts accrued for such Non-extending Lender's account or owed to it hereunder. Notwithstanding the foregoing, no extension of the Revolving Termination Date shall become effective unless, on the Current Revolving Termination Date, the conditions set forth in Section 4.02 shall be satisfied (with all references in such paragraphs to the making of a Loan or issuance of a Letter of Credit being deemed to be references to the extension of the Commitments on the Current Revolving Termination Date) and the Administrative Agent shall have received a certificate to that effect dated the Current Revolving Termination Date and executed by a responsible officer of the Borrower.

(d) Optional Conversion to Term Loan. At any time on or within 10 days of the then Current Revolving Termination Date when Revolving Loans are outstanding, so long as no Letter of Credit Liabilities remain outstanding, at the Borrower's option upon written notice (a "Notice of Term Loan Conversion") to the Administrative Agent (who shall promptly notify each of the Lenders), the Borrower, may elect to convert the then outstanding aggregate principal amount of Revolving Loans hereunder to a term loan (the "Term Loan"). The Notice of Term Loan Conversion shall be substantially in the form of Exhibit A-5 attached hereto and shall (i) expressly state the date on which such conversion shall occur (such date being the "Conversion Date"), which date shall be a Business Day occurring on or before the Current Revolving Termination Date, (ii) be irrevocable once given and (iii) constitute a representation and warranty by the Borrower that the conditions contained in Section 4.02(c), (d) and (e) have been satisfied as of the date of such Notice of Term Loan Conversion and as of the Conversion Date, prior to and after giving effect to any such conversion. From and after the Conversion Date, (i) the Borrower's option to borrow Revolving Loans hereunder shall terminate, (ii) the aggregate of all Revolving Commitments shall be reduced to zero, (iii) the outstanding principal balance of all Revolving Loans shall convert to a Term Loan which shall be due and payable on the earlier of (a) the Term Loan Maturity Date and (b) the date on which all Loans shall become due and payable under Article VII and (iv) all references in this Agreement to "Revolving Loans" and "Revolving Notes" shall be deemed to be references to such Revolving Loans and the related Revolving Notes as so converted into a Term Loan, in each case as the context requires.

Section 2.08 Maturity of Loans; Mandatory Prepayments.

(a) Scheduled Repayments and Prepayments of Loans; Overline Repayments.

(i) The Revolving Loans shall mature on the Revolving Termination Date or the Term Loan Maturity Date, as applicable, and any Revolving Loans or Letter of Credit Liabilities then outstanding (together with accrued interest thereon and fees in respect thereof) shall be due and payable or, in the case of Letters of Credit, cash collateralized pursuant to Section 2.08(a)(ii), on such date.

(ii) If on any date the aggregate Revolving Outstandings exceed the aggregate amount of the Revolving Commitments, the Borrower shall prepay, and there shall become due and payable (together with accrued interest thereon), such date an aggregate principal amount of Loans equal to such excess. If the outstanding Revolving Loans have been repaid in full or the Revolving Termination Date or the Term Loan Maturity Date, as applicable, shall have occurred and any Letter of Credit Liabilities remain outstanding, the Borrower shall cash collateralize any Letter of Credit Liabilities by depositing in a cash collateral account established and maintained (including the investments made pursuant thereto) by the Administrative Agent pursuant to a cash collateral agreement in form and substance satisfactory to the Administrative Agent such amounts as are necessary so that, after giving effect to the repayment of Revolving Loans and the cash collateralization of Letter of Credit Liabilities pursuant to this subsection, the aggregate Revolving Outstandings do not exceed the aggregate amount of the Revolving Commitments. In determining Revolving Outstandings for purposes of this clause (ii), Letter of Credit Liabilities shall be reduced to the extent that they are cash collateralized as contemplated by this Section 2.08(a)(ii).

(b) Applications of Prepayments and Reductions.

(i) Each prepayment of Loans pursuant to this Section 2.08 shall be applied ratably to the respective Loans of all of the Lenders.

(ii) Each payment of principal of the Loans shall be made together with interest accrued on the amount repaid to the date of payment.

(iii) Each payment of the Loans shall be applied to such Group or Groups of Loans as the Borrower may designate (or, failing such designation, as determined by the Administrative Agent).

Section 2.09 Optional Prepayments and Repayments.

(a) Prepayments of Loans. The Borrower may (i) upon at least one Business Day's notice to the Administrative Agent, prepay any Base Rate Borrowing or (ii) upon at least three Business Days' notice to the Administrative Agent, prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Lenders included in such Borrowing.

(b) Notice to Lenders. Upon receipt of a notice of prepayment pursuant to this Section 2.09(b), the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender's ratable share (if any) of such prepayment, and such notice shall not thereafter be revocable by the Borrower.

Section 2.10 General Provisions as to Payments.

(a) Payments by the Borrower. The Borrower shall make each payment of principal of and interest on the Loans and Letter of Credit Liabilities and fees hereunder (other than fees payable directly to the Issuing Lenders) not later than 12:00 Noon (Charlotte, North Carolina time) on the date when due, without set-off, counterclaim or other deduction, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders. Whenever any payment of principal of or interest on the Base Rate Loans or Letter of Credit Liabilities or of fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. Whenever any payment of principal of or interest on the Euro-Dollar Loans shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b) Distributions by the Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date, and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate.

Section 2.11 Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan pursuant to the terms and provisions of this Agreement (any conversion of a Euro-Dollar Loan to a Base Rate Loan pursuant to Section 2.17 being treated as a payment of such Euro-Dollar Loan on the date of conversion for purposes of this Section 2.11) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.05(c), or if the Borrower fails to borrow, convert or prepay any Euro-Dollar Loan after notice has been given in accordance with the provisions of this Agreement, the Borrower shall reimburse each Lender within 15 days after demand for any resulting loss or expense incurred by it (and by an existing Participant in the related Loan), including, without limitation, any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay; provided, that such Lender shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.12 Computation of Interest and Fees. Interest on Loans based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed. All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.13 Basis for Determining Interest Rate Inadequate Unfair or Unavailable. If on or prior to the first day of any Interest Period for any Euro-Dollar Loan: (a) Lenders having 50% or more of the aggregate amount of the Revolving Commitments advise the Administrative Agent that the Adjusted London Interbank Offered Rate as determined by the Administrative Agent, will not adequately and fairly reflect the cost to such Lenders of funding their Euro-Dollar Loans for such Interest Period; or (b) the Administrative Agent shall determine that no reasonable means exists for determining the Adjusted London Interbank Offered Rate, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Lenders to make Euro-Dollar Loans or to convert outstanding Loans into Euro-Dollar Loans shall be suspended; and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of (or, if at the time the Borrower receives such notice the day is the date of, or the date immediately preceding, the date of such Euro-Dollar Borrowing, by 10:00 A.M. on the date of) any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing.

Section 2.14 Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Lender (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Lender shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Lenders and the Borrower, whereupon until such Lender notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Lender shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. If such notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully continue to maintain and fund such Loan to such day or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain and fund such Loan to such day.

Section 2.15 Increased Cost and Reduced Return.

(a) Increased Costs. If after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance assessment or similar requirement against Letters of Credit issued or participated in by, assets of, deposits with or for the account of or credit extended by, any Lender (or its Applicable Lending Office) or shall impose on any Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Euro-Dollar Loans, its Revolving Notes, its obligation to make Euro-Dollar Loans or its obligations hereunder in respect of Letters of Credit, and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or of issuing or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or under its Revolving Notes with respect thereto, then, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts, as determined by such Lender in good faith, as will compensate such Lender for such increased cost or reduction, solely to the extent that any such additional amounts were incurred by the Lender within 90 days of such demand.

(b) Capital Adequacy. If any Lender shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Lender (or any Person controlling such Lender) as a consequence of such Lender's obligations hereunder to a level below that which such Lender (or any Person controlling such Lender) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy), then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or any Person controlling such Lender) for such reduction, solely to the extent that any such additional amounts were incurred by the Lender within 90 days of such demand.

(c) Notices. Each Lender will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, that will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate of any Lender claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods.

Section 2.16 Taxes.

(a) Payments Net of Certain Taxes. Any and all payments by the Borrower to or for the account of any Lender or any Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges and withholdings and all liabilities with respect thereto, excluding: (i) taxes imposed on or measured by the net income (including branch profits or similar taxes) of, and gross receipts, franchise or similar taxes imposed on, any Agent or any Lender by the jurisdiction (or subdivision thereof) under the laws of which such Lender or Agent is organized or in which its principal executive office is located or, in the case of each Lender, in which its Applicable Lending Office is located, and (ii) in the case of each Lender, any United States withholding tax imposed on such payments, but only to the extent that such Lender is subject to United States withholding tax at the time such Lender first becomes a party to this Agreement or changes its Applicable Lending Office (all such nonexcluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or any Agent, (i) the sum payable shall be increased as necessary so that after making all such required deductions (including deductions applicable to additional sums payable under this Section 2.16(a)) such Lender or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, for delivery to such Lender, the original or a certified copy of a receipt evidencing payment thereof.

(b) Other Taxes. In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement, any Revolving Note or any other Loan Document or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Agreement, any Revolving Note or any other Loan Document (collectively, "Other Taxes").

(c) Indemnification. The Borrower agrees to indemnify each Lender and each Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.16(c)), whether or not correctly or legally asserted, paid by such Lender or Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto as certified in good faith to the Borrower by each Lender or Agent seeking indemnification pursuant to this Section 2.16(c). This indemnification shall be paid within 15 days after such Lender or Agent (as the case may be) makes demand therefor.

(d) Refunds or Credits. If a Lender or Agent receives a refund, credit or other reduction from a taxation authority for any Taxes or Other Taxes for which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.16, it shall within 15 days from the date of such receipt pay over the amount of such refund, credit or other reduction to the Borrower (but only to the extent of indemnity payments made or additional amounts paid by the Borrower under this Section 2.16 with respect to the Taxes or Other Taxes giving rise to such refund, credit or other reduction), net of all reasonable out-of-pocket expenses of such Lender or Agent (as the case may be) and without interest (other than interest paid by the relevant taxation authority with respect to such refund, credit or other reduction); provided, however, that the Borrower agrees to repay, upon the request of such Lender or Agent (as the case may be), the amount paid over to the Borrower (plus penalties, interest or other charges) to such Lender or Agent in the event such Lender or Agent is required to repay such refund or credit to such taxation authority.

(e) Tax Forms and Certificates. On or before the date it becomes a party to this Agreement, from time to time thereafter if reasonably requested by the Borrower, and at any time it changes its Applicable Lending Office, each Lender organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent: (i) two properly completed and duly executed copies of Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to the benefits under an income tax treaty to which the United States is a party which exempts the Lender from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Lender or (ii) two properly completed and duly executed copies of Internal Revenue Service Form W-8 ECI, or any successor form prescribed by the Internal Revenue Service, certifying that the income receivable pursuant to this Agreement and the other Loan Documents is effectively connected with the conduct of a trade or business in the United States. In addition, each Non-U.S. Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent two new accurate and complete signed originals of Internal Revenue Service Form W-8 BEN or W-8 ECI, or successor forms, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Non-U.S. Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any other Loan Document, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or certificate.

(f) Exclusions. The Borrower shall not be required to indemnify any Non-U.S. Lender or Agent, or to pay any additional amount to any Non-U.S. Lender or Agent, pursuant to Section 2.16(a), (b) or (c) in respect of Taxes or Other Taxes to the extent that the obligation to indemnify or pay such additional amounts would not have arisen but for the failure of such Non-U.S. Lender to comply with the provisions of subsection (e) above.

(g) Mitigation. If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 2.16, then such Lender will use reasonable efforts (which shall include efforts to rebook the Revolving Loans held by such Lender to a new Applicable Lending Office, or through another branch or affiliate of such Lender) to change the jurisdiction of its Applicable Lending Office if, in the good faith judgment of such Lender, such efforts (i) will eliminate or, if it is not possible to eliminate, reduce to the greatest extent possible any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous, in the sole determination of such Lender, to such Lender. Any Lender claiming any indemnity payment or additional amounts payable pursuant to this Section shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested in writing by the Borrower or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity payment or additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.

(h) Confidentiality. Nothing contained in this Section shall require any Lender or any Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary).

Section 2.17 Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (a) the obligation of any Lender to make or maintain, or to convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Section 2.14 or (b) any Lender has demanded compensation under Section 2.15(a) with respect to its Euro-Dollar Loans and, in any such case, the Borrower shall, by at least four Euro-Dollar Business Days' prior notice to such Lender through the Administrative Agent, have elected that the provisions of this Section shall apply to such Lender, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply:

(i) all Loans which would otherwise be made by such Lender as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Lenders); and

(ii) after each of its Euro-Dollar Loans has been repaid (or converted to a Base Rate Loan), all payments of principal that would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead.

If such Lender notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Lenders.

ARTICLE III

LETTERS OF CREDIT

Section 3.01 Existing Letters of Credit. On the Closing Date, each Issuing Lender that has issued an Existing Letter of Credit shall be deemed, without further action by any party to this Agreement, to have sold to each Lender having a Revolving Commitment, and each such Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuing Lender, without recourse or warranty, an undivided participation interest in such Existing Letter of Credit and the related Letter of Credit Liabilities in the proportion its Revolving Commitment bears to the aggregate Revolving Commitments.

Section 3.02 Additional Letters of Credit. The Issuing Lender agrees, on the terms and conditions set forth in this Agreement, to issue Letters of Credit from time to time before the 5th day prior to the Revolving Termination Date for the account, and upon the request, of the Borrower and in support of such obligations of the Borrower that are acceptable to the Issuing Lender (each such letter of credit, a "Standby Letter of Credit" and, collectively, the "Standby Letters of Credit"); provided, that, immediately after each Letter of Credit is issued, (A) the aggregate amount of the Letter of Credit Liabilities shall not exceed the Letter of Credit Commitment and (B) the Revolving Outstandings shall not exceed the aggregate amount of the Revolving Commitments.

Section 3.03 Method of Issuance of Letters of Credit. The Borrower shall give the Issuing Lender notice substantially in the form of Exhibit A-3 to this Agreement (a "Letter of Credit Request") of the requested issuance or extension of a Letter of Credit prior to 1:00 P.M. (Charlotte, North Carolina time) on the proposed date of the issuance or extension of Standby Letters of Credit (which shall be a Domestic Business Day) (or such shorter period as may be agreed by the Issuing Lender in any particular instance), specifying the date such Letter of Credit is to be issued or extended and describing the terms of such Letter of Credit and the nature of the transactions to be supported thereby. The extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit, and if any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Lender, the Issuing Lender shall timely give such notice of termination unless it has theretofore timely received a Letter of Credit Request and the other conditions to issuance of a Letter of Credit have theretofore been met with respect to such extension. No Letter of Credit shall have a term of more than one year; provided, that no Letter of Credit shall have a term extending or be so extendible beyond the fifth Business Day before the Revolving Termination Date.

Section 3.04 Conditions to Issuance of Additional Letters of Credit. The issuance by the Issuing Lender of each Additional Letter of Credit shall, in addition to the conditions precedent set forth in Article III, be subject to the conditions precedent that (i) such Letter of Credit shall be satisfactory in form and substance to the Issuing Lender, (ii) the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Lender shall have reasonably requested and (iii) the Issuing Lender shall have confirmed on the date of (and after giving effect to) such issuance that (A) the aggregate amount of all Letter of Credit Liabilities will not exceed the Letter of Credit Commitment and (B) the aggregate Revolving Outstandings will not exceed the aggregate amount of the Revolving Commitments. Notwithstanding any other provision of this Section 3.04, the Issuing Lender shall not be under any obligation to issue any Additional Letter of Credit if: any order, judgment or decree of any governmental authority shall by its terms purport to enjoin or restrain the Issuing Lender from issuing such Additional Letter of Credit, or any requirement of law applicable to the Issuing Lender or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or such Additional Letter of Credit in particular or shall impose upon the Issuing Lender with respect to such Additional Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Lender in good faith deems material to it.

Section 3.05 Purchase and Sale of Letter of Credit Participations. Upon the issuance by an Issuing Lender of a Letter of Credit, such Issuing Lender shall be deemed, without further action by any party hereto, to have sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuing Lender, without recourse or warranty, an undivided participation interest in such Letter of Credit and the related Letter of Credit Liabilities in the proportion its Revolving Commitment bears to the aggregate Revolving Commitments (although the Fronting Fee payable under Section 2.06(b) shall be payable directly to the Administrative Agent for the account of the applicable Issuing Lender, and the Lenders (other than such Issuing Lender) shall have no right to receive any portion of any such Fronting Fee) and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Commitments pursuant to Section 9.06(c), there shall be an automatic adjustment to the participations in all outstanding Letters of Credit and Letter of Credit Liabilities to reflect the adjusted Revolving Commitments of the assigning and assignee Lenders or of all Lenders having Revolving Commitments, as the case may be.

Section 3.06 Drawings under Letters of Credit. Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the applicable Issuing Lender shall determine in accordance with the terms of such Letter of Credit whether such drawing should be honored. If the Issuing Lender determines that any such drawing shall be honored, such Issuing Lender shall make available to such beneficiary in accordance with the terms of such Letter of Credit the amount of the drawing and shall notify the Borrower as to the amount to be paid as a result of such drawing and the payment date.

Section 3.07 Reimbursement Obligations. The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the applicable Issuing Lender for any amounts paid by such Issuing Lender upon any drawing under any Letter of Credit, together with any and all reasonable charges and expenses which the Issuing Lender may pay or incur relative to such drawing and interest on the amount drawn at the rate applicable to Base Rate Loans for each day from and including the date such amount is drawn to but excluding the date such reimbursement payment is due and payable. Such reimbursement payment shall be due and payable (i) at or before 1:00 P.M. (Charlotte, North Carolina time) on the date the Issuing Lender notifies the Borrower of such drawing, if such notice is given at or before 10:00 A.M. (Charlotte, North Carolina time) on such date or (ii) at or before 10:00 A.M. (Charlotte, North Carolina time) on the next succeeding Business Day; provided, that no payment otherwise required by this sentence to be made by the Borrower at or before 1:00 P.M. (Charlotte, North Carolina time) on any day shall be overdue hereunder if arrangements for such payment satisfactory to the Issuing Lender, in its reasonable discretion, shall have been made by the Borrower at or before 1:00 P.M. (Charlotte, North Carolina time) on such day and such payment is actually made at or before 3:00 P.M. (Charlotte, North Carolina time) on such day. In addition, the Borrower agrees to pay to the Issuing Lender interest, payable on demand, on any and all amounts not paid by the Borrower to the Issuing Lender when due under this Section 3.07, for each day from and including the date when such amount becomes due to but excluding the date such amount is paid in full, whether before or after judgment, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day. Each payment to be made by the Borrower pursuant to this Section 3.07 shall be made to the Issuing Lender in Federal or other funds immediately available to it at its address referred to Section 9.01.

Section 3.08 Duties of Issuing Lenders to Lenders; Reliance. In determining whether to pay under any Letter of Credit, the relevant Issuing Lender shall not have any obligation relative to the Lenders participating in such Letter of Credit or the related Letter of Credit Liabilities other than to determine that any document or documents required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by an Issuing Lender under or in connection with any Letter of Credit shall not create for the Issuing Lender any resulting liability if taken or omitted in the absence of gross negligence or willful misconduct. Each Issuing Lender shall be entitled (but not obligated) to rely, and shall be fully protected in relying, on the representation and warranty by the Borrower set forth in the last sentence of Section 4.02 to establish whether the conditions specified in clauses (c), (d) and (e) of Section 4.02 are met in connection with any issuance or extension of a Letter of Credit. Each Issuing Lender shall be entitled to rely, and shall be fully protected in relying, upon advice and statements of legal counsel, independent accountants and other experts selected by such Issuing Lender and upon any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopier, telex or teletype message, statement, order or other document believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary unless the beneficiary and the Borrower shall have notified such Issuing Lender that such documents do not comply with the terms and conditions of the Letter of Credit. Each Issuing Lender shall be fully justified in refusing to take any action requested of it under this Section in respect of any Letter of Credit unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take, or omitting or continuing to omit, any such action. Notwithstanding any other provision of this Section, each Issuing Lender shall in all cases be fully protected in acting, or in refraining from acting, under this Section in respect of any Letter of Credit in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant hereto shall be binding upon all Lenders and all future holders of participations in such Letter of Credit; provided, that this sentence shall not affect any rights the Borrower may have against the Issuing Lender or the Lenders that make such request.

Section 3.09 Obligations of Lenders to Reimburse Issuing Lender for Unpaid Drawings. If any Issuing Lender makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to such Issuing Lender pursuant to Section 3.07, the Issuing Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Lender (other than the relevant Issuing Lender), and each such Lender shall promptly and unconditionally pay to the Administrative Agent, for the account of such Issuing Lender, such Lender's share of such payment (determined by the proportion its Revolving Commitment bears to the aggregate Revolving Commitments) in Dollars in Federal or other immediately available funds, the aggregate of such payments relating to each unreimbursed amount being referred to herein as a "Mandatory Letter of Credit Borrowing"; provided, however, that no Lender shall be obligated to pay to the Administrative Agent its pro rata share of such unreimbursed amount for any wrongful payment made by the relevant Issuing Lender under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence by such Issuing Lender. If the Administrative Agent so notifies a Lender prior to 11:00 A.M. (Charlotte, North Carolina time) on any Business Day, such Lender shall make available to the Administrative Agent at its address referred to in Section 9.01 and for the account of the relevant Issuing Lender such Lender's pro rata share of the amount of such payment by 3:00 P.M. (Charlotte, North Carolina time) on the Business Day following such Lender's receipt of notice from the Administrative Agent, together with interest on such amount for each day from and including the date of such drawing to but excluding the day such payment is due from such Lender at the Federal Funds Rate for such day (which funds the Administrative Agent shall promptly remit to such Issuing Lender). The failure of any Lender to make available to the Administrative Agent for the account of an Issuing Lender its pro rata share of any unreimbursed drawing under any Letter of Credit shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent for the account of such Issuing Lender its pro rata share of any payment made under any Letter of Credit on the date required, as specified above, but no such Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent for the account of the Issuing Lender such other Lender's pro rata share of any such payment. Upon payment in full of all amounts payable by a Lender under this Section 3.09, such Lender shall be subrogated to the rights of the Issuing Lender against the Borrower to the extent of such Lender's pro rata share of the related Letter of Credit Liabilities (including interest accrued thereon). If any Lender fails to pay any amount required to be paid by it pursuant to this Section 3.09 on the date on which such payment is due, interest shall accrue on such Lender's obligation to make such payment, for each day from and including the date such payment became due to but excluding the date such Lender makes such payment, whether before or after judgment, at a rate per annum equal to (i) for each day from the date such payment is due to the third succeeding Business Day, inclusive, the Federal Funds Rate for such day as determined by the relevant Issuing Lender and (ii) for each day thereafter, the sum of 2% plus the rate applicable to its Base Rate Loans for such day. Any payment made by any Lender after 3:00 P.M. (Charlotte, North Carolina time) on any Business Day shall be deemed for purposes of the preceding sentence to have been made on the next succeeding Business Day.

Section 3.10 Funds Received from the Borrower in Respect of Drawn Letters of Credit. Whenever an Issuing Lender receives a payment of a Reimbursement Obligation as to which the Administrative Agent has received for the account of such Issuing Lender any payments from the Lenders pursuant to Section 3.09 above, such Issuing Lender shall pay the amount of such payment to the Administrative Agent, and the Administrative Agent shall promptly pay to each Lender which has paid its pro rata share thereof, in Dollars in Federal or other immediately available funds, an amount equal to such Lender's pro rata share of the principal amount thereof and interest thereon for each day after relevant date of payment at the Federal Funds Rate.

Section 3.11 Obligations in Respect of Letters of Credit Unconditional. The obligations of the Borrower under Section 3.07 above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances:

(a) any lack of validity or enforceability of this Agreement or any Letter of Credit or any document related hereto or thereto;

(b) any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto;

(c) the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting);

(d) the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), any Issuing Lender or any other Person, whether in connection with this Agreement or any Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(e) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

(f) payment under a Letter of Credit against presentation to an Issuing Lender of a draft or certificate that does not comply with the terms of such Letter of Credit; provided, that the relevant Issuing Lender's determination that documents presented under such Letter of Credit comply with the terms thereof shall not have constituted gross negligence or willful misconduct of such Issuing Lender; or

(g) any other act or omission to act or delay of any kind by any Issuing Lender or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (g), constitute a legal or equitable discharge of the Borrower's obligations hereunder.

Nothing in this Section 3.11 is intended to limit the right of the Borrower to make a claim against any Issuing Lender for damages as contemplated by the proviso to the first sentence of Section 3.12.

Section 3.12 Indemnification in Respect of Letters of Credit. The Borrower hereby indemnifies and holds harmless each Lender (including each Issuing Lender) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Lender or the Administrative Agent may incur by reason of or in connection with the failure of any other Lender to fulfill or comply with its obligations to such Issuing Lender hereunder (but nothing herein contained shall affect any rights which the Borrower may have against such defaulting Lender), and none of the Lenders (including any Issuing Lender) nor the Administrative Agent, their respective affiliates nor any of their respective officers, directors, employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including, without limitation, any of the circumstances enumerated in Section 3.11, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any error in interpretation of technical terms, (iii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit, (iv) any consequences arising from causes beyond the control of such indemnitee, including without limitation, any government acts, or (v) any other circumstances whatsoever in making or failing to make payment under such Letter of Credit; provided, that the Borrower shall not be required to indemnify any Issuing Lender for any claims, damages, losses, liabilities, costs or expenses, and the Borrower shall have a claim against such Issuing Lender for direct (but not consequential) damages suffered by it, to the extent found by a court of competent jurisdiction in a final, non-appealable judgment or order to have been caused by (i) the willful misconduct or gross negligence of the Issuing Lender in determining whether a request presented under any Letter of Credit issued by it complied with the terms of such Letter of Credit or (ii) the Issuing Lender's failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 3.12 is intended to limit the obligations of the Borrower under any other provision of this Agreement.

Section 3.13 ISP98. The rules of the "International Standby Practices 1998" (the "ISP98") as published by the ICC most recently at the time of issuance of any Standby Letter of Credit shall apply to such Letter of Credit unless otherwise expressly provided in such Letter of Credit.

ARTICLE IV

CONDITIONS

Section 4.01 Conditions to Closing. The obligation of each Lender to make a Loan or issue a Letter of Credit on the occasion of the first Credit Event hereunder is subject to the satisfaction of the following conditions:

(a) Effectiveness. This Agreement shall have become effective in accordance with Section 9.08.

(b) Revolving Notes. On or prior to the Closing Date, the Administrative Agent shall have received a duly executed Revolving Note for the account of each Lender requesting delivery of a Revolving Note pursuant to Section 2.04.

(c) Officers' Certificates. The Administrative Agent shall have received a certificate dated the Closing Date signed on behalf of the Borrower by the Chairman of the Board, the President, any Vice President or the Treasurer of the Borrower stating that (A) on the Closing Date and after giving effect to the Loans and Letters of Credit being made or issued on the Closing Date, no Default or Event of Default shall have occurred and be continuing and (B) the representations and warranties of the Borrower contained in the Loan Documents are true and correct on and as of the Closing Date.

(d) Proceedings. On the Closing Date, the Administrative Agent shall have received (i) a copy of the Borrower's certificate of formation certified by the Secretary of State of the State of Delaware; (ii) a certificate of the Secretary of State of the State of Delaware, dated as of a recent date, as to the good standing of the Borrower; and (iii) a certificate of the Secretary or an Assistant Secretary of the Borrower dated the Closing Date and certifying (A) that attached thereto is a true, correct and complete copy of the limited liability company agreement of the Borrower, (B) as to the absence of dissolution or liquidation proceedings by or against the Borrower, (C) that attached thereto is a true, correct and complete copy of resolutions adopted by the managers of the Borrower authorizing the execution, delivery and performance of the Loan Documents to which the Borrower is a party and each other document delivered in connection herewith or therewith and that such resolutions have not been amended and are in full force and effect on the date of such certificate and (D) as to the incumbency and specimen signatures of each officer of the Borrower executing the Loan Documents to which the Borrower is a party or any other document delivered in connection herewith or therewith.

(e) Opinions of Counsel. On the Closing Date, the Administrative Agent shall have received from counsel to the Borrower, opinions addressed to the Administrative Agent and each Lender, dated the Closing Date, substantially in the form of Exhibit D-1 hereto and covering such additional matters incident to the transactions contemplated hereby as the Administrative Agent or the Required Lenders may reasonably request.

(f) Repayment of Refinanced Agreements. The Administrative Agent shall be satisfied that no later than as of the Closing Date, the commitments under the Refinanced Agreements shall be terminated, all loans outstanding under the Refinanced Agreements shall be repaid in full, together with accrued interest thereon (including, without limitation, any prepayment premium), all letters of credit issued thereunder shall be terminated or shall become Letters of Credit under this Agreement and all other amounts owing pursuant to the Refinanced Agreements shall be repaid in full.

(g) Financial Statements. The Administrative Agent and each Lender shall have received and be satisfied with the (i) the audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal year ending December 31, 2001, audited by PricewaterhouseCoopers LLP, or other nationally recognized independent public accountants, and containing an opinion of such firm that such financial statements present fairly, in all material respects and in conformity with GAAP, the financial position and results of operations of the Borrower and its Consolidated Subsidiaries, and (ii) unaudited, consolidated, interim financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal quarter ending March 31, 2002.

(h) Consents. All necessary governmental (domestic or foreign), regulatory and third party approvals, if any, in connection with the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained and remain in full force and effect, in each case without any action being taken by any competent authority which could restrain or prevent such transaction or impose, in the reasonable judgment of the Administrative Agent, materially adverse conditions upon the consummation of such transactions.

(i) Borrower's Structure. The corporate and capital structure of the Borrower and its Subsidiaries, including, without limitation, the Borrower's direct or indirect ownership of the Restricted Subsidiaries, shall be satisfactory to the Administrative Agent in its reasonable discretion.

(j) Payment of Fees. All costs, fees and expenses due to the Administrative Agent, the Co-Lead Arrangers and the Lenders on or before the Closing Date shall have been paid.

(k) Counsel Fees. The Administrative Agent shall have received full payment from the Borrower of the fees and expenses of Mayer, Brown, Rowe & Maw described in Section 9.03 which are billed through the Closing Date.

(l) Other Materials. The Administrative Agent shall have received such other assurances, certificates, documents, consents or opinions as the Administrative Agent, any Issuing Lender or the Required Lenders may reasonably request, in each case in form and substance satisfactory to the Administrative Agent.

Section 4.02 nditions to All Credit Events. The obligation of any Lender to make a Loan on the occasion of any Borrowing, and the obligation of any Issuing Lender to issue (or renew or extend the term of) any Letter of Credit, is subject to the satisfaction of the following conditions:

(a) the fact that the Closing Date shall have occurred;

(b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02, or receipt by the Issuing Lender of a Letter of Credit Request as required by Section 3.03;

(c) the fact that, immediately before and after giving effect to such Credit Event, no Default or Event of Default shall have occurred and be continuing;

(d) the fact that the representations and warranties of the Borrower contained in this Agreement and the other Loan Documents shall be true and correct on and as of the date of such Credit Event (except for the representations in Section 5.12, which shall be deemed only to relate to the matters referred to therein on and as of the Closing Date); and

(e) Since December 31, 2001, there shall have been no change in the business, assets, financial condition or operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, which materially adversely affects the ability of the Borrower to perform any of its obligations under this Agreement or any other Loan Document.

Each Credit Event under this Agreement shall be deemed to be a representation and warranty by the Borrower on the date of such Credit Event as to the facts specified in clauses (c), (d) and (e) of this Section.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

Section 5.01 Status. The Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has the limited liability company authority to make and perform this Agreement and each other Loan Document to which it is a party.

Section 5.03 Legality; Etc. This Agreement and each other Loan Document (other than the Revolving Notes) to which the Borrower is a party constitute the legal, valid and binding obligations of the Borrower, and the Revolving Notes, when executed and delivered in accordance with this Agreement, will constitute legal, valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their terms except to the extent limited by (a) bankruptcy, insolvency, fraudulent conveyance or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies regardless of whether enforcement is considered in a proceeding of law or equity or (b) any applicable public policy on enforceability of provisions relating to contribution and indemnification.

Section 5.04 Financial Condition.

(a) Audited Financial Statements. The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2001 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Administrative Agent and the Lenders, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower as of such date and its consolidated results of operations and cash flows for such fiscal year.

(b) Interim Financial Statements. The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 31, 2002 and the related unaudited consolidated statements of income and cash flows for the three months then ended fairly present, in conformity with GAAP applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower as of such date and its consolidated results of operations and cash flows for such three-month period (subject to normal year-end audit adjustments).

(c) Material Adverse Change. Since December 31, 2001 there has been no change in the business, assets, financial condition or operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, that would materially and adversely affect the Borrower's ability to perform any of its obligations under this Agreement, the Revolving Notes or the other Loan Documents.

Section 5.05 Rights to Properties. The Borrower and its Restricted Subsidiaries have good and valid fee, leasehold, easement or other right, title or interest in or to all the properties necessary to the conduct of their business as conducted on the date hereof and as presently proposed to be conducted, except to the extent the failure to have such rights or interests would not have a Material Adverse Effect.

Section 5.06 Litigation. Except as disclosed in or contemplated by the Borrower's Form 10-K Report to the SEC for the year ended December 31, 2001 or in any subsequent Form 10-Q or 8-K Report or otherwise furnished in writing to the Administrative Agent, no litigation, arbitration or administrative proceeding against the Borrower is pending or, to the Borrower's knowledge, threatened, which, if adversely determined, would materially and adversely affect the ability of the Borrower to perform any of its obligations under this Agreement, the Revolving Notes or the other Loan Documents. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of the Borrower, threatened which questions the validity of this Agreement or the other Loan Documents to which it is a party.

Section 5.07 No Violation. No part of the proceeds of the borrowings by hereunder will be used, directly or indirectly by the Borrower for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock".

Section 5.08 ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Material Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Material Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Material Plan, (ii) failed to make any contribution or payment to any Material Plan, or made any amendment to any Material Plan, which has resulted or could result in the imposition of a lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any material liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.

Section 5.09 Governmental Approvals. No authorization, consent or approval from any Governmental Authority is required for the execution, delivery and performance by the Borrower of this Agreement, the Revolving Notes and the other Loan Documents to which it is a party, except such authorizations, consents and approvals as have been obtained prior to the Closing Date and are in full force and effect.

Section 5.10 Investment Company Act. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

Section 5.11 Public Utility Holding Company Act. The Borrower is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Section 5.12 Restricted Subsidiaries, Etc. Set forth in Schedule 5.12 hereto is a complete and correct list as of the Closing Date of the Restricted Subsidiaries of the Borrower, together with, for each such Subsidiary, the jurisdiction of organization of such Subsidiary. Except as disclosed in Schedule 5.12 hereto, as of the Closing Date, (i) each such Subsidiary is a Wholly-Owned Subsidiary of the Borrower and (ii) each such Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all corporate or other organizational powers to carry in its businesses as now conducted.

Section 5.13 Tax Returns and Payments. The Borrower and each of its Restricted Subsidiaries has filed or caused to be filed all Federal, state, local and foreign income tax returns required to have been filed by it and has paid or caused to be paid all income taxes shown to be due on such returns except income taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or its Restricted Subsidiaries, as the case may be, shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP or that would not reasonably be expected to have a Material Adverse Effect.

Section 5.14 Compliance with Laws. To the knowledge of the Borrower or any of its Restricted Subsidiaries, the Borrower and each of its Restricted Subsidiaries is in compliance with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations under this Agreement, the Revolving Notes or any other Loan Document to which it is a party.

Section 5.15 No Default. No Default or Event of Default has occurred and is continuing.

Section 5.05 Environmental Matters.

(a) Except (i) as disclosed in or contemplated by the Borrower's Form 10-K Report to the SEC for the year ended December 31, 2001 or in any subsequent Form 10-Q or 8-K Report or otherwise furnished to the Administrative Agent in writing, or (ii) to the extent that the liabilities of the Borrower and its Subsidiaries, taken as a whole, that relate to or could result from the matters referred to in clauses (a) through (c), inclusive, would not reasonably be expected to result in a Material Adverse Effect, to the Borrower's or any of its Subsidiaries' knowledge:

(i) no notice, notification, citation, summons, complaint or order has been issued, no complaint has been filed, no penalty has been assessed nor is any investigation or review pending or threatened by any governmental or other entity with respect to any (A) alleged violation by the Borrower or any of its Subsidiaries of any Environmental Law, (B) alleged failure by the Borrower or any of its Subsidiaries to have any environmental permit, certificate, license, approval, registration or authorization required in connection with the conduct of its business or (C) generation, storage, treatment, disposal, transportation or release of Hazardous Substances;

(ii) no Hazardous Substance has been released (and no written notification of such release has been filed) (whether or not in a reportable or threshold planning quantity) at, on or under any property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries; and

(iii) no property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries or any property to which the Borrower or any of its Subsidiaries has, directly or indirectly, transported or arranged for the transportation of any Hazardous Substances, is listed or, to the Borrower's or any of its Subsidiaries' knowledge, proposed for listing, on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up.

(b) To the Borrower's or any of its Subsidiaries' knowledge, there are no Environmental Liabilities that have resulted or could reasonably be expected to result in a Material Adverse Effect.

(c) For purposes of this Section 5.16, the terms "the Borrower" and "Subsidiary" shall include any business or business entity (including a corporation) which is a predecessor, in whole or in part, of the Borrower of any of its Subsidiaries from the time such business or business entity became a Subsidiary of the Parent.

ARTICLE VI

COVENANTS

The Borrower agrees that so long as any Lender has any Commitment hereunder or any amount payable hereunder or under any Revolving Note or other Loan Document remains unpaid or any Letter of Credit Liability remains outstanding:

Section 6.01 Information. The Borrower will deliver or cause to be delivered to each of the Lenders:

(a) Annual Financial Statements. Within 120 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year and accompanied by an opinion thereon by independent public accountants of recognized national standing, which opinion shall state that such consolidated financial statements present fairly the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of the date of such financial statements and the results of their operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis.

(b) Quarterly Financial Statements. Within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such fiscal quarter, all certified (subject to normal year-end audit adjustments) as to fairness of presentation, GAAP and consistency by any vice president, the treasurer or the controller of the Borrower.

(c) Officer's Certificate. Simultaneously with the delivery of each set of financial statements referred to in subsections (a) and (b) above, a certificate of the chief accounting officer of the Borrower, (i) setting forth in reasonable detail the calculations required to establish compliance with the requirements of Sections 6.12 and 6.13 on the date of such financial statements and (ii) stating whether there exists on the date of such certificate any Default or Event of Default and, if any Default or Event of Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

(d) Default. Forthwith upon acquiring knowledge of the occurrence of any Default or Event of Default, a certificate of a vice president or the treasurer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

(e) Change in Borrower's Ratings. Upon the chief executive officer, the president, any vice president or any senior financial officer of the Borrower obtaining knowledge of any change in either Borrower's Rating, a notice of such Borrower's Rating in effect after giving effect to such change.

(f) Securities Laws Filing. Within 120 days after the end of each fiscal year, a copy of any Form 10-K Report to the SEC and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of any Form 10-Q Report to the SEC, and promptly upon the filing thereof, any other filings with the SEC.

(g) ERISA Matters. If and when any member of the ERISA Group: (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives, with respect to any Material Plan that is a Multiemployer Plan, notice of any complete or partial withdrawal liability under Title IV of ERISA, or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose material liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Material Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code with respect to a Material Plan, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA; or (vii) fails to make any payment or contribution to any Plan or makes any amendment to any Plan which has resulted or could result in the imposition of a lien or the posting of a bond or other security, a copy of such notice, a certificate of the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take.

(h) Other Information. From time to time such additional financial or other information regarding the financial condition, results of operations, properties, assets or business of the Borrower or of any of its Subsidiaries as any Lender may reasonably request.

Section 6.02 Maintenance of Property; Insurance.

(a) Maintenance of Properties. The Borrower will keep, and will cause each of its Restricted Subsidiaries to keep, all property useful and necessary in their respective businesses in good working order and condition, subject to ordinary wear and tear, unless the Borrower determines in good faith that the continued maintenance of any of such properties is no longer economically desirable and so long as the failure to so maintain such properties would not reasonably be expected to have a Material Adverse Effect.

(b) Insurance. The Borrower will maintain, or cause to be maintained, insurance with financially sound (determined in the reasonable judgment of the Borrower) and responsible companies in such amounts (and with such risk retentions) and against such risks as is usually carried by owners of similar businesses and properties in the same general areas in which the Borrower and its Restricted Subsidiaries operate.

Section 6.03 Conduct of Business and Maintenance of Existence. The Borrower will (i) continue, and will cause each of its Restricted Subsidiaries to continue, to engage only in businesses of the same general type as now conducted by the Borrower and its Subsidiaries and businesses related thereto or arising out of such businesses, except to the extent that the failure to maintain any existing business would not have a Material Adverse Effect and (ii) except as otherwise permitted in Section 6.08, preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect, their respective limited liability company (or other entity) existence and their respective rights, privileges and franchises necessary or material to the normal conduct of business, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

Section 6.04 Compliance with Laws, Etc. The Borrower will comply, and will cause each of its Restricted Subsidiaries to comply, with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance could not reasonably be expected to have a Material Adverse Effect.

Section 6.05 Books and Records. The Borrower (i) will keep, and will cause each of its Restricted Subsidiaries to keep, proper books of record and account in conformity with GAAP and (ii) will permit representatives of the Administrative Agent and each of the Lenders to visit and inspect any of their respective properties, to examine and make copies from any of their respective books and records and to discuss their respective affairs, finances and accounts with their officers, any employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired; provided, that, the rights created in this Section 6.05 to "visit", "inspect", "discuss" and copy shall not extend to any matters which the Borrower deems, in good faith, to be confidential, unless the Administrative Agent and any such Lender agree in writing to keep such matters confidential.

Section 6.06 Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes, including as a commercial paper backstop, of the Borrower and its Subsidiaries. The Borrower will request the issuance of Letters of Credit solely for general corporate purposes of the Borrower and its Subsidiaries. No such use of the proceeds for general corporate purposes will be, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any Margin Stock within the meaning of Regulation U.

Section 6.07 Restriction on Liens. The Borrower will not, nor will it permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any such Restricted Subsidiary (including, without limitation, their Voting Stock), except:

(a) Liens for taxes, assessments or governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;

(b) Liens imposed by law, such as carriers', landlords', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 45 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;

(c) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation;

(d) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variances and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property;

(e) Liens existing on the Closing Date and described in Schedule 6.07 hereto;

(f) judgment Liens arising from judgments which secure payment of legal obligations that would not constitute a Default under Section 7.01;

(g) any vendor's Liens, purchase money Liens or any other Lien on any property or asset acquired by the Borrower or any of its Restricted Subsidiaries after the date hereof existing on any such property or asset at the time of acquisition thereof (and not created in anticipation thereof); provided, that, in any such case no such Lien shall extend to or cover any other asset of the Borrower or such Restricted Subsidiaries, as the case may be;

(h) Liens, deposits and/or similar arrangements to secure the performance of bids, tenders or contracts (other than contracts for borrowed money), public or statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business by the Borrower or any of its Restricted Subsidiaries, including Liens to secure obligations under agreements relating to the purchase and sale of any commodity (including power purchase and sale agreements, any commodity hedge or derivative regardless of whether any such transaction is a "financial" or "physical transaction");

(i) Liens on assets of the Borrower and its Restricted Subsidiaries arising out of obligations or duties to any municipality or public authority with respect to any franchise, grant, license, permit or certificate.

(j) rights reserved to or vested in any municipality or public authority to control or regulate any asset of the Borrower or any of its Restricted Subsidiaries or to use such asset in a manner which does not materially impair the use of such asset for the purposes for which it is held by the Borrower or any of its Restricted Subsidiaries;

(k) irregularities in or deficiencies of title to any asset which do not materially adversely affect the use of such property by the Borrower or any of its Restricted Subsidiaries in the normal course of its business;

(l) any Lien on any property or asset of any corporation or other entity existing at the time such corporation or entity is acquired, merged or consolidated or amalgamated with or into the Borrower or any of its Restricted Subsidiaries and not created in contemplation of such event;

(m) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring, constructing or improving such asset; provided, that any such Lien attaches to such asset, solely to extent of the value of the obligation secured by such Lien, concurrently with or within 180 days after the acquisition, construction or improvement thereof:

(n) any Liens in connection with the issuance of tax-exempt industrial development or pollution control bonds or other similar bonds issued pursuant to Section 103(b) of the Internal Revenue Code of 1986, as amended, to finance all or any part of the purchase price of or the cost of constructing, equipping or improving property;

(o) rights of lessees arising under leases entered into by the Borrower or any of its Restricted Subsidiaries as lessor, in the ordinary course of business;

(p) with respect to PPL Interstate Energy Company, any Liens other than Liens securing Debt of PPL Interstate Energy Company;

(q) any Liens on or reservations with respect to governmental and other licenses, permits, franchises, consents and allowances; any Liens on patents, patent licenses and other patent rights, patent applications, trade names, trademarks, copyrights, claims, credits, choses in action and other intangible property and general intangibles including, but not limited to, computer software;

(r) any Liens on automobiles, buses, trucks and other similar vehicles and movable equipment; marine equipment; airplanes, helicopters and other flight equipment; and parts, accessories and supplies used in connection with any of the foregoing;

(s) any Liens on furniture and furnishings; and computers and data processing, data storage, data transmission, telecommunications and other facilities, equipment and apparatus, which, in any case, are used primarily for administrative or clerical purposes;

(t) Liens securing letters of credit entered into in the ordinary course of business;

(u) Liens granted on the capital stock of Subsidiaries that are not Restricted Subsidiaries for the purpose of securing the obligations of such Subsidiaries;

(v) Liens in addition to those permitted by clauses (a) through (u) on the property or assets of a Special Purpose Subsidiary arising in connection with any Existing Synthetic Lease Financing or the lease of such property or assets through one or more other Synthetic Lease financings;

(w) Liens by any Wholly-Owned Subsidiary of the Borrower or any Restricted Subsidiary for the benefit of the Borrower or any such Restricted Subsidiary;

(x) Liens on property which is the subject of a Capital Lease Obligation designating the Borrower or any of its Restricted Subsidiaries as lessee and all right, title and interest of the Borrower or any of its Restricted Subsidiaries in and to such property and in, to and under such lease agreement, whether or not such lease agreement is intended as a security; provided, that the aggregate fair market value of the obligations subject to such Liens shall not at any time exceed $500,000,000;

(y) Liens on property which is the subject of one or more leases designating the Borrower or any of its Restricted Subsidiaries as lessee and all right, title and interest of the Borrower or any of its Restricted Subsidiaries in and to such property and in, to and under any such lease agreement, whether or not any such lease agreement is intended as a security;

(z) Liens arising out of the refinancing, extension, renewal or refunding of any Debt or other obligation secured by any Lien permitted by clauses (a) through (y) of this Section; provided, that such Debt or other obligation is not increased and is not secured by any additional assets;

(aa) other Liens on assets or property of the Borrower or any of its Restricted Subsidiaries, other than Liens on the Voting Stock of the Borrower in its Restricted Subsidiaries, so long as the aggregate value of the obligations secured by such Liens does not exceed the greater of $250,000,000 or 15% of the total consolidated assets of the Borrower and its Consolidated Subsidiaries as of the most recent fiscal quarter of the Borrower for which financial statements are available.

Section 6.08 Merger or Consolidation. The Borrower will not merge with or into or consolidate with or into any other corporation or entity, unless (i) immediately after giving effect thereto, no event shall occur and be continuing which constitutes a Default or Event Default, (ii) the surviving or resulting person, as the case may be, assumes and agrees in writing to pay and perform all of the obligations of the Borrower under this Agreement, (iii) substantially all of the consolidated assets and consolidated revenues of the surviving or resulting person, as the case may be, are anticipated to come from the utility or energy businesses and (iv) the surviving or resulting person, as the case may be, has senior long-term debt ratings from Moody's and S&P as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Administrative Agent) at least equal to each Borrower's Rating at the end of the fiscal quarter immediately preceding the effective date of such consolidation or merger. No Restricted Subsidiary will merge or consolidate with any other Person if such Restricted Subsidiary is not the surviving or resulting Person, unless such other Person is (a) the Borrower or a successor of the Borrower permitted hereunder or (b) any other Person which is a Wholly-Owned Restricted Subsidiary of the Borrower or a successor of the Borrower permitted hereunder.

Section 6.09 Asset Sales. Except for the sale of assets required to be sold to conform with governmental requirements, the Borrower shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Sale, if the aggregate net book value of all such Asset Sales consummated during the four calendar quarters immediately preceding any date of determination would exceed 25% of the total assets of the Borrower and its Consolidated Subsidiaries as of the beginning of the Borrower's most recently ended full fiscal quarter; provided, however, that any such Asset Sale will be disregarded for purposes of the 25% limitation specified above: (a) if any such Asset Sale is in the ordinary course of business of the Borrower and its Subsidiaries; (b) if the assets subject to any such Asset Sale are worn out or are no longer useful or necessary in connection with the operation of the businesses of the Borrower or its Subsidiaries; (c) if the assets subject to any such Asset Sale are being transferred to a Wholly-Owned Subsidiary of the Borrower; (d) if the proceeds from any such Asset Sale (i) are, within 12 months of such Asset Sale, invested or reinvested by the Borrower or any Subsidiary in a Permitted Business, (ii) are used by the Borrower or a Subsidiary to repay Debt of the Borrower or such Subsidiary, or (iii) are retained by the Borrower or its Subsidiaries; or (e) if, prior to any such Asset Sale, Moody's and S&P confirm the then current Borrower Ratings after giving effect to any such Asset Sale.

Section 6.10 Transactions with Affiliates. Neither the Borrower nor any of its Restricted Subsidiaries will enter into or permit to exist any arrangement or contract with any of their respective Affiliates unless such arrangement or contract (i) has been approved by a Governmental Authority or (ii) is fair and equitable to the Borrower or its Restricted Subsidiaries, as the case may be, and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Borrower or its Restricted Subsidiaries, as the case may be, with a Person which is not one of its Affiliates. In making any determination as to fairness, equity and prudence, effect shall be given to orders, rules or regulations or any administrative agency, regulatory authority or other governmental body having jurisdiction over the Borrower or its Subsidiaries.

Section 6.11 Restrictive Agreements. Except as set forth in Schedule 6.11, the Borrower will not permit any of its Restricted Subsidiaries to enter into or assume any agreement prohibiting or otherwise restricting the ability of any Restricted Subsidiary to pay dividends or other distributions on its respective equity and equity equivalents to the Borrower or any of its Restricted Subsidiaries.

Section 6.12 Consolidated Debt to Consolidated Capitalization Ratio. The ratio of Consolidated Debt of the Borrower to Consolidated Capitalization of the Borrower shall not exceed 65% at any time.

Section 6.13 Cash Interest Coverage Ratio. The Borrower's ratio of Consolidated Funds From Operations to Consolidated Cash Interest Expense shall not be less than 2.0 to 1.0 for the four most recently ended consecutive fiscal quarters of the Borrower (taken as a single accounting period).

Section 6.14 Indebtedness. The Borrower will not permit any of its Restricted Subsidiaries to incur, create, assume or permit to exist any Debt of such Restricted Subsidiaries except:

(a) Existing Debt and any extensions, renewals or refinancings thereof;

(b) Debt owing to the Borrower or a Wholly-Owned Restricted Subsidiary;

(d) Non-Recourse Debt; and

(e) other Debt, the aggregate principal amount of which does not exceed $500,000,000 at any time.

ARTICLE VII

DEFAULTS

Section 7.01 Events of Default. If one or more of the following events (each an "Event of Default") shall have occurred and be continuing:

(a) the Borrower shall fail to pay when due any principal of the Loans or shall fail to reimburse when due any drawing under any Letter of Credit; or

(b) the Borrower shall fail to pay when due any interest on the Loans and Reimbursement Obligations, any fee or any other amount payable hereunder or under any other Loan Document for 5 days following the date such payment becomes due hereunder; or

(c) the Borrower shall fail to observe or perform any covenant or agreement contained in Section 6.01(a), (b) or (c), clause (ii) of Sections 6.05, and Sections 6.06, 6.08, 6.09, 6.12, 6.13 and 6.14; or

(d) the Borrower shall fail to observe or perform any covenant or agreement contained in Section 6.01(d) for 10 days after any such failure; or

(e) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement or any other Loan Document (other than those covered by clauses (a), (b), (c) or (d) above) for 30 days after written notice thereof has been given to the defaulting party by the Administrative Agent, or at the request of the Required Lenders; or

(f) any representation, warranty or certification made by the Borrower in this Agreement or any other Loan Document or in any certificate, financial statement or other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made; or

(g) the Borrower or any Restricted Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Material Debt beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Material Debt beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Debt or a trustee on its or their behalf to cause, such Debt to become due prior to its stated maturity; or

(h) the Borrower or any Restricted Subsidiary of the Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay, or shall admit in writing its inability to pay, its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or

(i) an involuntary case or other proceeding shall be commenced against the Borrower or any Restricted Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Restricted Subsidiary under the Bankruptcy Code; or

(j) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could reasonably be expected to cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; or

(k) the Borrower or any of its Restricted Subsidiaries shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $20,000,000, entered against the Borrower or any such Restricted Subsidiary that is not stayed on appeal or otherwise being appropriately contested in good faith; or

(l) a Change of Control shall have occurred;

then, and in every such event, while such event is continuing, the Administrative Agent may (A) if requested by the Required Lenders, by notice to the Borrower terminate the Commitments, and the Commitments shall thereupon terminate, and (B) if requested by the Lenders holding more than 50% of the sum of the aggregate outstanding principal amount of the Loans and Letter of Credit Liabilities at such time, by notice to the Borrower declare the Loans (together with accrued interest and accrued and unpaid fees thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind (except as set forth in clause (A) above), all of which are hereby waived by the Borrower; provided, that, in the case of any Default or any Event of Default specified in clause 7.01(h) or 7.01(i) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or any Lender, the Commitments shall thereupon terminate and the Loans (together with accrued interest and accrued and unpaid fees thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

ARTICLE VIII

THE AGENTS

Section 8.01 Appointment and Authorization. Each Lender hereby irrevocably designates and appoints the Administrative Agent of to act as specified herein and in the other Loan Documents and to take such actions on its behalf under the provisions of this Agreement and the other Loan Documents and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent agrees to act as such upon the express conditions contained in this Article VIII. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Loan Documents, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this Article VIII are solely for the benefit of the Administrative Agent and Lenders, and no other Person shall have any rights as a third party beneficiary of any of the provisions hereof. For the sake of clarity, the Lenders hereby agree that neither the Syndication Agent, the Co-Lead Arrangers nor the Documentation Agents shall have any duties or powers with respect to this Agreement or the other Loan Documents.

Section 8.02 Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower and its Affiliates as though the Administrative Agent were not an Agent. With respect to the Loans made by it and all obligations owing to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not an Agent, and the terms "Required Lenders", "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity.

Section 8.03 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 8.07.

Section 8.04 Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy or other electronic facsimile transmission, telex, telegram, cable, teletype, electronic transmission by modem, computer disk or any other message, statement, order or other writing or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders, or all of the Lenders, if applicable, as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders or all of the Lenders, if applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.

Section 8.05 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". If the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

Section 8.06 Non-Reliance on the Agents and Other Lenders. Each Lender expressly acknowledges that no Agent or officer, director, employee, agent, attorney-in-fact or affiliate of any Agent has made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by such Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower. No Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other condition, prospects or creditworthiness of the Borrower which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.

Section 8.07 Exculpatory Provisions. The Administrative Agent shall not, and no officers, directors, employees, agents, attorneys-in-fact or affiliates of the Administrative Agent, shall (i) be liable for any action lawfully taken or omitted to be taken by it under or in connection with this Agreement or any other Loan Document (except for its own gross negligence, willful misconduct or bad faith) or (ii) be responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any of its officers contained in this Agreement, in any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for any failure of the Borrower or any of its officers to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made by any other Person herein or therein or made by any other Person in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Borrower to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default.

Section 8.08 Indemnification. The Lenders agree to indemnify the Administrative Agent, in its capacity as such, and hold the Administrative Agent, in its capacity as such, harmless ratably according to their respective Commitments from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and reasonable expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the full payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against the Administrative Agent, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Document, or any documents contemplated hereby or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Administrative Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrower; provided, that no Lender shall be liable to the Administrative Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs or expenses or disbursements resulting from the gross negligence, willful misconduct or bad faith of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the reasonable opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreement in this Section 8.08 shall survive the payment of all Loans, Letter of Credit Liabilities, fees and other obligations of the Borrower arising hereunder.

Section 8.09 Resignation; Successors. The Administrative Agent may resign as Administrative Agent upon 20 days' notice to the Lenders. Upon the resignation of the Administrative Agent, the Required Lenders shall appoint from among the Lenders a successor to the Administrative Agent, subject to prior approval by the Borrower (so long as no Event of Default exists) and the consent of the Required Lenders (such approval or consent, as the case may be, not to be unreasonably withheld), whereupon such successor Administrative Agent shall succeed to the rights, powers and duties of the retiring Administrative Agent, and the term "Administrative Agent" shall include such successor Administrative Agent effective upon its appointment, and the retiring Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any other Loan Document. After the retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement or any other Loan Document.

Section 8.10 Administrative Agent's Fees; Arranger Fee. The Borrower shall pay to the Administrative Agent for its own account and to Wachovia Securities and Salomon Smith Barney, Inc., in their capacity as Co-Lead Arrangers (the "Co-Lead Arrangers"), for their own account, fees in the amounts and at the times agreed upon between the Borrower, the Administrative Agent and Wachovia Securities, respectively, pursuant to the Fee Letter, and between the Borrower and Salomon Smith Barney, Inc. pursuant to that certain letter agreement dated as of May 20, 2002.

ARTICLE IX

MISCELLANEOUS

Section 9.01 Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the Business Day following the day on which the same has been delivered prepaid (or on an invoice basis) to a reputable national overnight air courier service or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address or telecopy numbers, in the case of the Borrower and the Administrative Agent, set forth below, and, in the case of the Lenders, set forth on signature pages hereto, or at such other address as such party may specify by written notice to the other parties hereto:

if to the Borrower:

PPL Energy Supply, LLC
Two North Ninth Street
Allentown, PA 18101-1179
Attention: James E. Abel
Telephone: 610-774-5151
Facsimile: 610-774-5106

with a copy to:

PPL Energy Supply, LLC
Two North Ninth Street
Allentown, PA 18101-1179
Attention: Michael A. McGrail, Esq.
Telephone: 610-774-5644
Facsimile: 610-774-6726

if to the Administrative Agent:

Wachovia Bank, National Association
One Wachovia Center
301 South College Street - NC0251
Charlotte, North Carolina 28288
Attention: Mike Kolosowsky
Telephone: 704-383-8225
Facsimile: 704-383-7611

with a copy to:

Wachovia Bank, National Association
201 South College Street, 23rd Floor
Charlotte, North Carolina 28288
Attention: Syndications Agency Services
Telephone: 704-383-3721
Facsimile: 704-383-0288

with a copy to:

Mayer, Brown, Rowe & Maw
214 North Tryon Street, Suite 3800
Charlotte, North Carolina 28202
Attention: James R. Bryant III, Esq.
Telephone : 704-444-3558
Facsimile: 704-377-2033

Section 9.02 No Waivers; Non-Exclusive Remedies. No failure by any Agent or any Lender to exercise, no course of dealing with respect to, and no delay in exercising any right, power or privilege hereunder or under any Revolving Note or other Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided herein and in the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03 Expenses; Indemnification.

(a) Expenses. The Borrower shall pay (i) all out-of-pocket expenses of the Agents, including legal fees and disbursements of Mayer, Brown, Rowe & Maw and any other local counsel retained by the Administrative Agent, in its reasonable discretion, in connection with the preparation, execution, delivery and administration of the Loan Documents, the syndication efforts of the Agents with respect thereto, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default thereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agents and each Lender, including (without duplication) the fees and disbursements of outside counsel, in connection with such Event of Default and restructuring, workout, collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom; provided, that the Borrower shall not be liable for any legal fees or disbursements of any counsel for the Agents and the Lenders other than Mayer, Brown, Rowe & Maw associated with the preparation, execution and delivery of this Agreement and the closing documents contemplated hereby.

(b) Indemnity in Respect of Loan Documents. The Borrower agrees to indemnify the Agents and each Lender, their respective Affiliates and the respective directors, officers, trustees, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses or disbursements of any kind whatsoever, including, without limitation, the reasonable fees and disbursements of counsel, which may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Loan Documents or any actual or proposed use of proceeds of Loans hereunder; provided, that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, non-appealable judgment or order.

(c) Indemnity in Respect of Environmental Liabilities. The Borrower agrees to indemnify each Lender and hold each Lender harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses or disbursements of any kind whatsoever (including, without limitation, reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and reasonable fees and disbursements of counsel) which may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against such Lender in respect of or in connection with any and all Environmental Liabilities. Without limiting the generality of the foregoing, the Borrower hereby waives all rights of contribution or any other rights of recovery with respect to liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses and disbursements arising under or related to Environmental Laws that it might have by statute or otherwise against any Lender.

Section 9.04 Sharing of Set-Offs. Each Lender agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Loan made or Revolving Note held by it and any Letter of Credit Liabilities which is greater than the proportion received by any other Lender in respect of the aggregate amount of principal and interest due with respect to any Loan, Revolving Note and Letter of Credit Liabilities made or held by such other Lender, the Lender receiving such proportionately greater payment shall purchase such participations in the Loan made or Revolving Notes and Letter of Credit Liabilities held by the other Lenders, and such other adjustments shall be made, in each case as may be required so that all such payments of principal and interest with respect to the Loan made or Revolving Notes and Letter of Credit Liabilities made or held by the Lenders shall be shared by the Lenders pro rata; provided, that nothing in this Section shall impair the right of any Lender to exercise any right of set-off or counterclaim it may have for payment of indebtedness of the Borrower other than its indebtedness hereunder.

Section 9.05 Amendments and Waivers. Any provision of this Agreement or the Revolving Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if the rights or duties of the Administrative Agent or any Issuing Lenders are affected thereby, by the Administrative Agent or such Issuing Lender, as relevant); provided, that no such amendment or waiver shall, unless signed by all of the Lenders, (i) increase or decrease the Commitment of any Lender (except for a ratable decrease in the Commitments of all of the Lenders) or subject any Lender to any additional obligation (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or of mandatory reductions in the Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender as in effect at any time shall not constitute an increase in such Commitment), (ii) reduce the principal of or rate of interest on any Loan (except in connection with a waiver of applicability of any post-default increase in interest rates) or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder, (iii) postpone the date fixed for any payment of interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder or for any scheduled reduction or termination of any Commitment or (except as expressly provided in Article III) expiration date of any Letter of Credit, (iv) postpone or change the date fixed for any scheduled payment of principal of any Loan or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Revolving Notes and Letter of Credit Liabilities, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section or any other provision of this Agreement.

Section 9.06 Successors and Assigns.

(a) Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all of the Lenders, except to the extent any such assignment results from the consummation of a merger or consolidation permitted pursuant to Section 6.08 of this Agreement.

(b) Participations. Any Lender may at any time grant to one or more banks or other financial institutions or special purpose funding vehicle (each a "Participant") participating interests in its Commitments and/or any or all of its Loans and Letter of Credit Liabilities. In the event of any such grant by a Lender of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Issuing Lenders and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided, that such participation agreement may provide that such Lender will not agree to any modification, amendment or waiver of this Agreement which would (i) extend the Revolving Termination Date, reduce the rate or extend the time of payment of principal, interest or fees on any Loan or Letter of Credit Liability in which such Participant is participating (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or of a mandatory reduction in the Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan or Letter of Credit Liability shall be permitted without the consent of any Participant if the Participant's participation is not increased as a result thereof) or (ii) allow the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, without the consent of the Participant, except to the extent any such assignment results from the consummation of a merger or consolidation permitted pursuant to Section 6.08 of this Agreement. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article II with respect to its participating interest to the same extent as if it were a Lender, subject to the same limitations, and in no case shall any Participant be entitled to receive any amount payable pursuant to Article 2 that is greater that the amount the Lender granting such Participant's participating interest would have been entitled to receive had such Lender not sold such participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c) Assignments Generally. Any Lender may at any time assign to one or more Eligible Assignees (each, an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $5,000,000 or any larger multiple of $1,000,000), of its rights and obligations under this Agreement and the Revolving Notes with respect to its Revolving Loans and, if still in existence, its Revolving Commitment, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit C attached hereto executed by such Assignee and such transferor, with (and subject to) the consent of the Borrower, which shall not be unreasonably withheld, the Administrative Agent and the Issuing Lenders, which consent shall not be unreasonably withheld; provided, that if an Assignee is an Affiliate of such transferor Lender or was a Lender immediately prior to such assignment, no such consent of the Borrower shall be required; provided, further, that if at the time of such assignment a Default or an Event of Default has occurred and is continuing, no such consent of the Borrower shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor of an amount equal to the purchase price agreed between such transferor and such Assignee, such Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with a Commitment as set forth in such instrument of assumption, and the transferor shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Revolving Note is issued to the Assignee. In connection with any such assignment, the transferor shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,500. If the Assignee is not incorporated under the laws of the United States or any state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States Taxes in accordance with Section 2.16.

(d) Assignments to Federal Reserve Banks. Any Lender may at any time assign all or any portion of its rights under this Agreement and its Revolving Note to a Federal Reserve Bank. No such assignment shall release the transferor Lender from its obligations hereunder.

(e) Register. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this subsection 9.06(e), to (i) maintain a register (the "Register") on which the Administrative Agent will record the Commitments from time to time of each Lender, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans of each Lender and to (ii) retain a copy of each Assignment and Assumption Agreement delivered to the Administrative Agent pursuant to this Section. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's obligation in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent, the Issuing Lenders and the Lenders shall treat each Person in whose name a Loan and the Revolving Note evidencing the same is registered as the owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary. With respect to any Lender, the assignment or other transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made and any Revolving Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and, except to the extent provided in this subsection 9.06(e), otherwise complies with Section 9.06, and prior to such recordation all amounts owing to the transferring Lender with respect to such Commitments, Loans and Revolving Notes shall remain owing to the transferring Lender. The registration of assignment or other transfer of all or part of any Commitments, Loans and Revolving Notes for a Lender shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement and payment of the administrative fee referred to in Section 9.06(c). The Register shall be available at the offices where kept by the Administrative Agent for inspection by the Borrower and any Lender at any reasonable time upon reasonable prior notice to the Administrative Agent. The Borrower may not replace any Lender pursuant to Section 2.07(b), unless, with respect to any Revolving Notes held by such Lender, the requirements of subsection 9.06(c) and this subsection 9.06(e) have been satisfied.

Section 9.07 Governing Law; Submission to Jurisdiction. This Agreement and each Revolving Note shall be governed by and construed in accordance with the internal laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such court and any claim that any such proceeding brought in any such court has been brought in an inconvenient forum.

Section 9.08 Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement and the other Loan Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof and thereof. This Agreement shall become effective upon receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party).

Section 9.09 Generally Accepted Accounting Principles. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries most recently delivered to the Lenders; provided, that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders.

Section 9.10 Usage. The following rules of construction and usage shall be applicable to this Agreement and to any instrument or agreement that is governed by or referred to in this Agreement.

(a) All terms defined in this Agreement shall have the defined meanings when used in any instrument governed hereby or referred to herein and in any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein.

(b) The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement or in any instrument or agreement governed here shall be construed to refer to this Agreement or such instrument or agreement, as applicable, in its entirety and not to any particular provision or subdivision hereof or thereof.

(c) References in this Agreement to "Article", "Section", "Exhibit", "Schedule" or another subdivision or attachment shall be construed to refer to an article, section or other subdivision of, or an exhibit, schedule or other attachment to, this Agreement unless the context otherwise requires; references in any instrument or agreement governed by or referred to in this Agreement to "Article", "Section", "Exhibit", "Schedule" or another subdivision or attachment shall be construed to refer to an article, section or other subdivision of, or an exhibit, schedule or other attachment to, such instrument or agreement unless the context otherwise requires.

(d) The definitions contained in this Agreement shall apply equally to the singular and plural forms of such terms. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The word "will" shall be construed to have the same meaning as the word "shall". The term "including" shall be construed to have the same meaning as the phrase "including without limitation".

(e) Unless the context otherwise requires, any definition of or reference to any agreement, instrument, statute or document contained in this Agreement or in any agreement or instrument that is governed by or referred to in this Agreement shall be construed (i) as referring to such agreement, instrument, statute or document as the same may be amended, supplemented or otherwise modified from time to time (subject to any restrictions on such amendments, supplements or modifications set forth in this Agreement or in any agreement or instrument governed by or referred to in this Agreement), including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and (ii) to include (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein. Any reference to any Person shall be construed to include such Person's successors and permitted assigns.

(f) Unless the context otherwise requires, whenever any statement is qualified by "to the best knowledge of" or "known to" (or a similar phrase) any Person that is not a natural person, it is intended to indicate that the senior management of such Person has conducted a commercially reasonable inquiry and investigation prior to making such statement and no member of the senior management of such Person (including managers, in the case of limited liability companies, and general partners, in the case of partnerships) has current actual knowledge of the inaccuracy of such statement.

Section 9.11 WAIVER OF JURY TRIAL. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12 Confidentiality. Each Lender agrees to hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices; provided, that nothing herein shall prevent any Lender from disclosing such information (i) to any other Lender or to any Agent, (ii) to any other Person if reasonably incidental to the administration of the Loans and Letter of Credit Liabilities, (iii) upon the order of any court or administrative agency, (iv) upon the request or demand of any regulatory agency or authority, (v) which had been publicly disclosed other than as a result of a disclosure by any Agent or any Lender prohibited by this Agreement, (vi) in connection with any litigation to which any Agent, any Lender or any of their respective Subsidiaries or Affiliates may be party, (vii) to the extent necessary in connection with the exercise of any remedy hereunder, (viii) to such Lender's or Agent's and their respective Affiliates and their directors, officers, employees and agents including legal counsel and independent auditors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential) and (ix) subject to provisions substantially similar to those contained in this Section, to any actual or proposed Participant or Assignee. Notwithstanding the foregoing, any Agent, any Lender or Mayer, Brown, Rowe & Maw may circulate promotional materials and place advertisements in financial and other newspapers and periodicals or on a home page or similar place for dissemination of information on the Internet or worldwide web in, each case, after the closing of the transactions contemplated by this Agreement in the form of a "tombstone" or other release limited to describing the names of the Borrower or its Affiliates, or any of them, and the amount, type and closing date of such transactions, all at their sole expense.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

	By:______________________________________ Name: Title:

	WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent

	By:______________________________________ Name: Title:

	WACHOVIA BANK, NATIONAL ASSOCIATION, as Issuing Lender

	By:______________________________________ Name: Title:

	WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender

	By:______________________________________ Name: Title:


	THE BANK OF NOVA SCOTIA, as a Lender
	By: ____________________________________ Name: James R. Trimble Title: Managing Director
	Address: One Liberty Plaza, 26^th Floor New York, New York 10006 Attention: Tim Finneran Telephone: 212-225-5591 Facsimile: 212-225-5090


		BANK ONE, N.A., as a Lender
		By: __________________________________ Name: Title:
		Address: 1 Bank One Plaza, Suite IL1-0634 Chicago, Illinois 60670 Attention: Ben Oliva Telephone: 312-732-5987 Facsimile: 312-732-4840


		BARCLAYS BANK PLC, as a Lender
		By:___________________________________ Name: Title:
		Address: 222 Broadway, 8^th Floor New York, New York 10038 Attention: Sydney Dennis Telephone: 212-412-2470 Facsimile: 212-412-2441


		JPMORGAN CHASE BANK, as a Lender
		By:___________________________________ Name: Title:
		Address: 1 Chase Manhattan Plaza New York, New York 10081 Attention: Lynette Lang Telephone: 212-552-7692 Facsimile: 212-552-5777


		CITICORP USA, INC., as a Lender
		By: __________________________________ Name: Title:
		Address: 2 Penns Way New Castle, Delaware 19720 Attention: Karen Riley Telephone: 302-894-6084 Facsimile: 302-894-6120



	KBC BANK N.V., as a Lender
	By: __________________________________ Name: Title:
	Address: 125 West 55^th Street New York, New York 10019 Attention: Loan Administration Telephone: 212-541-0653 Facsimile: 212-956-5581


	MELLON BANK, N.A., as a Lender
	By: __________________________________ Name: Title:
	Address: One Mellon Center Room 4530 Pittsburgh, Pennsylvania 15258-0001 Attention: Mark W. Rogers Telephone: 412-234-1888 Facsimile: 412-236-1840


	MIZUHO CORPORATE BANK, LTD., NEW YORK BRANCH, as a Lender
	By: __________________________________ Name: Title:
	Address: 1251 Avenue of the Americas New York, New York 10020-1104 Attention: Christine Francese Telephone: 212-282-4097 Facsimile: 212-282-4480


	MORGAN STANLEY BANK, as a Lender
	By: __________________________________ Name: Title:
	Address: 1585 Broadway New York, New York 10036 Attention: James Morgan Telephone: 212-537-1470 Facsimile: 212-537-1867


	UNION BANK OF CALIFORNIA, N.A., as a Lender
	By: __________________________________ Name: Title:
	Address: 601 Potrero Grande Drive Monterey Park, California 91754 Attention: Gohar Karapetyan Telephone: 323-720-2697 Facsimile: 323-724-6198
	UBS AG, STAMFORD BRANCH, as a Lender
	By: __________________________________ Name: Title:
	By: __________________________________ Name: Title:
	Address: 677 Washington Boulevard Stamford, Connecticut 06901 Attention: Deborah Porter Telephone: 203-719-6391 Facsimile: 203-719-3888


	WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as a Lender
	By: __________________________________ Name: Title:
	By: __________________________________ Name: Title:
	Address: 1211 Avenue of the Americas New York, New York 10036 Attention: Daniel Palermo Telephone: 212-852-6157 Facsimile: 212-302-7946

Table of Contents

ARTICLE I		DEFINITIONS		1
	Section 1.01		Definitions	1
ARTICLE II		THE CREDITS		17
	Section 2.01		Commitments to Lend	17
	Section 2.02		Notice of Borrowings	18
	Section 2.03		Notice to Lenders; Funding of Loans	18
	Section 2.04		Noteless Agreement; Evidence of Indebtedness	19
	Section 2.05		Interest Rates	20
	Section 2.06		Fees	21
	Section 2.07		Adjustments of Commitments	22
	Section 2.08		Maturity of Loans; Mandatory Prepayments	25
	Section 2.09		Optional Prepayments and Repayments	26
	Section 2.10		General Provisions as to Payments	26
	Section 2.11		Funding Losses	27
	Section 2.12		Computation of Interest and Fees	27
	Section 2.13		Basis for Determining Interest Rate Inadequate Unfair or Unavailable	28
	Section 2.14		Illegality	28
	Section 2.15		Increased Cost and Reduced Return	29
	Section 2.16		Taxes	30
	Section 2.17		Base Rate Loans Substituted for Affected Euro-Dollar Loans	32
ARTICLE III		LETTERS OF CREDIT		32
	Section 3.01		Existing Letters of Credit	32
	Section 3.02		Additional Letters of Credit	33
	Section 3.03		Method of Issuance of Letters of Credit	33
	Section 3.04		Conditions to Issuance of Additional Letters of Credit	33
	Section 3.05		Purchase and Sale of Letter of Credit Participations	34
	Section 3.06		Drawings under Letters of Credit	34
	Section 3.07		Reimbursement Obligations	34
	Section 3.08		Duties of Issuing Lenders to Lenders; Reliance	35
	Section 3.09		Obligations of Lenders to Reimburse Issuing Lender for Unpaid Drawings	36
	Section 3.10		Funds Received from the Borrower in Respect of Drawn Letters of Credit	37
	Section 3.11		Obligations in Respect of Letters of Credit Unconditional	37
	Section 3.12		Indemnification in Respect of Letters of Credit	38
	Section 3.13		ISP98	38
ARTICLE IV		CONDITIONS		38
	Section 4.01		Conditions to Closing	38
	Section 4.02		Conditions to All Credit Events	40
ARTICLE V		REPRESENTATIONS AND WARRANTIES		41
	Section 5.01		Status	41
	Section 5.02		Authority; No Conflict	41
	Section 5.03		Legality; Etc	41
	Section 5.04		Financial Condition	41
	Section 5.05		Rights to Properties	42
	Section 5.06		Litigation	42
	Section 5.07		No Violation	42
	Section 5.08		ERISA	43
	Section 5.09		Governmental Approvals	43
	Section 5.10		Investment Company Act	43
	Section 5.11		Public Utility Holding Company Act	43
	Section 5.12		Restricted Subsidiaries, Etc	43
	Section 5.13		Tax Returns and Payments	43
	Section 5.14		Compliance with Laws	44
	Section 5.15		No Default	44
	Section 5.16		Environmental Matters	44
ARTICLE VI		COVENANTS		45
	Section 6.01		Information	45
	Section 6.02		Maintenance of Property; Insurance	46
	Section 6.03		Conduct of Business and Maintenance of Existence	47
	Section 6.04		Compliance with Laws, Etc	47
	Section 6.05		Books and Records	47
	Section 6.06		Use of Proceeds	47
	Section 6.07		Restriction on Liens	48
	Section 6.08		Merger or Consolidation	50
	Section 6.09		Asset Sales	51
	Section 6.10		Transactions with Affiliates	51
	Section 6.11		Restrictive Agreements	51
	Section 6.12		Consolidated Debt to Consolidated Capitalization Ratio	52
	Section 6.13		Cash Interest Coverage Ratio	52
	Section 6.14		Indebtedness	52
ARTICLE VII		DEFAULTS		52
	Section 7.01		Events of Default	52
ARTICLE VIII		THE AGENTS		54
	Section 8.01		Appointment and Authorization	54
	Section 8.02		Individual Capacity	55
	Section 8.03		Delegation of Duties	55
	Section 8.04		Reliance by the Administrative Agent	55
	Section 8.05		Notice of Default	55
	Section 8.06		Non-Reliance on the Agents and Other Lenders	56
	Section 8.07		Exculpatory Provisions	56
	Section 8.08		Indemnification	57
	Section 8.09		Resignation; Successors	57
	Section 8.10		Administrative Agent's Fees; Arranger Fee	57
ARTICLE IX		MISCELLANEOUS		58
	Section 9.01		Notices	58
	Section 9.02		No Waivers; Non-Exclusive Remedies	59
	Section 9.03		Expenses; Indemnification	60
	Section 9.04		Sharing of Set-Offs	61
	Section 9.05		Amendments and Waivers	61
	Section 9.06		Successors and Assigns	61
	Section 9.07		Governing Law; Submission to Jurisdiction	64
	Section 9.08		Counterparts; Integration; Effectiveness	64
	Section 9.09		Generally Accepted Accounting Principles	64
	Section 9.10		Usage	64
	Section 9.11		WAIVER OF JURY TRIAL	65
	Section 9.12		Confidentiality	66

Appendices and Schedules:
	Commitment Appendix
	Schedule 3.01		- Existing Letters of Credit
	Schedule 5.12		- Restricted Subsidiaries, Etc.
	Schedule 6.11		- Restrictive Agreements
	Schedule 6.14		- Existing Debt
Exhibits:
	Exhibit A-1		- Form of Notice of Borrowing
	Exhibit A-2		- Form of Notice of Conversion/Continuation
	Exhibit A-3		- Form of Letter of Credit Request
	Exhibit A-4		- Form of Extension Letter
	Exhibit A-5		- Form of Notice of Term Loan Conversion
	Exhibit B		- Form of Revolving Note
	Exhibit C		- Form of Assignment and Assumption Agreement
	Exhibit D		- Form of Opinion of Counsel for the Borrower

EX-10 4 ppl10q_6-02ex10b.htm $300 MILLION THREE-YEAR Exhibit 10(b)

EXHIBIT 10(b)

EXECUTION COPY

$300,000,000

THREE-YEAR CREDIT AGREEMENT

dated as of June 25, 2002

among

PPL ENERGY SUPPLY, LLC,

THE LENDERS FROM TIME TO TIME PARTY HERETO,

WACHOVIA BANK, NATIONAL ASSOCIATION
as Administrative Agent and Issuing Lender,

CITIBANK, N.A.,
as Syndication Agent,

Wachovia SECURITIES, INC.

and

SALOMON SMITH BARNEY, INC.,
as Co-Lead Arrangers,

and

BANK ONE, N.A.,

BARCLAYS BANK PLC,
and

JPMORGAN CHASE BANK,
as Documentation Agents

CREDIT AGREEMENT (this "Agreement") dated as of June 25, 2002 among PPL ENERGY SUPPLY, LLC, the LENDERS party hereto from time to time, WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent and Issuing Lender, CITIBANK, N.A., as Syndication Agent, WACHOVIA SECURITIES, INC. and SALOMON SMITH BARNEY, INC., as Co-Lead Arrangers and Bank One, N.A., Barclays Bank PLC and JPMorgan Chase Bank, as Documentation Agents.

ARTICLE I

DEFINITIONS

"Additional Letter of Credit" means any letter of credit issued under this Agreement by Wachovia Bank, National Association, as Issuing Lender, on or after the Closing Date.

"Agent" means the Administrative Agent, the Syndication Agent or the Documentation Agents, and "Agents" means any two or more of them.

"Agreement" means this Credit Agreement, as amended, restated supplemented or modified from time to time.

	Borrower's Ratings (S&P/Moody's)	Applicable Percentage for Commitment Fees	Applicable Percentage for Base Rate Loans	Applicable Percentage for Euro-Dollar Loans and Letter of Credit Fees
Category A:	A-/A3 or higher	.150%	0%	.625%
Category B	BBB+/Baa1	.175%	0%	.750%
Category C:	BBB/Baa2	.200%	0%	.875%
Category D:	BBB-/Baa3	.275%	.125%	1.125%
Category E:	BB+/Ba1 or lower or unrated	.325%	.500%	1.500%

	Ratings (S&P/Moody's)	Usage > 33% of Total Commitments
Category A	A-/A3 or higher	.125%
Category B	BBB⁺/Baa1	.125%
Category C	BBB/Baa2	.250%
Category D	BBB^-/Baa3	.250%
Category E	BB⁺/Ba1 or lower or unrated	.250%

"Asset Sale" shall mean any sale of any assets, including by way of the sale by the Borrower or any of its Subsidiaries of equity interests in such Subsidiaries.

"Assignee" has the meaning set forth in Section 9.06(c).

"Availability Period" means the period from and including the Closing Date to but excluding the Revolving Termination Date.

"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended, or any successor statute.

"Base Rate" means for any day a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day.

"Base Rate Borrowing" means a Borrowing comprised of Base Rate Loans.

"Base Rate Loan" means a Loan in respect of which interest is computed on the basis of the Base Rate plus the Applicable Percentage, if any, with respect to Base Rate Loans.

"Borrower" is defined in the Recital.

"Borrower's Rating" means the senior unsecured long-term debt rating of the Borrower from Moody's or S&P.

"Borrowing" means a group of Loans of a single Type made by the Lenders on a single date and, in the case of a Euro-Dollar Borrowing, having a single Interest Period.

"Capital Lease" means any lease of property which, in accordance with GAAP, should be capitalized on the lessee's balance sheet.

"Closing Date" means the date, not later than June 25, 2002, on which the Administrative Agent determines that the conditions specified in or pursuant to Section 4.01 have been satisfied.

"Commitment" means, with respect to any Lender, the commitment of such Lender to make Revolving Loans under this Agreement as set forth in the Commitment Appendix and to purchase participations in Letters of Credit pursuant to Article III hereof.

"Commitment Appendix" means the Appendix attached under this Agreement identified as such.

"Commitment Fee" has the meaning set forth in Section 2.06(a).

"Consolidated Cash Interest Expense" means, for any period, the amount of Consolidated Interest Expense actually paid in cash.

"Consolidated Net Income" means, for any period, the net income (or net loss) of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis for such period.

"Continuing Lender" means with respect to any event described in Section 2.07(b), a Lender which is not a Retiring Lender, and "Continuing Lenders" means any two or more of such Continuing Lenders.